I will give you the entire USDA Lender Notice below, but in a nutshell, they will continue to issue Conditional Commitments after funds are exhausted. However, this DOES NOT mean Lenders will continue to fund Guarantee Loans. 

Why? Because there is still a large risk to the Lender during the interim. 

USDA loans are guaranteed by USDA. This is the reason mortgage insurance is not required. When the USDA office approves a loan and issues a Conditional Commitment, they reserve the funds for that borrower.   Very soon after the loan closes, USDA (Agency) issues a Loan Note Guarantee. The problem right now is there are no funds to reserve as money has been exhausted and not yet replenished. Therefore, USDA will "obligate" the money but the :The Lender will assume all loss default risk for the loan until funds are available for Rural Development to obligate, and the Loan Note Guarantee is subsequently issued."

Another potential issue for Lenders is the when funds are replenished and the Lender requests the Loan Note Guarantee, the Lender must certify that "there have been no adverse changes in the borrower's financial condition since the date the Conditional Commitment was issued by the Agency." Now this may not be an problem if it takes place quickly, but what if takes a while and the borrower loses a job, hours are reduced or buys a car?

The final concern is the Guarantee Fee charged the borrower. The Guarantee Fee is currently 3.5%; of which the borrower pays 2.0% and the government subsidizes the remaining 1.5%. The current debate in DC is (1) will the government continue to subsidize and if so, how much and (2) what should the fee be going forward. Some politicians feel the fee should be higher than 3.5%. 

As of the end of April, the fee was going to increase to 3.5% and the borrower would cover the entire amount. This debate is pretty much the major obstacle in getting the bill passed and funds replenished.

So, how much does a Lender charge the borrower? If they don't charge enough, they must cover the difference. If they charge too much, the Lender is responsible for to refund the borrower.

There are some Lenders that will proceed forward and start closing USDA loans; others may ride this out until clear terms have been met and funds are replenished. I personally feel as though the entire debate will end sooner rather than later and it will be a moot point. My hope is we can begin offering the program in June.

Feel free to read the entire USDA Lender Notice issued by USDA today.

If you have any questions regarding this, please don't hesitate to email me at dgeibel@cscademortgagewa.com or call (509) 232-7725.