Cash Dwindling For No-Money Down Home Loan Program

Wall Street Journal ^ | March 25, 2010 | Dawn Wotapka

[reaganaut1]

[A] program from the Department of Agriculture’s rural development division [...] offers no-money-down loans in certain parts of the country for low- and middle-income borrowers. The Single-Family Housing Guaranteed Loan Program is likely to run out of funding next month, just as a surge of buyers are expected to ink deals before the federal tax-credit expires April 30.

Originally crafted to encourage home buying in rural areas, it’s become quite popular in some exurbs that have seen rapid development in recent years. Some developers have even created entire communities catering to USDA-backed borrowers.

Builders are worried what happens when the program exhausts its fiscal-year funding. Last month, all of Canyon Crossing’s 13 closings came from buyers tapping the USDA program, said Eric Lipar, chief executive of Texas-based LGI Homes. “It’s going to have a substantial impact on sales,” he said.

The company has an entire section of its Web site dedicated to “No Money Down,” but said that it won’t tout the deals after April 1.

The housing downturn has fueled the program’s popularity in recent years. Pre-crash, the USDA typically issued $3 billion in loans for each fiscal year ending Sept. 30, said Jay Fletcher, an agency spokesman. That number has more than quadrupled.

Once lenders, fearing more foreclosures, stopped offering zero-down deals, buyers have flocked to the USDA guaranteed-loan program created in 1991. Lenders consider the loans a safe bet because the USDA guarantees a percentage of the principal amount, up to 90%, meaning they’ll pay should the borrower default. Last fiscal year’s foreclosure rate on USDA loans was 1.72%, far below the Federal Housing Administration’s 3.32%, Fletcher said. Borrowers also can’t make more than 115% of a county’s median income, curbing supersized loans: The average USDA loan is $112,000.

In 2009, the USDA spent a record

[reaganaut1]

If foreclosures are BAD and should be prevented by government (I don't agree), and if foreclosures occur much more often when people have no home equity, WHY ON EARTH is the government STILL promoting mortgages without down payments?

[EVO X]

http://www.rurdev.usda.gov/rhs/sfh/brief_rhguar.htm

[jiggyboy]

Nothing has really changed. It’s still moral hazard everywhere, and they still bet the entire business on the assumption that Uncle Sucker exists to buy housing:

“Builders are worried what happens when the program exhausts its fiscal-year funding. Last month, all of Canyon Crossing’s 13 closings came from buyers tapping the USDA program, said Eric Lipar, chief executive of Texas-based LGI Homes. “It’s going to have a substantial impact on sales,” he said.”