On May 3, 2016, the US Department of Agriculture (USDA) Rural Housing Service published a final rule that implements three changes to the Single Family Guaranteed Loan Program:
- “Qualified Mortgage” definition: Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) published a “qualified mortgage” rule which became effective January 10, 2014. The rule, also known as the “ability to repay rule,” limits points and fees which lenders can charge loan applicants. USDA is adopting the CFPB definition of a qualified mortgage, with the exception that credit extended by a State Housing Finance Agency is exempt.
- Indemnification: The final rule extends the indemnification period from two to five years during which USDA can seek indemnification from originating lenders whose non-compliance with program guidelines and regulations causes USDA to pay a loss claim.
- Streamlined-assist refinance: USDA is introducing a third refinance option for Section 502 borrowers. Borrowers can refinance their existing guaranteed loans without the need for an appraisal or a credit report as long as they have paid their mortgage on time for the past twelve months. The new interest rate must be fixed and cannot exceed the original loan’s interest rate.
USDA chose not to implement a principle reduction feature to its existing foreclosure prevention techniques as proposed previously.
The rule goes into effect June 2, 2016.