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Monday, November 15, 2010

USDA Rural Housing Programs: An Overview

Bruce E. Foote
Analyst in Housing Policy

Title V of the Housing Act of 1949 authorized the Department of Agriculture (USDA) to make loans to farmers to enable them to construct, improve, repair, or replace dwellings and other farm buildings to provide decent, safe, and sanitary living conditions for themselves or their tenants, lessees, sharecroppers, and laborers. USDA was also authorized to make grants or combinations of loans and grants to those farmers who could not qualify to repay the full amount of a loan, but who needed the funds to make the dwellings sanitary or to remove health hazards to the occupants or the community.

While the act was initially targeted toward farmers, over time the act has been amended to enable USDA to make housing loans and grants to rural residents in general. Currently, the USDA housing programs are administered by the Rural Housing Service (RHS). The housing programs are generally referred to by the section number under which they are authorized in the Housing Act of 1949, as amended.

The rural housing programs include loans for the purchase, repair, or construction of singlefamily housing; loans and grants to remove health and safety hazards in owner-occupied homes; loans and grants for the construction and purchase of rental housing for farmworkers; loans for the purchase and construction of rental and cooperative housing for the elderly and for rural residents in general; rental assistance payments to make rental housing more affordable; interest subsidies to make homeownership loans more affordable and to enable production of rental housing that is affordable for the target population; and loans for developing building sites upon which rural housing is to be constructed.

The collapse of the mortgage market in 2007 has resulted in an increased demand for home loans that are insured or guaranteed by the federal government, including the USDA Section 502 guaranteed home loans. By May 2010, the FY2010 funding for the USDA guaranteed loan program was exhausted.

As enacted on July 29, 2010, the 2010 Supplemental Appropriations Act, P.L. 111-212, authorized additional appropriations for Section 502 guaranteed loans for the remainder of FY2010. The act also permits USDA to charge lenders a guarantee fee of up to 3.5% of the mortgage amount. In addition, lenders may be charged an annual fee of 0.5% of the mortgage balance for the life of the loan. These changes in the guarantee fees are intended to enable the Section 502 guaranteed home loan program to operate with little or no need for positive credit subsidies in FY2011 and beyond.

On September 30, 2010, a continuing resolution was enacted, P.L. 111-242, which funds all USDA housing programs at the FY2010 level through December 3, 2010.

Date of Report: October 29, 2010
Number of Pages: 21
Order Number: RL33421
Price: $29.95

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