USDA suspending rural home loan guarantee program

A federal home loan program that does a lot of business in greater Minnesota expects to be out of funds by the end of next month.

The Single Family Housing Guaranteed Loan Program run by the U.S. Department of Agriculture expects to run out of budgeted funds by the end of April, which will stop the program through September, the end of the federal fiscal year.

A new federal budget should contain new money after that, but USDA is telling lenders it’s not certain when new guarantees will be be available.

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The federal program provides lenders with a 90 percent loan guarantee. Prospective homeowners don’t have to put any money down and don’t have to pay mortgage insurance. It’s especially popular in Minnesota.

It makes a “big impact in rural Minnesota by supporting a strong rural housing industry and increasing home ownership opportunities, which helps create employment opportunities, retain population, and create overall economic development,” said Adam Czech, USDA spokesman in Minnesota.

Strong demand for the program nationally led to the shortfall, he added.

Here’s the mortgage volume guaranteed by USDA in Minnesota under the program.

2006: $185 million

2007: $164 million

2008: $273 million

2009: $440 million (3,781 total loans in 2009)

Much of the 2009 funding — $280 million for 2,379 loans — came from the federal stimulus bill.

“It normally runs out early but this year it’s far sooner than typical,” said Aaron Dickinson, a Realtor and source in MPR’s Public Insight Network who first alerted us to the USDA funding stop.

“My bet is it’s because of the dearth of other zero down financing options and the surge of first time buyers who would want that.”

USDA’s getting inquires from lenders, Czech said. With the uncertainty in the guarantee program, the agency’s been highlighting it’s direct home loan program.

“These loans are intended for qualified very low and low income applicants,” Czech said.

“Sometimes borrowers who qualify for the guaranteed loan may also qualify for the direct. These loans come directly from the government and interest rates are based on repayment ability. Sometimes, an individual will receive a direct loan and then move into the guaranteed program at a later date.”

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We’re checking with some of the state’s rural and independent lenders to see what kind of effect the program’s suspension will have on part of Minnesota. If you have some insights, post below or contact me directly.

This USDA map shows how critical the guarantee is in parts of rural Minnesota: It’s also being used in exurban counties. Click here for a larger view.

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