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Change Coming for USDA Loan Approvals

There is a mandate coming down soon from the United States Department of Agriculture in regard to their Rural Development loans.

USDA loan approvals (whether direct or guaranteed) will require that the borrower meet the 29/41 debt ratios in order for the loan to be approved. There will be no exceptions.

The reason? USDA is 100% financing, and the default rate on these loans is increasing. People with higher debt ratios that 29/41 are by far the greatest percentage of these defaults.

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Posted by Mike Jones on 10/23/2009 11:11 AM

Comments (13)

USDA Rural Loan Guidelines in the Mortgage / Finance Channel

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Originally posted at: Tucson AZ Home Loan Info: Change Coming for USDA Loan Approvals

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13 Comments on Change Coming for USDA Loan Approvals

OCT

Mike, Where did you hear that? and what is the date it kicks in? USDA's GUS system almost always allows over 41, Heck up to 55 seems fairly easy in many cases for a clean deal. I spoke with one of the higher up guys at USDA in NJ just a few months ago and there was no mention of the change.

Hi Mike~ The other day I read on here that VA loans have the least amount of default. Now I am learning that these loans have a high amount of default. I guess it makes sense that it is linked to the debt ratios.

Vickie,

VA loans are also 100%, but that's not the issue at the moment. Thanks for stopping by to comment.

Robert,

The tip came from one of our inhouse Underwriters who spent 1 1/2 hours on a conference call yesterday with a correspondent bank who funds most of our USDA loans.

Mike in Tucson

Mike,

Thanks for the update. Will check to see about implementation and who is impacted. :)

Steve

Mike, it sounds like it may be an investor overlay. So much fun keeping up with the extra guidelines these days!

Robert,

I certainly hope you're right. The UW expects it to be across the board.

Mike in Tucson

OCT

I was surprised to also learn that many of the areas USDA refer to as "rural" for qualifying are really not very rural. It can be a good loan option for certain folks.

Tina in Virginia

Tina,

That's absolutely true. I never reject an address because it seems to be in a built-up area. I go to the USDA website and plug it in.

Mike in Tucson

OCT

Hi Mike - It makes sense that USDA would follow suit with the "recent" focus on DTI tightening coming through from FHA to PMI. Being one who sees many "gray area" scenarios, though, I sure hope we don't completely lose the common sense approach...

OCT

Karen,

I'm with you on that.

Mike in Tucson

OCT

I have a client trying to get a USDA loan and it's taking forever! I hope it closes in November.

Georgina,

It shouldn't take more than a few days after the appraisal has been received for the lender's Underwriter to sign off on it. Then it goes to the regional USDA office. Workloads by USDA office depend on the number of counties served by the regional office. Here in Tucson, our USDA regional office is in Green Valley and services Pima County. They usually take less than a week to give us a Clear to Close.

I just funded a USDA loan in Goodyear, AZ, though, and the USDA regional office that services that area of Arizona also services four other counties. Check with your lender on (1) the timeline, and (2) the servicing area for the USDA office the loan is sent to. There's probably only one for all of the Hawaiian Islands, I'm thinking.

There's a third thing you'll want to check. USDA runs out of money periodically. If you're working with a broker that doesn't fund its own loans, he has to wait for the pot to be refilled. Not good. If you're working with a correspondent bank like Sunstreet Mortgage, they will fund the loan with their own money regardless.

Hope that helps.

Mike in Tucson

NOV

Hello Mike - good information you seem to sharing here - However, passing on information "There is a Mandate Coming Down" 3rd hand from somone you know that heard it could be happening on a conference call??? Rumors have never been good information -

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