Donald Colburn is the Rural Housing Service program director for Rural Development, part of the U.S. Department of Agriculture. He is based in Amherst and oversees the housing programs in six area field offices located throughout Massachusetts, Connecticut and Rhode Island, including local field offices in Wareham, Holden and Hadley.
There are 351 towns in Massachusetts, 231 of which are considered rural for the purposes of the Single Family Housing Guaranteed Loan program offered through the U.S. Department of Agriculture’s Rural Housing Service. Only one county in Massachusetts, Suffolk, has no eligible rural areas. The Rural Housing Service mortgage product provides 100 percent financing, no monthly mortgage insurance premiums, competitive fees and attractive qualifying ratios.
The product is readily marketable on the secondary market to Fannie Mae, Freddie Mac and other wholesale lenders. The MassHousing, the state’s affordable housing finance agency, also purchases these loans from their approved lenders.
In spite of the program’s favorable characteristics, it has been underutilized in Massachusetts. In fiscal year 1998, 578 Guaranteed Single Family Housing loans were made in Massachusetts for a total of more than $52 million. Since that time, production has declined. Production in the most recently completed fiscal year, 2003, was a paltry 26 loans for just over $3.1 million. During that same period, program activity has increased in neighboring Connecticut from 54 loans for $5.4 million to 134 loans for more than $17 million.
High housing costs, heavy refinancing activity and lack of an automated underwriting system may be a few of the reasons for the decline in activity over the past several years. Although Fannie Mae and Freddie Mac actively market the program and purchase the loans, the product is not recognized by Fannie or Freddie’s automated underwriting systems. Therefore, the loans must be processed the “old-fashioned way.” Through a reservation system, a one-page faxed form containing borrower and property address information allows the funding for a lender’s proposed transaction to be reserved and a confirmation notice to be sent the same day. Program regulations allow for a 48-hour turnaround time once the complete loan application is submitted to the Rural Housing Service. However, complete loan applications are typically reviewed and approved on the day they are received in the Rural Housing Service offices. The actual loan transaction must be processed overnight; therefore, the conditional commitment is typically issued to the lender the following day. Rural Housing Service staff personally contact lenders by phone or fax to discuss and resolve any issues identified during a loan application review.
Reaching a Goal
The Rural Housing Service recognizes the importance of automation, and has made the development of an automated underwriting system a top priority. Until that system is implemented, the Rural Housing Service staff stands ready to work closely with lenders interested in utilizing the program to ensure the loans are processed as quickly as possible.
The Single Family Housing Guaranteed Loan product is the probably best product for income-eligible customers who are unable to obtain conventional mortgage assistance and are looking to purchase properties in eligible rural areas. There are income limits, but the limits applicable to this program are quite generous: 115 percent of the area’s median household income. There is no minimum FICO credit score needed, but an applicant’s credit history should be good. An applicant’s repayment ability determines the maximum loan amount for which they qualify and the property that can be financed. The qualifying income-to-payment ratios are from 29 percent to 41 percent; higher percentages may be authorized with documented compensating factors. The program is limited to eligible rural areas, which in Massachusetts encompasses 231 towns.
President Bush has established a goal of helping 5.5 million minority families attain the dream of homeownership by 2010. The Guaranteed Single Family Housing program can help achieve the president’s goal by encouraging and helping lenders provide assistance to all segments of this emerging mortgage market.
The U.S. Department of Agriculture under the Rural Development mission area offers many programs to help build and improve rural communities. For more information on the Guaranteed Single Family Housing Program and other programs, please visit the Web site at www.rurdev.usda.gov/ma. Rural Housing Service staff is readily available to answer questions and provide training to anyone interested in our programs.
USDA Rural Development is an Equal Opportunity Lender, Provider, and Employer. Complaints of discrimination should be sent to: USDA, Director, Office of Civil Rights, Washington, D.C. 20250-9410.
