This month, the U.S. Department of Agriculture’s Rural Development Section announced that Rhode Island would be one of 19 states in the country to participate in a pilot program to help homeowners with USDA home loans to refinance under more favorable interest rates. Jay Healy, the USDA Rural Development director for Rhode Island, Massachusetts and Connecticut, took a few minutes to explain what the program is and who it is designed to help.
PBN: The Rural Refinance Pilot Program appears similar to other federal programs designed to help homeowners, such as the Home Affordable Refinance Program. How is this program different?
HEALY: Both programs are designed to help borrowers reduce their current mortgage payments so they can become successful homeowners. But, the programs are different both substantively and administratively. On the administrative side, the HARP program is a partnership of the U.S. Treasury and the U.S. Department of Housing and Urban Development (HUD). To be eligible for HARP, a homeowner’s mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae. With Rural Development’s Section 502 program, loans are owned or guaranteed by the U.S. Department of Agriculture, so this pilot program is unique to USDA home loans.
On the substantive side, there are some different eligibility criteria and terms. For example, the new Rural Development Housing Refinance Pilot does not require borrowers to obtain new credit reports, appraisals, or property inspections. This program also differs in that it is a pilot program that is being implemented in 19 states that have faced high foreclosure rates, declining home values, and high unemployment rates.
PBN: How does the program work and who is eligible?
HEALY: The program allows borrowers who have USDA direct and guaranteed loans to refinance those loans to lower available rates in order to reduce their monthly payments. For direct loans, borrowers will work with staff in our field office in Warwick and with the USDA’s Centralized Servicing Center in St. Louis, Mo. The program is eligible to borrowers who meet current income eligibility requirements; reside in an eligible rural area or an area that was eligible at the time of the original loan closing; and have made timely mortgage payments for the 12-month period prior to the refinance.
PBN: Rhode Island is not known as a rural state. Why is it being chosen rather than other states in New England for the pilot program?
HEALY: This is a great question. First, as this is a 2-year pilot program in 19 states, it may be rolled out to other states if data suggests it is successful, and this could include Massachusetts and Connecticut. Rhode Island has a diverse mix of communities, from very urbanized ones to rural ones. Our agency’s authorizing legislation has made some exceptions for New England communities to allow our programs to be delivered in states like Rhode Island. In the region, Rhode Island residents have been particularly hard hit by the 2008 economic downturn.
What’s more, while the HAMP program has been successfully leveraged in Southern New England, permanent loan modifications in Connecticut and Massachusetts have far outpaced those in Rhode Island. According to historical data from the Federal Reserve Bank of Boston, there were 2,900 active HAMP permanent modifications in Rhode Island last year at this time – February 2011, compared to 7,000 in Connecticut and 14,000 in Massachusetts. The USDA program is an important complement to HAMP that could help Rhode Island borrowers.
Here in Rural Development’s three-state jurisdiction, Rhode Island has faced the highest unemployment rate. The Bureau of Labor Statistics most recent seasonally-adjusted data – from November 2011 – indicate that Rhode Island’s unemployment rate reached 10.5 percent, compared to just 8.4 percent in Connecticut and 7.0 percent in Massachusetts. Unemployment places a severe burden on homeowners struggling to keep up with their monthly bills. It was important for USDA to pilot the program in a state where reduced monthly mortgage payments could potentially help keep homeowners out of foreclosure.
PBN: When homeowners refinance under lower interest rates, who ultimately receives smaller monthly payments?
HEALY: Refinancing to a lower rate will ultimately result in lower monthly payments for the borrower. Homeowners will not be faced with the up-front costs of an appraisal, home inspection, or credit report, though closing fees and some other fees will apply. Still, many struggling homeowners have acknowledged that lowering payments by even a small amount each month could mean the difference between foreclosure or default on other debts, and stabilizing their housing and financial situation.
PBN: This pilot program is designed to help homeowners who are current on their last 12 months of mortgage payments. Does the agency have any programs that reduce loan principal or help homeowners who have fallen behind?
HEALY: We do our best to work with homeowners in our programs. If borrowers are having financial difficulty (temporary or permanent), they should contact our Centralized Servicing Center immediately. We may be able to provide payment assistance (lower payments), moratorium relief (deferred payments), or counseling to help borrowers meet their obligations
