By Tammye Treviño, Administrator, USDA Rural Housing Programs
USDA continues to operate its housing programs under the law and in accordance with the will of Congress. Earlier today, Reuters filed a report based on a study of USDA’s home loan portfolio. USDA disputes certain findings in that report.
The Reuters story alleges that the USDA rural housing program staff approved a substantial number of guaranteed home loans that are in urban areas, that USDA Rural Housing Service guaranteed loans of $1 million or more to individuals making substantial incomes. The facts are that the USDA Section 502 Guaranteed program adheres to statutorily prescribed eligibility requirements, which include population thresholds. To do otherwise would contravene U.S. law. Irrespective of the sizes of the communities it serves, the 502 Guaranteed program finances only modest homes for borrowers with limited means, and it relies upon conservative mortgage structures. Nationally, the average household income of those participating in the program is $48,000.
When preparing its story, Reuters provided a spreadsheet to USDA identifying loans it found questionable. While the information provided is insufficient for our staff to properly analyze, we continue to believe income figures, allegedly for USDA home loan guaranteed borrowers and substantial mortgage amounts listed for housing loans are not correct. The average home price for a mortgage guaranteed by USDA in 2012 was less than $134,000.
After Reuters reached out to USDA concerning its story, my staff determined the following:
Reuters says we have guaranteed loans to “dozens of millionaires.”
• USDA Rural Development’s Rural Housing Service has not guaranteed any loans for borrowers with reported annual incomes of $200,000 or more. Except for roadless areas in Alaska, the program is restricted by statute to applicants making no more that 115 percent of area median income. The highest median income in the nation is in Alaska where the income limit for 4 to 8 member households is $196,050 in areas without a road system. After a loan is made, an applicant’s income may change and that may be the basis for the Reuters allegation.
Reuters also says “The USDA also backed at least 500 loans of $500,000 or more, including more than 90 exceeding $1 million, according to lenders’ regulatory filings”.
• USDA’s Rural Housing Service has not guaranteed any home loans for $1 million or more. USDA’s Housing Service did guarantee a loan in an eligible area of Los Angeles County, California for $501,554. Los Angeles County is a very large land mass, and the eastern and northern parts of the county are considered very rural and include eligible areas. The income limit for 4 to 8 member households in the Los Angeles County area is $129,600, and home prices in California are typically higher than the rest of the country. A household with income of $129,600 can afford a $501,554 home.
Reuters alleges “There were loans for second homes, and loans to people who could have obtained conventional financing – each a breach of the program’s rules.” We know of no loans being made under our program for second homes. In some cases, a home is purchased under our program contingent on the sale of another home, but in each case the result is that the buyer winds up with only one home, not two.
The definition of “rural” and “rural area” to which the 502 housing programs abide, can be found in the Housing Act of 1949, as amended, at 42 U.S.C. §1490, which states:
USDA makes single family housing loan guarantees only for eligible low or moderate income borrowers in eligible rural areas and we use several check points to ensure compliance:
1. The lender is responsible for determining both the borrower and the property are eligible pursuant to the Agency’s 502 guaranteed loan program regulations.
2. Prior to loan closing, the lender provides the Agency with the lender’s determination that the borrower and property are eligible.
3. After loan closing, an external audit firm, under contract, conducts random reviews of borrower and property eligibility.
4. If a lender is forced to foreclose, and invokes the guarantee by submitting a loss claim, the Agency will again review whether the borrower and property were eligible. The lender’s loss claim will be reduced or denied if a determination is made that the borrower or the property were not eligible.
USDA is required to serve all borrowers who meet eligibility requirements and seek to purchase homes in eligible areas. The entire lending cost of the program is offset by the program’s fee structure. This consists of an up-front guarantee fee, and an annual fee. No funding is required by Congress for this program. It is self-sustaining.
In its story, Reuters also discusses the USDA default rate. Default rates are seasonal and vary throughout the year. During 2012, the delinquency rate for loans 30 or more days past due ranged from 7.65 percent to 10.44 percent. Default rates for the program are trending down at this time. Delinquency rates for USDA guaranteed loans are 160 basis points lower than comparable federal programs under the U.S. Department of Housing and Urban Development. The Reuters report also touched on several recent audits of the program as it was administered during the Recovery Act. Audits are routine, and are intended to improve program delivery. USDA staff understands that no program of this size is perfect, and welcomes the audit findings it has received. We believe the recommendations to be constructive and we have responded.
Over the decades, USDA, through its guaranteed and direct housing programs has assisted hundreds of thousands of families in their quest to obtain safe housing, including many borrowers who are “first time” homeowners and would not have an opportunity to own a home if not for our programs. At USDA, we provide important services to American borrowers, and in most cases, those services would be unavailable without our programs. We work diligently to ensure that all loans are made in accordance with applicable laws and we value our effort to provide individuals with limited means the opportunity to purchase, and in some cases build, their own homes.