By Suzanne Anarde, RCAC chief executive officer

When I think of Mutual Self-Help Housing and programmatic impact, I often pause to consider what an amazing financing vehicle the U.S. Department of Agriculture 502 direct mortgage program is for rural America. It has been a staple for mortgage financing in rural communities for more than 60 years, yet we often take for granted what a powerful tool the 502 program is for building and sustaining affordable rural housing.

I bought my first home with a 502 Direct Loan. It was surreal to me that I could qualify for a mortgage to buy my dream house—a small, older farmhouse in Veguita, New Mexico, a rural community south of Belen. And when my mom died in 1986, I adopted my 5- and 11-year-old sisters … as a 25-year old. The fact that I owned a home was a huge factor in the court’s decision to approve the adoption. I thought we would live there forever and never experience interest recapture. However, the opportunity to have a place I could call home and bring my two younger sisters into was worthy of recapture, and I sold the house in Veguita and moved to rural southeast Colorado. Access to a 502 mortgage changed our life’s trajectory.

While we often think of rural America’s glass as half empty, I believe that the 502 mortgage program is one of the many advantages for rural residents that make our glass half full. The mortgage program is not perfect, yet it yields thousands of new homeowners every year. It provides a pathway to financial stability and equity, a safe harbor for families and children, and most importantly … a place to call home. Indeed, the 502 is a core and essential element for success in the Mutual Self-Help Housing program. Replicating the program in urban or suburban communities requires substantial mortgage subsidy levels. It also requires that we develop a mortgage product that provides the efficiencies and cost savings of a construction to permanent financing model, similar to the 502 mortgage benefits. The packaging model RCAC and other intermediaries support is another key and unique 502 program component. The consistency and support provided to families and packaging organizations strengthens the program’s performance. So far this year, RCAC helped process 155 Section 502 Direct Loan packages, which totaled $44.1 million, and 77 families achieved homeownership with $18.1 million in 502 mortgages. During a pandemic, the “little engine that could” Section 502 Direct Loan Program continued to produce results.

The national stats on the program are truly impressive.

• The Section 502 Direct Loan Program has helped more than 2.1 million families realize the American Dream and build their wealth by more than $40 billion.
• It is the only federal homeownership program that is exclusively targeted to very low- and low-income rural families.
• By law, at least 40 percent of Section 502 funds must be used to assist families that earn less than 50 percent of the area median income.
• Three-fourths (74 percent) of borrowers have incomes less than 60 percent of AMI, with an average income less than $28,275.
• With a Section 502 Direct Loan, these families can access affordable, safe mortgages with interest rates starting at just 1 percent over a 38-year term.
• Section 502 is the single, most cost-effective federal housing program; on average, a Section 502 loan costs $3,000 over its entire lifetime.

Despite the program’s success, demand for rural housing outpaces supply. More than 12,500 loan applications, amounting to $1.5 billion, are typically on Section 502 waiting lists and the program is often zeroed out in federal budget proposals. We must continue to share families’ success stories and advocate for continued funding for this essential tool for affordable rural housing development and sustainability. This tried and true program is essential to rural communities’ sustainability. And, in fact, it is incumbent on us to ensure that the program becomes more readily available in black, brown and persistent poverty communities to better support those communities and residents in their quest for homeownership, wealth building and equity. RCAC is committed to partnering with other rural CDFIs working in those communities to increase access to 502 mortgages.