Lenders seek expansion of USDA mortgages

• By GARY PERILLOUX
• Advocate business writer
• Published: Nov 13, 2008 - Page: 4A - UPDATED: 12:05 a.m.

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Louisiana mortgage lenders want to expand a U.S. Department of Agriculture mortgage program for rural homebuyers and make the program’s 100 percent financing available to low- and moderate-income buyers nationwide.

Moving the USDA Rural Development guaranteed loan program into urban areas would give first-time homebuyers a source of financing that’s no longer available through bond-based programs, said Mike Anderson, legislative chairman and past president of the Louisiana Mortgage Lenders Association.

“The down payment is the hardest aspect for people trying to qualify today,” said Anderson, whose Essential Mortgage Co. services Latter & Blum Inc./C.J. Brown Realtors mortgages, among others. He wants U.S. Sens. Mary Landrieu and David Vitter to introduce an amendment for nationwide Rural Development guaranteed loans in the latest stimulus package being considered by Congress.

“It’s simple,” Anderson said. “Expand what we already have and it doesn’t cost the taxpayers anything. The programs are already in place.”

Though administrative costs would grow, the lenders association contends benefits would be far greater and the program could kick-start a slumping real estate industry and the economy as a whole.

Landrieu, D-La., said she’s open to the proposal but needs to review it further after receiving it for the first time Wednesday. A year ago, she proposed an expansion of the Rural Development program that doesn’t go as far as the latest proposal.

Vitter’s office was reviewing the proposal Wednesday but didn’t have an immediate comment.

The proposal comes in the wake of a Tuesday announcement by the Federal Housing Finance Agency that Fannie Mae- and Freddie Mac-backed loans in foreclosure or delinquency will be renegotiated to lower interest rates if payments are three or more months behind.

Anderson said the reality of such a program is it helps borrowers who got in over their heads in five or six states but will do little in states such as Louisiana where lending guidelines generally were tighter. The federal plan would do such things as give a 1 percent to 1.5 percent effective interest rate to a homeowner in California who owes $300,000 on a house now worth $250,000, he said.

Federal officials say the program would fix troubled mortgages so that qualified borrowers pay no more than 38 percent of their gross income on housing costs.

That’s where the USDA Rural Development program comes in. Though it offers 100 percent financing, borrowing is limited to 29 percent of gross income for principal, interest, taxes and insurance. If the borrower holds other debt, the total percentage of debt to gross income can’t exceed 41 percent, said Debbie Redfearn, the single-family housing program director for Rural Development in Louisiana.

Already, the housing market is moving to the USDA program, which backs 90 percent of a loan made by certified lenders to buyers who meet income and population limits.

“We’re about the only lending agency out there now that offers 100 percent financing,” Redfearn said.