Waste of the Day: Millionaire Mortgages

The Department of Agriculture’s Section 502 loan programs help low-income families buy homes with mortgages that don’t require a down payment. But in 2013, an investigation by Reuters found dozens of millionaires took advantage to purchase vacation and rental homes.

The millionaires shouldn’t have gotten the mortgages

Though the millionaires later repaid their loans, the program as a whole covered $500 million in losses from defaults in 2013, or $715 million in today’s money.

That’s according to the “Wastebook” reporting published by the late U.S. Senator Dr. Tom Coburn. For years, these reports shined a white-hot spotlight on federal frauds and taxpayer abuses. 

Coburn, the legendary U.S. Senator from Oklahoma, earned the nickname “Dr. No” by stopping thousands of pork-barrel projects using the Senate rules. Projects that he couldn’t stop, Coburn included in his oversight reports.   

Coburn’s Wastebook 2013 included 100 examples of outrageous spending worth nearly $30 billion, including the loans for millionaires.

Search all federal, state and local salaries and vendor spending with the world’s largest government spending database at OpenTheBooks.com. 

Key facts: Reuters analyzed mortgage records from 2003 to 2011 and found more than 180 USDA-backed loans went to borrowers who reported annual incomes above $500,000. That was an apparent violation of the program rules. Loans were only meant for buyers whose income was not above the median income of their community.

The records showed at least 500 USDA-backed mortgages worth $500,000 or more, including more than 90 exceeding $1 million. Loans appeared in resort communities including Hyannis Port, Massachusetts, California wine country, and the “thriving seaside enclave” of Ewa Beach, Hawaii.

Examples

One retired advertising executive told Reuters he used a USDA loan to buy a house in North Carolina. “I could have bought a house another way,” he said, “but this allowed us to travel, and our hope in a few years is to purchase a beach property in Surf City that we can rent out now and retire in later.” 

The program’s definition of “rural” was also generous. Reuters found at least 51,600 mortgages worth $6 billion in cities designated as urban by the U.S. Census, including places near Los Angeles, Washington, Seattle and Austin. Another 300,000 loans worth $38 billion were located in areas that “straddled” urban and rural boundaries.

USDA said the overwhelming majority of borrowers were the low- and moderate-income families the program was intended to help. The average applicant earned about $48,000 and borrowed $131,000.

Summary: There is a place for government programs that help families who cannot otherwise afford a home, but people earning $1 million per year probably should not need help affording the down payment.

This article was originally published by RealClearInvestigations and made available via RealClearWire.