Many lenders and investors are shying away from participating in a special pilot program to refinance Rural Housing Service loans due to risky underwriting features and low profit margins.

However, the largest RHS lender, JPMorgan Chase, is going ahead with a pilot program that allows underwater borrowers in 19 of the “hardest hit” states to refinance without a credit check or appraisal. Closing costs can be rolled into the loan amount.

“For more than two decades, Chase has served low- and moderate-income rural families. We are proud to be the largest investor of rural housing and the largest participant in the USDA Rural Refinance Pilot,” said Chase spokeswoman Amy Bonitatibus.

Chase services more than 50% of all RHS-guaranteed loans.

But many RHS lenders and investors, including Wells Fargo, are staying away from the pilot program. It violates some lenders’ policies to refinance borrowers without an appraisal, especially when closing costs are being financed into the loan amount.

The U.S. Department of Agriculture also discouraged participation by capping the origination fee at 1% and requiring manual underwriting.

Lenders normally use an automated underwriting system called GUS to process RHS single-family loans.

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