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6.4 AGENCY REVIEW OF LOAN PURPOSES
The Agency will determine if the purposes for the loan guarantee are acceptable before issuing a Conditional Commitment for loan guarantee. If the Agency determines loan funds will be used for an ineligible purpose, the Agency will contact the lender and attempt to resolve the situation prior to issuance of the Loan Note Guarantee. Loan purposes will also be reviewed during the Agency’s Quality Assurance (QA) internal monitoring process and Lender Oversight (LO) compliance reviews to ensure that the lender has an accurate understanding of eligible and prohibited loan purposes. Refer to chapter 19 of this Handbook for a detailed discussion of how the Agency handles loss claims for loan funds that were used for an ineligible purpose.
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REFINANCE OPTIONS FOR SECTION 502 DIRECT AND
GUARANTEED LOANS (Attachment 6-A)
REQUIREMENT NON-STREAMLINED STREAMLINED STREAMLINED-ASSIST
New Appraisal Yes Only for Direct 502 with recapture subsidy due
Only for Direct 502 with recapture subsidy due Maximum Loan Amount Up to the new appraised value plus the amount of the financed up-front guarantee fee and include:
May include:
May include:
x Principal & interest balance x Eligible closing costs x Up-front guarantee fee
x Principal & interest balance x Eligible closing costs x Up-front guarantee fee
x Principal & interest balance x Eligible closing costs x Subsidy recapture
Net Tangible Benefit No No Yes
$50 or greater reduction of the total principal, interest and monthly annual fee payment Include Subsidy Recapture Yes Up to the new appraised value
No No
Yes Yes x Add borrowers x Remove only deceased borrowers Credit x No defaults in the previous 180 days prior to Agency request x Meet Chapter 10 requirements
Add/Remove Borrowers
(one original borrower must remain)
x No defaults in the previous 180 days prior to Agency request x Meet Chapter 10 requirements
x No defaults in the previous 180 days prior to Agency request
Ratio waivers x GUS Refers only x Must meet Chapter 11 requirements
x GUS Refers only x Must meet Chapter 11 requirements
No ratio calculations required
Final Submission in GUS Yes Yes No
Soft seconds and/or subsidy recapture may be subordinated
Yes Yes Yes
REQUIREMENTS FOR ALL REFINANCE OPTIONS x Only loans financed or guaranteed by USDA are eligible. x Existing loan must have closed at least 180 days prior to submission to the Agency. x Fixed interest rate at or below the current interest rate of the loan being refinanced. x Borrower must meet applicable adjusted annual household income. x No cash out from collateral equity. Only reimbursement of borrower prepaid eligible closing costs and/or refund from escrow overage. x Borrowers must occupy the property. x Properties located in areas now deemed ineligible remain eligible for refinance. x Existing leveraged loans or subordinate liens must be paid in full or be subordinated.
(03-09-16) SPECIAL PN 6-12 Revised (05-05-25) PN 640
Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts.
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Attachment 6-A Guidance for Refinancing Section 502 Direct Loans
The Section 502 Direct Loan Program provides loans to low and very-low income borrowers that may include payment assistance, or payment subsidy that reduces the mortgage payments determined by the borrower’s adjusted household income.
Subsidy Recapture
Arrangements must be made to either pay off or defer repayment of any subsidy recapture due when a Section 502 loan is refinanced. Any recapture amount owed as part of the 502 direct loan pay off may be included into the amount being financed with the SFHGLP non-streamline refinance loan subject to the maximum loan amount. A discount on recapture may be offered if the customer does not defer recapture (pays amount due in full) or includes the recapture amount due into a non-streamlined refinance loan. Alternatively, any 502 direct recapture amount that is owed at the time of refinance may be deferred if the recapture amount takes a subordinate lien position to the new SFHGLP loan.
Obtaining a “Statement of Loan Balance” Letter for Direct Loan Borrowers
Lenders may determine an applicant has a direct loan when the credit report reflects “USDA” or “Farmers Home Administration” as the mortgage creditor or the applicant informs the lender they applied and received their mortgage loan through a USDA Service Center. Direct loans are serviced by the Servicing and Asset Management Office (Servicing Office). Obtaining a “Statement of Loan Balances” letter will assist lenders to determine if subsidy recapture is due. The “Statement of Loan Balances” will also include instructions for the lender to follow regardless of information submitted at the time of payoff request.
To obtain a “Statement of Loan Balance”, submit a request on lender letterhead which includes the borrower’s name, account number and address along with a signed authorization from the customer to release the information. The “Statement of Loan Balance” will reflect the maximum amount of subsidy recapture that may be due. It is not a payoff statement. Requests can be faxed to (314) 457-4433.
The Servicing Office will not provide payoff quotes verbally or over the phone. The Servicing Office also assists lenders with subordination agreements when direct loan borrowers elect to subordinate the subsidy recapture due. Lenders and direct loan borrowers that have questions regarding a direct loan account may contact the Servicing Office at (800) 414-1226.
(03-09-16) SPECIAL PN 6-13 Revised (05-05-25) PN 640
Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts.