Skip to main content

Opportunities To Reduce Costs and Improve Targeting in the Farmers Home Administration Section 502 Housing Loan Program

Published: Apr 15, 1985. Publicly Released: Apr 15, 1985.
Jump To:
Skip to Highlights

Highlights

GAO discussed some of the important issues concerning the Farmers Home Administration (FmHA) single-family homeownership program and its efforts to reduce housing costs and better target program assistance to rural households. Analysis showed that FmHA did not implement housing cost reduction measures at the county level which could have enhanced targeting to very low-income households. GAO noted that measures could be taken which would help improve program targeting and reduce cost, such as: (1) eliminating amenities; (2) matching the number of bedrooms to household size; (3) extending the mortgage period from 33 to 38 years; and (4) modifying eligibility rules. In response to a legislative mandate, FmHA provided guidelines for increasing the number of housing units financed to very low-income households. FmHA took the position that a 40-percent target ratio had to be maintained which required that the first two of every five loans be made to very low-income households, although a shortage of qualified applicants restricted the number of loans made. In response, Congress eased the 40-percent rule temporarily, which applied only to fiscal year 1984, and required that 30 percent of each state's funds appropriated be set aside for very low-income households. FmHA proposed some measures in January 1984 to reduce housing costs which included: (1) reduced living area; (2) matched home size to household size; (3) using less costly alternative housing; and (4) increased use of less expensive existing housing. However, GAO found that county supervisors had resisted many of the measures because cost reduction would affect future marketability and resale. Moreover, GAO found that under the current system, the borrower, home builder, and county supervisor have little incentive to minimize cost or refinance loans with private credit sources.

Full Report

Office of Public Affairs