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RHS/USDA Guaranteed Loans

As a part of the United States Department of Agriculture (USDA) Rural Development, the mission of the office of Housing and Community Assistance is to improve the quality of life in rural areas.  Housing and Community Facilities Programs (HCFP) help rural communities and individuals by providing loans for single family homes and loans and grants for multi-unit housing and community facilities.

Single Family Housing Programs provide home ownership opportunities to low and moderate income rural Americans through several loan, grant, and loan guarantee programs.  The programs also make funding available to individuals to finance vital improvements necessary to make their homes decent, safe, and sanitary
To be eligible for many USDA loans, household income must meet certain guidelines and the home to be purchased must be located in an eligible rural area as defined by USDA.  See the USDA Income and Property Eligibility Site for more information.  See the USDA Single Family Housing Loans and Grants Site for a list of available programs.

How To Tell If You Have A RHS/USDA Guaranteed Loan

It is difficult to know if you have a loan guaranteed by the Rural Housing Service (RHS) through the United States Department of Agriculture (USDA).  When you initially received the loan, the lender or mortgage broker may have mentioned that you were applying for a “farm” loan.  But the best way to tell is to check the “HUD-1” form that you received with all the other paperwork at the loan closing.  In the top right of the form, the box “FmHA” should be checked and there should be a line item in the HUD-1 for expenses going to the Rural Housing Service.

Although both are sometimes referred to as “farm loans,” RHS guaranteed loans are different from USDA Direct loans.  Click here to see more details about the USDA Rural Development Single Family Housing Guaranteed Loan Program.

I Missed A Mortgage Payment. 
What Are My Options With A RHS/USDA Guaranteed Loan
?

A Rural Housing Service guaranteed loan is part of the Section 502 Single Family Housing Guaranteed Loan Program.  This program includes USDA regulations that require loan servicers to establish contact with you early on to resolve a delinquency.  Whether or not you have been contacted by the loan servicer, you should reach out to the lender yourself to discuss options.  With a Rural Housing Service guaranteed loan, it is especially important that you save letters you receive from the bank and keep good records of your contact with the bank as it has an obligation to communicate with you. 

It is very important to open and read your mail.  If your lender offers to meet with you, you should accept that opportunity.  In fact, if you haven’t heard from your lender, request a face-to-face meeting yourself.  The sooner you meet with your lender to resolve the problem, the easier it will be to fix.  There is an embarrassment factor for the homeowner who is behind on the mortgage, but don't let that prevent you from meeting with the bank.  Bank personnel deal with this problem all the time and there are special programs specifically for homeowners in this situation.  The bank looses money if it has to foreclose, so fixing the problem is in everyone's best interest.


You don't have to be 30 days or more past due on your mortgage to begin talking to your lender about options to avoid foreclosure.  A borrower who is facing imminent default is also eligible for special loan servicing programs. 
A borrower is ‘‘facing  imminent default’’ if that borrower is current or less than 30 days past due on the mortgage obligation and is experiencing a significant reduction in income or some other hardship that will prevent him or her from making the next required payment on the mortgage during the month in which it is due.

If you are delinquent on your Rural Development guaranteed single family mortgage, your first options will be the same as those available with conventional loans.  The lender must consider the following traditional servicing options before considering special loan servicing: 

 
  • A Repayment Agreement

  • A Special Forbearance Agreement

  • A Traditional Loan Modification Plan

Only if these traditional loan servicing options fail can the lender offer special loan servicing programs.  The available programs and options to help a homeowner avoid foreclosure are handled by the bank's loss mitigation department.  It is called "loss mitigation" because their job is to minimize the loss to the bank by preventing the house from going into foreclosure.  Below are some of the Rural Development guaranteed single family mortgage special loan servicing programs that can be offered by the loss mitigation department to help homeowners avoid foreclosure.

 
  • Extended-Term Loan Modification:  In an extended-term loan modification, the mortgage arrearage is capitalized, i.e. the past due payments are added to the loan balance, the interest rate reduced and the term of the loan is extended to 30 years from the point of modification.  This brings the loan current and reduces the monthly payments to a targeted mortgage payment to income ratio, usually 31 percent of gross monthly income.  Only if the targeted payment to income ratio cannot be achieved using an extended-term loan modification, can the lender consider a mortgage recovery advance in addition to the extended-term loan modification.  The lender may reduce the interest rate further and/or extend the term of the loan for up to 40 years from the date of loan modification, but the lender is not required to do so before utilizing a mortgage recovery advance.

    An extended-term loan modification plan differs from a traditional loan modification plan in that the term of the traditional plan cannot exceed 30 years from the date of the original loan. 

  • Mortgage Recovery Advance:  Mortgage Recovery Advance is a one-time payment from the USDA to help bring the loan current.  This is available even though a foreclosure has been filed.  No interest will accrue on the Mortgage Recovery Advance.  Repayment of the Mortgage Recovery Advance is not due until the earliest of (i) the maturity of the modified mortgage, (ii) the borrower transfers title to the property (by sale or by other voluntary or involuntary means) or (iii) a pay-off of the mortgage occurs.  Under some circumstances, a Mortgage Recovery Advance can be combined with an extended term modification.

Remember as with any mortgage loan, your first step should be to contact your lender and a local HUD certified housing counselor

But if your lender is not working with you properly to resolve the problem with your Rural Housing Service guaranteed loan, you should report the matter to your local USDA Service Center.  See the USDA Service Center Locator Site to find your local Rural Development Agency office or contact the Rural Development Ohio State Office below.

          RD Ohio State Office
          200 N High St
          5th Floor, Room 507
          Columbus, Oh 43215-2463
         

          (614) 255-2500 Ext 4
          (614) 255-2559 Fax

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This website provides general legal information and not legal advice.  The law is complex and changes frequently. 
Before you apply any general legal information to a particular situation, consult an attorney. 
If you cannot afford an attorney call 1-866-Law-Ohio (1-866-529-6446) or visit OhioLegalServices.org for your closest legal aid office.

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