Stimulus-funded USDA loan program lent to ineligible borrowers

Introduction

Roughly $10 billion in Recovery Act funds went to guarantee housing loans in rural areas, but an audit shows the program lent to a high number of ineligible borrowers.

The Rural Housing Service within the Department of Agriculture guaranteed repayment of loans made by private lenders to low—income borrowers in rural areas. About 81,000 loans were made by lenders that were guaranteed by the rural development program and the Recovery Act in 2009. The inspector general studied a sample of 100 loans and found that 28 involved situations where lenders had not fully complied with federal regulations. The watchdog estimated that about a third of the loans granted may be ineligible, at a total of $4 billion.

Some of the questionable situations included borrowers with incomes that exceeded program limits, borrowers with the ability to secure credit without the need of a government loan, and borrowers who purchased homes with swimming pools. “Without exception, no swimming pools are permitted for loans obligated using Recovery Act funds,” the Rural Housing Services said in May 2009.

Other problems cropped up in the audit as well—borrowers with questionable repayment ability and lenders using inconsistent data on income to determine a borrower’s eligibility. The inspector general found instances where the agency’s policies were unclear, inadequate or insufficient.

“Rural Development should review its policies regarding the determination of qualifying income and the agency’s procedures for ensuring that lenders adhere to those requirements,” the IG recommended.

FAST FACT: The program currently has a backlog for future funding which amounts to $1.6 million. The inspector general determined the backlog could have been alleviated if lenders had properly determined the eligibility of the applicants.

Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities.

FINANCE

• An Internal Revenue Service review revealed 15 percent of its contractors had delinquent tax liabilities and penalties totaling $5.2 million. The IRS is supposed to make sure its contractors comply with federal tax laws. (TIGTA)

ENVIRONMENT

• The Department of Energy needs to improve its emergency preparedness efforts at facilities storing nuclear or hazardous materials. An inspector general report in 2004 found the Department had not addressed the issue, and a recent review found “significant weaknesses in the Department’s emergency preparedness.” (OIG Department of Energy)