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The Rural Housing Service is proposing to amend its current regulation to delegate loan approval authority to preferred lenders, i.e., those whose loans have performed well and demonstrated strong underwriting capability, to benefit the program and its stakeholders.  Preferred lenders would be responsible for certifying that both the applicant and property meet all program eligibility and underwriting requirements and thus are eligible for the guarantee, without the prior review by agency staff which takes place today. This change will speed up approval processing times, benefiting applicants, preferred lenders, and the Agency. The change to delegated authority would alter the risk management dynamics of the program, and with the proposed rule the agency should be able to proceed in a manner that assures its risk profile for the program would not increase.

Statement of Need:

The Rural Housing Service is proposing to amend its regulations to delegate loan approval authority to preferred lenders. The regulation changes will also strengthen management and oversight by issuing capital and financial requirements for non-regulated lenders and establish qualifications requirements for the principal offices of approved lenders and servicers.

Summary of the Legal Basis:

The Single Family Guaranteed Rural Housing Program is authorized by Section 502(h) of the Housing Act of 1949. This regulatory action is required by the Housing Opportunity through Modernization Act of 2016 (Pub. L. 114-201).

Alternatives:

As this action is required by statute, there are no alternative actions to implementing delegated loan approval authority.

Anticipated Costs and Benefits:

The proposed rule would continue the Agency's efforts to improve delivery of the program while mitigating risk. The proposed rule would also provide low and moderate income households with faster and better service because intervention by the Agency at origination through closing will be eliminated. Preferred lenders would be selected on the basis of their strong performance over a period of at least two years. They would be required to maintain specific credentials, successfully complete training exercises, demonstrate acceptable delinquency rates, and meet any other qualifying requirements established by the Agency. To ensure they maintain their strong underwriting performance, the preferred lenders would be monitored closely on a post-closing basis. The proposed rule includes the ability to terminate the lenders preferred status should their loans fail to meet performance standards established by the Agency.

The projected cost for system enhancements necessary to implement delegated approval authority is estimated to be $4 million. This cost would be spread over a two-year period for system development and user acceptance testing.