USDA's Rural Development has many unique missions, one of which is providing housing in rural America where it is a little tougher to get a housing loan. One of the biggest programs they apply is guaranteeing loans on homes and have done several hundreds of thousands of them in recent years. USDA Undersecretary of Rural Development Dallas Tonsanger says they took a hard look at this and came up with the Rural Refinance program, which is being made available as a pilot program in 19 states that have been hardest hit by the housing finance crisis.
"We are offering people the chance to refinance their homes at a lower interest rate," Tonsanger said. "When many of these loans were made they were in the 6% or 7% range, but now interest rates are at 3.75%, so we have put together a simplified plan where they can take a run at doing a refinance and dramatically reduce their payments."
USDA will review the performance of the pilot after two years to determine whether to continue it, terminate it or make it permanent. The 19 states that are participating in the program are: Alabama, Illinois, Nevada, Oregon, California, Indiana, New Jersey, Rhode Island, Arizona, Kentucky, New Mexico, South Carolina, Florida, Michigan, North Carolina, Tennessee, Georgia, Mississippi and Ohio. Tonsanger says that by making it a pilot program it provides the chance for Rural Development to make some adjustments as they go along before making anything permanent.
Tonsanger says there are a few criteria that must be met for homeowners to be eligible for the Rural Refinance Program.
"The biggest thing is you have to be current, that is that your payments have been current and you haven't had any missed payments in the last year or so," Tonsanger said. "We want to make it simple. People won't have to do an appraisal, they won't have to do a property inspection or credit report, they just have to be current on their current loan and then we can take a look at whether or not we can do the refinancing for them."
Terms cannot exceed 30 years and no cash out is permitted to the borrower. Refinancing borrowers would still have to meet low or moderate income limits, and they would have to pay closing costs.