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In this April 5, 2010 photo, Lisa Kartak stands near an open field and looks toward the home she purchased in Annandale, Minn., through the U.S. Department of Agriculture's Rural Development program. The federal loan program that has helped hundreds of thousands of Americans buy homes in rural areas is about to run out of money, potentially crippling the real estate market in many small communities.
AP Photo/Andy Blenkush
A federal loan program that has helped
hundreds of thousands of Americans buy homes in rural areas is
about to run out of money, potentially crippling the real estate
market in many small communities.
Since last fall, the loans from the Department of Agriculture
have fueled much of the real estate business in some parts of the
country. Real estate agents are pleading with Congress to find a
way to keep the money flowing until more funding becomes available
later in the year.
The program has doubled in size thanks to stimulus money, but
now it appears to be a victim of its own success, largely because
of the generous terms offered to borrowers.
"It definitely helped me out," said Lisa Kartak, who closed
late last month on a new three-bedroom house in Annandale, a small
town 50 miles west of Minneapolis. "If I didn't get approved
through them, I would have had to bring thousands of dollars to the
table."
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The USDA's Rural Development program provides 30-year fixed-rate
mortgages at market rates. Buyers do not have to put any money
down, unlike loans from the better known Federal Housing
Administration, which requires a down payment of 3.5 percent. And
unlike FHA loans, there are no monthly mortgage insurance premiums
in the USDA program.
The program aims to help often-struggling rural communities by
assisting home buyers who might otherwise move to bigger cities.
The loans are offered through local lenders, and the approval
process is usually fast. To be eligible, people must be in
communities with fewer than 20,000 residents and live outside
metropolitan areas.
Federal stimulus money has helped the program offer many more
mortgages than in the past. In the current fiscal year, the amount
of loans available climbed from $6 billion to $12 billion. Nearly
116,000 loans were financed in the 2009 fiscal year. That's more
than double the number in the previous year.
But even with its funding doubled, the program is expected to
run out of money later this month, said Jay Fletcher, an agency
spokesman.
That's alarmed the National Association of Realtors, which is
pressuring Congress to continue the program until the end of the
fiscal year Sept. 30, after which the Obama administration has
proposed making another $12 billion in loans available.
"As private mortgage markets have dried up, many rural families
will be left out in the cold without these guaranteed loans,"
association President Vicki Cox Golder wrote to leaders of the
House and Senate appropriations committees.
Pat Hill, a real estate agent in Annandale, said loss of the
loans would be a serious blow for his business. He estimated that
70 percent of the homes he's sold in the last couple years have
involved Rural Development mortgages. That's 15 to 20 families.
Some were first-time buyers, while others were families who
wanted to trade up to bigger homes but did not have enough equity
in their old homes to make the big down payments required with a
conventional mortgage.
"It would crush us not to have it," Hill said. "It really
would. Our whole office uses it. ... I hope they figure something
out quickly."
Program officials note that although the loans are aimed at low-
to moderate-income buyers, the program's default and foreclosure
rates are lower than FHA loans.
For fiscal 2009, the USDA program's delinquency and foreclosure
rates were 12.16 percent and 1.72 percent, respectively, compared
with 14.57 percent and 3.32 percent for FHA mortgages.
"This is not a subprime program," said Joaquin Tremlos, acting
director of the program, referring to risky loans that were blamed
in part for the nation's economic meltdown in 2008.
The loans are guaranteed by the federal government, so there's
less risk to the participating lenders, which include big national
banks such as Chase and Wells Fargo as well as smaller mortgage
companies.
Tremlos said his agency's loan program is necessary because the
housing needs of rural America are different from those of urban
areas traditionally served by FHA, which insures roughly 30 percent
of all new mortgages and is the government's largest backer of
mortgages to first-time buyers.
The Rural Development loans also have a faster approval process
with sophisticated automation. Applications are reviewed using
artificial intelligence that builds on the progam's experience with
hundreds of thousands of other loans. The process makes it easier
to predict accurately whether buyers can afford their payments.
And unlike FHA, Rural Development has a network of field offices
nationwide that review the applications before closing.
"This is a very well-performing program, a very safe lending
program," Tremlos said. "Even though it's a no-down-payment
program, there are lots of safeguards to take that higher risk into
account."
Democratic Rep. Barney Frank of Massachusetts, chairman of the
House Financial Services Committee, and four other members of his
panel wrote letters to Agriculture Secretary Tom Vilsack last month
supporting the program and proposing immediate funding options.
Waiting until the next fiscal year to replenish the program
would mean shutting it down for five months. And proponents say
that would hurt people who could not get a conventional mortgage.
"Keep in mind, to pull out of this recession, home buying and
purchasing financing are extremely important, not to mention the
human element of being able to purchase your own home," said Rep.
Shelley Moore Capito, a Republican from West Virginia and the
ranking minority member of a housing subcommittee.
In Minnesota, Kartak said she feels lucky she closed on her home
before the program ran out of money.
Although the 28-year-old single woman has a steady job, she
didn't have much money for a down payment and probably would still
be renting if not for the program.
"I think it's a great program," Kartak said. "I think it
worked well for me, and I think it's great they're using it as a
way to build up rural areas."
(Copyright 2010 by The Associated Press. All Rights Reserved.)
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In this April 5, 2010 photo, Lisa Kartak stands near an open field and looks toward the home she purchased in Annandale, Minn., through the U.S. Department of Agriculture's Rural Development program. The federal loan program that has helped hundreds of thousands of Americans buy homes in rural areas is about to run out of money, potentially crippling the real estate market in many small communities.
AP Photo/Andy Blenkush
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