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Letter to Tom Vilsack, Secretary of Agriculture, United States of America


Location: Washington, DC

Today, Congressman Paul E. Kanjorski (D-PA), Congressman Rubén Hinojosa (D-TX), and Congressman Travis W. Childers (D-MS) released a letter to Secretary Thomas J. Vilsack calling on the U.S. Department of Agriculture (USDA) to take all necessary steps to immediately implement each of the changes to the Section 502 Guaranteed Loan Program recently authorized by Congress to ensure the continued access to affordable mortgages for low- and moderate-income rural households. As a result of the economic turmoil of the past two years, there has been a significant increase in demand for USDA's Section 502 home loan program, and federal funding has failed to keep up with demand. Congress responded in July by increasing the resources of the Section 502 program, and the correspondence comes in response to initial reports that USDA's Office of Rural Development might be unable to implement modifications to the program until the next fiscal year. In all, 20 Members of Congress joined in sending the letter, including House Financial Services Committee Chairman Barney Frank (D-MA), Housing Subcommittee Chairwoman Maxine Waters (D-CA), and Housing Subcommittee Ranking Member Shelley Moore Capito (R-WV).

"USDA must quickly implement the changes to the rural program recently authorized by Congress," said Congressman Kanjorski, Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. "Many families recently bought homes in anticipation of using the homebuyer tax credit, but USDA's work to upgrade its information technology systems and sluggish efforts to execute recent changes to the affordable rural loan guarantee program could place these contracts in limbo. Particularly during these difficult economic times, many rural homeowners have needed to use these guarantees to help them buy homes. USDA must pick up its pace."

"Affordable rural housing is needed now more than ever as job losses and home foreclosures reduce the already inadequate housing options for rural Americans," said Congressman Hinojosa, Chairman of the Congressional Rural Housing Caucus. "Congress has provided USDA with the tools to resume the Section 502 Guaranteed Loan Program and given USDA Rural Development the authority to waive up to $697 million in fees for low-income borrowers. USDA's inaction is unacceptable, particularly as our economy begins to emerge from a very serious recession."

"During today's tough economic times, rural communities like those in North Mississippi have been hit especially hard. It's essential that rural homebuyers have immediate access to the increased resources and additional modifications that Congress approved this summer. The fact that loan guarantees may otherwise be put at risk is deeply concerning to me, since this would jeopardize rural homebuyers' ability to take advantage of the first-time homebuyer tax credit, which has given a significant boost to hard-working families, the housing market, and our economy. We simply cannot afford to slow down the implementation of these critical rural housing changes," concluded Congressman Childers, an active Member of the House Financial Services Committee with a deep interest in rural housing issues.

The text of the letter follows:

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.

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