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LENDERS FIND NEW LIFE IN OLD HOME IMPROVEMENT LOAN PROGRAM

 LENDERS FIND NEW LIFE IN OLD HOME IMPROVEMENT LOAN PROGRAM
 SAN FRANCISCO, Jan. 7 /PRNewswire/ -- The FHA Home Improvement Loan Program, known as Title I, has recently received a regulatory facelift that is causing renewed enthusiasm in the financial community.
 The new regulations represent the most extensive overhaul in the program's history. Issued by the Department of Housing and Urban Development last November, the changes are aimed at re-defining and strengthening the relationships between lenders, marketers and borrowers.
 The changes feature an important restructuring of the relationships between loan originators and investors, as well as increased accountability and safeguards on the part of remodeling contractors. The result promises to improve both the profitability and dependability of the popular consumer loan program.
 These and other sweeping transformations in Title I rules will be the subject of a four-day Annual Meeting sponsored by the Title One Home Improvement Lenders Association (TOHILA), Feb. 1-4 at San Francisco's Ritz-Carlton Hotel.
 The 58-year-old program was created by Congress as part of the National Housing Act of 1934. Good candidates for Title I Home Improvement Loans include:
 -- New homeowners without enough equity in their property to qualify for conventional financing.
 -- Purchasers of new homes who want to landscape, install carpeting, wallpaper, paint and decorate.
 -- Buyers of existing homes who want to replace kitchen cabinets, install a more fuel-efficient furnace or add a bath.
 -- Homeowners in housing markets where home values are falling and equity has been devalued or lost.
 -- Homeowners who have already borrowed against their equity.
 -- Natural disaster or property damage victims who need emergency repair funds immediately and are awaiting insurance settlement. Average wait for these loans is about a week.
 -- Older homeowners whose income-earning years are past. In these cases banks might require some sort of guarantee or co-signer. Title I Insurance can be used as a guarantee.
 These government-backed remodeling loans of up to $17,500 are offered at fixed market rates. For the first $15,000, there is no requirement that homeowners keep a certain level of assets to offset the debt.
 To its credit, over 34 million property improvement loans have been made through Title I, valued in excess of $38 billion. However, in recent years the program has also been widely criticized for misuse, due in large measure to lax supervision of brokers and contractor-dealers.
 "Key to the new rules is the elimination of unregulated loan brokers," said Peter Bell, TOHILA executive director, "as well as higher qualification standards for lenders and home improvement contractors." In the past, loan brokers were thought to be responsible for much of the consumer fraud and misuse of these federally insured loans.
 Typically, loan brokers would solicit applications from homeowners. Some brokers encouraged borrowers to take on more debt than affordable, or led them to believe that the funds could be used for something other than eligible home improvements.
 The broker would then sell the applications to lenders, collect fees -- often from both parties -- and quietly slip out of the deal. "Consequently, more and more of these loans were going bad," Bell said, "especially in California where the idea of using loan brokers is more widespread than in other parts of the country."
 The solution, as set forth in HUD's new regulations, does away with loan brokers, replacing them with a clearly-defined correspondent classification. Correspondents can be corporations, depository institutions, mortgage bankers or other financial organizations; but must be officially approved by HUD and sponsored by a licensed Title I lender.
 Under the new HUD rules, a correspondent must close loans in its own name: No longer can it act simply as an intermediary between borrower and lender. However, once the loan is completed, the correspondent is free to sell the asset to its sponsor or into the fast-growing secondary market.
 Because correspondents are now an integral part of the loan transaction, HUD requires them to maintain a minimum net worth of $50,000, plus an additional $25,000 for each approved branch office, up to a maximum of $250,000. In addition, remodeling contractors will now be required to have a minimum $25,000 net worth.
 "The new financial responsibility requirements should go a long way toward improving the quality of Title I loans," Bell commented, "as well as protecting taxpayers, who are the ultimate guarantors."
 The San Francisco meeting, which is expected to draw lenders, correspondents and secondary market specialists from across the country, is one of several put on each year by TOHILA, a 4-year-old trade association based in Washington. "Our goal is to help lenders improve both the quality and volume of their Title I loan portfolios," he said.
 In addition to the new regulations, the meeting will also focus on business management issues such as marketing, quality control, property appraisals and packaging loans for the secondary market. "It's a chance for current Title I lenders to get up to speed on the new rules and for potential lenders to take a fresh look at the profitable opportunities offered by these loans."
 Fees for the meeting are $445 for TOHILA members and $550 for non- members. For registration or further information, contact TOHILA at 202-328-9171.
 -0- 1/7/92
 /CONTACT: Simmie or Kevin Collins of Collins Creative, 415-655-2933, for TOHILA; or Peter Bell of TOHILA, 202-328-9171/ CO: Title One Home Improvement Lenders Association ST: IN: FIN SU:


RM -- SFFNS2 -- 7139 01/07/92 07:32 EST
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Date:Jan 7, 1992
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