Rural Americans rely on programs like the 502 Rural Housing Loan Program to provide them with services that can be difficult to come by in some communities. Section 502 loans can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities. There are two different programs: the guaranteed program, and the direct loan program. Guaranteed loans are funded by private lenders, and simply insured by the RHS. The Guaranteed loans are self-funded and budget neutral, meaning the fees paid for borrowers fully pay for the program, placing no burden on American taxpayers. Direct loans benefit very low income or low income borrowers with funds loaned directly by the Rural Housing Service, without the use of private lenders.
None at this time.
Regulatory Contact(s):Sehar Siddiqi
What is the fundamental issue?
Rural families face unique difficulties in finding access to safe, affordable mortgage financing. Programs like the U.S. Department of Agriculture's (USDA) Rural Housing Section 502 loan program are instrumental in providing opportunities for homeownership for these families. Section 502 loans can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities. These loans are funded by private lenders, and simply insured by the USDA Rural Housing Service (RHS).
I am a real estate professional. What does this mean for my business?
Rural housing programs provide much needed affordable mortgage financing to unserved markets and are instrumental in providing affordable housing opportunities to low and moderate-income rural homebuyers.
NAR supports federal programs for home loans, rental development and rental assistance, including those of the RHS. Rural families face unique difficulties in finding access to safe, affordable mortgage financing, and affordable rental options in short supply in rural America. Fully funding the RHS’s programs is critical to the more than 17 million Americans living in rural communities. NAR believes communites with rural characteristics should maintain access to RHS programs.
Over the past several years many communities have been threatened by losing access to rural programs. While Congress passed NAR-supported language in the FARM bill that extends existing eligibility through the 2020 census, some states are using their authority to re-designate communities and make them ineligible. This is due largely to the significant budget cuts RHS program have experienced over the last several years. Staff at local U.S. Department of Agriculture (USDA) offices has been cut dramatically, and RHS programs require significant staff oversight and review. NAR sent a letter to RHS urging them to make this process consistent and transparent.
In October, 2017, USDA released new guidance on how to determine if an area is "rural in character" in anticipation of 2018's scheduled five-year periodical rural review that determines eligibility for USDA rural development programs. An area that may no longer qualify as "rural" due to a population increase may still qualify if it can be determined to be "rural in character." For the 2018 review, population size due to a transient college or university numbers or a prison population can be discounted in the eligibility assessment. The economic vitality of an area, such as whether these is a serious lack of mortgage credit for low to moderate-income families or a high rate of unemployment due to loss of employers, is also a factor in determining eligibility. The new eligibility maps became available in June 2018 following assessment of potentially ineligible areas by the state level USDA offices, including an opportunity for public comment.
On July 29, 2016, President Obama signed into law H.R.3700, the "Housing Opportunity Through Modernization Act," which provides permanent authority for direct endorsement for approved lenders to approve Rural Housing Service loans. This Direct Endorsement approach is used by the FHA and VA mortgage programs, and will create great efficiencies for USDA and for homebuyers. NAR worked closely with Congress on this legislation, which passed the House and Senate unanimously.
Federal Financing and Housing Policy Committee