USDA Prime Mortgages?
Posted by Ray on September 27, 2009 under Main | 
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You read the title correctly, the USDA offers mortgages, not only that, but they offer zero down government guaranteed mortgages. Does this sound familiar at all? Is there any wonder how the housing market has not totally collapsed with the tax credit and this USDA program, which is heating up dramatically. Essentially, both of these programs are perpetuating the low end of the housing market and are more than likely putting people into homes that cannot afford them, but only time will tell.
Essentially, the USDA home loan plan has been around for a long time and was designed to boost housing in rural areas. However, after the explosion in housing over the last few years are there really any rural areas left any longer? The program was founded in 1949 and was used very sparingly until the last few years. In fact in 2005 only about 30,000 homes used these loans, but in 2008 this increased to about 65,000 and this year about 120,000 homes used the USDA home loan program. The amount of money allocated to the program has ballooned from about $3B a few years ago to $10B in 2009.
Clearly this program has attracted people to it because, well, you don’t need any money down. All of these federal programs, including the USDA program are buoying the lending and homebuilding industry. For example, last quarter 64% of sales at D.R. Horton were a result of these government programs, I guess this supports the theory of a housing recovery.
Even though these programs are no money down or they allow you to use the tax credit towards your down payment, meaning, essentially, no money down they claim that lending standards are tight, but who really believes them with the mandates we see coming from the Whitehouse. Not to mention that we see the trouble coming from the FHA and they require a whopping 3% down payment to qualify. We are doing everything within our power to re-inflate a bubble that proved devastating to our banking system and economy. The worst part about it is that if it implodes again, which it will at this rate, there will not be the political will or money to bail out the banks nor should the banks be bailed out again.
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