[Federal Register Volume 74, Number 210 (Monday, November 2, 2009)]
[Notices]
[Pages 56571-56572]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-26269]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service


Notice of Funding Availability for Refinance Assistance Under the 
American Recovery and Reinvestment Act of 2009--Section 502 Guaranteed 
Loan Program

AGENCY: Rural Housing Service, USDA.

ACTION: Notice.

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SUMMARY: This notice announces the Agency intent to prioritize $400 
million in funding that was previously made available in the Federal 
Register on July 23, 2009, for the refinance program to achieve the 
maximum amount of debt relief to existing borrowers and keep the 
borrowers in their homes, thereby, achieving long-term financial 
stability consistent with the goals of the Recovery Act. Additional 
requirements for such refinancing will ensure that existing borrowers 
are achieving measureable financial savings in refinancing and that 
Recovery Act funds are spent wisely and have transparent results.

FOR FURTHER INFORMATION CONTACT: Debra Terrell, Senior Loan Specialist, 
Section 502 Guaranteed Loan Program--STOP 0784 (Room 2250), U.S. 
Department of Agriculture, Rural Housing Service, 1400 Independence 
Ave., SW., Washington, DC 20250-0784, telephone number 918-534-3254, or 
by e-mail at [email protected].

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The paperwork burden has been cleared by the Office of Management 
and Budget (OMB) under OMB control number 0575-0078.

Overview

    The Rural Housing Service, an agency within the USDA Rural 
Development mission area, provides housing loan guarantees to lenders 
of rural residents through its Section 502 Guaranteed Loan Program. 
USDA Rural Development (hereinafter referred to as the ``Agency'') 
offers assistance to refinance existing Section 502 Direct and 
Guaranteed Loan Program borrowers with Section 502 Guaranteed Loans 
when restructuring achieves more favorable loan terms.
    USDA Rural Development's Section 502 Guaranteed Loan Program is 
making $400 million available under the Recovery Act for refinancing 
Section 502 Direct and Guaranteed Loan Program borrowers with Section 
502 Guaranteed Loans. Utilization of funds from the Recovery Act for 
refinancing existing Section 502 Guaranteed and/or Direct Loan Program 
borrowers can assist responsible homeowners reduce their overall 
monthly debt by achieving more favorable affordable terms, increasing 
household cash flow, lowering the cost of ownership and benefit the 
economy by employing mortgage partners associated with the mortgage 
loan process. These funds will be made available on a first-come-first-
served basis for refinance requests meeting the existing application 
and approval procedures based upon Section 502(h)(14) of the Housing 
Act of 1949, as amended, with the addition of the policy changes noted 
in this. Existing procedures include those in 7 CFR part 1980, subpart 
D. To the extent of any inconsistency, the provisions of this notice 
will prevail.
    USDA Rural Development intends to modify and clarify policy 
regarding the refinancing of existing Section 502 Direct or Guaranteed 
Loan Program borrowers (herein referred to as ``borrowers'') with 
Recovery Act funds. Refinancing, with Recovery Act funds, is intended 
to help those borrowers who are seeking to achieve more favorable loan 
terms by transferring the financing arrangement to another approved 
guaranteed lender, modifying the loan type, or restructuring the 
repayment obligation with the present guaranteed lender. Modification 
and clarification of policy is intended to strengthen and support USDA 
Rural Development's obligation to protect its existing Section 502 
portfolio. The Agency is considering adopting these program 
improvements in its permanent refinance program (using annual 
appropriations) to address increased risk and costs to the Government.
    Specifically, under this notice the agency will require the 
interest rate of the new loan to be 100 basis points below the rate of 
the existing loan to be refinanced. This change will ensure the 
monetary benefit of refinancing to low or moderate income borrowers 
served by the program and achieve the investment goals of the Recovery 
Act. Eligible closing costs and other fees charged by the lender have 
been identified specifically, rather than relying upon a ``reasonable 
and customary'' test. This is intended to reduce excessive closing 
costs and other fees charged the borrower that can eliminate the 
benefit of the refinance. To reduce risk to the Government the 
streamlined refinance feature has been modified to limit the new 
financing to the amount of the original loan. Streamlined refinance 
under this does not require obtaining a new appraisal, so homeowner 
recovery can begin more quickly as intended by the Recovery Act. This 
notice also expands upon and clarifies borrower qualification 
requirements when there is a change of borrower(s) and emphasizes the 
necessity of responsible homeownership in connection with repayment 
history. Existing borrowers seeking to refinance their Section 502 
mortgage loan under this notice must have demonstrated their ability to 
meet payment demands by maintaining a current account for the 180 days 
prior to application.
    Only approved lenders, as prescribed in 7 CFR 1980.309 are eligible 
to participate in the Section 502 Guaranteed Loan Program. Approved 
lenders may utilize the services of agents for processing refinance 
loans described in this notice. Approved lenders are responsible for 
loan underwriting and the action of any agent they may employ or hold a 
business relationship with. Rural Development will issue the 
conditional commitment to the approved lender if all eligibility 
requirements are met.
    All funds appropriated in the Recovery Act are available for 
obligation no later than September 30, 2010. Funding provided through 
the Recovery Act is one-time funding. Under Section 1604 of the 
Recovery Act, none of the funds made available under the Recovery Act 
may be used for any casino or other gambling related establishment, 
aquarium, zoo, golf course or swimming pool. In implementing this 
prohibition, the Agency specifically will not finance dwellings with 
swimming pools.

General Description of Assistance

    Under the Section 502 Guaranteed Loan Program's Refinance program, 
an approved lender may refinance an existing Section 502 Direct and/or 
Guaranteed Loan Program borrower with a Section 502 Guaranteed Loan. A 
refinance must achieve more favorable loan terms. The intent of the 
assistance is to give borrowers with satisfactory payment histories the 
opportunity to benefit from a lower interest rate and increase their 
ability to be successful homeowners. Two options for refinancing can be 
offered under this:
    1. Streamlined refinance. Lenders may offer a streamlined refinance 
without obtaining a new appraisal. The lender will pay off the 
principal balance

[[Page 56572]]

of the existing Section 502 Guaranteed or Direct loan. The new loan 
amount cannot exceed the original loan amount and cannot include any 
accrued interest, closing costs or lender fees. The refinance guarantee 
fee (.5 percent of the loan amount) can be included in the loan to be 
refinanced only to the extent financing does not exceed the original 
loan amount. Except for the appraisal waiver, all other costs, 
documentation and underwriting requirements remain the same for 
guaranteed loan processing.
    2. Non-streamlined refinance. Lenders may offer non-streamlined 
refinances (with an appraisal). The new loan may include the principal 
and interest of the existing Agency loan, closing costs, lender fees, 
and the guarantee fee (.5 percent of the loan amount) to the extent 
there is sufficient equity in the property, as determined by an 
appraisal.

Loan Purpose, Term and Limitations

    In addition to 7 CFR part 1980, subpart D the following loan 
purpose, terms and limitations must be met to be eligible to refinance 
an existing Agency loan with a Section 502 Guaranteed Loan under this 
notice:
    1. The rate of the new loan must be at least 100 basis points below 
the original rate of the loan refinanced.
    2. No new appraisal is required for streamlined refinances 
described in this notice.
    3. For non-streamlined refinances, a new and current appraisal is 
required when 12 months or greater from the original date of loan has 
expired or whenever the refinance loan exceeds the existing principal 
balance of the original loan.
    4. 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. Excessive fees are not permitted. Examples of customary and 
reasonable fees and charges are: The actual cost of the appraisal, 
inspection, credit reports, imposed verification charges, title 
examination and title insurance fees, attorney fees, settlement fees, 
recording fees, taxes, test or treatment fees, and/or courier/wire/
notary fees as long as the service provider is not an employee of the 
lender. Document preparation fees may only be charged if the documents 
are prepared by a third party not controlled by the lender. The lender 
may not charge document preparation fees if it prepares documents 
itself. An origination fee of up to 1 percent, based upon the combined 
total of the loan amount to be refinanced, can be charged to the 
borrower. Lock in/rate locks represent other fees and charges and may 
be assessed to the borrower, but are not considered closing costs. 
Discount points paid representing application processing fees or broker 
fees cannot be assessed to the borrower.
    5. Discount points may be financed in connection with a non-
streamlined refinancing when the existing borrower's adjusted household 
income is at or below low income adjusted income limits, as determined 
by 7 CFR part 1980, subpart D. Discount points financed will not exceed 
two percentage points of the loan amount. See http://eligibility.sc.egov.usda.gov/to electronically confirm the existing 
borrower's adjusted household income. Select Guaranteed from the 
navigation menu under Income Limits.

Borrower Qualifications

    Borrowers must meet program requirements in 7 CFR part 1980, 
subpart D to be eligible for a refinance loan through the Section 502 
Guaranteed Loan Program. In addition:
    1. Borrower(s) on the existing promissory note must be identical to 
the borrower(s) on the new promissory note, except if one or more of 
the borrowers have died, or if the borrowers have divorced. If a 
borrower intends to relinquish their interest, the remaining 
borrower(s) must be eligible for the new loan and demonstrate repayment 
ability without assistance of the departing/departed borrower.
    2. The borrower must have been current on their Section 502 loan 
for the 180 days prior to loan application. Any late payments in the 
past 36 months must be considered in the underwriting analysis. The 
permanent loan file for the new loan must contain documented evidence 
that the payment history requirements have been met according to 7 CFR 
1980.345.

    Dated: October 20, 2009.
Tammye Trevi[ntilde]o,
Administrator, Rural Housing Service.
[FR Doc. E9-26269 Filed 10-30-09; 8:45 am]
BILLING CODE 3410-XV-P