By Suzanne Anarde-Devenport, RCAC Chief Executive Officer
During the month of June, housing groups across the country celebrate homeownership through a variety of events. Given the critical impact housing has on our health and wellbeing, I am grateful for the opportunity to celebrate homeownership, personally and professionally, with other rural and Indigenous homeowners across the western 13 states that RCAC serves.
This year is a bit different in that the U.S. Department of Agriculture budget for both Fiscal Year 24 and upcoming Fiscal Year 25 pose a threat to rural and Indigenous communities, with cuts in both the USDA Section 502 mortgage program and Section 523 Mutual Self-Help Housing (MSH) program. These two programs are the core elements of homeownership in rural and Indigenous communities. RCAC and our housing allies have been diligently advocating for funding increases for both programs. Before we go into those advocacy efforts and how YOU can help, let me remind you what 502 and 523 programs do for rural and Indigenous housing.
What is the USDA Section 502 mortgage program?
The Section 502 direct loan program administered by USDA’s Rural Housing Service provides direct long-term subsidized loans, as low as 1%, to rural households with incomes not exceeding 80 % of median. As required by law, at least 40% of the loan funds available go to very low-income households – with incomes not exceeding 50% of median incomes. Section 502 is the only federal program of its kind and the most deeply targeted homeownership mortgage product in America.
Section 502 loans are made at a market interest rate, and subsidized at a graduated interest, depending on family income. Borrowers may obtain 100% financing, and loans are generally for 33 years (with a 38-year option for those below 60% of the area median household income), ensuring sustainable home ownership. Minority households make up 40% of Section 502 borrowers.
In many cases, Section 502 loans are used with the Mutual Self-Help Housing (MSH) program, which works with families who build their homes, gaining “sweat equity” through their labor.
What is the Section 523 Mutual Self-Help Housing technical assistance program?
Section 523 is the only federal program combining “sweat equity” homeownership opportunities with technical assistance and affordable loans under USDA’s Section 502 direct loan program. At a time of high interest rates, MSH and Section 502 loans are often the only housing resources available for rural households of limited means.
Through their ‘sweat equity,’ MSH participants contribute 65% of the labor required to build homes. This substantial contribution leads to considerable savings, making homeownership more feasible for families with lower incomes compared to the cost of a comparable contract-built home.
MSH organizations work with low-income families to build homes in rural communities. These organizations assist families in preparing their Section 502 loan applications, organize groups of 8-12 families who will work together, provide training in construction basics, and supervise the construction of self-help homes.
What funding is at risk?
Fiscal Year 24
Section 502 Mortgage Program
The final appropriation for Section 502 loans was over 30 % below Fiscal Year 2023 appropriations. That appropriation of $1.25 billion was combined with authority from the American Rescue Plan Act for a total program level of $1.7 billion. In FY 23, USDA made more than 7,000 Section 502 loans.
In Fiscal Year 2024, $880 million is available. This will fund, at most, about 3,500 loans–the lowest total for Section 502 loan-making since the mid-1950s. As of June 27, 2024, USDA had made 2,651 Section 502 Direct Loans totaling $681.50 million. USDA is working towards shifting previously appropriated disaster funds into Section 502. While it would add an additional $66 million, bringing the total for FY 24 to $964 million, it is still significantly less than FY23.
USDA is also working on transferring an additional $2.35 million to Section 523 Mutual Self-Help Housing grants, which will make $27.5 million available for this fiscal year.
Section 523 Mutual Self-Help Housing
In 2023, 80 MSH grantees completed construction on over 700 homes, with at least 40% of the families participating in MSH construction being very low-income. The average saving MSH families achieved through their sweat equity was $66,162. As of April 2024, MSH had assisted over 250 families. For FY 24, 642 families are in line for Section 502 loans and participation in the MSH program, as these two programs work hand in hand.
With over 37,000 families waiting to participate, the demand for Mutual Self-Help housing is at a record high. Seventy-three organizations have expressed keen interest in the MSH technical assistance program, further demonstrating the program’s effectiveness and the need for increased support.
Despite record demand, appropriations for Section 523 grants have decreased, with Fiscal Year 24 landing at $25 million, impacting potential homeowners’ access to this impactful homeownership opportunity.
Fiscal Year 25
The coming appropriations process for Fiscal Year 25 promises to be difficult. The total available for domestic programs is $710 billion, $60 billion less than Fiscal Year 24.
Section 502 Mortgage Program
As interest rates have risen and continue to be high, these program subsidy rates also rise, increasing the cost to the federal government for supplying the 502 subsidies:
Section 502 Fiscal Year 24 – 9.7%; Fiscal Year 25 – 11.8 % = 2.1% interest increase for Fiscal Year 25
RCAC and other housing advocates across the nation have been building support with legislatures for rural housing programs. However, because of the extreme reductions of funding for Section 502 loans in Fiscal Year 24, many rural families cannot reach first base in their quest for homeownership through Section 502 loans. If you have families impacted, please encourage and support those families to write to their senator or representative to express their concerns and ask for a higher level for Section 502.
Section 523 – Mutual Self Help (MSH)
Fiscal Year 24 appropriations fell from $32 million in Fiscal Year 23 to $25 million in Fiscal Year 24, a 21 % reduction. The House Agriculture Appropriations Subcommittee has proposed an additional decrease of $5 million for Fiscal Year 25, dropping funding to $20 million. If the two-year deduction for Fiscal Year 24 and 25 for Section 523 were enacted, it would total $12 million or a 37.5 % reduction over the two years.
This change would result in fewer grantees and rural families gaining homeownership assistance through Mutual Self-Help Housing.
Section 523 grants are made on a two-year basis. The most recent estimate of the cost to support the current network exceeds $80 million. The immediate need is to support the Fiscal Year 25 budget request of $32 million.
How can you help?
Your voice is important! Reaching out to your representatives in the House and Senate is invaluable. You can find out email and phone contact info for senators here or representatives here.
Also in this issue of Self-Help Builder:
