USDA’s outdated underwriting system hampers rural lending

Qualifying a borrower for the Rural Housing Service 502 secured loan is no small feat. Those applying for the loan must tick many boxes, including having a maximum income of just over $100,000 and not being able to qualify for a conventional mortgage.

But lenders say the Department of Agriculture’s use of ‘unintuitive’, ‘confusing’ and ‘heavy-duty’ technology, dubbed the Guaranteed Underwriting System (GUS), complicates matters further and discourages them from applying. provide such loans.

“It’s just a lot more complicated and there are a lot more steps,” said Jonas Pritchard, loan officer at Scenic Oak Funding. “And like everything in life, if something is easy and something isn’t, what are most people going to choose?”

Industry stakeholders also say the platform, originally launched in 2006, hasn’t kept pace with improvements in other automated underwriting systems, such as Fannie Mae’s Desktop Underwriter and Loan Product Advisor. Freddie Mac. As a result, the RHS loan program, which plays a vital role in providing mortgage credit to rural communities, may continue to be underutilized. Last year, USDA lending volume was only a 0.49% of all mortgage originations, according to the Mortgage Bankers Association.

In 2021, the USDA made some upgrades at GUS, but a lack of resources continues to complicate the agency’s efforts to modernize its automated underwriting system.

“We are committed to completing it to further streamline the lending process and make the system more accessible to everyone who uses it,” the USDA spokesperson said.

They note, however, that “it’s a huge undertaking” and upgrades “will take a long time.”

The USDA has requested $73.6 million to fund HRH information technology in 2023a number significantly higher than the $20 million requested by the USDA in 2022 for computer improvements. The USDA declined to comment on what the funding would be used for.

However, it is likely that some of the funding will go towards redesigning the GUS. There is already a roadmap for improvements planned for 2023, but that plan is dependent on government funding, a source familiar with the GUS system said.

In September, the federal government has invited industry experts to share their feedback on outdated USDA programs and technologies. During the listening session, government officials said they intended to modernize the HRH program in the near future. This could pave the way for additional funds to be made available for program enhancements.

Problems with the GUS
The main complaint about the GUS is that it is not easy to use. Unlike the automated underwriting systems of government-sponsored companies, GUS is not integrated with any loan origination system.

Because of this, loan officers must enter borrower information into two systems, their loan origination system and GUS, said Mike Metivier, vice president of guaranteed rate mortgages. To qualify a borrower for any other loan, be it a Fannie Mae or Freddie Mac loan, you fill out a form and click a button. Within minutes, the request is approved or denied.

“[GUS] is so inconvenient because you have to manually re-enter all the information,” Metivier said. “They did it with the most recent redesign, they put in a feature where you’re supposed to be able to download 10-03 [mortgage loan application] and import it, but I tried to do that maybe a few days ago and it just didn’t work, so I ended up filling it in manually.”

Métivier added: “The integration element is huge. FHA is a government product, VA is a government product. Why are their systems integrated into any LOS, you know, Encompass or whatever, and for USDA it’s not? It just doesn’t make sense to me.”

According to a source with knowledge of USDA technology initiatives, plans are in place to integrate GUS into loan origination platforms in calendar year 2023, but the project is dependent on future credits.

“Integration development has been on USDA’s radar since the first deployment of GUS in 2006,” the source said. “However, other development priorities and the lack of development funding explain why this integration capacity has not yet been implemented.”

Loan officers also point out that without proper training, it is difficult to understand how to maneuver on the platform.

“The platform at first glance is confusing and there’s no clear direction on how and where to go if you have a problem,” said Matthew Gaddis, branch manager at Amres, a multistate lender whose headquarters is in Feasterville-Trevose, Pennsylvania. “I think it’s intuitive only because I was well trained in it by someone else who tried hard to understand it.”

Gaddis said that in terms of usability, GUS is more like a four out of 10. “Very, very hard to figure out if you don’t know what’s going on already.”

Loan officers also have a myriad of small annoyances with the GUS system, such as password expiration, the system being unclear about the errors it reported, and a cap on the number of repetitions it reported. an LO can do when trying to qualify a borrower for a loan.

When an LO completes its submissions, it sometimes has to wait days for a response from the USDA, said David Battany, executive vice president of Guild Mortgage.

“Sometimes the USDA responds to the phones quickly, other times you wait hours and sometimes days for your question to be answered,” Battany said. “The thing is, if it’s an automated system, you shouldn’t have to pause for help from humans.”

A glimmer of hope
The USDA has ambitious goals to upgrade its technologies next year.

In addition to integrating GUS into lending platforms, there are also plans to automate lender approval and recertification, as well as allow originators to receive approvals systematically, without having to send a file to the USDA for manual staff approval, a source familiar with USDA’s planned technology initiatives said.

But all of these plans hinge on the hope that the USDA will get the funding they requested for computer modernization. Increased federal interest in the USDA program is key. A recent hearing held by the Senate Banking Committee on Housing in late September may signal that the federal government may consider further HHR lending reform.

During the session, Sen. Mike Rounds, RS.D., said he and his colleagues were “looking to update HRH” and that there are many ways to “streamline and modernize HRH to more effectively serve the Rural Americans”.

“We will look for ways to streamline regulatory requirements for the programs because cumbersome processes have deterred nonprofits from using the programs,” Rounds said. “In this vein, staffing and IT upgrades are imperative as we assess how to make HRH more efficient.”

The Senate is currently crafting a bipartisan package of reforms that could be considered after the November 2022 midterm elections. Some of these reforms may relate to technological modernization.

Battany, who was one of the speakers at the hearing, said funding for the USDA program has not been sufficient and he hopes that will change soon.

“A very good example [that more funding is needed] what’s really powerful is that the USDA programs always seem to run out of dollars every year. So if you’re a late-year borrower and you’re closing a loan in November, it’s not uncommon for your loan officer to say “hey, we can’t close on time, because the USDA Guarantee Authority has expired or has run out of dollars.'”

He also noted that Fannie and Freddie earn revenue from their operations, “so they can then choose how much revenue they want to spend on technology and technology investments,” but the USDA is running out of money. money to innovate because they depend on federal money.

David Lipsetz, president of the Housing Assistance Council (HAC) and former associate administrator of rural housing at the USDA, said the program had received “no financial support” for the past two years.

“A raise doesn’t mean much in this context, does it?” Lipsetz said. “I would love for us to do better than zero.”

“So if you’re at USDA and you don’t get money for computer systems, you have to make do with what you have and they have for a long time,” Lipsetz continued. “I’m very hopeful that the efforts of Senator Mike Rounds and Senator Tina Smith, and the holding of this hearing, will increase attention to the needs of these programs.”

About Shirley L. Kreger

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