A New Hope for the USDA Program?

Not even 25-years-old, the USDA’s Rural Development program is fast approaching its financial demise.

In effort to save the home loan program, Congress recently passed a bill out of a House on April 22nd. Now that the program has gone insolvent, the Senate must take quick action.

Lenders would pay up to 3.5 percent in origination fees of the loan value, according to the bill, proposed by democrat Paul Kanjorski of Pennsylvania. The idea is to make the home loan program self-funding by also giving the Secretary of Agriculture the power to charge 0.5 percent annually on unpaid loan balances.

“This change will cost taxpayers nothing and ensure that families in rural areas can continue to access affordable mortgages,” Kanjorski said in a press release. “As our economy recovers, we cannot allow rural America to get left behind.”

Except for loans insured by the Department of Veterans Affairs, these USDA loans are the only remaining zero-money-down option for homebuyers. Without a down payment and no private monthly mortgage insurance, homebuyers flocked to these loans in lieu of going to lenders with tough credit expectations. In 2008, the USDA insured 54,660 loans, but that amount skyrocketed to more than 115,000 last year.

Stimulus money kept the program afloat last fiscal year, which ends every Sept. 30, and the program isn’t new to going belly up. But this year it plowed through $12 billion well before the fiscal year’s end. Now there are talks for the program to get $10-12 billion more to offer loans to borrowers through Sept. 30, 2010. Kanjorski’s bill permits the USDA to insure $30 billion in loans through the fiscal year.

The program, created in 1987, was designed to help low- and middle-income families in rural communities, where few lenders operated, purchase homes. Compared to other government home loan programs, the Rural Development one has tighter qualifications, but offers a host of advantages.
As the future of the USDA’s rural home loan program hangs in the bureaucratic gallows, borrowers might need to find new mortgage options, such as FHA loans and the military’s loan program. Some states even have grant money for qualifying borrowers to finance a home.

Bio: Robert Stretch develops content for VA Mortgage Center.com. VAMC is the nation’s number one preferred VA lender. See VAMortgageCenter reviews from customers here.