USDA improves loan program for single-family housing

[December 20, 2013]  WASHINGTON — Last week, U.S. Department of Agriculture Secretary Tom Vilsack announced a series of sweeping changes to a popular loan program for rural homebuyers. The changes are part of an extensive overhaul that will strengthen rural housing markets, increase the availability of rural home loans and spur the construction of new homes in rural areas.

"These improvements will help create jobs and enable more people to participate in the rural home loan guarantee program," said Colleen Callahan, Illinois director for USDA Rural Development. "Since the inception of the program, more than 54,000 rural residents in Illinois have received mortgages guaranteed by USDA Rural Development. This program gives rural Americans more opportunities to make financing decisions that lay the groundwork for the future prosperity of their families."

The changes were published in the Dec. 9 Federal Register. They take effect Sept. 1, 2014, and make several improvements to USDA Rural Development's Single Family Housing Guaranteed Loan Program. Among other things, they expand the types of lenders who are eligible to participate. With the rule change, any lending entity supervised and regulated by the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency, the Federal Reserve Banks or the Federal Housing Finance Board may underwrite loans guaranteed by Rural Development. This will enable many small community banks and credit unions to participate in the guaranteed loan program. Currently, these entities are not eligible lenders.

In another policy change, for the first time, borrowers will be able to choose home loan terms shorter than 30 years. This will result in a significant cost savings for borrowers who qualify for the higher payments and who want to pay off their loan faster and pay less interest on their loan.

As part of the overhaul, Rural Development has begun a series of enhancements to automate processes, reduce paperwork and reduce loan approval times. Additional program improvements are:

• Lenders may consider a home's energy efficiency as a compensating factor when underwriting a mortgage application. Energy efficiency is an attractive feature for homebuyers and sellers. Energy-efficient homes help the nation lessen its dependence on foreign oil and result in lower utility costs for homeowners. Lower utility costs also improve the local economy by directly increasing consumers' disposable income.

• Lenders and borrowers no longer will be required to initiate separate construction and permanent loans for new homes. Instead, there will be one closing for one loan, known as a construction-to-permanent loan.

• Lenders will be required to consider foreclosure prevention techniques such as loan modifications and short sales. Currently, lenders are "encouraged" but not required to do so.

These changes will be fully outlined in a new handbook to accompany program regulations. The handbook will provide a single reference point on program rules for borrowers and lenders. It will replace more than 20 administrative notices that are written separately and must be updated annually.

For additional details, see Page 73927 of the Dec. 9 Federal Register. USDA welcomes public comment on the changes. The deadline to submit comments is Jan. 8. See Page 73927 for information on how to submit comments.

[Text from file received from USDA Rural Development]