A January 13th article in the New York Times, entitled Auditors See Rising Defaults in Rural Loans, focused on the USDA’s mishandling of $133 million in budget authority for Rural Development’s Section 502 Single Family Housing Guaranteed Loan Program, granted through the American Recovery and Reinvestment Act of 2009. The mishandling came to light through a December audit by the Office of the Inspector General.
The audit examined a sample of 100 loans, finding 28 loans where, “lenders had not fully complied with Federal regulations or Recovery Act directives in determining borrower eligibility.” The Audit found the USDA granted loans to applicants with annual income that exceeded program limits, to borrowers that did not meet repayment ability guidelines, those who had abiility to secure credit without a government loan guarantee, borrowers who already owned adequate homes, and borrowers who used government loan guarantees to purchase homes with swimming pools.
While the report does not contain a complete explanation of the causes behind the program failures, it points to “instances where agency policies and guidance were unclear, inadequate, or insufficient.” and alludes to future insights and recommendations to be contained in a future, final audit. The audit concluded the following:
In our judgment, the borrowers that did not meet repayment ability guidelines also have a higher risk of becoming delinquent and defaulting on their loans. Based on the sample results, we estimate that 27,206 loans (over 33 percent of the portfolio) may be ineligible with a projected total value of $4.0 billion.
So several months after our FOIA request, we have finally received a list of the 22 lenders behind the 28 loans mentioned in the audit:
Article Image courtesy of Flickr user James Cridland