NATIONAL RURAL HOUSING COALITION
1331 G Street, N.W., 10th Floor, Washington, DC 20005 • (202)393‐5229 • fax (202)393‐3034 • http://www.ruralhousingcoalition.org
February 23, 2011
The Honorable Tom Vilsack
Secretary, U.S. Department of Agriculture
1400 Independence Avenue, SW
Washington, DC 20250
Dear Mr. Secretary:
I write to indicate our opposition to the Fiscal Year 2012 Administration budget for the Rural Housing Service. Of particular concern is the proposed reduction in section 502 direct loans from $1.12 billion to $200 million and elimination of the Mutual and Self-Help Housing program. These programs have been the bedrock of the long time effort to improve housing conditions in rural America. Without these programs, USDA will be out of the business of providing affordable housing for low income families and improving housing conditions in smaller, poorer rural communities.
It is disappointing to see the Department give up on the section 502 direct loan program. No other federal home ownership program can match the profile of the families served:
approximately 60% of the families receiving section 502 loans have incomes of less than 60% of the median income. By law, 40% of families participating in the program have incomes that do not exceed 50% of the median income.
Despite serving families with limited economic means, the section 502 direct loan program is the most cost effective affordable housing program in the federal government. In FY 10, the total per unit cost for a homeownership loan to a low income family was less than $5,000. This stands in sharp contrast to many other comparable federal programs with annual costs exceeding the total federal expense of a section 502 direct loan.
The budget indicates that the section 502 guarantee program is an adequate alternative. It is not.
The average annual income for families receiving the guarantee is $48,000. Only about 5% of families receiving guarantees make between 60-70% of the median and the majority of the loan guarantees go to households with incomes at or above 100% of the median.
There are two factors that determine the extent to which low income families receive guaranteed loans. One is the low interest rate environment that is clearly coming to an end. Interest rates are on the rise and with this the limited utility of the guarantee for low income households will be further diminished. The other is geography. According to the Economic Research Service:
“Of the large rural development programs, the one least targeted to distressed and rural areas is
the Low Income Housing Loan Guarantee Program. This program’s per capita funding is
correlated with higher local employment and lower local poverty, and it provides more funding
per capita to non-metro counties that have lower shares of population that are rural.”
It is a just a fact that the guaranteed loan under section 502 will not serve the vast majority of the families who are eligible under the direct program.
It is equally disheartening to see the Administration propose to end the Mutual and Self-Help Housing, which takes the rural tradition of barn raising and applies it to providing housing opportunities for families with limited economic means. Currently, more than 100 organizations across America participate in the self-help housing program. These organizations support groups of eight to 12 self-help families who construct each other’s homes, performing approximately 65% of the construction labor. Through this“sweat equity”, each homeowner earns equity in his or her home, decreasing the cost burden and increasing the investment in their community. Despite being the poorest families in the section 502 portfolio, self- help families have the lowest rates of default and delinquency.
For the last three years, self-help housing organizations have constructed about 3,500 homes. This construction has led to over 11,000 jobs, more than $738 million in local income and $77 million in taxes and revenue in rural communities across the country.
In conclusion, with an overall FY 12 budget of $145 billion and $24 billion in discretionary appropriations, it is hard to believe that USDA singled out these two successful programs for such rough treatment. For a very small fraction of the budget, USDA could provide homeownership opportunities to 10,000 rural families with limited means, supply a needed capital boost to flagging economies in small communities and reward those who, after working all day and all week, were willing to spend their nights and weekends building their own home.
Budgets are all about choices and this rural housing budget is certainly the wrong choice for rural America.
Robert A. Rapoza