RHS Issues Final Rule Concerning Single Family Housing Guaranteed Loan Program

On May 3, 2016, RHS published a final rule which makes amendments to its Single Family Housing Guaranteed Loan Program regulations. The final rule is effective June 2, 2016. Among the changes made, the amendments expand the indemnification provisions for originating lenders, amend the refinancing provisions to require that the new interest rate not exceed the interest rate on the original loan and to add “streamlined-assist” (a new refinance option), and indicate that an RHS-guaranteed loan is a Qualified Mortgage if it meets certain CFPB-stated requirements.

Regarding the indemnification provisions, the amendments expand RHS’s lender indemnification authority for loss claims in the case of fraud, misrepresentation, or noncompliance with applicable loan origination requirements. More specifically, the amendments include items such as: (a) the loan note guarantee will remain in effect for any loan holder that acquired it from an originating lender; and (b) if RHS determines that the lender did not originate the loan as required and RHS paid a claim under the loan guarantee, RHS may, among other things: (i) revoke the originating lender’s eligibility status; and (ii) require the originating lender to indemnify RHS for the loss: (A) if the default leading to the payment of loss claim occurred within five (5) years of the loan closing and one or more specified conditions is satisfied (e.g., the originating lender used unsupported data or omitted material information when submitting the request for a conditional commitment to RHS, failed to properly verify and analyze the applicant’s income and employment history in accordance with RHS guidelines, etc.); or (B) regardless of how long ago the loan closed or the default occurred, if RHS determines that fraud or misrepresentation was involved with the origination of the loan.

The final rule can be found at: https://www.gpo.gov/fdsys/pkg/FR-2016-05-03/pdf/2016-10217.pdf.