The launch in January of an automated underwriting tool from the Rural Housing Service will make housing more accessible and affordable for hundreds of thousands of families across much of the United States.
This technology has the potential to be as revolutionary in the rural housing market as automated underwriting services have been in the broader mortgage market. Importantly, its unveiling comes when many in the mortgage finance industry are looking for ways to increase business volumes, and nonprofit housing communities are searching for methods to help the families in their communities achieve homeownership.
And the process could not have come at a better time for lenders. The mortgage industry is facing its first serious contraction of lending volume in several years. Housing prices in major markets are either soft or declining, and though mortgage rates remain low by historical standards, too many traditional homebuyers remember lower rates and are not in the market.
That's why this effort by the RHS to make it easier for nontraditional mortgage borrowers - rural homeowners - to access mortgage money can be a win-win for lenders and for community organizations that provide housing-related services.
But with the new ease of service and focus by lenders, we must be careful that the industry provides benefits and does not open the door to unscrupulous sources of capital. Recent research by the Carsey Institute at the University of New Hampshire showed that rural communities were particularly vulnerable to predatory lending, especially those borrowers who may qualify for only subprime mortgages.
National nonprofit housing, community development organizations (including mine) and foundations such as the W.K. Kellogg Foundation and the Calvert Foundation are increasing their attention and resources on rural markets, especially the housing component.
Though urban markets certainly continue to need the services of nonprofit organizations and foundations, and the investment of mortgage lenders, there is no question that rural communities have not received equal attention from many community development lenders. The effort by these and other organizations to provide educational resources, training, and funding to potential homebuyers and developers will prime the growth of the rural mortgage market.
A disparity in lending between rural and other markets does exist. The gap can be traced, in part, to a combination of factors, including nonconforming homes and homebuyers as well as relatively fewer mortgage options. That fact makes it all the more important that lenders take advantage of the RHS products, which take these differences into consideration and will help capital flow to rural housing.
The evolution of the underwriting process at RHS being used by 14 lenders, combined with the rural financing efforts of the Federal Home Loan banks and their more than 100 participating institutions, is going to improve rural homeownership.
Rural mortgage lending should be the other half of a bank's emerging-markets housing efforts, equal part with its urban markets program. The reason is simple: Rural lending offers substantial opportunities, because many of the fastest-growing communities are rural. For these emerging communities to thrive, mortgage capital has to flow with as few impediments as possible. Lenders that are moving smartly to provide mortgages and the other banking services to these growing communities will thrive.
Strong support of the RHS program is a great way to start.
