USDA Guaranteed Rural Housing Program

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					         USDA
Guaranteed Rural Housing
        Program



                           1
   What is the USDA GRH program?


• Single family housing loan made by an
  approved lender

• USDA guarantees against loss in case of
  default, up to 90% of loan amount

• Reduces risk to lender

• Loans can be sold on secondary market

                                            2
             Guaranteed Benefits:


• Loan up to 100% of appraised value
  (can finance 3.5 % GRH origination fee to loan)


• No maximum purchase price
• No monthly mortgage insurance
• Expanded qualifying ratios 29/41*
• No asset limit / No reserve minimum


               *W/ RD Concurrence

                                                    3
            Guaranteed Benefits:


• 30 year fixed interest rates

• Generous income limits

• Flexible credit guidelines

• NOT limited to first time
  homebuyers

• Creative financing options

                                   4
                   Eligible Housing


• Existing homes




Must meet HUD Handbooks 4150.2 and 4905.1



   RD AN 4476 Existing Dwelling Inspection Requirements;
              Acceptable Origination Appraisal Forms       10/23/09   5
                   Eligible Housing


• New Construction




     Guaranteed loans may not be utilized during a construction process.

     Guaranteed loans are “end loans” when lenders are seeking to roll an
     interim construction loan into a permanent financing product.

     RD AN No.4414 , 01/05/09
     Single Family Housing Guaranteed Loan Program Requirements             6
     Related to: • New Construction • Homes in Planned Unit Developments
                        Eligible Housing

• Condominiums
Lenders must certify on the 1008 or similar
document that they have determined
the project is approved by:
• Fannie Mae or
• Freddie Mac or
• HUD or VA

         The documentation necessary to determine if a condominium is approved by
         HUD, Fannie Mae, or Freddie Mac includes:

         • A condominium questionnaire, and
         • The condominium’s master hazard insurance policy

         These items are to be retained in the lenders permanent case file.
         Lender only submits certification to RD the condo meets stated requirements
         AN 4403 Condominiums Requirements 08/31/08
                    Eligible Housing


• Townhouses (PUDs)

  All PUDs
 (attached and detached)
  are eligible for GRH financing.



  Rural Development follows the guidance issued by HUD in Mortgagee
  Letter 2003-02 which announced the elimination of PUD approval
  requirements.
                                                                      8
                       Eligible Housing


• Modular homes




new and existing modular homes are eligible

  Modular homes are built to the applicable building code of their destination.

  Existing modular homes must meet HUD Handbooks 4150.2 and 4905.1
  minimum property standards.

  New construction modular homes must meet the Guaranteed loan program
  requirements for newly constructed dwellings.                                   9
                        Eligible Housing

• Manufactured homes
New units: 1980.313(i)
• Purchase agreement must be dated within one
  year of the date displayed on the manufacture
  date of the unit
• Built by an approved dealer-contractor

Existing units: 1980.313(i)(2)(i)
• Must have been originally built and financed with a Direct or Guaranteed loan
• Original owner must be seller


        MINNESOTA LIST OF APPROVED MANUFACTURED HOME DEALER-
                             CONTRACTORS

          http://www.rurdev.usda.gov/MN/SFH/Participating%20Lender.htm
                                                                                  10
      Other eligible loan purposes


• Normal closing costs, fees. *

• Cost of escrow account for real estate
  taxes and/or insurance premiums. *

• Essential repairs. *



* May be included in loan when appraised value
  permits over purchase price                    11
            Prohibited loan Purposes
    The following are ineligible:

–      Buildings designed or to be used for a specific income producing
       purpose:

–      Grain bins, silos, dairy / hog facilities, farm service buildings.

–      Commercial / industrial building, duplexes, converted rental units

–      Buildings not essential for RH purposes

Structures, such as a pole shed, are acceptable if they are of a storage
nature only and have a low or no contributory value.




                                                                            12
                Prohibited loan Purposes
    Acreage: RD has no stated “lot size limit”
•   However, income producing land, crop or CRP acreage is not
    eligible.
                                     and
•   There is a site value limit of 30% (site value listed on pg 3 of URAR)

•   30 % limit can be exceeded, if site value is typical for area as
    verified by appraisal AND the appraiser determines the site
    cannot be subdivided into two or more sites. §1980.313(e)




                                                                       13
 What exactly is
    rural?

Generally towns of 20,000 or less that are
removed from an urban area

Of the 87 MN Counties:
   – 66 are 100% eligible
   – 17 contain ineligible areas
   – only 4 are completely ineligible:
      Anoka, Hennepin, Ramsey & Washington

                                             14
 RD Nationwide Eligibility Web Site

    http://eligibility.sc.egov.usda.gov

To find out:
    • Property Eligibility (eligible rural areas)
    • Income Eligibility (income limits)
    • Income Limit (pdf by state)




                                                    15
Map Eligible areas!




                  Bookmark
                 as a Favorite




                                 16
If you have a complete exact address including the zip code enter it here
                                                                    17
Or just browsing in a county? Click on MINNESOTA to view the whole state
Map an exact address: eligible




                                 18
Map an exact address: ineligible
gold background areas are ineligible




                                       19
Map an exact address:
if unable to determine address




                                 20
Click on the county (title or on which you are
interested in viewing. Example: WRIGHT           21
                                  Click on
                                  the icons at
                                  the left to
                                  manipulate
                                  the map.
                                  Click on the
                                  ZOOM
                                  feature,
                                  then click
                                  anywhere
                                  on the map
Eligible area   Ineligible area   for a closer
                                  view




                                           22
To determine if property is in an eligible area locate subject property
on county map. (Wright County e xample)                              23
   Income

 Annual Income

 Adjusted Income
  (for eligibility)

Repayment Income
  (for qualifying)

                      24
               Annual Income
         For income eligibility determination:

Current verified income of applicants and

Adult household members, 18 yrs of age or older (if not FT
students)

Include: seasonal, commissions, overtime, bonuses, and
unemployment (if dependable based on 24 month history).

Interest / Dividend income of liquid assets > $5,000.

Alimony, child support,
                                                             25
Deductions from total household income

•   $480 for each dependent under age 18

•   $400 deduction for elderly family member (62 or over).

•   Child care expenses
     For care of minors 12 years of age or under
     Necessary for family member employment or education

•   Medical expenses (elderly member / disabled only ) if in excess
    of 3% of gross annual income.




                                                                  26
                         Income Eligibility:
http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do




                                                            Bookmark
                                                           as a Favorite




 •The user will be prompted to select the “State” where the property is located.
 •The user will be prompted to select the “County” where the property is located.
 • After these selections the “Metropolitan Area” will automatically pre-fill.      27
The “Household Members Information” section consists of four questions that will
assist the user in determining the income eligibility of the household.            28
29
Household is under the GHR income limits for Wright County.   30
List of GRH income limits by state, 1-4 person and 4-8 person household.
Effective 04/20/09, updated annually.                                      31
            Maximum Loan Amount
            Purchase Transactions
= 100% of the appraised value
& option to finance GRH Fee above appraised value

Purchase transactions: GRH fee is 3.5%

 Example:

 Appraised Value $150,000
 Appraised Value + GRH Fee : $150,000 ÷ .965 = $155,440

 $155,440 is the maximum loan amount RD could guarantee for
 this purchase transaction.

                                                              32
            Maximum loan Amount
                 Refinances
= 100% of the appraised value
& option to finance GRH Fee above appraised value

Refinance GRH fee is 1%

Example:

Appraised Value $150,000

Appraised Value + GRH Fee : $150,000 ÷ .99 = $151,515

$151,515 is the maximum loan amount RD could guarantee for
this refinance.                                              33
     If the Guaranteed Fee is not financed

           Purchase transactions:
The GHR fee is simply: 3.5 % of the loan amount

                     Purchase example: (3.5% fee):

        Appraised Value: $ 150,000
        Purchase Price: $ 147,000
        Closing Costs: $ 3,000
        Loan amount:     $ 150,000

GRH Fee:      $150,000 x .035 = $5,250

(RD does not have restrictions on who pays. Borrower, seller, builder, gift,
grant, etc. may pay GRH fee at close)
                                                                          34
    If the Guaranteed Fee is not financed

    Eligible Refinancing:
The GHR fee is simply: 1.0 % of the loan amount

                      Refinance example: (1% fee):

         Appraised Value: $ 150,000
         Purchase Price: $ 147,000
         Closing Costs: $ 3,000
         Loan amount:     $ 150,000

 GRH Fee:      $150,000 x .01 = $1500

 (RD does not have restrictions on who pays. Borrower, seller, builder, gift,
 grant, etc. may pay GRH fee at close)

                                                                          35
       Refinancing SFH Guaranteed Loans

              Only Section 502 Direct or Guaranteed
                 are eligible for GRH refinancing:

•   Guarantee fee is 1 %.
•   Non Streamlined: Can finance closing costs and fees up to
    100% of current appraised value + 1% fee
•   Streamlined: Appraisal not required to refinance only existing
    GRH loan balance + 1% fee.
•   Must be under moderate income limits.
•   No cash out allowed
•   Manual submit required for streamlined refinances (as of
    10/19/09). GUS can be used for non streamlined.

    RD AN 4551 SFH Guaranteed Loan Program Refinancing SFH Loans Section 502
    Direct and Guaranteed (04/30/10)                                           36
                 Loan process
                     Submit file to
Lender               underwriter        Underwriter
interviews                              approves loan
client                                  submits file to
                                        RD




  RD issues
  Loan note                                RD reviews
  Guarantee to                             file, upon
  Lender                                   approval
                  Lender closes loan,      issues a
                  and submits closing      conditional
                  package with GRH         commitment
                  Fee to RD                          37
        Loan processing Timeframes
•   Record High Volume May Impact Approval Turnaround

•   24-48 hour turnaround may increase

•   Submit only complete loan applications packages ASAP

•   Watch your lock expirations
    / closing dates

•   Contact GRH processing office
     to keep informed of turn times.
    (Check MN RD website)




www.rurdev.usda.gov/mn/SFH/Participating%20Lender.htm      38
You can email your complete loan packages to this address!!:
Email: gsfh@mn.usda.gov                                        39
Include lender ID
Contact name & fax #
for conditional
commitment!




             Address completed for
                                     40
             subject property!
                       List interest rate.


                       List lock date
Check if
rate is
locked or
float to              List basis of rate: FNMA or VA
close




            CAIVRS#




                                               41
Need to have signature of
lenders’ representative
and dated.




The borrower(s) will each
sign here.


FAX OR PHOTOCOPIES
OF SIGNATURES ARE
NOW ACCEPTED!




                      42
       Interest Rates 1980.320
Maximum interest rate
date of lock OR float to close
(mark on Form 1980-21)

• Fannie 90 day delivery plus
  60 basis points rounded up
  to the nearest ¼%
             OR
• Advertised VA rate with no
  discount points

                                 43
     Interest Rate Example
www.efanniemae.com/sf/refmaterials/hrny/index.jsp



                                                4.85175%
                                              + .60 b.p.
                                               5.45175%
                                              round up to
                                              nearest ¼%

                                              5.50%
                                              Max Rate
                                              (02/10/10)

                                            Lock the Rate
                                            anytime
                                            between
                                            application and
                                            closing, or let it
                                            float to close
                                                          44
           Qualifying income
For repayment income
of applicants who will be on the loan.

Maximum ratios:

•   29% principal, interest, taxes and insurance

•   41% monthly obligations to total income

•   Compensating factors can be considered if ratios
    of 29/41% are exceeded

•   Include all debts 6 months or more



                                                       45
          Qualifying income
               Use current verified income:
“Stable and Dependable Income” and likely to continue?

Underwriting judgment, based on past 24 months work history

Reasonable allowances for school, re-entering work force etc.,

OT, bonus, commission should be 2 yrs history @ same
  employer

Tax-exempt income: may gross up to app’s tax bracket,
RD does not have a flat guideline (i.e. 25%)



                       RD AN 4474     09/17/09
                    Stable and Dependable Income             46
          Debt Ratio Waivers
Applies to manually underwritten loans (& GUS refer loans)

Ratio Waivers:
• Request to exceed 29/41 ratios must be in writing
   with comp factors listed. (Comment section of 1008)
• RD must approve in writing
• No minimum credit score is required.

Payment Shock may be a risk factor for UW to consider:
• 100% or higher = risk factor
• No housing history (lives with parents) = risk factor

Example: proposed PITI: $1,200
         current rent:    $ 550
         1200 / 550 = 2.18 -1 = 1.18 or 118% and is a risk factor




       RD AN 4435: Debt Ratio Waivers and Payment Shock
                                                             04/30/09
                                                                        47
          Debt Ratio Waivers
Examples of compensating factors:

•   Credit score of 660 or higher. Can be stand alone, if additional risk
    layers are not present (i.e. adverse credit, payment shock, etc.)

•   Minimal increase in housing expenses (payment shock)

•   Conservative use of credit, ability to save

•   Verified successful high existing housing expense to income.

•   Stable employment history, potential for wage increase

•   Additional income not used to qualify: OT, bonuses, etc.

•   Cash reserves

•   Low total debt                  -   Trailing spouse income

         RD AN 4435: Debt Ratio Waivers and Payment Shock
                                04/30/09
                                                                            48
           Income Verification
                            Options:
1.   Written VOE & 1 recent paystub with YTD income listed
                               Or

2.   Telephone verification & 30 days most recent paystubs with
     YTD income listed & 2 years W-2s
                                 Or

3.   Electronic (internet) verification, & 2 years W-2s and
     telephone verification

                    Verify two year work history



RD AN 4470 Underwriting and Closing Loans, Documentation Matrix
                                                              08/18/09
RD AN 4363 Acceptable Alternative Documentation    05/02/08              49
                           Credit
             MID FICOs of 620 and above
        Qualify for streamlined documentation.
This means:

   Credit was reviewed and approved by underwriter.

    Adverse credit waivers not needed for file submitted to RD
   (lender retains in permanent loan file, if adverse credit exists)

Streamlined documentation does not apply if any of these exist:

    Foreclosure within past 3 years
    Bankruptcy Chapter 7 discharged within past 3 years
    Bankruptcy Chapter 13 within past 12 months
    Late mortgage payment within past 12 months



    RD AN 4441 Reduced Documentation / Utilizing Credit Scores
    05/07/09
                                                                       50
                           Credit
                   Selecting credit scores:

•   Three scores, select middle score:
                          760, 730, 703

•   Two scores, select lowest score:
                           650, 630

•   One or no score, obtain non traditional credit references
    submit with RD loan file

•   Each borrower is treated separately



      RD AN 4441 Reduced Documentation / Utilizing Credit Scores
                                                          05/07/09   51
                         Credit
             MID FICOs of 619 – 581
        Be cautious of multiple risk layers:

     UW approved credit waiver documents are included in file
     submitted to RD.

     If any derogatory credit of 1980-D.345 (d) exists the
     Lender needs to document that:
         1. Circumstances were temporary and
         2. Beyond applicant’s control and
         3. Cause has been removed (not likely to reoccur)
Or document there was a disputed payment of defective goods
     / services.


RD AN 4441 Reduced Documentation / Utilizing Credit Scores
                                                    05/07/09    52
                         Credit

            MID FICOs of 580 or below:

Lenders should not approve if any indicators of
unacceptable credit are exhibited

Additional risk layering to the credit score is not
recommended


     Refer to credit score documentation matrix.



RD AN 4441 Reduced Documentation / Utilizing Credit Scores
                                                    05/07/09   53
                             Credit
            Derogatory credit per 1980-D.345 (d):
•   More than one 30 day late debt payment in last 12 months.
•   Loss of security due to a foreclosure in the last 36 months.
•   Outstanding tax liens or delinquent government debts (with no
    satisfactory payment arrangements)
•   A court-created judgment caused by nonpayment that is currently
    outstanding or has been within the last 12 months.
•   Two or more rent payments paid 30 days or more late in last 3 years.
•   Accounts converted to collection in past 12 months (utility bills,
    hospital bills, etc.).
•   Outstanding collection accounts, with no satisfactory arrangements for
    payments.
•   Any debts written off within the last 36 months.
•   Bankruptcy discharged less than 36 months (Chapter 7); or debt
    restructuring plan completed less than 12 months (Chapter 13).


      RD AN 4441 Reduced Documentation / Utilizing Credit Scores
                                                          05/07/09    54
                     Appraisals
Uniform Residential Appraisal Report

Completed within 6 months of the date Form 1980-21 is submitted.

Licensed or certified or a HUD roster appraiser

Appraiser to report all readily observable property deficiencies
and adverse conditions discovered

1004 MC “Market conditions addendum” (required as of 07/01/09).

Clear photos of subject and comps, including front, rear, and
Street scene of subject.




RD AN 4476 Existing Dwelling Inspection Requirements;
           Acceptable Origination Appraisal Forms       10/23/09   55
                   Appraisals
          Existing homes must meet requirements of
             HUD Handbooks 4905.1 and 4150.2.

Determination can be made by                   Certifies on page
                                               3 or addendum of
1. HUD roster appraiser                              URAR

                 or

2. A state licensed appraiser the approved Lender certifies
   is qualified to complete HUD handbooks determination.
                    or

3. Provide a home inspection report


  RD AN 4476 Existing Dwelling Inspection Requirements;
             Acceptable Origination Appraisal Forms       10/23/09   56
        Additional Inspections

Septic Inspection: ONLY if the appraiser/inspector
Requests an additional inspection.

Well and Septic testing may be mandated by county or state law.




Well Water: ALWAYS test well water
Submit well water compliance test results.
( for lead, bacteria, and nitrates)




 RD AN 4476 Existing Dwelling Inspection Requirements;
            Acceptable Origination Appraisal Forms        10/23/09   57
             Repairs         (existing homes)

Essential repairs may be included in loan when appraised value
permits over purchase price

Eligible Repairs = HUD handbook noted repairs.

Also eligible are these necessary facilities:
• Garage, storage shed, walks, driveway

•   water and/or sewage facilities, utility hookup

•   Design features for physically disabled

Exterior weather delayed repairs can be escrowed:
  (150% of the contract amount)

                                                             58
          Non U.S. Citizen Eligibility

• Lenders must obtain proof of identity and evidence
  non citizens are qualified aliens

• RD submits alien ID # to SAVE to verify

• Documentation other than permanent resident alien
  accepted but only listed provisions are accepted




                                                   59
 AN 4402, Non - US Citizen Eligibility
                                 11/17/08



SAVE: Systematic Alien Verification for
            Entitlements




                                            60
GUS is an automated underwriting
system developed by USDA Rural
Development to help mortgage lenders
make informed credit decisions on
Guaranteed Rural Housing loans.


                                   61
        Guaranteed Underwriting System

Automates process of credit risk evaluation for GRH loan processing

Automated property & income eligibility

Evaluates credit payment, payment to income ratios, LTV ratios .

Responsibility of loan data integrity remains with lender .

GUS provides fast loan recommendations and:
  – Consistent & objective loan decisions
  – Easy to use & available 24 hours/day
  – Reduced processing time


   RD AN 4423 SFH Guaranteed Loan Program
              Guaranteed Underwriting System         03/26/09      62
                      GUS Guidelines
•   Lender inputs application into GUS

•   Credit report ordered through GUS Credit bureau interface.

•   Lender does “final” submit & emails to RD:
            Appraisal, FEMA 81-93, 1980-86 , 1980-21.

•   RD reviews, completes required data in GUS, obligates loan in GLS
    & issues Conditional Commitment.

•   GUS is meant to compliment the underwriting process, not replace it
    GUS provides a recommendation & evaluates risk but does not
    replace the underwriter. Decision to grant or deny credit remains
    with the lender.

•   Only submit complete and fully underwritten GUS files to RD
    RD cannot review until GUS has a final submit .                 63
                        GUS Guidelines


•   GUS does not evaluate the stability and dependability of repayment
    income. It is the lender’s responsibility to determine applicant’s
    income is stable, predictable, and likely to continue. (ListServe
    12/12/09)

•   GUS Feedback Matrix. Provides guidelines for Users to identify why
    GUS triggered a rule and how to correct (ListServe 04/21/09)

•   Lenders seeking access to GUS are required to take mandatory
    training prior to activation of their agreement. Posted at Guaranteed
    Underwriting System (GUS) subject at the Training and Resource
    Library link. Required for all Security Administrators and all users
    who will have “final submit” authority.



                                                                         64
GUS Risk Assessment




                      65
        AN No 4439, Identifying Red Flags
               (GUS Loans) 05/07/09

GUS files that exhibit red flags will require further review
by RD before a Conditional Commitment can be issued.

•   Red flags include input information that does not match
    documents such as the credit report or appraisal.

•    Multiple submissions also constitute a red flag (several
    “refer” results and then an “accept”).




                                                                66
 Where is GUS?
https://usdalinc.sc.egov.usda.gov/




                                     67
     GRH lender training website
usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do




                                                           68
             GUS Access
An executed “User
Agreement” is required
from each approved
lender entity to access
GUS.




                          69
     e-Authentication




http://www.eauth.egov.usda.gov/eauthCreateAccount.html
                                                     70
                  Loan Closings
Borrower cannot receive any cash back except for costs paid
outside of closing: appraisal, credit report, earnest money

No loan increases of $500 or less for conditional commitments
that have been issued (list serve notice 10/19/09)

For larger increases or increase to rate, submit revised 1008,
1003 and 1980-21 for RD approval prior to close.

May close at a lower rate or amount without prior RD approval

If loan is cancelled notify RD ASAP


  RD AN 4470 Underwriting and Closing Loans, Documentation Matrix
                                                           08/18/09
                                                                      71
     Best Practices: Closing Packages

 Timely delivery of the LNG is a priority; the time frame varies
  based on external demands, mistakes, etc. (Note New Time
  Frame: lender to submit the items to the Agency within 60
  days from loan closing)

 Checklist - Mirror order of checklist to order of submitted
  documents
 Cover Sheet - Provide address to send LNG & provide
  primary contact information
 GRH Fee Check-Verify amount & make payable to RD,
  USDA, Rural Housing, etc. (or endorse)
 Loan Amount Change-Notify approving Specialist ASAP


                                                                    72
      …Continue: Closing Packages

 Common Mistakes:
    Missing Signature(s)
    1003 not signed by both the lender & the
     borrower(s)
    Excessive documents submitted (i. e. Mortgage)
    “Other” section of conditional commitment is
     overlooked
    No contact information provided




                                                      73
      …Continue: Closing Packages

 If possible, provide a pre-addressed envelope (USDA RD will
  use the envelope provided in order to assure a timely &
  accurate delivery of the LNG to the lenders)

 Fully completed packages should be sent to:
        USDA Rural Development
        375 Jackson Street, Suite 410
        St. Paul, MN 55101
        Attn: Guaranteed Single Family Housing Section

(Please do not fax or e-mail closing documents)
 Direct inquiries to: gsfh@mn.usda.gov

                                                                74
                     MN GRH Website:

http://www.rurdev.usda.gov/mn/SFH/Participating%20Lender.htm




                                                          75
               AN? PN? REGS?
http://www.rurdev.usda.gov/RegulationsAndGuidance.html




                                                         76
http://www.rdlist.sc.egov.usda.gov/listserv/mainservlet



ListServ

Receive email updates:
• Log on
• Enter email address
• Select topics of interest
• Click “Subscribe”




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