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Rural Housing Finance Programs: An Overview (Part I)

Ginnie Mae Is More Than Just FHA and VA Mortgages

Faith Schwartz    |    Housing Policy

Mortgages insured by the Federal Housing Administration and the Department of Veterans Affairs make up the vast majority of Ginnie Mae securities. But not all. And even a tiny sliver of this giant secondary market engine’s share can nourish an important section of the mortgage market: affordable rural housing.

The rural sector of the country varies depending on whose definition you use, but for general purposes, it is about 80 percent of all land area and about 20 percent of the population. It’s a big market no matter how you slice it. And there are a number of different mortgage programs that tend to be “below the radar,” but at the same time have a significant impact.

The U.S. Department of Agriculture (USDA) and the Department of Housing and Urban Development (HUD) both have products that can be and are packaged into Ginnie Mae’s:  Rural Housing Service Section 502 direct and guaranteed mortgage (a program of the Rural Development arm of USDA), and the HUD Section 184 mortgage program targeted to American Indians, half of whom live on remote rural reservations or Indian service areas (Alaska and Oklahoma have large Native populations, but no reservations). Both Fannie Mae and Freddie Mac also participate in the securitizing and purchase of loans from these programs.

Approximately four percent of GNMA securities came from USDA or HUD (73 percent were FHA and 23 percent were from VA as of 2013), but four percent of, say, 2015 GNMA issuance of $436 billion comes to $17 billion to fund rural housing. The RHS 502 (single family; USDA also has a multifamily mortgage program we will consider in another blog) guaranteed and direct mortgage did a volume of $19.5 billion for fiscal 2015, according to the Housing Assistance Council. All but $900 million of that was through the guaranteed loan.

The HUD 184 has guaranteed some $5 billion through more than 25,000 loans in single family mortgages for Indians since starting to guarantee loans in 1995, most of them, it says, are on or adjacent to their rural reservations (the HUD 184 is also available to urban Indians). It doesn’t seem like a lot of money but relatively, it is, as there was basically no mortgage lending on tribal trust areas prior to it. Before HUD 184, the Government Accountability Office could count just 91 mortgages total made over five years (1992-1996) in Indian Country, an area that in aggregate is about the size of Utah. From nothing 20 years ago, a significant mortgage market has gotten off the ground, and Ginnie Mae has been the secondary outlet for it.

USDA also runs the Farm Service Agency, a lender of last resort in the rural niche of farm mortgage lending. It does only a small bit of lending in the $300 billion market, which is dominated by commercial banks and lenders in the first government-sponsored enterprise (GSE) the federal government ever started, the Farm Credit System(FCS) (life insurance companies also have measurable investments in farm mortgages). FCS cooperative lenders make loans but do not take deposits. They get lending money from bonds floated by a finance arm of their regulator, the Farm Credit Administration.

In addition to the FCS, which is roughly analogous to the Federal Home Loan Bank System, the fascinating farm mortgage sector (where the land is usually more valuable than the improvements!) has its own secondary marketing agency, Farmer Mac, a tiny cousin to Freddie Mac and Fannie Mae.

Farmer Mac had $15.5 billion in assets as of Dec. 31, 2015, of which $5.4 billion was in Farmer Mac securities. Not enough to disturb the sleep of executives at the giant agencies, but enough to matter in local markets.

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