Letter to The Honorable Thomas J. Vilsack Secretary U.S. Department of Agriculture

Letter

Today, a bipartisan group of Members of the U.S. House of Representatives penned a letter to Agriculture Secretary Tom Vilsack urging the USDA to fully restore Section 502 Single Family Housing Guaranteed Loan Program which provides rural homebuyers access to financing they are otherwise unable to obtain.

Earlier projections noted that the Section 502 Program would exhaust its funding by May 2010. In response, Congress authorized additional credit authority, premium changes and fee waiver authority for low and very-low income borrowers in order to keep the Program afloat. The letter below requests that these authorizations be implemented as quickly as possible.

Section 502 loans are primarily used to help low-income individuals purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Congresswoman Capito, R-W.Wa, has long-pushed for the reform of the Section 502 Program. In April, Capito introduced H.R. 5003, the Rural Housing Improvement Act of 2010, which would increase the premium from up to 1% to at least 3% but not more than 4% the guarantee fee on loans for housing and buildings on adequate farms. It would also authorize Secretary Vilsack to guarantee loans in aggregate amounts of up to $8 billion for FY2010. The former provision would help the Program reach a level of self-sustainability, and the latter would allow the USDA to make more loans, thus adding liquidity to the market that would not otherwise be available.

"The 502 Housing Program assists qualified, responsible buyers purchase homes in rural areas. The credit authority and premium rates must be addressed once and for all, lest we risk repeating the problem of the Program running dry before the end of the fiscal year. I urge Secretary Vilsack and the USDA to swiftly implement the changes authorized by Congress so we can continue lending and getting money back into the market," stated Capito, Ranking Member of the Subcommittee on Housing and Community Opportunity.

Text Of Letter To Secretary Vilsack

The Honorable Thomas J. Vilsack

Secretary
U.S. Department of Agriculture
1400 Independence Ave., SW, Room 200-A
Washington, DC 20250

Dear Secretary Vilsack:

We are writing to request that the Department of Agriculture (USDA) fully restore the Section 502 Single Family Housing Guaranteed Loan Program for Fiscal Year 2010 by taking all necessary steps to immediately implement each of the changes to the Section 502 Guaranteed Loan Program authorized in H.R. 4899, the Supplemental Appropriations Act of 2010, which the President signed into law on July 29, 2010 (P.L. 111-212).

As you know, the House passed H.R. 5017, the Rural Housing Preservation and Stabilization Act of 2010 in April in response to being notified that the Section 502 Program would exhaust its funding in May 2010. The bill was drafted to ensure that the program continued to remain operational throughout the remainder of the fiscal year. It authorized USDA to assess an upfront fee of up to 4 percent and increased the program's loan commitment authority to $30 billion. Although the Senate failed to act on this important legislation, Congress authorized additional credit authority, premium changes and fee waiver authority for low and very-low income borrowers as part of H.R. 4899 to restore the program and ensure its availability to homebuyers in need.

Shortly after the President signed H.R. 4899 into law, we began to hear reports that USDA's Office of Rural Development (RD) would not be prepared to implement the changes to the program until the beginning of the next fiscal year and in response we set up a call with Rural Development staff to discuss efforts thus far. We were advised that due to the new provisions in H.R.4899 that provided USDA with authority to increase the upfront fee to 3.5 percent, assess an annual fee of up to 0.5 percent and waive fees for low and very low-income homebuyers, the Department's information technology (IT) systems would have to be upgraded. Staff was further informed that these systems would not be fully operable until the middle of November, which is well into the new fiscal year. This is simply unacceptable, particularly given that that the Department had ample opportunity to prepare for any needed changes to its IT systems well before the bill was enacted and given that prior changes to the upfront fee have taken only a few weeks to implement. Additionally, we are deeply troubled that such a delay would effectively nullify USDA's ability to waive fees for low and very-low income homebuyers for Fiscal Year 2010. Consequently, we strongly urge you to implement this authority before the fiscal year ends or examine ways to implement this authority retroactively.

We understand that RD is re-examining its decision to issue conditional loan commitments pending completion of the IT system upgrades. We commend the Department for reconsidering its approach to implementing the new law. As you know, the issuance of conditional loan commitments that includes a proviso making it subject to appropriations or subject to changes to the IT systems is problematic because it has caused many lenders to opt out of the program. Indeed, several large lenders including Bank of America, Wells Fargo, and US Bank left the program in May when appropriated funds were exhausted. We cannot afford to let rural America remain in limbo while RD updates its IT systems. This is neither a viable nor an acceptable excuse.

In addition, issuance of actual rather than conditional loan guarantee commitments is critical because many rural homebuyers finalized contracts on their homes before April 30, assuming they would be able to take advantage of the homebuyer tax credit. They can only utilize that benefit if they can close on their loan by September 30. While it is true that lenders can theoretically close these loans even with a conditional commitment that is subject to future action, we have been informed by lenders that in practice they will not close on these loans absent a firm federal government guarantee because of the credit risk associated with a conditional commitment. Consequently, it is imperative that RD work with lenders to ensure that these homebuyers are able to close on their loans by September 30, 2010.

In sum, we urge you to make every effort to fully re-establish this important federal program to provide rural homebuyers access to financing they are otherwise unable to obtain. We thank you for your attention to this important matter and request a prompt response with a status update on the Section 502 Program.

Source