Lenders Required to Fund Rural Mortgage Guarantees in Kanjorski Bill
A bill that aims to support the rural housing market cleared a key hurdle in the House of Representatives today. Under the bill, mortgage lenders would instead fund the guarantee program through mandatory fees, as opposed to the current system of using federal funding to backstop the program—a well that is about to run dry, supporters say. The House Financial Services Committee unanimously passed House Resolution (HR) 5017, the Rural Housing Preservation and Stabilization Act of 2010. The bill now moves to a House vote, which could take place as early as next week. Introduced by Rep. Paul Kanjorski (D-PA), the bill ensures the continued access by rural homebuyers to affordable mortgages through the US Department of Agriculture’s (USDA) loan guarantee program. Loans made through the program have tripled since 2006, putting a strain on the federal funding -- which, according to a press release from the Committee, will run out "within days." The bill makes this program self-funded through fees imposed on mortgage lenders, ensuring borrower access to guaranteed loans in rural areas once the federal funding runs out. “As a result of the unprecedented demand, the program is now unfortunately running out of money," Kanjorski said in an e-mailed statement. "At no cost to taxpayers, my bill will preserve the access of millions of families living in America’s heartland to needed USDA loan guarantees, so that they can continue to buy homes with affordable mortgages. Without action, too many families in rural America will have no options for getting home loans. We cannot allow that to happen.” Kanjorski’s bill will amend the Section 502 Single Family Housing Guaranteed Loan Program funding shortfall by enabling the program to pay for itself, rather than relying on federal funding. In order to pay for the program, lenders will pay up to a 4% fee on new home mortgages. The USDA’s Rural Housing Service manages the Section 502 program, which aims to lower the costs of homeownership by giving rural areas access to a home loan guarantee program. These guarantees protect mortgage lenders from certain default-related losses. In 2009, loans made under the program averaged $112,000. Write to Diana Golobay.