USDA slashing mortgage fees

Mortgage & Real Estate

Borrowers who use the U.S. Department of Agriculture’s Rural Housing Service to get a mortgage could soon pay significantly less for their loan, as the USDA announced that it is about to cut its loan fees for lenders who use the USDA’s Single Family Housing Loan Guarantee Program.

In an announcement sent to lenders this week, the USDA said that it plans to cut the fees it charges lenders both its upfront guarantee fee and its annual fee beginning on Oct. 1, 2016, the first day of fiscal year 2017.

According to the announcement, the USDA is set to cut its upfront guarantee fee from 2.75% of the loan-at-close amount to 1%. Additionally, the USDA is cutting its annual fee from reduced from 0.45% of the unpaid principal loan balance to 0.35%.

While these are the fees that the USDA charges lenders, these fees are often passed onto the borrowers, meaning borrowers could see loan savings beginning very soon.

So, what’s the reason for the cut? Better borrower performance, according to a USDA official.

According to the official, the USDA is able to cuts its the upfront and annual fees because borrower delinquency and foreclosure rates have reached “historic lows” since the beginning of the housing crisis.

Additionally, the official said that successful partnerships between the USDA and the lenders who participate in its loan programs have resulted in “very strong” performance within this program.

“When our borrowers succeed, the program succeeds,” USDA Rural Housing Service Administrator Tony Hernandez said in a statement provided to HousingWire. “Excellent overall performance in our Single Family Housing Guaranteed Loan Program means we can charge less for the life-changing opportunity to own a home.”

USDA loans make up a small percentage of the overall mortgage volume (for example, a mere 0.6% of all new mortgage applications last week were for USDA loans, per data from the Mortgage Bankers Association), but the cuts should prove significant for the borrowers that see these savings.

As for the participating lenders, the USDA said that it will be updating its Guaranteed Underwriting System on Aug. 31, 2016 to allow lenders to underwrite using either the old fee schedule or the new one, depending on “current processing timeframes” in each state.

The USDA announcement also said that before submitting an application, lenders should contact their respective Rural Development State Office to determine which fee schedule to use on that particular loan, as some RD State Offices are currently working through a “backlog” of guaranteed applications for fiscal 2016.

According to the USDA, lenders in those states will need to begin processing loans using the fiscal 2017 fee schedule the USDA determines that it is no longer able to issue a conditional commitment prior to the close of business on Sept. 30, 2016.

The conditional commitment date of issuance (not the loan closing date) determines the fee schedule for loan requests, the USDA said, adding that conditional commitments will not be issued for loans submitted under the fiscal 2017 fee schedule until Oct. 1, 2016.

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