MBA Urges Rural Housing Service to Amend Single-Family Housing Guaranteed Loan Program
The Mortgage Bankers Association offered recommendations to the Rural Housing Service as it mulls changes to its Single-Family Housing Guaranteed Loan Program/Single Close Combination Construction to Permanent Loans program.
RHS issued a proposed rule earlier this year to amend the current regulation for the Single Family Housing Guaranteed Loan Program, specifically on Single Close Combination Construction to Permanent Loans.
In the letter, MBA said it supports USDA’s efforts to streamline the process by:
–Allowing and defining a maximum interest rate that will be charged during the construction period to cover unexpected costs;
–Allowing for the escrow of 12 months of mortgage payments (Principal, Interest, Taxes, and Insurance), making these loans eligible to be sold on the secondary market during construction; and
–Removing the mandatory requirement to modify and re-amortize the loan at the end of the construction period.
“MBA believes these features will improve the efficiency and the effectiveness of the Construction to Permanent offering,” said Senior Vice President of Public Policy and Industry Relations Steve O’Connor.
However, MBA expressed concern that financing 12 months of mortgage payments into the loan could potentially pose a problem if the property’s appraised value cannot support the contract sales price and the proposed year of escrowed funds. In particular, MBA said, USDA borrowers seeking the 100 percent loan guaranty might not have access to funds needed to offset the shortfall should the property’s appraisal not support the full financing of the one-year reserve.
“While the current USDA guidelines allow for the loan amount to exceed 100 percent of the property value in order to fund the program’s guaranty fee, increasing the loan amount above the current limit of 101 percent of the property value to include the one-year reserve of mortgage payments may serve to reduce demand on the secondary market,” the letter said.
MBA recommended USDA provide clear guidance addressing collection and financing of the escrowed amount and any adjustments that will be made to the maximum loan-to-value ratio guidelines. MBA also requested additional guidance regarding the refund policy for the escrowed payments should the property be sold within the first year of settlement.
MBA also requested that USDA provide clear guidance regarding disbursement of loan funds during construction, noting the Proposed Rule does not specifically identify the lender or the servicer as the entity responsible for funding the construction phase of the loan program.
“It is imperative that the lenders and servicers participating in the program be fully aware of their roles and responsibilities during the construction phase to ensure that compliance issues and delays in payments to builders are mitigated to the greatest extent possible,” MBA said.
