USDA's Guaranteed Loan Program Opened to Credit Unions
December 9 The U.S. Department of Agriculture (USDA) has announced reforms to its Single Family Housing Guaranteed Loan Program (the Program) that would make credit unions eligible to participate as lenders for the first time. The changes are intended to help strengthen rural housing markets by increasing the availability of home loans in rural areas. The new rule will take effect on September 1, 2014; the full text can be found here.
The Program is administered by USDA Rural Development, which is charged with improving the economy and quality of life in rural America through lending and technical assistance programs. In order to participate as a lender in the Program, an entity must have a demonstrated ability to underwrite and service single-family home loans. Under the new rule, any entity that is supervised and regulated by NCUA (or any federal financial regulatory agency) will be considered to have demonstrated that ability. Federal financial regulators impose capital and net worth requirements on their lenders and conduct periodic safety, soundness, and compliance examinations. The new rule allows Rural Development to utilize NCUA’s lender oversight to protect the integrity of the Program and promote loan quality, while increasing Program access for rural borrowers.
New lenders must still apply for and receive approval from Rural Development before entering the Program and will be subject to mandatory training. Lenders and their agents must also satisfy a variety of participation requirements, including keeping up to date and complying with all USDA regulations and handbooks.
In addition to expanding the definition of eligible lenders, the new rule also allows for issuance of single construction-to-permanent loans, permits lenders to consider energy efficiency as a compensating factor when underwriting a mortgage application, and requires lenders to consider foreclosure prevention techniques for borrowers in default.USDA Secretary Tom Vilsack noted that the rule “will add significant capital to rural areas and give Americans more opportunities to make financing decisions that lay the groundwork for the future prosperity of their families.” He encouraged Congress to continue supporting rural America by passing a comprehensive new Food, Farm and Jobs bill as soon as possible. The House and Senate Agriculture Committees have been locked in negotiations over a new five-year bill, and have indicated their expectation that the legislation will be finalized in early 2014.