The USDA's 'Guaranteed Rural Housing Program,' which has soared in popularity the past two years, could run out of allocated funds shortly, affecting hundreds of lenders and secondary market buyers, including JPMorgan Chase.
A memo written by Chase executive Jack Jones notes that the U.S. Department of Agriculture has been allocated $13.5 billion to cover residential guarantees but six months into the fiscal year, $9.6 billion has already been used. A Chase spokesman confirmed the memo to National Mortgage News as well as the fact that the bank is a large investor of USDA-backed residential loans.
The GRHP functions like the FHA program but is geared toward properties in towns with populations of 20,000 or less.
Word that USDA could run out of guarantee money is beginning to spread. It was acknowledged at a regional meeting held by RE/MAX Realtors in Northern Virginia and in interviews conducted by NMN. Telephone calls to USDA's press office had not been returned at press time.
Ron Wright, a mortgage banker based in the Midwest, said the USDA mortgage insurance program "is a big deal for people in rural areas. It also has a low default rate."
If GRHP runs out of money Congress must allocate more. Another possible solution would be for lenders to charge higher upfront premiums on the loans, increasing the pool of money available for guarantees. Currently, the upfront premium charged to borrowers is 2%.