By Louis Martin, RCAC staff writer

Rural Community Assistance Corporation (RCAC) embarked on its journey in 2012 to help homebuyers access affordable mortgages through the U.S. Department of Agriculture Rural Development (USDA RD) 502 Direct Loan Program. After nearly a decade RCAC built a powerhouse partnership network across the rural West and beyond. It’s a story that highlights the value of cooperation among organizations both large and small.

RCAC is an intermediary and quality assurance reviewer between USDA RD and various nonprofit organizations (called “qualified employers”) in RCAC’s service area to process 502 Direct Loan applications. The qualified employers recruit potential homeowners and draft the USDA RD loan documents. RCAC reviews the completed packages to ensure they are complete before submitting to USDA RD, which speeds up loan processing times. With 502 Direct Loans, nonprofit organizations have a diverse toolkit to help would-be homeowners who need every tool available in today’s market.

USDA RD designed the 502 Direct Loan Program for low- and very low-income applicants in rural areas. The program provides subsidized mortgage loans for families who lack safe and sanitary housing and who cannot secure loans through other means, such as traditional mortgages. Depending on an applicant’s income, they may qualify for zero down payment on a home. Interest rates are typically below market and USDA RD can subsidize down to zero interest in some situations. The 502 Direct Loans have been wildly successful since its implementation in 1949. According to the National Rural Housing Coalition, USDA has provided homeownership loans to almost two million families via the 502 program. But today’s red-hot housing market creates new affordable housing challenges.

Covering more ground together

RCAC Loan Specialist Helen Kibby has coordinated 502 Direct Loans since 2018. RCAC submitted its first 502 Direct Loan application package to USDA RD in 2012. Since then, RCAC processed 523 loans for $116,049,331. Of those loans, $6,796,724 were made in communities that the federal government classifies as “persistent poverty,” and $29,826,477 were lent to very low-income families.

This scope is possible because RCAC works with 58 qualified employers and their 86 individual loan packagers. More organizations are applying to become qualified packagers all the time. It’s an interdependent relationship that allows RCAC to match its lending expertise with each state’s qualified employers’ on-the-ground knowledge. The employers leverage their networks, and RCAC leverages its trainings and Loan Fund experts, such as Kibby. RCAC also provides program marketing materials to qualified employers to distribute in their communities.

“We can cover way more ground with our partners. There’s no way I would be able to cover this much area without the help of other nonprofits.” Kibby says.

RCAC has an in-depth review process to approve potential qualified employers. Their loan packagers must attend a three-day USDA RD required training. RCAC is one of just four organizations approved to train and certify 502 Direct Loan packagers; and the other three are NeighborWorks America, Housing Assistance Council and USDA RD. Kibby says the training is rigorous, even with an open book final exam. She would know, she enrolled in the course herself when she joined RCAC in 2018.

New problems, new solutions

Amongst RCAC’s 58 qualified employers, Kibby says that a core group of about a dozen regularly submit loan packages to RCAC. She is in weekly contact with loan packagers, like Nikkole Elletson from NeighborWorks Umpqua (NWU) in Oregon.

Elletson is the community lending operations specialist for NWU, a NeighborWorks America Network charter member. She packages the nonprofit organizations’ 502 Direct Loans and works frequently with Kibby and Oregon’s USDA RD underwriters. Elletson says numerous factors made 502 Direct Loan applications harder and more time consuming than ever for applicants. Application processing time has leapt from six to eight months in the past year, and Elletson warns she may have to push her estimates to applicants out even further. Some delays can be traced back to the 2018 government shutdown. The shutdown lasted more than a month. During this time, applications kept coming. When USDA RD staff returned to work, there was a sizable backlog of applications to review. Three years later, USDA RD underwriters are still catching up. Elletson says that asking a family to wait nearly a year for loan approval and then to purchase a home within the initial 502 Direct Loan Program 45-day window is difficult.

The current housing market compounds these challenges. Low inventory, delayed construction and the rise in remote work have created a perfect storm of low-supply and high-demand. With home prices rising rapidly across the board, NWU is turning down applications that would almost certainly be approved but wouldn’t come close to funding a home purchase.

“I have people that qualify for the maximum, $285,000, but can’t find a home in that price range, which is really sad because USDA did respond and increase the maximum amounts in February this year. But it’s still not competitive in today’s market in Oregon,” Elletson says.

Despite the challenges, NWU leverages its other services to stay competitive. NWU offers down payment assistance programs, which it funds through various sources, currently the state of Oregon. The program lets homebuyers add up to $10,000 toward their home purchase. Those funds come in handy when homeowners face competitive bidding, or a seller asks for closing costs. NWU also provides homeownership counseling at minimal cost either online or in-person. The counseling is available to homeowners at every purchase stage: before, during and after. NWU follows up courses with one-on-one sessions. The counseling is mandatory for 502 Direct Loan applicants but available to everyone.

502 loans come to rural Alaska

Throughout the country, qualified employers find other ways to boost 502 Direct Loans’ value in a competitive market. Mishell French is a certified 502 Direct Loan packager for Rural Alaska Community Action Program (RurAL CAP). RurAL CAP, founded in 1965, is a private, statewide nonprofit organization working to improve the quality of life for low-income Alaskans. It has a self-help housing program and early education programs. French talks about the unique makeup of rural Alaskans who seek homeownership. Many of them are accustomed to subsistence living, commonly thought of as living off the land. Securing something as bureaucratic as a mortgage loan can be challenging. French says rural Alaskans who live a subsistence way of life often will have no credit for a traditional lender to assess risk. RurAL CAP traditionally offered credit counseling and self-help housing to these residents. In 2019, RurAL CAP became a qualified employer. Now, RurAL CAP’s three services work in sync to guide residents through homeownership from credit build-up, to financing and ultimately construction. French says it’s a good solution to the affordability issue as construction in the self-help model is much more affordable than buying new in the market. When RurAL CAP decided to leverage the 502 Direct Loan Program, working with RCAC came naturally.

“I’ve been working with them since I was hired in 2009. Angela Sisco was our technical assistance provider for self-help. It was just a natural progression to apply as a packager through RCAC. And then of course I took all the packaging courses that RCAC provides. I’ve taken courses through other providers. Hands-down RCAC’s is the best,” French says.

There are challenges though. Isolated Alaska regions face supply line issues and high material costs. There also is a timing component. French is proud that self-help groups work all year round but notes that some work can only be done in certain months when the weather allows. During the winter, some construction sites will only get a few hours of daylight in which to work.

Despite this, French reports that in the first year of RurAL CAP’s participation in the 502 Direct Loan Program (2020) it had a strong start. RurAL CAP accepted 36 applications and submitted 19 loans to USDA RD, which approved all 19 loans. Fourteen of the loans resulted in homeownership. French says RurAL CAP offered credit counseling to the families whose applications were denied. She’s confident they will try again when the time is right. French says they have already taken more applications in 2021’s mid-way point than last year.

An ever-expanding list

Kibby is pleased that RCAC and RurAL CAP can reach into Alaska’s deepest regions now. It represents another location crossed off her list. Her goal is for every person that wants a 502 Direct Loan in RCAC’s service area to have a local packager. And she means every area. In March, she began the process to bring on Mark Fontenot as the first packager operating on Guam. She didn’t let the lack of qualified employers stop her either. RCAC partnered with California’s Self-Help Enterprises (SHE) to recruit a loan packager living in Guam to work remotely for SHE. Kibby approached SHE’s director and encouraged him to advocate to SHE’s Board of Directors for the position and the need for a presence in Guam.

“It hasn’t been easy, but we are making progress in Guam. Mark is very high energy about the program. He read the [USDA] RD handbook and he can quote it. It’s unreal. He’s already submitted one package, and I think there’s plenty more to come,” Kibby says.

But Kibby’s internal list still has some locations on it. She cites Tribal areas in Nevada and Arizona, and Wyoming’s rural corners as places where she would like to expand the program next. She says making the connections takes patience and consistency, two things she knows pays off in time. Kibby says that the 502 Direct Loan Program generates only the smallest fees from borrowers but that’s not important. “This program may not be a money maker, but it’s touching the heart of the country. These are the people that really, truly need this.”