Audit finds that Recovery Act loans for rural homes were made to some ineligible borrowers

Part of the 2009 economic stimulus package included federally-backed loans for rural homes. Last year, the guarantees reached nearly $16.8 billion, up from $3.7 billion two years earlier, writes William Neuman for The New York Times. A new audit of the program, administered by the United States Department of Agriculture, has found that the program "was plagued by lax government oversight and many of the same sloppy banking practices that fed the broader mortgage debacle.  Although the auditors looked at only a tiny sample of the 133,053 loan guarantees made in 2009, they estimated that tens of thousands might have been done improperly and warned that a wave of defaults might be looming," according to Neuman.

The audit found that more than 10 percent of the loans might have been to borrowers who were not eligible and might not have had the means to pay them back. The audit, released last week by the office of the U.S.D.A. inspector general, Phyllis K. Fong, also found that U.S.D.A. officials failed to detect the errors. The foreclosure rate for the U.S.D.A.’s portfolio of guaranteed mortgages rose to 2.25 percent in the fiscal year that ended Sept. 30. The year before, the rate was 1.72 percent, and in 2007, it was 1.38 percent. (Read more)