The USDA Rural Refinance Pilot program, launched in February of 2012, has drawn criticism from mortgage originators who say there is no profit to be made from the loan. However, the USDA stands firm, saying the loan is for the benefit of the borrower, so the 1% cap under fire from originators is here to stay for the foreseeable future.
The pilot program was designed to help USDA borrowers who owe more than the current value of their homes to have the opportunity to pay lower monthly mortgage payments and interest rates, said Tammye Trevino, administrator for USDA Housing and Community Facilities Services.
But while the borrower is important, the program isn’t viable if brokers originating the loan can’t break even, said Marc Savitt, president of the National Association of Independent Housing Professionals (NAIHP).
The USDA has many worthwhile programs, he said, but the problem with the pilot program is the 1% cap to reduce consumer costs, something Savitt sees as prohibitive only to brokers.
Creditors are allowed to charge the borrower additional fees for smaller loan amounts or lower credit scores, he explained, and settlement agents still receive their regular fees. In addition to the 1% origination fee, correspondent lenders and creditors are permitted to receive additional compensation by service release premiums, but brokers are prohibited from receiving the same.
“Why doesn’t everyone take a little less instead?” Savitt asks.
The 1% has to cover the loan originator, the processor and every cost in between, said Alyce Burgess, who has been originating USDA loans since 1998. The owner of Essential Mortgage Loan Services in Astoria, Ore., Burgess says there simply isn’t enough to go around even in her small company.
Trevino said one reason for the cap is that initially the pilot program didn’t include closing costs, but this was a stumbling block to those consumers who were already struggling with payments.