Rural loan program loss could hurt NWA, Fort Smith area

Like all things deemed too good to be true, local homebuyers will have one less financing option as they seek out mortgage loans after March 27.

The rural development loan program, which offers 100% financing to lower income families will be off the table throughout much of Northwest Arkansas and more areas near Fort Smith because of population growth in recent years and tighter government purse strings.

Mortgage lender Walt Fenton, with First Security Bank in Rogers, said the population growth throughout much of Benton and Washington counties which is reflected in the 2010 federal census will mean few areas will be eligible for the program in the future.

In Washington County, Elm Springs stands to lose its eligibility as does Van Buren in Crawford County, according to local lenders.

“Bentonville, Bella Vista, Centerton, Cave Springs, Lowell, Siloam Springs and Bethel Heights, all of which had been part of the program are now considered either too large by city population, or too close to a larger metro area to qualify for the rural development option,” Fenton said.

While Fenton has not seen a large number of RD loans come through his department in the last year, he does expect some marginal impact if the proposal is approved.

“The primary reason we haven’t seen as many RD loans of late is because the income levels to qualify are pretty restrictive – $74,700 for a family of up to four. We have done more business with the Arkansas Development Finance Authority program because it is less restrictive,” Fenton said.

The ADFA “home-to-own” program has income criteria of roughly $81,000 for a family of three and is not restricted by higher population growth. This program provides up to $6,000 in down payment assistance and closing costs for qualifying buyers.

The interest rate is 3.25% with a 1% origination fee to the lender. About 40 lenders are set up to utilize this grant program, according to Murray Harding director of the ADFA home ownership programs.

Harding says the ADFA does have down payment assistance programs for low and lower income homebuyers and the money is funded privately through the secondary market with very little risk of being cut out in the near term. These programs do not have  location stipulations as seen with the RD program.

Harding said Van Buren is especially attractive for the down payment assistant programs because there is not a first-time homeowner requirement in this targeted area.

The rural development loans are one of the few “no money down” mortgages left in the country and a number of local real estate agents will say the mortgage product is directly responsible for population growth in several counties around the state – perhaps none greater than Benton County.

Justin Moore, mortgage lender with Metropolitan National Bank in Rogers, said roughly 8% of the loans he is processing are part of the RD program.

“I hate to see this program lost in so much of Benton County, when it’s one of very few 100% finance options for buyers today,” Moore said.

Catherine Maxey, agent with REMAX Realty Results, said the loss of the program will mean more prospective homebuyers will have to make other arrangements for a down payment.

“That will mean some will have to save or borrow from family members the 3.5% minimum down payment required for FHA loans. In the short term, the potential loss of this program has pushed some buyers to act now. But in the future they may have to figure out other ways to cover 3.5% downpayment needed for FHA qualification,” Maxey said.

It has been nearly 20 years since the rural development guidelines were revised. With federal budget cuts looming, most of the experts interviewed believe the RD program changes will stand when the final revisions are released March 27.

Sheila Kelton, Liberty Bank mortgage lender for Western Arkansas, said the program loss will be huge in Van Buren and Russellville as both are expected to ineligible when the new guidelines.

“I hate to see the loss of another loan product and do believe it will impact home sales in the effected areas. In Crawford County, Alma would still be eligible and in Sebastian County, Greenwood, Charleston and Bonanza are also still eligible,” she said.

The City Wire requested a list of the areas in Western Arkansas that will be impacted from the proposed changes. The RD offices in Bentonville, Little Rock and Washington D.C. were each contracted and none of these agency offices provided the data requested between Friday, Mar. 8, and Monday, Mar. 11.