Audit:
$4B in USDA stimulus loans may be erroneous

[January 08, 2011]  WASHINGTON (AP) -- An internal Agriculture Department report says the government may have given out more than $4 billion in stimulus housing loans to ineligible borrowers.

A preliminary report from the USDA inspector general made available Friday says a sample of 100 loans out of 81,000 showed that almost a third were given to ineligible borrowers -- including some with income that exceeded the program limits, others who already owned homes and borrowers who purchased homes with swimming pools. The loans were paid for by the 2009 economic stimulus.

The inspector general's report says the loans precluded other, eligible borrowers from receiving the help. Based on the sample results, the report estimates that 27,206 loans worth about $4 billion -- or more than a third of those granted -- could be ineligible.

The stimulus included more than $10 billion for the program, which guarantees single family housing loans in rural areas. It reduces lenders' risk by reimbursing up to 90 percent of the outstanding principal and interest if a borrower defaults.

USDA rural development officials disagreed with parts of the inspector general's report, saying they believed only 10 of the 100 sampled loans went to ineligible borrowers. Dallas Tonsager, USDA undersecretary of development, said in a statement to the auditors that several steps have already been taken to improve the loan distributions, including beefing up training. The report said many loan officers were unaware of specific requirements for loan eligibility.

Tonsager said there is evidence in the report that the agency "still has work to do," but defended the loans' effectiveness.

"I am confident that the overall objective . was met by stimulating new home construction and home sales in rural America during a time when the housing market was struggling," he said.

Twelve of the loans were deemed ineligible by the auditors because the borrowers exceeded eligible income limits. The auditors said the lenders did not include many sources of income in their calculations, including overtime and other extra pay, increasing the borrowers' eligibility.

Loans also went to people who already owned homes that were structurally sound and within their commuting area, which should, according to the auditors, disqualify them from the program. The report said agency officials had interpreted the regulations to mean that anyone who had sold an existing home before buying a new one would qualify.

The auditors said they found three cases in which loans were made for homes that included swimming pools, which was specifically prohibited by Congress in the stimulus bill. In all of those cases, the swimming pools were above ground and the lenders involved said they did not realize those were prohibited.

The inspector general report also identified several instances in which borrowers who had enough money to secure their own loans or may have trouble repaying the loans received money.

Homeowners who received the questionable loans will probably be able to keep them. In its response to the report, USDA said that under the law, loans must remain valid unless known fraud or misrepresentation can be proven.

[Associated Press; By MARY CLARE JALONICK]

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