That question seems to be popping up quite often lately. In recent weeks memo's from USDA offices have informed us that they estimate funds will run out very soon. There are even banks who have decided to cut off funding for USDA too, sometimes in the midst of the transaction. For the most part banks are still funding USDA loans, and they say everything is status quo, but the question is for how much longer.
It is pretty normal for USDA to run out of funding, happens quite often. USDA gets their funds in blocks that are approved by congress, and the current block of money was supposed to run until the end of March, however since USDA is one of the remaining sources of 100% financing this last block was used up at a quicker pace than was expected.
USDA has never run out of funds this quickly before and some officials have said they are unsure when more funding will be approved by Congress. In the past when funds have run out lenders have been able to use surplus funds to fulfill those loans it committed to doing and kept it in their servicing portfolio until the USDA was granted more money by Congress and then those loans became saleable, and when sold then lenders freed up that money to fund new loans. However since banks are not as liquid as they used to be they have less money to fund new loans, they will appropriate less of dollar amount of money towards funding new USDA loans due to not being able to sell them without USDA's guarantee.
The way that a lender secures/reserves funds with USDA to guarantee their loan is by sending off a Request for Reservation of Funds form after they have received a loan file in underwriting. Typically this is not done until most of the documents are in the file although one can be sent in earlier in the process if really needed. When the USDA office grants the request, not when the request is sent, is when the funds in the block of money they are using are set aside for the loan. What you are used to hearing that the lender is waiting to get something back from USDA is the conditional commitments, which is saying if USDA has money then they will guarantee the loan. If the request for funds was not approved the lender may still fund the loan if they are OK with the conditional commitment and not the guarantee funds are there.
So what will eventually happen, short of a rush funding package by Congress, is that more and more lenders will stop funding USDA loans. It probably won't be all of them, and it might not be most of them but you will hear some of lenders temporarily suspending their USDA programs. The next block of money was scheduled to guarantee loans in April, May & June, however if another source of funds isn't come up with until then, those funds in the next block will be used to fulfill any commitments that have been issued prior to then. In short, we could see some rocky times with USDA loans in the next few months, so keep your ears & eyes open, and don't be afraid to contact your local USDA office, so you know what to expect.
Shane Milne
Loan Officer
Banner Mortgage
949-273-4161 phone
www.thebesthomeloans.com
;)
;)
Very interesting post. I have used USDA several times for my clients in the last few months. Thanks for the tip, I have some clients that need USDA in the next couple of months. I will call the local office tomorrow.