New Life for USDA Funds? Congress is Trying

Instead of Relying on Appropriations, H.R. 5017 Creates Permanent Self-Funded Program at No Cost to Taxpayers

WASHINGTON - Today, Congressman Paul E. Kanjorski (PA-11), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, introduced H.R. 5017, the Rural Housing Preservation and Stabilization Act of 2010.  This legislation ensures the continued access of low- and moderate-income rural households to affordable mortgages through the U.S. Department of Agriculture's loan guarantee program.  The economic turmoil of the past two years has led to a significant increase in demand for USDA's Section 502 home loan program and federal funding has failed to keep up.  To fix the problem, Chairman Kanjorski's bill makes the program self funded, enabling families living in rural communities to continue to access these much needed home loan guarantees at no cost to the taxpayers. Without Congressional action, the program will exhaust its federal funding within days. 

"Many families have relied on the affordable rural loan guarantee program to buy their homes, particularly during these tough economic times, when other traditional lenders have turned their backs," said Chairman Kanjorski.  "While the Section 502 program has for many years helped many rural homeowners to achieve the American dream of homeownership -- including in my Congressional District in Northeastern Pennsylvania -- more and more people have needed to use these guarantees during these difficult economic times.  As a result, the program will soon run out of funding, stranding rural families who want to buy homes and unnecessarily creating turmoil for our rural housing markets.  Rather than relying on ad hoc federal funding, my bill would transform the Section 502 program and allow it to pay for itself.  This change will cost taxpayers nothing and ensure that families in rural areas can continue to access affordable mortgages.  As our economy recovers, we cannot allow rural America to get left behind."

"I applaud Chairman Kanjorski for his leadership in taking on this issue and helping to ensure that individuals and families in rural areas continue to have access needed to home loan guarantees," said Congressman Barney Frank (D-MA), Chairman of the House Financial Services Committee.  "This program has seen unprecedented demand in the last several years, and the Kanjorski legislation provides a positive solution to help to address the funding shortfall.  I hope to bring up this bill for consideration in the Financial Services Committee as soon as possible."

"As a result of this program, I was able to purchase my first home which I have wanted all my life," said Virgie Spruiell from Bushkill, Pennsylvania.  "I enjoy it every day and it is a blessing.  I greatly appreciate Chairman Kanjorski's efforts to enable the program to continue so that other people can access these guaranteed home loans just as I did.  It has had helped me tremendously."

The USDA's Rural Housing Service manages the Section 502 Single Family Housing Guaranteed Loan Program to provide a necessary source of mortgage credit for consumers in specified rural communities.  Low- and moderate-income individuals and families in rural communities often have fewer mortgage credit options than those households in urban areas.  The Section 502 program aims to fill that void and lower the costs of homeownership by giving rural areas access to a home loan guarantee program.  To qualify for the program, borrowers must have good credit and have reliable incomes to sustain homeownership.

Demand for the Section 502 program has dramatically increased in the past few years as a result of the economic downturn.  As a result, the program will soon run out of federal funding if legislation is not enacted.  Chairman Kanjorski's legislation would permanently correct this problem by enabling the program to pay for itself.  In order to pay for the Section 502 program, the lender would pay as much as a 3.5 percent upfront fee on the loan at origination.  The Kanjorski bill also gives the Secretary of the Department of Agriculture the authority to assess an annual fee of 0.5 percent on the outstanding balance of the loan.  As a result of these small fees to support federal home loan guarantees, rural America would continue to have access to affordable mortgages.  Congressmen Ruben Hinojosa (D-TX), Paul W. Hodes (D-NH), Charles A. Wilson (D-OH), and Joe Courtney (D-CT) joined Chairman Kanjorski in introducing H.R. 5017.