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Loan Note Guarantee and Indemnification
Single Family Housing Guaranteed Loan Program
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Training Objectives • Where is the topic located?
* 7 CFR Part 3555 and HB‐1‐3555 • Learning Checks • Resources
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Things change! • Every effort has been made to ensure training references are accurate at the time of publication.
• Always reference the most recent USDA publications available online.
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Guaranteed Loan Program Regulation7 CFR Part 3555 • The regulation is the rule! • 8 Subparts: A – H• Appendix 1
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7 CFR Part 3555http://www.rd.usda.gov/publications/regulations‐guidelines
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7 CFR Part 3555
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7 CFR Part 3555
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7 CFR Part 3555: 3555.108
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7 CFR Part 3555: 3555.108
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7 CFR Part 3555: 3555.108
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7 CFR Part 3555: 3555.108(d)(1)
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7 CFR Part 3555: 3555.108(d)
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Guaranteed Loan Program Technical HandbookHB‐1‐3555 • Provides guidance to support the regulation• HB is not the rule • 20 Chapters
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HB‐1‐3555
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HB‐1‐3555
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HB‐1‐3555: 16.6 Agency Review of Documents and Issuance of Loan Note GuaranteeA. Incomplete Closing Documents • 30 days to correct
B. Acceptable Closing Documents• LNG is issued
C. Unacceptable Closing Documents• Correction may be eligible, otherwise LNG denied
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HB‐1‐3555: 16.7 Closing date • Date on closing disclosure• Interest credit may be eligible
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HB‐1‐3555
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HB‐1‐3555: 20.2 Loss Claim Coverage A. Loan Guarantee Limits Maximum payment is lesser of: • 90% of original principal amount or • 100% of loss equal to 35% of original principal amount plus 85% of remaining loss up to 65% of original principal amount
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HB‐1‐3555: 20.2 A, Loan Guarantee Limits Example: Original principal amount: $165,000 1. $165,000 x 90% = $148,500 2. $165,000 x 35% = $57,750
65% of $165,000 = $107,250 85% of $107, 250 = $91,162.50 $57,750 + $91,162.50 = $148,912.50
Maximum loss claim payout: $148,500 20
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HB‐1‐3555
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HB‐1‐3555
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HB‐1‐3555: 4.9 Indemnification• Originating lender • Defaults within 60 months of loan closing• Unsupported data or omitted material information• Failure to verify/analyze income or employment • Identified property deficiencies• Ineligible appraiser
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HB‐1‐3555: 4.9 Indemnification• Originating lender • No timeframe from loan closing• Loss due to fraud and misrepresentation
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Forms
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Forms
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Forms
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Form RD 3555‐17/17E
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Form RD 3555‐17/17E
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Form RD 3555‐17/17E
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Form RD 3555‐17/17E
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Form RD 3555‐17/17E
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Form RD 3555‐17/17E
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Form RD 3555‐17/17E
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Form RD 3555‐17/17E
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TIPS• Underwriter = USDA Approved Lender • USDA = not an underwriter • Research Rule & HB questions: Table of Contents• Research Rule & HB questions: Control + F
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7 CFR PART 3555 / HB‐1‐3555 LEARNING CHECKS
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Question Slide“Topic”
• Question will be bulleted with scenario, or • Include a statement/question
TRUE/FALSE or other answer options will be displayed
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ANSWER SLIDE“Topic” ANSWER: 7 CFR Part 3555 and HB‐1‐3555 references provided
X. Correct Response
• Additional guidance for clarification may be provided
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LNG and Indemnification
Loan Note Guarantees may only be issued to USDA approved lenders.
A. TRUE B. FALSE
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LNG and IndemnificationANSWER: 3555.108 and HB 16.6 A
A. TRUE
• A Third Party Originator (TPO) and non‐USDA approved lenders may not receive Conditional Commitments or Loan Note Guarantees (LNG)
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LNG and Indemnification
Form RD 3555‐17 must be printed, signed, and mailed to the approved lender.
A. TRUE B. FALSE
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LNG and IndemnificationANSWER: 3555.108 and HB 16.6 B
B. FALSE
• The Loan Note Guarantee is issued electronically• Form RD 3555‐17E denotes the form was issued electronically
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LNG and Indemnification
• Bixby Bank receives LNG • Loan is sold to Orange Lending • Loss is paid three years post closing• Review determines negligence in origination • Who is responsible to indemnify USDA
A. Bixby Bank B. Orange Lending
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LNG and IndemnificationANSWER: 3555.108(d) and HB 4.9
A. Bixby Bank
• Indemnification applies to originating lender • Servicers/Holder will be reimbursed under the terms of the LNG
• USDA will pursue indemnification
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LNG and Indemnification
USDA may pursue indemnification from an originating lender up to ___ months post loan closing due to misrepresentation of material loan data.
A. 30 B. 60
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LNG and IndemnificationANSWER: 3555.108(d) and HB 4.9
B. 60
60 months from loan closing applies for errors regarding: • Misrepresentation/omissions• Improper analysis of income/employment • Failure to correct property deficiencies • Ineligible appraiser
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LNG and Indemnification
USDA may pursue indemnification from an originating lender _________ post loan closing due to fraud and negligence.
A. up to 60 months B. with no time limit
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LNG and IndemnificationANSWER: 3555.108(d) and HB 4.9
B. with no time limit
• Fraud and negligence to the U.S. Government are always eligible for indemnification
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LNG and Indemnification
• Loan closing received • Conditional Commitment interest rate: 4.5% • Lender closed the loan at 5.00% • USDA must deny the LNG request
A. TRUE B. FALSE
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LNG and IndemnificationANSWER: 3555.108 and HB 16.6 A
B. FALSE
• Lender may have 30 days to correct interest rate • USDA may offer additional remedy options • If no resolution is achieved, LNG must be denied
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LNG and Indemnification
• Loan closing received • USDA notifies lender of items that require correction • Lender does not respond within 30 day timeframe• USDA must deny the LNG request
A. TRUE B. FALSE
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LNG and IndemnificationANSWER: 3555.108 and HB 16.6 A
A. TRUE
• USDA provided 30 days to correct • Lender has not responded • Lender notification requesting additional time to correct will be honored
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LNG and Indemnification
• Loan closing received • Borrower received $500 back at loan closing• Borrower had $250 of eligible funds in the transaction• The loan closed at or below the amount authorized on the Conditional Commitment
• USDA must deny the LNG request
A. TRUE B. FALSE
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LNG and IndemnificationANSWER: 3555.108 and HB 16.6 A
B. FALSE
• Lender can apply $250 to the principal loan balance • The closed loan did not exceed the authorized amount on the commitment
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LNG and Indemnification
• Sunny Lending was issued a LNG • They are selling the loan to Grey Bank but cannot find the LNG
• Sunny Lending may request a copy of the LNG from USDA
A. TRUE B. FALSE
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LNG and IndemnificationANSWER: 3555.108 and HB 16.8
A. TRUE
• The approved lender may request a duplicate copy of the LNG
• A TPO and non‐approved lenders may not access or request copies of the LNG
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WAY TO GO!
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Regulationshttp://www.rd.usda.gov/publications/regulations‐guidelines
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