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Executive essay.

Often overlooked by mortgage lenders is the fact that many rural communities harbor an untapped market of moderate-income families who are not yet homeowners. The Farmers Home Administration (FmHA) works as a partner with lenders to help these credit-worthy people realize their dreams. More than $329 million is available during fiscal-year 1992 to guarantee loans through the FmHA Guaranteed Rural Housing Loan Program.

The agency has the responsibility to deliver safe, affordable housing to rural America and it must be done efficiently. Guaranteeing loans is the most cost-effective way for the agency to meet that challenge. The guarantee program involves the cooperation of local lenders who have a vested interest in developing a healthy rural economy.

Besides the rural families who will become homeowners, mortgage lenders, wholesalers, Realtors and builders will profit from the FmHA Guaranteed Rural Housing Loan Program as well.

The untapped market

FmHA recognizes there are people who may need help meeting their housing needs, but who don't qualify as priority applicants for FmHA regular housing loans.

Because the new program provides up to 100 percent financing, FmHA's guaranteed loans reach that untapped market: the moderate-income rural resident with good credit but no down payment funds. Families, single parents and individuals can realize the American dream of owning their own home through this program. Because the guaranteed loans are available only in rural areas, the lenders who participate help stabilize the local economy and maintain the rural population. FmHA-guaranteed loans also help lenders meet their Community Reinvestment Act goals.

Benefits to lenders

In order to get these dollars working, FmHA has made the program attractive and accessible to mortgage bankers. The loans under the guarantee program generate income through servicing fees and can be sold on the secondary market. Fannie Mae-approved lenders can sell these loans to Fannie Mae with or without recourse. GNMA lenders can deliver loans into GNMA I and Il pools.

Getting involved is simple. FmHA requires no separate approval process for the Guaranteed Rural Housing Loan Program. Instead, FmHA automatically accepts lenders in the following categories: * any lender, including state housing agencies, approved

as a supervised or non-supervised mortgagee for submission

of one- to four-family housing applications for

FHA mortgage insurance; * any lender approved by Fannie Mae or Freddie Mac; * a Farm Credit System (FCS) institution with direct lending

authority; * any lender participating in other FmHA-guaranteed loan


As the current wave of refinancing business ultimately ebbs, FmHA-guaranteed loans can help keep loan volume up and provide a steady profit from loan servicing. FmHA encourages regional and national wholesalers to step forward and purchase guaranteed loans.

FmHA will cover all losses up to 35 percent of the original principal and 85 percent of any remaining losses. Plus, the guarantee reduces the amount counted against the institution's lending limit.

User-friendly program

FmHA will work with lenders who participate in the program to process requests for conditional commitments within 10 days. Many states have designated a central location for guaranteed loan processing so lenders have the convenience of working with a single contact office. Lenders may use their own forms for mortgage applications, processing and loan documentation.

The program's restrictions are easy to interpret:

"Rural" areas are those with a population of 10,000 or less, or up to 25,000 if located outside a Metropolitan Statistical Area. Each FmHA county and state office has maps of eligible areas, which include small towns and a large percentage of some states.

"Modest" homes are any that fit the dollar limits of the loan program. The limit is currently $67,500, except in HUD-designated, high-cost areas.

"Eligible" borrowers are those whose incomes do not exceed 100 percent of the area's median income level as determined by HUD. Maximum income limits and other eligibility criteria are available from any state or county FmHA office.

FmHA will continue to streamline the application process, and the agency welcomes suggestions from lenders who have used, or wish to use, the Guaranteed Rural Housing Loan Program.

The funds authorized to boost the development of rural America will reach only as far as the number of lenders who choose to take advantage of this program. Lenders in some areas already have discovered the opportunities to originate quality loans through FmHA guarantees. FmHA hopes many others soon will recognize the benefits of doing so for their companies and their communities.
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No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:rural communities as untapped market in the mortgage business
Author:Ausman, La Verne
Publication:Mortgage Banking
Date:Apr 1, 1992
Previous Article:Financing in a growth-managed environment.
Next Article:Fixed Income Mathematics.

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