Use of the USDA's Rural Development Guaranteed Loan program has been growing recently. Over $7 billion in loans were insured under this program in 2008 compared to $3.6 billion in 2007. What's so attractive about these loans?
First, despite the name, the program is being used outside of rural areas. The loans are restricted to towns of no more than 25,000 residents, which allows areas beyond traditional "rural" areas to qualify. Second, the program allows borrowers to borrow 100% of the purchase price plus roll in the 2% program fee. But, don't worry. USDA officials say they have a strong track record, so excessive defaults shouldn't be a problem. They're smart bankers, so we should trust that they know what they are doing, right?
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