Federal spending for low-income rural homebuyers continues its downward spiral

Federal spending for affordable housing programs in the U.S. Department of Rural Development has been declining for years, and based on President Obama's proposed budget for fiscal year 2015, that trend is likely to continue, Housing Assistance Council employees Mike Feinberg and Joe Belden report for the Daily Yonder. The problem is that funds are moving away from direct loans for low and very low income families and instead steered toward guaranteed loans for moderate income families.

Section 502 direct loans, which have helped more than 2 million low and very low income families purchase homes, are for homebuyers with an average income in 2013 of $28,268, while Section 502 guaranteed loans went to those with an income of $54,224, Feinberg and Belden write. Direct loans peaked in the 1970s but have been steadily declining since, while guaranteed loans took off in the 1990s and continue to rise. (Direct loans (blue) keep decreasing, while guaranteed loans (red) keep increasing)

The reason is that the USDA "can make many more guaranteed loans at a lower cost because these loans do not have deep subsidy and because private sector lenders fund the loan," Feinberg and Belden write. "The cost to the government comes only if there is a loss on the loan." In Fiscal Years 2013 and 2014 Congress approved $24 billion per year for guaranteed loans and $900 million a year for direct loans.

President Obama's proposed budget for Fiscal Year 2015 slashes that even more, with $360 million proposed for direct loans, as opposed to $24 billion for guaranteed loans, Feinberg and Belden write. Other low-income programs share the same fate. Section 523 self-help grants are down from $25 million to $10 million, and the president "includes proposed cost saving changes to the Rental Assistance program such as minimum rents (which will affect only those tenants with the lowest incomes) and a provision giving USDA discretion on whether to renew existing Rental Assistance contracts."

"USDA funding has shifted to the guaranteed programs that are less costly and do not have deep subsidy. They also serve people with higher incomes," Feinberg and Belden write. "So what’s ahead for rural housing? The proposed changes and cuts will provide fewer opportunities and less support for lower-income rural residents. Community-based nonprofits will experience reduced ability to serve these residents. USDA programs will rely more upon private sector lenders." (Read more)