Since May, the Department of Agriculture's Rural Housing Service has been offering conditional loan commitments to lenders, but few are willing to bite anymore.
Lenders that have used the conditional commitments still can't get their RHS single-family loans insured.
If the loans go delinquent before the RHS implements a new premium structure recently approved by Congress, the lenders could be on the hook for the losses.
Lenders are "hesitant" to use loan commitments without the full guarantee of the RHS, Vicki Golder, president of the National Association of Realtors, wrote in an Aug. 13 letter to Agriculture Secretary Tom Vilsack.
But it appears RHS will not be able to guarantee loans until October at the earliest, according to sources.
The program exhausted its regular loan commitment authority in May after lenders originated $13 billion in loans.
Instead of seeking additional loan commitment authority from Congress to keep the RHS program going, the Agriculture Department urged lawmakers to increase RHS premiums. This change would make the loan guarantee program self-funding and free it from the congressional appropriations process.
The self-funding proposal enjoys strong bipartisan support. But it was attached to a large emergency supplemental appropriations bill that got bogged down in a contentious debate over deficit spending. The bill did not reach the president's desk until July 29.
As approved by Congress, it raises the RHS up-front premium to 3.5% for homebuyers and 2.25% for refinancings. Previously, the up-front premium was 2% for homebuyers and 0.5% for refinancings.
Lenders had hoped that RHS would immediately restart the program and start insuring loans. But the state and regional RHS offices told lenders they could not approve loans until they receive guidance from Washington.
Lenders were also told the RHS must update its automated underwriting system (which is called Gus) to include the new premiums.
"These updates could take up to four weeks to complete," one RHS state office said in a memo to lenders.
Some RHS supporters were aghast that the agency had not started the changes in the Gus system while the bill was trapped in the legislative logjam.
Nevertheless, implementation of the new premium structure is underway. "We are moving forward now," said RHS administrator Tammye Trevino.
In an Aug. 12 statement, the RHS administrator stressed that the changes are being made to internal underwriting systems and the RHS will soon give additional guidance on the changes.
She did not specify a timeline, but some sources expect the updates will not be ready until sometime in the fourth quarter, possibly by the end of October.
"In the meantime, lenders will be provided with commitment letters to honor loan-guarantee requests upon completion of the internal system updates," Trevino said.