WASHINGTON — In making the Rural Housing Service self-funding, Congress estimated the agency could guarantee $24 billion of single-family loans under the new premium structure — a huge jump in exposure from two years ago when it backed just $6.9 billion.
RHS administrator Tammye Trevino is still waiting for Congress to set its authority for fiscal year 2011, which started October 1.
But Congress does not have to appropriate actual funds to subsidize the RHS guarantee program any more. And lenders can still originate RHS loans when the congressional budget process is tied up in knots.
"It helps to have a budget neutral program now," Trevino said in an interview with National Mortgage News. But she seems concerned about RHS growing too fast and too big.
She noted in the interview that RHS has limited resources to monitor its loan portfolio. In addition, RHS has been under pressure to loosen its underwriting standards but the RHS chief doesn't want to move in that direction. "We believe we have a product that works," she said.
RHS officials still review every appraisal before the government guarantee kicks in. "We review every loan and it limits the capacity of the program given its resources and personnel," Trevino said.
The RHS single-family program has seen its foreclosure rate creep up to 2.55% as of Sept. 30, compared to 1.72% at the end of FY 2009.
"We might get a little bit tighter," the RHS administrator said, when it comes to indemnification. "It will put the burden on making good loans on the originator."
RHS issued a proposed rule back in May and the agency plans to publish a final indemnification rule in February. Under the new rule, agency officials will review all single-family guaranteed loans that go into loss mitigation.
"We will go back and do another review on whoever originated that loan," Trevino said.
RHS has always reviewed claims submitted by servicers, according to one RHS lender/servicer. "If you make a mistake, you pay for it. They will reduce your loss claim," the lender said.
Meanwhile, the RHS program has seen originations double since FY 2008 due the American Recovery and Reinvestment Act of 2009 (known as the stimulus bill) and the passage of RHS self-funding bill that President Obama signed in July.
The Rural Housing Service guaranteed $16.8 billion in single-family loans in FY 2010, topping the previous year's record by $700 million. The stimulus bill boosted RHS guarantee authority by $10 billion in FY 2009.
"We were very fortunate to have stimulus bill," Trevino said. The agency entered FY 2010 with $12 billion in guarantee authority thanks to Congress, plus $1.1 billion carried over from the stimulus bill.
But lenders quickly ran through the $13.1 billion. By April Congress was considering a bill (H.R.4899) to make the RHS loan guarantee program self-funding.
Unfortunately, the RHS provision got tangled in an emergency supplemental appropriations bill that Senate Republicans filibuster for several months. The emergency bill wasn't passed until late July.
This forced lenders to rely on conditional loan commitments (instead of a full guarantee) until mid-September when RHS was able to update its information systems to accommodate the new premium structure.
Under H.R.4899, the U.S. Department of Agriculture can increase the RHS upfront premium to 3.5% for homebuyers and 2.25% for refinancings to make the program self-funding.
RHS is now charging homebuyers a 3.5% upfront premium and 1% upfront premium on refinancings. The legislation also authorizes RHS to charge an annual premium of up to 0.5%. The agency plans to implement the annual fee in 2012.
"At that time, the up-front fees are likely to be revised," the administrator said. Despite the availability of conditional commitments, RHS lending slowed during second half of FY 2010, which ended September 30.
From May through September, lenders originated $3.75 billion in RHS loans, compared to $13 billion during the first seven months of FY 2010.
RHS officials are hoping to guarantee another $16.7 billion in single-family loans in FY 201. "We expect to do at least as much as last year," the RHS administrator said.
