A major federal housing loan program - one that guarantees a significant chunk of local mortgage lending on the Coast - is out of money.

Unless Congress votes to authorize further funding, the USDA's Guaranteed Rural Loan program will be on hold indefinitely. That means no new mortgages for qualified low-income homeowners

Rod Hansen is Housing Programs Director for the USDA Rural Development in

Proposed legislation would extend rural mortgage program

A bill now in the hands of the U.S. House Financial Services Committee would give a needed cash infusion to the imperiled USDA Rural Development Guaranteed Loan Program.

The federal program ran out of funds last month thanks to skyrocketing demand for its 100 percent mortgage financing guarantees for low-income homebuyers.

The bill, H.R. 5003 - The Rural Housing Improvement Act, was introduced by U.S. Rep. Shelley Moore Capito, R-W.Va.

Moore said she was inspired to introduce the bill after receiving hundreds of emails, phone calls and letters from constituents.

Supporters of the loan guarantee program maintain that it enables a significant portion of current rural home sales in the down economy.

The program's suspension would have serious economic impacts on a wide range of businesses in rural communities. The program is aimed at low-income rural borrowers, some of whom are buying their first home.

The supplemental funding provided by the bill would allow the program to continue to provide services for the remainder of the current fiscal year. A 500 percent increase in requests for loan guarantees had depleted the program's total annual budget by the end of the first  quarter of 2010.


"The main purpose [of the guarantee program] is to provide financing for those who would not be able to get a home on their own account," he said. "If you had to buy it conventionally you would need a down payment and fees."

He said the reason the program is broke is simple - more people need such loans than ever before.

Hansen said historically the program has been able to assist new low-income homeowners successfully year round with 100 percent financing.

But this year demand is up 500 percent over a year ago nationwide.

"From October 1st to March 24th we guaranteed 1,609 loans [in Oregon]," Hansen said, to the tune of $257 million across the state. About $7.5 million of that funding went to guarantee loans in Clatsop County.

"We've used up an entire year of funding in less than six months," Hansen said. "It's been one of the hottest products in the marketplace."

Alyce Burgess, of Astoria mortgage lender EMLS, agreed that the local impact of the rural funding program is profound.

"If you look at the approximately 170 single family home sales that have closed in Clatsop County alone from October 1st, 2009 through April 20, approximately 44 of those transactions were financed utilizing the Rural Development Guaranteed Loan Program," she said via email. "That is about 26 percent of the sales. This shows how significant this program is to the recovery of our local housing market."

Hansen said the loss of funding for the guarantee program means local mortgage lenders will not have government backing if low income borrowers can't make their mortgage payments. Wary lenders have already said they will not provide mortgages without further USDA funding guarantees.

"If funding is not restored it's going to have a tremendous impact on our rural area," Hansen said, adding that the ripple effect goes far beyond individual borrowers who will not be able to buy houses. "That federal money changes hands. We're paying title companies, inspectors and county recording fees."

He said the USDA administration has been seeking continued funding from the federal government. But Congress recently adjourned for spring recess without addressing a request for extension of funds for the loan program that was on the table in the previous session.

Hansen said the funding shortfall is taking its toll on USDA staff who process loan guarantees and help rural homeowners buy their houses.

"There's the human aspect," he said. "We process loans and it's personal when you see that client be able to obtain that first house. It's one of the best programs out there in the marketplace."

Hansen said the only other program like it on the mortgage market is the VA loan, which also allows 100 percent financing for veterans.

The USDA Rural Guaranteed Loan Program serves first-time homebuyers, move-up homebuyers, low to moderate-income borrowers and homebuyers in eligible rural areas.

Benefits include no down payment and no monthly mortgage insurance. Such loans offer 30-year fixed interest rates, and borrowers with "non-traditional" credit histories may be eligible.

To put a further damper on the real estate market, the extended Home Buyer Tax Credit, which Congress voted last year to extend, was set to expire April 30. The credit gave first-time homebuyers an $8,000 tax credit. Homeowners who remained in the home for at least three years were not required to pay back the credit.

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