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504 Program Changes: The Small Print

Mar 2009

With the recent enhancements to the 504 Loan Program as part of the $787 billion American Recovery and Reinvestment Act of 2009, the program will get a much need boost in appeal for lenders and borrowers alike.So now the big question is: how and when will the SBA implement the provisions of the Act?

Two key changes are generating considerable interest:

• Most up-front fees have been eliminated, including the lender participation fee and the certified development company (CDC) processing fee, which will now be paid directly by the federal government. This change will reduce upfront borrower costs by $10,000 on a typical 504 loan.
• The secondary market will be revived by the creation of a 100% guarantee on 504 first mortgages.

The National Association of Development Companies (NADCO) recently met with SBA officials to discuss their plans and process for creating regulations/notices for the changes. While that work is just beginning, the following is a summation of that meeting and some insight as to where things may go from here.

Regarding the effective date for the two fee reductions, NADCO firmly believes that the following language is quite clear from Section 501(b) of the Act: “for which an application is approved or pending approval on or after the date of enactment of this Act.” However, the conclusion drawn from the meeting is that the SBA is studying this language, and other Act provisions, and may issue a different interpretation on the timing of the fees offsets.

It would seem the only two alternatives are: (1) the SBA starts with loan packages already in process, or submitted on or after Feb. 17, 2009, the date the Act was signed by the President, or (2) the SBA starts on the date of issuance of new Regulations in the Federal Register. … Optimistically, it will be circa March 10th before it is known what the SBA has decided. It could possibly be additional weeks.

Another area of high interest, especially to bank lenders, is how the new first mortgage secondary market $3 billion in pool guarantees will be implemented. NADCO has volunteered to work with major poolers (most of whom are locked out of the market today) to provide some suggestions to the SBA on this process of allocating these guarantees.

Given the short timing window and substantial nature of this legislation, NADCO thinks the SBA may work to put forth regulations and procedures on a piecemeal basis as fast as they can in the coming days or weeks. That way, benefits can flow quicker to borrowers.

Florida First Capital is committed to informing you as soon as any changes are implemented, or answers regarding the issues raised above are made known. In the meantime please do not hesitate to contact FFCFC with questions.

For more information on Florida First Capital and its 504 loan program, visit www.ffcfc.com, email us at insider@ffcfc.com or call 888.320.5504.