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7.3 LOAN TERMS
The lender must consider whether the loan could be made without a guarantee. If the lender is willing to make the loan without the guarantee at the same rates and terms, the
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loan is not eligible for the guarantee program. If the lender is not willing to make the loan without a guarantee and wishes to request a guarantee, the required loan terms for all loans guaranteed under the program are described below.
A. Repayment Period
The loan term must be 30 years, and the loan must fully amortize in that period. The promissory note must show regular monthly payments generally payable on the first day of the month.
B. Interest Rate
The lender and the borrower are free to negotiate any mutually acceptable fixed interest rate. The interest rate should be locked by the time of loan settlement. In the event the interest rate is not locked at the time Form RD 3555-18 is issued, and the interest rate increases between the time of issuance of Form RD 3555-18 and loan closing, the lender will note the change when submitting the loan closing package and support the increase in interest rate with modified loan application documents. Modified loan documents will include at a minimum:
x Updated URLA reflecting data changes due to an interest rate adjustment.
x Underwriting analysis reflecting the updated interest rate and confirming the
applicant(s) remain eligible for the SFHGLP.
x Interest rates that have been underwritten with the assistance of GUS will require a
resubmission if the locked interest rate adversely affects the eligibility of the loan. The resubmission will be treated as a new request by SFHGLP processing offices. An increased interest rate could result in a denial of Loan Note Guarantee request if the underwriting recommendation of GUS at issuance of Form RD 3555-18 results in a recommendation lower than the original recommendation (i.e. an Accept underwriting recommendation at issuance of the Form RD 3555-18, changed to Refer underwriting recommendation as a result of a resubmission with a higher interest rate).
C. Terms Unacceptable For A Guarantee
The following terms are unacceptable for the guaranteed loan.
x Adjustable rate mortgages (ARMs);
x Balloon mortgages;
x Mortgages for other than 30 years;
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x Interest on interest or negative amortization (or any non-fully amortizing loan);
and
x Prepayment penalties.