Less than 5% of originations backed by the Rural Housing Service last year were refinancings, but the agency is trying to change all that with a new streamline refi pilot program, unveiled this week by the White House.
The new effort is aimed at refinancing RHS borrowers in 19 of the “Hardest Hit” states where “steep home price declines and unemployment have made refinancing a current mortgage into more affordable terms very difficult or impossible,” according to RHS administrator Tammye Trevino.
The guidelines for the pilot program have been posted on the agency's website. Under the initiative, appraisals are not required and underwater borrowers are eligible. Credit reports and property inspections are waived too.
To qualify, a borrower must be current on his/her loan payments and household income cannot exceed RHS limits. If an applicant's income has declined, they are still eligible to refinance.
RHS has a net benefit test, however, and the refinancing must reduce the borrower's existing interest rate by at least 1%.
RHS is charging a 1.5% upfront fee on these refinancings along with a 0.3% annual fee. The upfront fee can be rolled into the loan amount, but not closing costs or lender fees.
Lenders can charge an origination fee of up to 1% of the loan amount, according to the Feb. 1 Administrative Notice on the agency's website.
However, it's unclear if these changes will really spark a wave of RHS refinancings. Rural borrowers are not serial refinancers like their metropolitan cousins.
Lenders originated $16.8 billion of RHS loans in fiscal year 2011 with just $720 million of them refinancings.
