Rita E. Bellinger has a message for mortgage bankers: There is life outside of the big cities. Even better, she adds, there are also profits.
Bellinger, an area specialist in the Norwich, Conn., office of the U.S. Department of Agriculture's (USDA) Rural Housing Service, states that lenders are becoming more aware of this corner of the market and the USDA's efforts to generate homeownership therein. Addressing a recent seminar sponsored by the Connecticut Mortgage Bankers Association, Bellinger says her office has been inundated with inquiries on how to originate loans for rural housing.
‘Everyone and their brother is calling every day for training,’ she says. ‘If I have originators in Connecticut and their processors and underwriters are in other states, they are actually flying up their whole staffs for me to train.’
Although the USDA's program serves the nation's smallest communities (those with fewer than 20,000 residents), Bellinger adds that the potential is great. ‘It is really, really going to be huge – when the money starts flowing again, we're expecting a huge volume,’ she says.
Bellinger notes that many lenders are unaware of how the program operates. She stresses that the USDA is not a direct competitor of the mortgage banking industry.
‘Our guaranteed rural housing loan program works through regular lenders,’ she explains. ‘We're just the insurer. For low-income individuals or families, however, we offer direct loans subsidized as low as one percent. For example, I just did a loan for a young woman who works at a day care center and she makes approximately $25,000. She qualified for a $200,000 house. The program really helps people when a bank cannot – we don't really compete with banks and mortgage companies. For that part of the program, it is for people who still have good credit but don't qualify enough to realistically buy a house.’
For those with moderate incomes, however, Bellinger says Rural Housing Service works with lenders to ensure borrowers get the best deals possible.
‘People come in with an application, and we pull their credit and go over it all with them,’ she continues. ‘If they qualify for the maximums in our direct programs, we start trying to patch in a lender. Those are usually 70 percent subsidized loans and 30 percent lenders' money. The lender is in first position – it is a very nice deal for a lender, who still makes points, income and fees on the full amount of the loan. If borrowers are over our income limit, we give them a list of the lenders participating in the guaranteed program. It is basically a conventional loan with no mortgage insurance – it is that simple.’
Bellinger points out that despite its name, the Rural Housing Service focuses solely on housing and not farming – no income-producing structures are allowed on the property. Eligible housing covers existing homes, condominiums, townhouses, half of a duplex, modular homes and new construction. Manufacturing housing is also covered, albeit with a few caveats.
‘With manufactured homes, they have to be new ones from approved manufacturers,’ she says. ‘The borrower also has to own the land.’
Bellinger also stresses that the Rural Housing Service should be seen as a viable resource, offering lenders and borrowers attractive opportunities.
‘You can finance up to 102 percent – up to 100 percent of the appraised value and a one-time-only guaranteed fee of two percent,’ she says. There is no maximum purchase price. There is no monthly mortgage insurance, and that is the biggest thing – no matter how little that monthly mortgage insurance is, it allows people to qualify for much more.’
Bellinger also made it clear that the Rural Housing Service program should not be seen as the aftermath of subprime.
‘I have lenders that will send me anything because they figure that as long as we insure it, they're off the hook,’ she says. ‘It is not going to be like that – the lenders are responsible for the performance of their loan going forward, and they can be issued more stringent guidelines or excused from the approved list of lenders who can do these loans. We work with a 30-year fixed-interest-rate product,’ she says. ‘If you are setting the rate, it is no more than 60 basis points over Fannie Mae's 90-day rate.’
The program is also particular about credit scoring, she continues, noting that scores of 620 or higher qualify for streamlined underwriting without adverse credit explanations or verifications of rent.
‘If it comes in as 619 with adverse credit, it is probably not going to work,’ she says. ‘I am going to probably want written explanations with supporting documentation of the isolated incidents beyond the borrower's control as to why their credit is derogatory, and something from the lender as to why it is being sent in. If it is something like, 'What if he pays off a $20 credit card bill and bumps up his credit card,' that's what you should be doing before you send me the loan.’
Bellinger identifies Chase as the largest correspondent lender for this sector, holding 52% of the Rural Housing Service's loans in its portfolio. ‘[Chase is] always an active, aggressive correspondent,’ she says.
For lenders who want to consider this sector, she recommends a USDA Web site, http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do, which identifies areas of the country and income eligibility requirements. Ultimately, she asks that lender consider the program a significant resource and not an if-all-else-fails alternative.
‘It is a first choice, not a last resort,’ she says.