Lennox's Real Estate Blog

sharing my passion for real estate

The Road To A Sustainable Housing Market

with 8 comments

The highly anticipated restoration of the USDA’s single-family rural housing program that guarantees home loans for rural buyers was passed by the Senate on July 28 and is on its way to President Obama’s desk for signature. With the support of its members, the National Association of REALTORS® has vigorously lobbied to restore funding for the rural program since last March, and hailed this development as a great victory for rural home buyers.

I couldn’t agree more.

But before I go into why I support this legislation, I’d like to provide a little background on the USDA’s Single-Family Housing Guaranteed Loan Program and why I believe it can serve as a successful model for a much needed urban down-payment assistance program.

According to Wikipedia, the United States Department of Agriculture was established by President Abraham Lincoln on May 15, 1862 in order to help out the United States economy. Through Federal funding, its purpose was the collection of agricultural statistics and other agricultural purposes; President Lincoln called it the “people’s department.” For many years, the Department of Agriculture was crucial to providing concerned persons with the assistance they needed to make it through difficult periods, such as the Great Depression; this included loans for rural landowners.

Fast forward 148 years and what we have now is a robust program that in 2009 provided over 140,000 loans and $16.6 billion in grants to achieve homeownership and improve housing in rural areas. They also funded $11.2 billion for direct and guaranteed single-family housing loans to provide additional credit for affordable home loans. USDA loans used to be considered “farmers’ loans” but that is no longer the case. Rural America is home to about 50 million people, but only 6.5 percent of the rural work-force is directly employed in farm production. This means that USDA must support not only the farms, but also the communities that surround and support them.

In 2009, the USDA enacted changes that provided assistance to millions of homebuyers who did not have the down-payment funds required by conventional loan programs. USDA loans currently stand alone as the only zero-money-down program available to borrowers who have not served in the military. And like their conventional counterparts, the USDA program adheres to strict underwriting standards, assessing each borrower’s credit, income, and cash flow. As a result, the agency’s portfolio of loans has a low default and delinquency rate of 1.72% (compared to a 2%- 5% default rate for conventional loans and 15% for subprime).

Earlier this year, the USDA exhausted its $13.1 billion funding, leaving many qualified homebuyers with few-to-no financing options and putting a squeeze on our nation’s economy. Thankfully, the Federal Government recognized this fact and responded by passing legislation that increases the Rural Housing Service (RHS) commitment authority allowing guaranteed loans. The RHS is expected to announce new guidelines shortly after the president signs the bill; one anticipated change is a higher “guarantee fee” of 3.5% that can be folded into the mortgage and will enable the program to be self-sufficient.  

Homeownership is historically an instrumental part of the U.S. economic engine, so it’s critical that we take measures to ensure that the housing market has a strong foundation for sustainability. I would argue that by creating a program similar to the USDA’s for city dwellers, there is the potential to bring in hundreds of thousands of homebuyers annually and billions of dollars in state and local taxes every year, as well as higher Federal Income Tax revenue (click here to read a detailed analysis).

The success of the USDA’s Single-Family Housing Guaranteed Loan Program proves that alternatives to conventional loan products can be successful and result in responsible, long-term homeownership with low delinquency rates.  Now is the time to expand the market and create a down payment assistance program for urban homebuyers who face similar challenges to their rural counterparts. Perhaps it could be called the United States Down Payment Assistance program—or USDPA. Has a certain ring to it, doesn’t it?

As always, thanks for reading.

Lennox

Written by Lennox

August 3, 2010 at 3:03 pm

8 Responses

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  1. I couldn’t agree more that it is time to expand and create a down payment assistance program for urban homebuyers and I love your name for it! United States Down Payment Assistance program—or USDPA. Have you heard any rumblings of this happening?

    Dawn Heilbrun

    August 6, 2010 at 7:51 am

  2. I just read your white paper report so I just answered my own question, but as usual you are right on it! We couldn’t be more proud to have you as our Captain!

    Dawn Heilbrun

    August 6, 2010 at 9:39 am

    • Thank you, Dawn – and thank you for your support! If we all come together as a team maybe we can push this through. Thanks for reading.

      Lennox

      August 6, 2010 at 9:43 am

  3. […] The meeting was arranged by Sen. Patty Murray’s office for the purpose of discussing the systemic problems facing the housing market and ideas to stimulate recovery. The meeting was also attended by Travis Lumpkin, Sen. Murray’s legislative assistant on housing issues and Erik Hand, president of Response Mortgage. We discussed the concept of an urban down payment assistance program similar to the USDA’s program which currently helps households purchase homes in rural areas with no required down payment (more details about the program can be found in this previous blog). […]

  4. Hooray and Fantastic! I love down payment assistance – urban and rural. It works, it builds homeownership and it builds community. These are no-nonsense, make sense programs that are a solid long-term solutions.

    Julie Evalt

    October 15, 2010 at 5:02 pm

    • I couldn’t agree more – thanks for reading, Julie.

      Lennox

      October 17, 2010 at 9:09 pm

  5. […] The meeting was arranged by Sen. Patty Murray’s office for the purpose of discussing the systemic problems facing the housing market and ideas to stimulate recovery. The meeting was also attended by Travis Lumpkin, Sen. Murray’s legislative assistant on housing issues. We discussed the concept of an urban down payment assistance program similar to the USDA’s program which currently helps households purchase homes in rural areas with no required down payment (more details about the program can be found in this previous blog). […]

  6. […] The meeting was arranged by Sen. Patty Murray’s office for the purpose of discussing the systemic problems facing the housing market and ideas to stimulate recovery. The meeting was also attended by Travis Lumpkin, Sen. Murray’s legislative assistant on housing issues. We discussed the concept of an urban down payment assistance program similar to the USDA’s program which currently helps households purchase homes in rural areas with no required down payment (more details about the program can be found in this previous blog). […]


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