Rural Housing:

Impact of Refinancing and Selling FmHA Section 502 Homeownership Loans

RCED-87-54: Published: Mar 31, 1987. Publicly Released: Mar 31, 1987.

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GAO reported on the Department of Agriculture (USDA) Farmers Home Administration's (FmHA) plan to sell rural homeownership loans, and compared the impact on revenues of selling or refinancing the loans.

The Omnibus Budget Reconciliation Act of 1986 requires the Secretary of Agriculture to sell loans to the public to reduce fiscal year 1987 federal outlays by over $1.7 billion. GAO noted that the Housing Act of 1949 provides an alternative to selling the loans because it requires that USDA request financially able borrowers to refinance their loans with available private credit. GAO found that: (1) FmHA would achieve greater savings by refinancing the loans because it would receive the total amount of the outstanding principal; and (2) since loan sales would necessitate discounting the loan amounts in order to market them to the public, revenues would decrease.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress did not amend the 1986 act and, on September 29, 1987, FmHA sold section 502 mortgage loans with a face value of about $2.9 billion to a private sector trust in order to achieve the $1.7 billion targeted outlay reduction mandated by the act.

    Matter: In order to maximize revenues, Congress may wish to consider amending the Omnibus Budget Reconciliation Act of 1986 to: (1) specify that revenue proceeds from refinancing section 502 loans be counted toward reducing federal outlays as required by the law; and (2) instruct the Secretary of Agriculture to give priority to refinancing these loans in meeting the targeted outlay reduction.


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