Committee Passes Bill Requiring Lenders to Fund Rural Loan Guarantees

With the ""U.S. Department of Agriculture's"":http://www.usda.gov/wps/portal/usda/usdahome (USDA) loan guarantee program said to be just ""days away"" from exhausting its federal funding, a bill requiring lenders to fund the program was unanimously passed by the House Financial Services Committee on Thursday.

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This action clears the bill for consideration by the U.S. House of Representatives, which is expected to take up the bill as early as next week.

H.R. 5017, the Rural Housing Preservation and Stabilization Act, was introduced by ""U.S. Rep. Paul E. Kanjorski"":http://kanjorski.house.gov/ (D-Pennsylvania) in an effort to ensure that rural homebuyers have continued access to affordable

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mortgages through the USDA loan guarantee program. The financial crisis spiked consumer interest in the program, tripling the number of loans annually made since 2006. Because of this growth, federal funding for the program has nearly run out.

""As a result of the unprecedented demand, the program is now unfortunately running out of money,"" Kanjorski said. ""Without action, too many families in rural America will have no options for getting home loans.""

Kanjorski's bill aims to solve this problem by making the program self funded. In order to pay for the program, lenders will be charged up to a 4 percent fee on new home mortgages. This legislation will correct the Section 502 Single Family Housing Guaranteed Loan Program funding shortfall by enabling the program to pay for itself, rather than rely on federal funding.

The USDA's Rural Housing Service manages the Section 502 program, which provides a vital source of mortgage credit for people living in rural committees. The program seeks to lower the cost of homeownership by giving rural areas access to a home loan guarantee program. According to the USDA, these guarantees decrease home lenders' exposure to defaults, encouraging them to underwrite more mortgages. In 2009, loans made under the program averaged $112,000.