|Earlier this week, the U.S. Department of Agriculture (USDA) released a final rule establishing the underwriting standards that loans originated through the Single Family Housing Guaranteed Loan Program (SFHGLP) must meet to be considered "qualified mortgages." Loans that do not meet these standards will no longer be eligible for insurance under SFHGLP as of April 28.
The definition of "qualified mortgage" set in the final rule is largely similar to the definition USDA initially proposed last year. To be eligible for SFHGLP insurance, loans will have to meet the program’s underwriting standards, and upfront points and fees must not exceed three percent of each loan’s total principal, with adjustments made for smaller loans.
The final rule includes an exemption from the rule’s requirements for loans originated through HFA programs. This means that all HFA loans will automatically be qualified mortgages under SFHGLP even if they do not meet the underwriting standards that would otherwise apply. NCSHA requested such an exemption in its comments on the proposed rule, arguing that the rule’s requirements would make it more difficult for HFAs to originate loans eligible for insurance under SFHGLP, particularly to lower-income borrowers who take out smaller loans. NCSHA also pointed out that both the Consumer Financial Protection Bureau and the Federal Housing Administration had already chosen to exempt HFA loans from their qualified mortgage standards.
In addition to finalizing its qualified mortgage definition, the final rule makes several other adjustments to SFHGLP guidelines. These include: increasing the time period via which USDA may require a lender to indemnify USDA for a loan that does not meet SFHGLP’s underwriting standards from two years after the loan’s origination date to five years; establishing a new "streamlined-assist refinance" option that will allow borrowers to refinance their home loans without having to meet appraisal or credit reporting requirements; and authorizing USDA to reimburse lenders for principal reduction advances made to borrowers who are either in default or facing imminent default.
The effective date for the final rule is April 28.