Rural Development’s Refinance Pilot Program

Written By: Stacey Sprain

I don’t know about anyone else but I can honestly say this is the absolute busiest and most overwhelmed I’ve personally felt in the near 25 years I’ve been in this crazy business of ours! I’ve never seen so many products changing and being added, so many differences between lender product overlays, so many crackdowns on compliance or so many major regulatory changes as we’ve been experiencing recently. There just aren’t enough hours in the day to keep track of it all in a decent manner! I can’t imagine there’s anyone who can. I think even someone like Albert Einstein would have challenges trying to retain it all gracefully!

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That being said, this week I thought I would cover a recently announced product from USDA Rural Development that I haven’t seen much press on. Most of the recent press has all been about HARP II initiatives. I have seen very little about Rural Development’s Streamline Refinance Pilot Program that was announced in RD Administrative Notice 4615 dated February 1st.

The purpose of the Refinance Pilot Program is to offer efficient streamline refinance options for existing Section 502 direct and guaranteed borrowers in the hardest hit states in the country. Existing Section 502 Rural Development loan holders in Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee are eligible based on minimal qualifying criteria. These states were selected for the Pilot because they are areas that have seen the steepest home price declines and highest unemployment rates in the country. Essentially qualifying borrowers in these states will be able to refinance their homes to secure lower interest rates and monthly payments without the need of obtaining a new credit report, new appraisal, or new property inspections.

Eligibility Requirements & Product Guidelines
• Income for all borrowers age 18 and older who reside in the household must be within income limit restrictions for the area, just as required with all standard Section 502 Rural Development loans. Refer to USDA’s Property and Income Limit Eligibility Site athttp://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do to verify household income limits for the area.
• A Verification of Mortgage must validate that the borrower(s) has made timely mortgage payments for at least the past 12 months as of the date of loan application.
o Borrowers with 30-day or greater late payments reported in the past 12 months are not eligible
o Borrowers who lack a full 12 month payment history on the existing Direct or Guaranteed Loan are not eligible
• The new interest rate must be at least 1 percent lower than the interest rate of the existing loan

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• Loan amount on the new loan may not exceed the outstanding principal balance of the existing loan plus the new financed Guarantee Fee.
o Accrued interest, closing costs, lender fees, and late fees are not eligible to be included in the new loan amount for the refinance loan.
• The applicable upfront refinance guarantee fee is 1.5 percent which may be financed into the new loan amount.
• An annual fee of .3 percent also applies.
• No new appraisal or property certification is required.
• A credit report is not required by Rural Development but may be required by the lender for pricing purposes. Be sure to consult with your lender’s guidelines to be certain of requirements that may or may not apply for a credit report.
• Calculation of debt-to-income ratios is not required.
o Employment does not have to be verified nor is income verification required for credit-qualifying.
o Household income verification is required in order to demonstrate that household income falls within income limits for the area.
o Only the current mortgage rating is required for the most recent 12 month period. No other debts or liabilities need be considered for the loan.
o There is no requirement for a minimum credit score by Rural Development; however, lenders may implement their own minimum score requirements so be sure to check your lender’s guideline requirements.
• Automated underwriting is not required. Refinance Pilot loans must be manually underwritten. These loans are not eligible to be run through the Guaranteed Underwriting System (GUS)
• Customary and reasonable closing costs and other fees may be collected from the borrower by the lender. Such charges may not exceed the cost paid by the lender or charged to the lender by the service provider. An origination fee of up to one percent of the total loan amount may be charged to the borrower.
• Lenders may cover the borrower’s costs with premium pricing to allow for a “no cost refinance.”
• Form RD 1980-21 “Request for Single Family Housing Loan Guarantee” is required at time of application, just as with any standard RD loan.
• U.S. citizens, permanent residents, non-permanent residents and other qualifying aliens are eligible and identities must be documented accordingly
• A FEMA Form 81-93 “Standard Flood Hazard Determination” is required and evidence of flood insurance coverage is required if property is indicated as being located in the 100 year flood plain.
• A standard Uniform Residential Loan Application form is required but sections such as employment, income, assets, and non-real estate liabilities do not have to be completed unless otherwise required by lender overlays.
• The RD 1980-18 Conditional Commitment must still be obtained from Rural Development as applicable.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

That’s really it! The Refinance Pilot Program allows for fast, easy, minimum documentation refinance transactions for some of the borrowers who can benefit from it most. This pilot will be offered for two years, through approximately February 1, 2014 unless otherwise amended or adjusted by Rural Development.

So far the only lender that I am aware of that is participating with accepting the Pilot if Chase Rural Housing. Other major lenders like BB&T, Flagstar and Wells Fargo have communicated their non-participation in the program.



About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.