WASHINGTON, D.C. — Rural borrowers in financial straits may be able to find help from a USDA refinancing program.

The pilot program is available in 19 states, including Illinois, Indiana, Kentucky, Michigan, Ohio and Tennessee. It allows rural homeowners in good standing on their mortgages to refinance at lower interest rates.

“There are a lot of people out there who have been struggling with interest rates on their loans,” said Paul Neumann, director of housing programs with the USDA’s Rural Development in Indiana. “It’s a wonderful opportunity for people who have been struggling and have been unable to refinance.”

The Single Family Housing Guaranteed Rural Refinance Pilot Program requires that interest rates on refinanced loans be reduced by at least 1 percentage point, Neumann explained. For those with a $100,000 loan, the savings amounts to $83 a month, he added.

Current interest rates for homeowners looking for a loan guaranteed by Rural Development are about 4-4.5 percent, Neumann noted. Depending on how long ago a loan was secured, homeowners could currently be paying rates of anywhere from 5-9 percent.

Only loans made with or guaranteed by Rural Development are eligible for the program, he said.

The 19 states chosen for the pilot program were selected because they were considered hardest hit by the downturn in the housing market, the USDA said in a press release. The pilot program will last two years and at that time, USDA will make a decision to continue it, end it or make it permanent, the statement said.

“I can see it going either way (at the end of the pilot program),” Neumann explained. “It could be that they see there’s an important need to be met and they’ll expand it nationwide. Or, the economy could improve by then and it will no longer be necessary. We’ll have to wait and see.”

Agriculture Secretary Tom Vilsack announced the program earlier this year. At the time, he said the Obama administration was working to help middle class homeowners who had played by the rules and were trying to get ahead.

“This pilot program will help homeowners to take advantage of historically low interest rates,” he said in a statement. “By working closely with lenders, we are helping rural homeowners protect one of the most important investments they will ever make.”

Approximately 235,000 homeowners in the 19 states will be eligible to refinance their loans, according to Rural Development. 

When he first heard about the program, Neumann said his thoughts were divided.

“Because of budget cuts, we’ve had a 40 percent loss in field staff and we’re struggling to keep up,” he stated. “But we’re here to help people, and this is an opportunity a lot of people haven’t had.”

Eligible homeowners must have made timely payments for the previous 12 months and must have an existing USDA guaranteed or direct loan. Homeowners do not need new credit reports, property inspections or home appraisals, according to the USDA.

When refinancing, borrowers may not be added or removed and the process cannot be done if there is a second lien on the property, Neumann said. Guaranteed loans offered by Rural Development are made through traditional lenders, but if the borrower defaults, the lender is paid by USDA.

Guaranteed loans offer 100 percent financing with no down payments, Neumann explained. Borrowers pay an upfront fee of 2 percent and an annual fee of 0.3 percent, he said. Rural Development also offers direct loans to borrowers. The department oversees 46 different programs, he added.