With the credit markets still in a bind, previously overlooked government-loan programs are getting increasing attention in the local real estate and mortgage markets.
The Federal Housing Administration and Veterans Administration loan-guaranty programs are well-known. But now another, more obscure program, is beginning to move into the spotlight.
For years, the U.S. Department of Agriculture has offered a program to help home buyers in rural areas. But some mortgage lenders in Tucson are starting to think about using it as a financing alternative on the metro area's outskirts.
"We are very interested in that product," said Mark Ross, president of Tucson mortgage-brokerage firm Prime Capital Inc., about a USDA mortgage-guaranty program. "It looks like a very nice tool."
Government-backed mortgage programs fell out of favor during the boom because conventional financing was easy to get, mortgage brokers said. That's all changed since the credit crunch, which has squeezed some buyers with less-than-stellar credit or without sizable down payments out of the market.
The USDA Rural Development guaranty program is "just receiving much more interest these days in light of the housing crisis," said Ernie Wetherbee, housing program director for USDA Rural Development Arizona.
The program can provide 100 percent financing for buyers in qualifying areas who make up to 115 percent of the median income, Wetherbee said. There's no loan limit and borrowers are allowed to make certain deductions to meet the income guidelines, he said.
A map on the agency's Web site shows that many communities outside of Tucson, including Catalina, Vail, Green Valley and Sahuarita, are in areas eligible for the program.
The agency also has a direct loan program for lower-income borrowers for homes valued up to $207,100 in Pima County, Wetherbee said. The interest on those mortgages can be subsidized, he said.
So far, use of the programs has been limited. Only 170 loans totaling $27.6 million have been made in Arizona under the guaranty program this fiscal year — but that's up about 700 percent from the previous year, Wetherbee said.
Most of the renewed interest in government loan programs is still focused on the FHA program, a legacy of the Great Depression.
FHA loans have more flexible guidelines for determining creditworthiness than conventional loans, local mortgage lenders said. They also allow for a down payment as low as 3 percent.
The loan limit for FHA was recently raised to $316,250 in Pima County, which local real estate agents hope will entice more buyers to enter the market. More than two-thirds of the 9,168 listings on the Tucson market are priced within those limits, according to the Tucson Association of Realtors.
In 2006, FHA loans made up only about 1.8 percent of all mortgages made in Pima County, according to data collected under the Home Mortgage Disclosure Act. But that market share will most likely increase, local mortgage lenders said.
"We're transitioning very quickly into an FHA market," said Paul Dunn, co-owner of The Mortgage Planners.
In recent days, "I would say maybe 50 percent of the applications have been FHA," said Anita Becker, a senior mortgage adviser for Coldwell Banker Home Loans and PHH Home Loans.
However, Ross, of Prime Capital, said FHA should not be viewed as a substitute for the once-prolific subprime loans, offered to borrowers with lower credit scores. Although credit scores are less important for FHA borrowers, borrowers still need to show repayment histories, Ross said.
"FHA is more forgiving on credit issues, but it will not become the new subprime," he said.
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Rural home help
For more information about the USDA Rural Development's loan programs visit www.rurdev.usda.gov/rhs.
For maps of eligible areas, click on "Income and Property Eligibility."