One of the biggest problems that many rural housing markets have is that the properties on the market do not qualify for aid from federal programs. As a result, even if buyers are qualified to purchase properties, they are not able to take advantage of federal incentives and ultimately opt to buy elsewhere. This is a problem in areas like northern Michigan, for example. Now, however, the U.S. Department of Agriculture is attempting to change this negative, downward pattern by offering “low- and moderate-income residents living in rural areas…affordable housing finance options”[1]. These options include no down payment, no monthly mortgage insurance premiums and several options on rates and closing costs. The program is called the “Guaranteed Rural Housing Loan Program” and is designed to benefit specifically ‘those in need of 100 percent financing or with lower credit scores.”
One of the main advantages of this program is that property eligibility is determined largely by location, which means that even if the property does not meet all other standards and the owners cannot afford to make the fixes, buyers may still be able to participate in the program[2].
Do you think that this is something that will benefit rural areas, or is it more artificial stimulus? Do the rural areas need artificial stimulus more than urban areas?
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[1] http://realtormag.realtor.org/daily-news/2011/08/03/rural-buyers-can-get-no-down-payment-loans
[2] http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
look beyond the rural homeowner issue … are these provisions designed to capture farmland in the future when it will really be valuable?
I have been appraising properties in this program for several years. I understand that “rural” means an incorporated city of 50,000 or less, or an unincorporated county area. I get few orders here in King County (greater Seattle area) but I cover a 5-county area and USDA does a decent volume in the other Puget Sound region counties, including in the smaller cities.
Note: according to the USDA website, this program considers rural to be 20,000 or 10,000, depending on other qualifying factors.
If you check out the information available on the WWW, you would see that these attitudes are unfounded. These housing loans are guaranteed by the USDA Rural Development and actually funded by traditional lenders. The guarantee allows the lenders to participate in many more loans without tieing up their portfolio cap. Also, this is not a part of any stimulus or faux stimulas package. The homes still must meet decent safe an sanatary and the lenders must certify that the home meets HUD standards. Without this program many thousands of homeonwers would have never known the joy of home ownership. If the defaulted borrowers that participated in the sub prime market would have went through this program, there wouldn’t have been the collapse of the housing market. These lenders made it easy to circumvent due process and bypass common sense. The greed of the sub prime lenders drove real estate prices up in order to reap higher commissions. Supply and demand, simple economics.
The USDA RD has standardized guidelines that the lender must adhere to and do their due diligence by verification of income and debts. Borrowers must qualify with debt ratios similar to traditional mortgage companies use. If there is a default, the lender must show that they have done their due diligence and they must service the loan just as with any other loan. The guarantee backs up a portion of the loss, not all. Sub prime lenders were making loans that were not justified by real income or security, thus creating a housing market crash. USDA Rural Development Guaranteed loans have had minimal default and outstanding performance in comparison.
Why is it that when the government programs do wrong, no one forgets, but when they get it right, no one notices or remembers.
Please note that our coverage of this program was not negative, but rather designed to expose the program to people who might not otherwise have been privy to the information. We noticed, and that’s why we covered the topic! ~Thanks, Carole