RHS Amends Rules for Single Close Construction to Permanent Loans

The USDA’s Rural Housing Service (RHS) recently issued a final rule, pushing back from August 21, 2019, to October 1, 2019, the effective date of a prior rulemaking that seeks to facilitate and encourage single close combination construction to permanent loans (single close loans) under the Single-Family Housing Guaranteed Loan Program (SFHGLP).

According to RHS’s prior rulemaking, warehouse lenders currently have difficulty making affordable single close loans under the SFHGLP because of the inability to cover construction costs and make payments to secondary market investors during the construction period.  As a result, the rulemaking amends the SFHGLP regulation to ease the financial costs of interim construction financing for such lenders by: (i) allowing a temporary interest rate higher than the permanent note rate for interim construction financing; (ii) removing the requirement for loan modification or re-amortization once construction is complete (thereby allowing loans to remain in mortgage backed securities without interruption); and (iii) allowing for the reserve of regularly scheduled principal, interest, taxes and insurance payments for up to 12 months during the construction period.

In addition, the final rule allows single close loans for the rehabilitation of existing dwellings upon their purchase, eliminates maximum interest rate cap requirements for all SFHGLP loans, and updates lender mortgage record retention requirements to include single close construction documentation.