USDA Lowers Upfront Guarantee Fee. Shifts Cost to Annual Repayment

Lastrnmonth the U.S. Department of Agriculture (USDA) issued an Administrative Noticern(AN) shifting a portion of the upfront fee it charges for the Single Family HousingrnGuaranteed Loan Program (SFHGLP) to the annual fee.   </p

The two fees, part of Public Law 111-212 are anrnattempt to make the popular loan program self-sustaining and to eliminate or atrnleast minimize the frequent interruptions suffered by the program.  Under the legislation the Secretary of USDArnis authorized to collect an upfront fee from lenders of up to 3.5 percent forrnits guarantee of a loan or modification of a loan and an additional annual feernnot to exceed 0.5 percent of the outstanding principal balance of the loan forrnthe life of the loan.  The annual fee isrnapplicable to purchase and refinance loan transactions. </p

When thernbill was passed an upfront fee of the full 3.5 percent rate authorized byrnCongress was put into effect.  The ANrnissued on February 3, notifies lenders that USDA will be lowering the upfront feernto 2 percent of the loan amount and implementing an annual fee of 0.3 of thernunpaid principal balance  for allrnpurchase loan transactions.  The changes willrngo into effect on October 1, 2011.</p

The SFHGP ran through its $13.1 billion program funding early inrn2010 and home buyers encountered long delays in completing their purchasesrnuntil Congress reauthorized additional funding in late July.  Depleted funding had been a nearly annualrnoccurrence for the program that guarantees loans for single family homes inrndesignated exurban and rural areas.  Therndelay last year, however, caused an unusual number of problems by pushing manyrnhomebuyers up against or past the deadlines for using the popular Homebuyer TaxrnCredits which were available until June 30. rn</p

Accordingrnto the AN, “the intent of the annual fee is to make the SHHGLP subsidyrnneutral, thus eliminating the need for taxpayer support of the program.”  The fee will be calculated annually andrnbilled to the lender on the anniversary date of the loan with the calculation basedrnon the “scheduled amortized unpaid principal balance (UPB) of the loan,rnnot the actual UPB.”  The annual feernwill be collected through Pay.Gov and is subject to a 4 percent late fee if notrnpaid within 15 days of billing.</p

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