single family housing guaranteed loan program! to assets, presented by usda’s single family...
TRANSCRIPT
Welcome to Assets, presented by USDA’s Single Family Housing Guaranteed Loan Program!
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The objectives of the training include: 1. Demonstrating where the training topic is located in the program regulation, 7
CFR Part 3555 and the technical handbook, HB‐1‐3555. 2. Providing learning checks to help you gain a working knowledge of the topic,
and 3. Links to online resources to assist in locating program information.
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Every effort has been made to ensure this training and all references are accurate, however,new program revisions and clarifications may occur. Therefore, please ensure you always reference the most recent USDA publications available online.
This training module is not intended to replace the need to reference the regulation, technical handbook, and additional USDA published documents regarding the Guaranteed Loan Program.
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7 CFR Part 3555 is the program regulation. It is the first place users should look for the answers to their questions.
The regulation is the rule and it cannot be overridden by the technical handbook.
The 7 CFR Part 3555 is comprised of 8 subparts, A through H.
You can access the full regulation online as Appendix 1 from the Regulations and Guidelines website.
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The Regulations and Guidelines website is located from the link shown on the slide.
Under “Rural Development” there are many items available from this home page.
To access the regulation, select “Handbooks.”
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A list of all USDA Rural Development handbooks will display.
Be sure to select the correct technical handbook: HB‐1‐3555.
Once HB‐1‐3555 is selected, the entire handbook, including all appendix will display for selection.
Appendix 1 is the full regulation, 7 CFR Part 3555.
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Assets are located in Subpart D, Section 3555.152.
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The regulation Table of Contents provides a quick view of the individual topics included under this Section.
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3555.152(d) states that net family assets of all household members (adults age 18 and up) must be included in the calculation of annual income.
Annual income minus eligible deductions will determine if the household is eligible for the guaranteed loan program. For more information on annual income and adjusted annual income, please refer to those individual training modules.
It is the income derived from the net family assets that must be included in the annual income calculation.
Two calculations are available to assist lenders in calculating the income from the net family asset: actual and imputed.
Actual income would be supported through documentation that states the balance of the asset and the rate of interest earned.
Imputed income is applied when the asset is non‐interest bearing. The lender must apply a local passbook savings rate to the balance of the asset to calculate an imputed rate of return.
3555.152(d)(1) states the net family assets that are required to be included in the annual income calculation such as equity in real property, cash on hand, depository accounts, trust accounts, stocks and bonds, lump sum receipts to the household, personal property held as
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an investment, and the value of assets disposed of for below fair market value other than those included in a bankruptcy, foreclosure, or divorce/separation agreement.
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3555.152(d)(2) lists net family assets that do not have to be considered in the annual income calculation. These are listed here in the regulation and include assets such as cash on hand that will reduce the loan amount, personal property, business assets, retirement accounts, the cash value of life insurance policies, etc.
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The 7 CFR Part 3555 regulation cannot cover every topic and every potential scenario, therefore a technical handbook has been published to support the regulation and provide additional clarification. HB‐1‐3555 has 20 chapters.
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The handbook may be accessed from the Regulations and Guidelines website. Assets are located in Chapter 9.
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This screen shot displays the Table of Contents of Chapter 9. This helps the user to locate specific topics more quickly.
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When reviewing the assets of the applicant and other adult household members please keep the following in mind: • Income from eligible assets may be required to be included in the annual income
calculation. The technical handbook provides flexibility in asset amounts held by the household to help determine when a calculation is required. This will be addressed in the next slide.
• Assets are important because they may be a compensating factor. • Compensating factors strengthen the loan file and may affect underwriting
recommendations rendered by the Guaranteed Underwriting System (GUS). • Assets documented by the lender are not required to be included in the loan
application. If a lender wishes to obtain a conservative underwriting recommendation or perform a conservative underwriting analysis, the assets do not have to be included on the loan application.
• However, the lender must include the required actual or imputed income from an asset to include it in the annual income calculation if applicable.
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When making a determination of when eligible assets must have an annual income calculation completed, the technical handbook allows flexibility in Chapter 9, section 9.3 B.
When the household has net family assets in excess of $5,000, then the greater of the actual income derived (which would indicate it is interest bearing) or an imputed calculation is required.
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So therefore if the total value of eligible assets is $5,000 or less, then no calculation is required to add to the annual income calculation.
If the total value is above $5,000, then the lender must use the greater of actual income earned on the asset, or perform an imputed calculation utilizing a passbook savings rate. An asset earning zero interest will always require the imputed income. Assets generally do not earn less than a local passbook savings rate, as that is typically the lowest percentage available for an asset.
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In this example there is a non‐interest bearing checking account with a balance of $12,500. A savings account that earns 2% interest annually with a balance of $7,500. The applicant will use $5,000 from their funds towards the purchase of the dwelling.
The total of all assets presented is $20,000, minus the $5,000 they will use to purchase the home. This brings the remaining balance of assets to consider at $15,000.
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Because the assets remaining exceed $5,000 and they are assets that must be considered in the annual income calculation under the regulation, the following example calculation is provided.
$12,500 checking balance multiplied by a .25% passbook savings rate = $31.25The remaining savings account balance will be $2,500 x 2% interest rate earned = $50.00 $31.25 plus $50.00 = $81.25 which must be included in the annual income calculation to determine program eligibility.
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USDA has noticed that sometimes the asset calculation received by our offices is inflated due to a simple miscalculation with the interest rate.
In this example the passbook savings rate is one quarter of one percent. If your calculator does not calculate a percent of .25%, you can enter it as the decimal equivalent of .0025.
This will ensure that you arrive at a correct interest calculation of $31.25 and not $3,125.
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There is not one required way to research the passbook savings interest rate. The methods that generally work well include: • If you work for a lending institution that offers savings accounts, verify the current rate
offered. • Go to the website of the bank where the applicant has their checking account to verify
the rates they offer. • If you visit a site such as bankrate.com do not select the highest interest rate offered by
internet banks. They may offer 1%, while most local institutions are well below this threshold. It would be better to view all rates and select the interest rate that appears to be the most common.
In this screen shot the current savings account interest rate for a nationwide bank is shown. Notice there is no minimum required balance for this account and it earns .01%. So the examples shown in this training with .25% are quite generous at this time.
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Lenders are not required to enter assets on the Uniform Residential Loan Application or on the “Asset and Liabilities” application page in the Guaranteed Underwriting System (GUS). If the lender wishes to underwrite the loan or receive an automated underwriting recommendation that does not consider the assets as a compensating factor, they may certainly do so.
But when the assets exceed the acceptable threshold as indicated in the regulation and technical handbook then the income earned from the asset must be included on the income worksheet submitted to USDA, including the calculation and on the GUS “Eligibility” application page.
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A few helpful tips: 1. The underwriter of the loan is the approved lender’s underwriter. 2. USDA is NOT the underwriter of the loan. 3. When researching topics, it is helpful to begin with the Table of Contents for the
regulation and the handbook. 4. A great best practice when searching for information is to open the regulation or a
handbook chapter, select the “Control” button on the keyboard, hold it down, and then also select the “F” key. A keyword search box will appear. Enter a keyword or phrase to locate information more quickly.
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The best way to learn information is to test your knowledge
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Each question slide will list:• the topic• A question or scenario, and • potential responses.
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The answer slide will list: • The topic• The reference to the answer from the regulation and handbook• The correct response, and • Any additional clarification that may be helpful.
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Let’s get started!
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Read the question on the slide and select a response.
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Response: A. Checking account and B. Net proceeds from the sale of the current home
Retirement assets are excluded from the asset calculation. The personal vehicle is not being held as an investment, unlike a vintage car, therefore it is not required to be included in the asset calculation.
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Read the question on the slide and select a response.
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Response: A. IRA Account, C. Trust fund controlled by borrower’s grandfather, and D. $2,500 lotto winnings
The IRA account is a retirement fund and therefore excluded from the income calculation. Trust funds that are not controlled by the household are also excluded because the borrower cannot actively access the funds at any time. Lump sum additions to the household assets that are recurring, and lotto winnings would typically fit that definition, are also not considered in the annual income calculation. The lender should review the bank statements to ensure that winnings from gambling, the lottery, or other such ventures are not regularly recurring.
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Read the question on the slide and select a response.
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False The IRA account is excluded because it is a retirement asset. The total of the two remaining eligible accounts do not total $5,000 or more. Therefore under the flexibility provided in the technical handbook, a calculation is not required.
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Read the question on the slide and select a response.
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TrueAll of these assets must be considered for the annual income calculation under the regulation, and their value exceeds $5,000. If the applicant were to use any of these assets towards the purchase of the home, that may decrease the balance below $5,000 and then no calculation would be required.
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Response A: $109.75The $1,500 non‐interest bearing checking account will utilize the example passbook savings rate of .25% to yield $3.75. $5,300 x 2% annual interest = $106 $3.75 plus $106 = $109.75And again, if the applicant utilizes any of these funds towards the purchase of the dwelling and the balance of all eligible assets falls below $5,000, no annual income calculation will be required.
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Read the question on the slide and select a response.
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False The total eligible assets do total $6,600 but they will use $3,000 towards the purchase of the home. Therefore the remaining assets are below $5,000 and no calculation is required.
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Read the question on the slide and select a response.
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Response B: $8,400 multiplied by the passbook savings rate.
Lenders may verify a local passbook savings rate offered at a local lending institution, online banking comparison site, etc.
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Way to go! You have completed the learning checks!
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Don’t forget the Regulations and Guidelines website is a wonderful source of USDA guideline knowledge.
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Please sign up for GovDelivery messages. USDA sends out origination (including GUS) and servicing messages to alert lenders of new publications, clarifications, and additional program updates.
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Thank you for supporting the USDA Single Family Housing Guaranteed Loan Program! We appreciate the opportunity to help you serve more rural homebuyers!
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This will conclude the training module. Thank you and have a great day!
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