The United States Department of Agriculture (USDA) has announced a program to help distressed homeowners in rural areas refinance their homes to avoid foreclosure. Unlike recent initiatives by the administration to hasten the housing recovery, USDA officials stress its program does not rely on Congress’ approval, and thus is poised to provide real help to distressed homeowners, not just a hypothetical life preserver.
The USDA claims there are 237,000 homeowners who qualify for the program across 19 states (including California).
To be eligible for the program, a homeowner must:
- have a direct loan with the USDA or a USDA-guarantee on a commercial bank mortgage;
- have made their mortgage payments on time over the previous 12 months;
- meet low or moderate income limits; and
- pay closing costs on the refinanced loan.
The good part: Eligible homeowners need not obtain new credit reports, property inspections or appraisals.
Refinanced loans will:
- be at least one percentage point below the original interest rate;
- not exceed a term of 30 years; and
- prohibit cash-back to the borrower.
The USDA is also accepting applications from lenders to finance the construction and rehabilitation of rental housing in rural communities as part of the same initiative. The department will also provide vouchers to help low-income rural residents rent housing.
Few California homeowners obtained financing through the USDA programs.
However, brokers and agents who service rural communities need to learn the details of this refinance program in order to best inform their clients, past and future. When they figure out how the locals can make the programs work, agents need to pass on the word so they can let others learn from the advance work of the first ones on board.
The USDA’s solution is a much needed – albeit temporary – fix for rural homeowners distressed by the recession. In the long term, rural home values will continue to decline in spite of USDA efforts as urban areas grow and growth in rural areas is limited as the better paying jobs become more centered in cities, the agglomeration effect of density zoning.
Once the real estate market gets legs and homeowners no longer feel locked into their homes, those who can will leave rural communities for more rewarding job opportunities in urban areas.