Detailed Information on the
Single Family Housing Direct Loans Assessment

Increase the number of borrowers utilizing the Mortgage Account Information/CSC web page.

Increase the percentage of payments processed through electronic means.

Establish ambitious targets as they relate to the baselines.

Complete the development of an adequate efficiency measure for credit programs.

Measure: Number of homes financed with USDA single family housing direct loan funds

Explanation:This is an output measure for the number of homes to be financed with program funds. This measure is dependent on program levels and housing costs.

Measure: The number of basis points the program is within the delinquency rate of FHA's loan portfolio's delinquency rate.

Explanation:This performance measure is an indicator of the annual success rate for Agency financed single family home mortgages compared to the FHA rate. The goal is to stay within 500 basis points of the FHA rate. Number equals how many basis points the program is within that of FHA. Actual figures are reported as of June 30 for that fiscal year.

Measure: The number of basis points the program is within FHA's loan portfolio's foreclosure rate.

Explanation:This measure compares the % of sucessful Direct loan borrowers to the FHA inventory of foreclosures. The goal is to stay within 300 basis points of the FHA rate. Number represents how many basis points we expect to be within FHA's rate. Actual figures are reported as of June 30 for that fiscal year.

Measure: # of Material Weaknesses

Explanation:The program will maintain its current status of no material weaknesses. Number represents how many material weaknesses are sustained by the program.

Measure: Cost per loan.

Explanation:The ratio of total annual obligated salaries and expenses funding over the obligated average loan portfolio balance outstanding plus accrued interest and fees plus total average grants. At the moment cost accounting systems are not in place to track expenses at the program level. However, over the next year the agency will be working to differentiate adminstrative expenses among each loan program.

Is the program purpose clear?

Explanation: The program purpose is "to provide decent, safe and affordable housing" pursuant to Title V of the National Housing Act of 1949 as amended., which declared that "every American deserves a decent home and suitable living environment". The Housing Act specifies that the program is intended for low and moderate income rural residents who are unable to obtain financial assistance from other sources at terms they can be expected to meet. Low income is defined in regulation as 50% below median income. Very low is defined as 80% below median income and rural is defined as communties less than 20,000.

Evidence: Authorizing legislation: Title V of Housing Act of 1949, as amended. 42 U.S.C. 1472 Section 501 & 502. 7 CFR 3550.2 (loan purposes); 7 CFR 3550.10 (definitions); 7 CFR 3550.53 (eligibility requirements); 7 CFR 3550.54 (income calculations & limits); 7 CFR 3550.2 & 7 CFR 3550.56(a) (rural area requirement); 7 CFR 3550.2 & 7 CFR 3550.51 (credit elsewhere test).

Does the program address a specific and existing problem, interest or need?

Explanation: The program addresses the need for the "on the cusp" borrower in rural areas for subsidized mortgage credit in order to be a successful homeowner. National programs and state programs had a history of leaving out or not penetrating rural areas. Additionally, most other programs have no subsidized interest component, leaving an otherwise worthy borrower unable to obtain credit. The Sec. 502 Single Family Housing Direct Loan program is the only Federal mortgage program targeted to low- and very low-income rural residents who otherwise could not afford to be homeowners.

Evidence: The Millenium Housing Commission, found that housing affordability remains a significant problem in rural areas. This finding is supported by studies done by the ERS, (Amberwaves, April 2004), HAC (Rural Voices, Summer 2002), and NAHB (news release, June 19, 2003). The need and demand for affordable housing in rural areas is further evidenced by the waiting list of applicants for the subsidized mortgage loan program in field offices nationwide.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: This is the only direct Federal lending mortgage program that is means tested and offers subsidized loans. It specifically targets low- and very low-income rural residents for homeownership. Additionally, because the borrower has to prove that he/she cannot get credit elsewhere it is unlikely that a private or state program would be able to provide assistance for a mortgage the way that this program can.

Evidence: See studies and articles mentioned above in Ques. 1.2 (Millenium Housing Commission, ERS, NAHB, HAC). 7 CFR 3550.53 (eligibility requirement/income limits) & ; 7 CFR 3550.54 (income calculations/income limits); 7 CFR 3550.2 & 7 CFR 3550.56 (a) (rural area requirement); 7 CFR 3550.2 & 7 CFR 3550.51 (credit elsewhere test).

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: This program takes the "on the cusp" borrower and turns them into a successful homeowner. The intrest subsidy for each borrower is based on income, which is reviewed and adjusted annually. When and if the borrower's income reaches a point where he/she no longer qualifies for subsidized interest they are encouraged to graduate to private credit if possible. These design elements are all intended to ensure that the least amount of Federal dollars needed to result in successful homeownership are used in conjunction with making a loan to these low to very-low income rural residents.

Evidence: Credit Subsidy Model. 7 CFR 3550.53 (eligibility requirements/income limits)& 7 CFR 3550.54 (income calculation & income limits); 7 CFR 3550.157 (annual income verification); 7 CFR 3550.160 (refinancing/graduation).

Is the program effectively targeted, so that resources will reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: The intended beneficiaries are "low and very low-income residents of rural areas who do not currently own adequate housing, and who cannot obtain other forms of credit." Low income is defined in the regulation as 50% below median income. Very low is defined as 80% below median income and rural is defined as communties less than 20,000. The regulations ensure that its resources are effectively targeted to reach intended beneficiaries. State allocation of the funds take into consideration each state's percentage of the national number of rural households: 1) below 50% of the area median income and 2) between 50 and 80 percent of the area median income (very low and low-income respectively).

Evidence: 7 CFR Part 1940 Subpart L Sec.1940.565; 7 CFR Ch. XXXV Sec. 502; 7 CFR 3550.10 (definitions); 7 CFR 3550.53 (eligibility requirement/income limits) & ; 7 CFR 3550.54 (income calculations/income limits); 7 CFR 3550.2 & 3550.56(a) (rural area requirement); 7 CFR 3550.2 & 7 CFR 3550.51 (credit elsewhere test).

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The Direct Loan program has two long-term performance measures that include: 1) a measure for the percent of homeowners who stay in their Agency financed homes (based on the default rate for the program) and 2) a measure to maintain Agency status as having "No Material Weaknesses" based on OIG and MCR reviews. These measures meaningfully reflect the purpose of the program since they are directly tied to providing low- and very low-income rural residents access to resources to obtain decent, safe and affordable housing who would otherwise not be able to access any form of long-term credit to purchase a home.

Evidence: RHS Strategic Plan; Performance plans and budgets; U.S. Census data.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The Direct SFH progam has ambitious goals to 1) maintain a successful homeowership rate that stays within 300 basis points of the FHA rate and 2) continue to manage the program in a manner that results in no material weaknesses from internal reviews. However, the target set for #1 of within 300 basis points of FHA is not very ambitious when the base line is 108 basis points. For #2, again the target is to maintain the status quo. There are no long term measures identified where the targets as compared to the baseline indicate the agnecy trying to achieve anything more than the status quo.

Evidence: RHS Strategic Plan; Budget and Performance Integration process (BPI); Performance plans and budgets; U.S. Census data.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: An annual output measure has been developed for the number of houses financed and an annual efficiency measure has been developed that measures successful homeownership using the annual delinquency rate of single family section 502 direct loans. Measuring the number of houses financed for single family homeownership and the annual delinquency rate as benchmarked against FHA's delinquency rate demonstrate progress toward the program's long-term goal of increasing homeownership in rural communities.

Evidence: RHS SFH Division Strategic Plan; Budget and Performance Integration (BPI) process; Performance plans and budgets; U.S. Census data.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: A Short-term Outcome measure that measures the number of houses financed has been developed as an annual output measure. This measure is dependent on the level of program funding and the cost of housing. The successful homeownership measure is benchmarked against the FHA delinquency rate (within 500 basis points) in order to assure that Direct loan program borrowers compare favorably to the rest of the industry. However, as with the long-term measure, being within 500 basis points of FHA is not very ambitious when the base line is 300 basis points. There are no annual measures identified where the targets as compared to the baseline indicate the agnecy trying to achieve anything more than the status quo.

Evidence: RHS SFH Division Strategic Plan; BPI Process; Performance plans and budgets; U.S. Census data.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: While the Agency collaborates with many different entities that have similar program goals, program funds are directly administered by the Agency. There are no grantees or contractors administering program funds. Therefore, there are no partners as defined by this question.

Evidence:  

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: In 1998, the Economic Research Service (USDA) surveyed existing Direct Section 502 borrowers. ERS' findings are further supported by a recently commissioned Customer Satisfaction Survey. In May 2002, the Millennial Housing Commission, appointed by Congress to examine Federal Housing policies and programs for affordable housing, recommended increased funding for the Direct and Guaranteed Section 502 programs because they are effective in meeting its objectives. The Agency has also conducted studies such as the recent Self-Testing Project to assure that equal profession service is provided and a study of the payment assistance formula. In addition, Management Control Reviews (MCR) and State Internal Reviews (SIR) are conducted on a regular basis on the Sec. 502 direct lending activities of the state and field offices of RHS to evaluate effectiveness of the program and identify potential program improvements.

Evidence: ERS Study, "Meeting the Housing Needs of Rural Residents: Results of the 1998 Survey of USDA's Single Family Direct Loan Housing Program"; Recent Customer Satisfaction Survey and comparison with JD Power 2004 Home Mortgage Study; Report of the Bipartisan Millenium Housing Commission Appointed by the Congress of the United States, May 30, 2002; Fair Housing Partnership Compliance Self Testing Project; Payment Assistance Bearing Point Study June 2004; RD Instruction 2006M.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Currently, budget requests are submitted with explanatory notes that are related to program performance results but the notes do not give a clear indication of the full cost of achieving the results. Some of the goals are explicitly tied to the program performance, such as the numbers of homes financed, but Rural Development, as a whole is still working toward full budget and performance integration.

Evidence: Rural Development BPI documents, including agency mission statements/accomplishment reports. USDA Budget and Explanatory Notes.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The Draft Strategic Plan currently under development is the process by which the program is taking meaningful steps to correct any strategic planning deficiencies.

Evidence: Draft agency strategic plan FY2006-FY2011; performance plans and budgets; U.S. Census data.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The Agency collects data on loan applications, obligations, loan closings, and fee collections. Data on direct loan performance --unpaid principal balance, delinquency and status of mortgage is maintained on a real time basis through the program's centralized servicing center. Data is verified through manual review, automated system edits and post-review. Data is stored in a data warehouse and is used to generate an array of management reports that are the basis for program performance monitoring. Standard monthly reports on fund use and loan delinquency are provided to program managers.

Evidence: Dedicated Loan Origination and Servicing System and the Program Loan Accounting System. Federal Credit Supplement

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: State program managers are held accountable by their respective State Directors for responsible program management including full utilization of funding and appropriate targeting in accordance with 7 CFR 3550, RD Instruction 1940-L, and established goals and objectives.

Evidence: RD Instruction 1940-L; 7 CFR 3550; HB-1-3550.

Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: Loan funds are obligated at the same time the loan is approved. Internal controls have shown no evidence of significant erroneous payments or any violations of the Anti-Deficiency Act. The program is able to secure obligation reports on demand from the RD Data Warehouse.

Evidence: Erroneous Payments Risk Assessment, Obligation Detail Report--BRIO RD Data Warehouse; Finance Office 205 reports on loan obligations

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: The USDA Task Force on Common Efficiency is currently meeting to design and develop meaningful common efficiency measures. While the agency spends all the money that is appropriated, that is not enough of a benchmark to evalutate effciency or cost effectiveness.

Evidence: USDA Budget. USDA Task Force on Common Efficiency.

Does the program collaborate and coordinate effectively with related programs?

Explanation: The program collaborates with community and faith based non-profits, state housing agencies and private lenders in its direct loan making. Program funding is for loans made through the Self Help program and the Homeownership Initiatives (Rural Home Loan Partnership/Community Development Financial Institution) are maintained in the National Office.

Evidence: RD Instruction 1940-L, Exhibit A, Attachment 2, Part II, Subpart C

Does the program use strong financial management practices?

Explanation: The program uses strong financial management practices as its financial statements have been determined to be free of material internal control weaknesses based on Management Control Reviews.

Evidence: RD Instruction 2006-M, Management Control Reviews.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The Agency has a system in place to review program activity and identify, correct, and eliminate deficiencies.

Evidence: RD Instruction 2006-M, Management Control Reviews.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: The program's Centralized Servicing Center monitors and reports on 1st year delinquencies. State program managers use this information to conduct loan underwriting reviews on all these loans and a random sampling of others on a monthly and quarterly basis.

Evidence: Dedicated Loan Origination and Servicing System, HB-1-3550, Chapter 6, Attachment 6-C. Federal Credit Supplement

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: Revisions to the program subsidy credit model in FY 2002 resulted in the Agency financial statement getting a a clean audit opinion from OIG.

Evidence: OIG report--section on program subsidy credit model. Federal Credit Supplement

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The program is on track to meet its long-term performance measures. Over the past several years, the Direct loan program's foreclosure rate has ranged from 3.9% at the end of FY 03 to approximately 4.1% in FY 01 and FY 02. This rate has consistently remained within 300 basis points of the FHA rate for the same time frames. The program has demonstrated steadily improving foreclosure rates on its single family home mortgages over the last several years resulting in fewer families losing their homes and positive outcomes of increases in the percentage of successful homeowners. In addition, the program has no "Material Weaknesses" resulting from OIG and MCR reviews.

Evidence: RHS SFH Division Strategic Plan; Budget and Performance Integration process (BPI); Performance plans and budgets; OIG reviews, MCR reviews.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The program historically has consistently met all of its annual performance goals. It has met its annual performance goal of using program funds to serve only eligible loan applicants and its annual performance goal to achieve the targeted number of houses financed with program dollars has been met.

Evidence: Central Servicing Center Dedicated Loan Origination and Servicing System.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The program has demonstrated steadily improving delinquency rates on its single family home mortgages over the last several years. In 1996, loan servicing activities were transferred from the field offices to a Central Servicing Center, resulting in improved efficiencies. Additionally, USDA as a whole is developing a common efficiency measure for loan programs.

Evidence: Dedicated Loan Origination and Servicing System. "Large Extent" was selected as an answer for this question rather than a "Yes" because the efficiencies identified are not included in the Draft RD Strategic Plan for FY2006-2011 and because there are efficiency measures currently under development through the USDA Task Force on Common Efficiencies.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: Program performance, measured by comparison to FHA and sub-prime market delinquency rates compare reasonably well.

Evidence: Through its "National Delinquency Survey" report, the Mortgage Bankers Association reports quarterly on industry delinquency and foreclosure rates. Agency delinquency and foreclosure rates are compared to FHA rates to assure that USDA's porfolio performance is in line with the industry.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: The Millenium Housing Commission (MHC) found it is effective in meeting its objectives. The report stated that it believes federal housing programs are an important element of the nation's housing and finance delivery system..." . The 1998 ERS Study analyzed the demographics of Section 502 Direct borrowers. Typical Section 502 Direct borrowers were characterized as under 40, have children, have low or modest incomes, have a home that is better than their previous residence, and are satisfied with their current home, neighborhood, and the program. Most believed that, without assistance from the program, they would have been unable to afford a comparable home for at least 2 years and possibly never. This study also shows that the program is benefitting the type of borrowers it was intended to benefit. ERS' findings are further supported by a recently commissioned Customer Satisfaction Survey. The results of this survey compare very favorably (86% satisfaction) to other mortgage lenders based on information from the JD Power 2004 home mortgage study.

Evidence: May 30, 2002, Report of the Bipartisan Millenium Housing Commission Appointed by the Congress of the United States, can be viewed at www.mhc.gov, ERS Study, "Meeting the Housing Needs of Rural Residents: Results of the 1998 Survey of USDA's Single Family Direct Loan Housing Program"; Recent Customer Satisfaction Survey and comparison with JD Power 2004 Home Mortgage Study.