By Amy Avery, DocuTech Corporation
New Rural Development Annual Fee
Per Administrative Notice (AN) 4551 (1980-D), an annual fee will be charged on all Rural Development loans obligated on or after October 1, 2011. The intent of the annual fee is to make the Single Family Housing Guaranteed Loan Program (SFHGLP) subsidy neutral, thus eliminating the need for taxpayer support of the program. The annual fee is charged to the lender but may be passed to the borrower. Lenders may establish an escrow account to collect the annual fee from the borrowers on a monthly basis, similar to mortgage insurance.
All loan transactions obligated on or after October 1, 2011 will be subject to an annual fee of 0.3 percent of the outstanding principal balance. Implementation of an annual fee will allow for a reduction of the upfront guarantee fee. Effective for loans with an RD obligation date on or after October 1, 2011, the upfront guarantee fee for purchase transactions will decrease from 3.5 percent to 2 percent. The upfront guaranteed fee for refinance transactions will remain at 1 percent.
Frequently Asked Questions
SFHGLP Implementation of Annual Fee Frequently Asked Questions documentation was released September 7, 2011, by the Rural Development National Office in Washington, D.C., and can be accessed here.
RD Annual Fee Calculation Added to ConformX
The latest ConformX software release added the ability to charge an annual fee on Rural Development loans. The RD annual fee amount is calculated by using the annual average outstanding balance for each year similar to how FHA MIP is calculated. However, unlike FHA loans the balances used in the RD calculation include any financed upfront guarantee fee and the annual fee is charged for the life of the loan.
The RD National Office posted a new Guarantee Fee and Annual Fee Calculator on the USDA LINC Training and Resource Library at https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do in the Loan Origination section under Documentation and Resources. The ConformX RD annual fee calculations match the calculator posted at the link above.
New Field Prompts and Data Integrity Checks in ConformX
ConformX users are prompted for two additional fields on the Data Completion screen for Rural Development loans when empty:
- RD Obligation Date
- Mortgage Insurance Premium, 1st Renewal Percent
The RD Obligation Date is the date of the Conditional Commitment. This applicable “Date:” area can be found at the bottom left corner of Form RD 1980-18, “Conditional Commitment for Single Family Housing Guarantee”.
If the RD Obligation Date field has a value in ConformX, it is used to verify that both the upfront guarantee fee and the annual fee percents are accurate for the loan based on the loan purpose. If the date is not entered, only basic validation of the percents occurs. Some Loan Origination Systems will use the same field for the RD Obligation Date that is currently used for the FHA Case Number Assignment Date. Therefore the FHA Case Number Assignment Date field is copied over to the new RD Obligation Date field in ConformX if the RD Obligation Date is empty.
If the RD Obligation Date is entered and is before October 1, 2011, ConformX verifies that the upfront guarantee fee percent is 3.5 percent for purchases and 1 percent for refinances, and that no annual fee is charged. The Mortgage Insurance Premium, 1st Renewal Percent field should be set to 0 or left empty for these loans.
If the RD Obligation Date is on or after October 1, 2011, ConformX verifies that the upfront guarantee fee is 2 percent for purchases and 1 percent for refinances, and that an annual fee of 0.3 percent is entered. If the annual fee percent field is blank or zero for loans within this time period, the Mortgage Insurance Premium, 1st Renewal Percent field must be changed to 0.3 percent on the Data Completion screen.
Some clients do not set the Base Loan Amount to the full Loan Amount (the financed upfront guarantee fee is not included) and will continue to use various values for the upfront guarantee fee percent instead of 3.5, 2, or 1. If this is the case then the previously described percents are not applicable and clients should request that the new system default setting “Enable RD Guarantee Fee Data Integrity Checks” be set to “No”. Once the checks are disabled, the RD upfront and annual percent amounts will not be verified by ConformX.
The following forms will be revised by RD with an effective date of October 1, 2011:
- RD 1980-21 Request for Single Family Housing Guarantee
- RD 1980-18 Conditional Commitment for Single Family Housing Guarantee
- RD 1980-17 Loan Note Guarantee
The updated versions have not been posted yet.
When an RD annual fee is charged on a loan, the monthly amount is labeled as “Mortgage Insurance” on the ConformX loan documents. The following are examples of the affected documents and calculations:
- Good Faith Estimate initial monthly payment amount owed.
- Loan Summary total estimated monthly payment.
- Federal Truth-in-Lending Statement APR, Finance Charge, Total of Payments, and monthly escrow amount. It also triggers “Includes Mortgage Insurance” phrase in the Interest Rate and Payment Summary table.
- Payment Schedule itemized monthly payment amounts and total.
- HUD-1/1A Settlement Statement escrow fee line 1003 and initial monthly payment amount, with the “Mortgage Insurance” checkbox marked on last page.
- Itemization of Amount Financed.
- First Payment Letter.
- Initial Escrow Account Disclosure Statement.
- Initial Amortization Schedule, with the declining monthly amounts displayed in the “Mortgage Insurance” column.
The placement of the upfront guarantee fee on the HUD-1 has not been modified and will continue to be determined for each client based on the corresponding ConformX system default setting.
Please contact Client Support at 800.497.3584 option 3 with any questions or to request your “Enable RD Guarantee Fee Data Integrity Checks” ConformX system default to be set to “No”.
September 10, 2011