Four months into the program, the USDA came back with an update saying they were going to tie in the cost of closing, but the 1% cap remained, Burgess said.
The USDA’s Regular and Streamline Refinance Programs are not capped, but they see the cap on the pilot as reasonable because it’s less work for an originator than a regular refinance.
“We aren’t asking for an appraisal or credit report or inspection, we don’t have to calculate debt to income ratio,” Trevino said. “From an origination point of view, it’s a lot less work.”
Savitt argued that originators must still ensure borrowers aren’t over the income limit and qualify for the program.
“In order to satisfy the requirement, you still have to look at paystubs, W-2s and bank statements,” Savitt said. “You aren’t using it for qualifying, but you still have to do the work for income limits.”
“I certainly cannot refuse a borrower to improve their life,” Burgess said. “We take the applications, but what we have found is that the loan documentation process to originate these loans is as great if not more than the upfront program when we originally did the purchases.”
The pilot will expire in February 2014. Until then, Trevino said performance for the loans is being watched very carefully and formally evaluated every six months.
“At the end of the two-year period we will look at the program and a decision will be made at that point,” Trevino said. “The most important is cost and benefits to the borrower.”
Savitt hopes the USDA will consider his suggestion of removing the 1% cap prior to that.