Written By: NAMP® Op-Ed Ghost Writer
USDA introduced several changes on December 1, 2014. These were the interim rules that became effective with the introduction of the new guaranteed loan program regulations 7 CFR Part 3555. Since then, USDA has finalized these rules. Those final changes became effective March 9, 2016.The first highly anticipated change is that discount points may now be financed for all applicants.
USDA has also reduced their minimum trade line requirement from three open for 12 months, to two open for 12 months. Authorized user accounts are now allowable sources of minimum trade line verification when the borrower has documented proof that they have made the account payments for the past 12 months.
To verify non-traditional trade lines when the USDA minimum requirement is not met, lenders are only required to verify two accounts when one of those is rent. If the borrower does not have verification of rent for the past 12 months, three non-traditional trade lines are required. Lenders may use insurance policy premiums that are paid annually or quarterly as non-traditional trade lines. USDA has also defined “recent” as it pertains to non-traditional trade line verification. All accounts must be open or they must be closed no more than six months at the time of application.
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Omitted debts now require comments in GUS. The comment should explain why the debt was omitted and what documentation was used to support the omission. The trailing documentation must be retained in the loan file in the event that USDA requires a review.
USDA has determined that there is no need to update GUS and the conditional commitment when new credit is pulled due to expiration. To meet this guideline, the lender must validate that there are no changes to credit. These changes include new FICO score, payment amounts, debts, collection accounts, or public recordsinformation. If anything on credit changes, the loan must be resubmitted to USDA for an accurate GUS recommendation and new conditional commitment.
When calculating projected annual income for program eligibility, lenders must now include documented pay raises or cost of living increases set to occur on or prior to issuance of the conditional commitment. Lenders must also include income of spouses in the event of separation without filed legal proceedings. Non-divorced, separated spousal income can only be omitted when the parties have been living apart for at least three months or when legal proceedings have been filed.
Although we have highlighted some of the most impactful USDA changes here, there are many more updates included in the new rules. Lenders are encouraged to take the Final 7 CFR Part 3555 and HB-1-3555 Revisions: Origination training available on USDA’s LINC site. In addition, it is beneficial to review the new HB-1-3555 handbook located on USDA’s Publications / Regulations & Guidelines site. It’s best to get familiar with these changes as soon as possible to avoid delays in the processing of your conditional commitment.
About The Author
All of NAMP® staff writers are veteran mortgage processing & underwriting instructors for Mortgage Underwriter University (www.MortgageUnderwriter.org). They have each conducted numerous mortgage processing & underwriting training classes and have worked in the mortgage banking industry for 25+ years. If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org
