This is just a quick update on USDA Rural Development Guaranteed Funding and the bills: HR4899, S3266, and HR 5007.
HR 5007 was approved in the House but not the Senate. HR 4899 and S3266 are back in the Senate and different than the House Bill.
HR 4899 is the FY 2010 Emergency Supplemental appropriations (Disaster Relief and Summer Jobs) which has been up for debate in the Senate since yesterday 5/25.
The Senate has set a goal of Friday 5/28 in order to vote, and hopefully approve, HR 4899. With any luck, the Senate will approve some version of this bill with additional USDA funding by Friday 5/28, after which they are in recess until 6/7 for the Memorial holiday. The House will have to vote on this legislation too. They will also be in recess after this week until 6/7.
Tuesday, May 25, 2010
Rural Development Loans: What is all the fuss about?
Rural Development guaranteed loans are a staple here at Neighborhood Mortgage Group, and for a majority of our buyers. Other than VA financing, there just simply isn't another "No Money Down" loan available in today's traditional mortgage lending world.
What is all the recent fuss about RD running out of money all about? Let me try to explain...
First of all, it's important to understand that RD does not fund these loans. Which means that RD is not writing the check to your seller for you to purchase the home. They are simply "guaranteeing" the loan's performance for the mortgage lender. Should unfortunate events occur that force a homeowner into foreclosure, RD will step in financially to relieve the mortgage lender carrying their defaulted note.
Where does all that money come from? Two parts:
1. Each year the federal government appropriates a certain amount of money to the Rural Development program ($13 billion for 2010.) This money is provided in order to offset mortgage lender's claims, and to operate the general parameters of the program for the next calendar year.
2. RD (in the past) has charged each buyer a "Funding Fee" in the amount of 2% of their loan amount. These funding fees went into a large pool of reserved money, combined with the federal funding monies.
The problem is that this pool of money has historically been insufficient to cover the cost of operating the program.
Picture your bank's overdraft protection program: Your bank knows that you will be getting a paycheck soon, therefore it allows you to overdraw your bank account from time to time because they know that you will be "good for it." This isn't an exact analogy of the RD program but it's a good place to start.
RD funds (your checking account balance, in our analogy) are historically depleted by September of each year. In October the federal government decides exactly how much funding it will reappropriate to the RD program for the next calendar year (your next "paycheck" amount has been commited to you by your employer along with the date that the paycheck will arrive.) Once that reappropriation figure is announced, RD, despite not technically having the funds available, will continue to issue Conditional Commitments (commonly referred to as loan approvals or loan commitments) with the condition that their commitments are "subject to availablity of funds..." Because all parties involved (the feds, RD, and the mortgage lenders) are familiar with the process and are confident that funds will become available very soon, business continues as normal (your bills and debits continue to clear your checking account, despite the negative balance.) Make sense?
Now... Why the big fuss recently over this program? Quite simply stated: RD is already out of money for 2010. (Keep in mind that they always run out of money, just not nearly this early in the year.) And our federal government, as we all hear about on the news each night, is not exactly in an ideal position to start writing big fat checks that weren't in their budget for another 8 months.
So what to do? Well, the House of Representatives had an idea. If RD would simply raise the buyer's funding fee from 2% to 3.5% the program would then become self-funding, increasing the annual available funds to nearly $30 billion each year. That's more than double the amount provided in 2010!
Things were looking great last Tuesday when RD sent out an email to mortgage lenders stating that lenders would continue to receive those "subject to availability of funds..." commitments without interruption.
But less than 24 hours later, a second email was sent out from RD stating that they were recalling and voiding the previous announcement. This second announcement stated that a third announcement would be made available in 24-48 hours.... It's been nearly two weeks.... Still waiting on that third announcement...
My thoughts? The bill containing the RD appropriation of funds is called HR4899. The House approved it unanimously. The Senate now needs to approve it. HR4899 was on the Senate's agenda yesterday and again today. The Senate has set a goal to have this bill voted on before the end of the week. And let's hope that they do since next week they will be on a break.
So where does that leave the RD program? In limbo, quite frankly. We at Neighborhood Mortgage Group are restructuring all of our current RD loans into FHA or Section 184 Indian loans as a back up plan. If RD funds become available before a particular buyer's closing date, then great! Otherwise, we will at least have a back up loan application working simultaneously in the wings.
What is all the recent fuss about RD running out of money all about? Let me try to explain...
First of all, it's important to understand that RD does not fund these loans. Which means that RD is not writing the check to your seller for you to purchase the home. They are simply "guaranteeing" the loan's performance for the mortgage lender. Should unfortunate events occur that force a homeowner into foreclosure, RD will step in financially to relieve the mortgage lender carrying their defaulted note.
Where does all that money come from? Two parts:
1. Each year the federal government appropriates a certain amount of money to the Rural Development program ($13 billion for 2010.) This money is provided in order to offset mortgage lender's claims, and to operate the general parameters of the program for the next calendar year.
2. RD (in the past) has charged each buyer a "Funding Fee" in the amount of 2% of their loan amount. These funding fees went into a large pool of reserved money, combined with the federal funding monies.
The problem is that this pool of money has historically been insufficient to cover the cost of operating the program.
Picture your bank's overdraft protection program: Your bank knows that you will be getting a paycheck soon, therefore it allows you to overdraw your bank account from time to time because they know that you will be "good for it." This isn't an exact analogy of the RD program but it's a good place to start.
RD funds (your checking account balance, in our analogy) are historically depleted by September of each year. In October the federal government decides exactly how much funding it will reappropriate to the RD program for the next calendar year (your next "paycheck" amount has been commited to you by your employer along with the date that the paycheck will arrive.) Once that reappropriation figure is announced, RD, despite not technically having the funds available, will continue to issue Conditional Commitments (commonly referred to as loan approvals or loan commitments) with the condition that their commitments are "subject to availablity of funds..." Because all parties involved (the feds, RD, and the mortgage lenders) are familiar with the process and are confident that funds will become available very soon, business continues as normal (your bills and debits continue to clear your checking account, despite the negative balance.) Make sense?
Now... Why the big fuss recently over this program? Quite simply stated: RD is already out of money for 2010. (Keep in mind that they always run out of money, just not nearly this early in the year.) And our federal government, as we all hear about on the news each night, is not exactly in an ideal position to start writing big fat checks that weren't in their budget for another 8 months.
So what to do? Well, the House of Representatives had an idea. If RD would simply raise the buyer's funding fee from 2% to 3.5% the program would then become self-funding, increasing the annual available funds to nearly $30 billion each year. That's more than double the amount provided in 2010!
Things were looking great last Tuesday when RD sent out an email to mortgage lenders stating that lenders would continue to receive those "subject to availability of funds..." commitments without interruption.
But less than 24 hours later, a second email was sent out from RD stating that they were recalling and voiding the previous announcement. This second announcement stated that a third announcement would be made available in 24-48 hours.... It's been nearly two weeks.... Still waiting on that third announcement...
My thoughts? The bill containing the RD appropriation of funds is called HR4899. The House approved it unanimously. The Senate now needs to approve it. HR4899 was on the Senate's agenda yesterday and again today. The Senate has set a goal to have this bill voted on before the end of the week. And let's hope that they do since next week they will be on a break.
So where does that leave the RD program? In limbo, quite frankly. We at Neighborhood Mortgage Group are restructuring all of our current RD loans into FHA or Section 184 Indian loans as a back up plan. If RD funds become available before a particular buyer's closing date, then great! Otherwise, we will at least have a back up loan application working simultaneously in the wings.
Tuesday, May 18, 2010
Current Interest Rates
Wow! 30 day rates are looking GREAT right now.
FHA 30 Year Fixed Interest Rate: 4.75% (5.090% APR)
RD 30 Year Fixed Interest Rate: 5.00% (5.501% APR)
Analysts are still recommending borrowers to float their interest rates, based upon a predicted potential drop in rates.
Call us for more details and qualification requirements.
FHA 30 Year Fixed Interest Rate: 4.75% (5.090% APR)
RD 30 Year Fixed Interest Rate: 5.00% (5.501% APR)
Analysts are still recommending borrowers to float their interest rates, based upon a predicted potential drop in rates.
Call us for more details and qualification requirements.
Tuesday, May 11, 2010
Rural Development raises funding fee
Rural Development finally announced today that they will continue to issue Conditional Commitments once the appropriated funds for fiscal year 2010 have been exhausted. The new commitments will be "subject to the availability of funds and Congressional authority..." Which is good news, considering that as of Friday they were down to only $20,000 in the state of Oklahoma.
The Oklahoma state office for Rural Development had requested last week for additional funding to be transferred from other states carrying a surplus, but that request was still pending at the time the announcement was made today.
What does this mean exactly? Quite simply: RD loans continue! We at Neighborhood Mortgage Group will continue to underwrite and close these loans, even with the "subject to..." condition. It's business as usual for Neighborhood Mortgage Group.
But let's not jump for joy just yet. There is a slight down side. And that is that the RD Funding Fee (the fee a Buyer pays to RD to guarantee the loan) has now be raised from 2.0% to 3.5%. For example, a Buyer borrowing $100,000 would have paid a funding fee of $2,000 last week but would now pay $3,500. However, RD will continue to allow Buyers to roll this fee into their loan in lieu of paying the fee in cash at closing.
My final word on the RD program? It's still the best program on the street (unless you're eligible for a Veteran's loan.) The combination of no down payment required, allowing the Buyer to finance their closing costs into the loan, the avoidance of paying PMI (private mortgage insurance), and with interest rates still in the low 5%'s make this loan a big favorite.
Apply online today @ www.neighborhoodmg.com or call us at (918) 246-7100.
The Oklahoma state office for Rural Development had requested last week for additional funding to be transferred from other states carrying a surplus, but that request was still pending at the time the announcement was made today.
What does this mean exactly? Quite simply: RD loans continue! We at Neighborhood Mortgage Group will continue to underwrite and close these loans, even with the "subject to..." condition. It's business as usual for Neighborhood Mortgage Group.
But let's not jump for joy just yet. There is a slight down side. And that is that the RD Funding Fee (the fee a Buyer pays to RD to guarantee the loan) has now be raised from 2.0% to 3.5%. For example, a Buyer borrowing $100,000 would have paid a funding fee of $2,000 last week but would now pay $3,500. However, RD will continue to allow Buyers to roll this fee into their loan in lieu of paying the fee in cash at closing.
My final word on the RD program? It's still the best program on the street (unless you're eligible for a Veteran's loan.) The combination of no down payment required, allowing the Buyer to finance their closing costs into the loan, the avoidance of paying PMI (private mortgage insurance), and with interest rates still in the low 5%'s make this loan a big favorite.
Apply online today @ www.neighborhoodmg.com or call us at (918) 246-7100.
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