Monday, August 2, 2010

USDA Rural Housing Bill Passes

One government housing program that had run out of funds months ago was revived by Congress yesterday.

The Senate yesterday passed HR 4899 to reestablish the popular U.S. Department of Agriculture Single-Family Housing Guaranteed Loan Program (Section 502 Housing) as a self-sustaining program.

The Rural Housing program had run through its $13.1 billion funding by early this year and many buyers hoping to finance home purchases using Homebuyer Tax Credits were unable to close their loans. Depleted funding has been a nearly annual occurrence for the program that guarantees loans for single family homes in designated exurban and rural areas. The new legislation will end the annual uncertainty by putting the program on a self-funding basis through enacting a 3.5 percent guarantee fee paid by the borrower. The fee, while substantial, can be included in the total amount financed.

Senator Michael Bennet released the following statement, "The Rural Housing Preservation and Stabilization Act increases the maximum loan guarantee fee that USDA's Rural Housing Service has authority to charge for new housing purchases from 2.0 to 3.5 percent and allows an annual fee of not more than 0.5 percent per year on the balance of the loan. The bill would also enable the Rural Housing Service to waive these fees for low-income borrowers for up to $679 million in loans. Together, these changes will enable the USDA-Rural Development's Rural Housing Service to continue offering loan guarantees through the duration of the year and to become self-funding."

Despite the low down payment required to participate in the program, it is generally considered to be a good risk by lenders because of the 90 percent government guarantee and because the loan size is limited to 115 percent of the area's median income. This keeps the loans small; the average loan size is $112,000. Last year the foreclosure rate for these USDA loans was a reported 1.72 percent compared to 3.32 percent for Federal Housing Administration loans.

The bill now goes to President Obama for signature. As we went to press, USDA had not commented on the action and we are still waiting for guidance from lenders.

Source: Jann Swanson on July 30, 2010, MND Newswire

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