7.3 LOAN TERMS (03/09/16)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

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 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, as long as it does not exceed the interest rate cap established by the Agency. This cap is 100 basis points (1.00 percentage point) over the following:

Current Fannie Mae yield for 90-day delivery (actual/actual) for 30-year fixed rate conventional loans, rounded up to the nearest one-quarter of 1 percent. The Fannie Mae website to confirm acceptable interest rates is: https://www.efanniemae.com/sf/refmaterials/hrny/index.jsp.

This cap will remain in effect unless otherwise changed by the Agency. The lender will document in their mortgage file that the rate did not exceed the cap on the date the interest rate for the loan was locked. Documentation can be on Form RD 3555-21, which becomes part of the lender’s permanent case file. If the rate is floating at completion of Form RD 3555-21, the lender will document in their file the date the rate was locked and their confirmation the rate did not exceed the cap. The Agency will request confirmation of the lock date as a condition of the commitment if the rate remains floating at issuance of the Conditional Commitment.

The relevant date for determining whether the interest rate is in compliance with this provision is the date the lender and applicant mutually agree to lock the 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:

Updated URLA reflecting data changes due to an interest rate adjustment.

A new updated Form RD 3555-21 reflecting data changes due to the interest rate adjustment.

Underwriting analysis reflecting the updated interest rate and confirming the applicant(s) remain eligible for the SFHGLP. 

Confirmation of the date the interest rate was locked to confirm the rate meets the maximum allowable rate as described earlier in this Paragraph.

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).

The Agency will provide adequate advance notification of changes to the established interest rate cap by written notification to approved lenders.

Terms Unacceptable for a Guarantee

The following terms are unacceptable for the guaranteed loan. Adjustable rate mortgages (ARMs);

Balloon mortgages;

Mortgages for other than 30 years;

Interest on interest or negative amortization (or any non-fully amortizing loan); and

Prepayment penalties.