A re-engineering process aimed at revamping antiquated Federal Housing Administration processes and procedures, some of which date back to the agency's inception in 1934, could result in a much more streamlined program that approves government-insured loans much faster and with far less paper work.

That's the word from Vance Morris, director of single-family program development at the Department of Housing and Urban Development, who said his hope is that within two to three years, the FHA would require "virtually no documentation" as long as lenders meet certain guidelines.

As it is now, Morris told the National Association of Home Builders' Annual Spring Board Meeting in Washington earlier this month, case binders on each of the 1 million-plus loans the agency insures are often an inch thick, requiring among other things two copies of each and every appraisal.

"That's two million sheets of paper, yet we might only field review 30,000 loans," he said.

Noting that he and other top FHA officials are "pushing very, very hard to change old ideas and processes," Morris said, "We have to find a way to eliminate the paper. We have a stock market that trades billions of shares everyday, all electronically. But the FHA still needs its pieces of paper."

With respect to appraisals, the FHA official also reported that the experiment to have reviews handled by regional real estate assessment centers has proven unsatisfactory and been scrapped. In the two years the task was performed at the regional level, only 33 "bad" appraisers were nabbed, he said. But since the task was moved back to FHA headquarters three months ago, 29 have been identified.

In addition, the FHA has changed its approach from reviewing all appraisers no matter how many assignments they handle to concentrating on those which pose the most risk to the program. "We're targeting those with the highest volumes who always seem to have problems," the agency official said.

However, the agency is not making much progress with its proposed rule to curb property flipping by denying mortgage insurance on houses that have been sold within the previous six months.

"I don't know when it will see the light of day," Morris said about the anti-flipping regulation. "There is no system in place to support it."

Also delayed is the agency's own automated underwriting engine, Total Scorecard. The agency is still working with two private contractors to develop the long-awaited AU program, but it is "eight months away" from being deployed, the FHA official reported.

The agency had tried to place its scorecard on other underwriting systems. But that has enabled others to "cherry pick" the best loans and leave the most risky ones to the government.

"Unless we get control" of the process, Morris told the builders, "we will continue to have tremendous problems with adverse selection."

Meanwhile, the Department of Veterans Affairs went "live" earlier this month with an automated system that will allow lenders to instantly determine the eligibility of borrowers for VA financing.

"The system should speed up the process quite dramatically," said Keith Pedigo, director of the Loan Guaranty Program, who noted that it now takes as long as two weeks to obtain a certificate of eligibility.

The new system, which eliminates the need for a hard copy COE, will address what Pedigo admitted was "not a very good performance level."

According to the most recent VA lenders' satisfaction survey, more than half of all lenders are "not happy" with the time it takes to obtain a certificate of eligibility.

Another area the VA official said needs improvement is appraisals. According to the survey, which otherwise gave the agency rather good grades, only about two-thirds of all lenders are satisfied with the quality of VA valuations.

"This is an area we need to work on," Pedigo told the NAHB meeting, noting that the question elicited more negative responses than any of the 50 questions asked of lenders.

To improve the situation, the agency is in the process of moving the appraisal function out of its 45 field offices and into nine regional loan centers. At least one appraisal staff member will remain in each field office to "act as a liason with the industry," Pedigo said. But otherwise, everything will be handled from the nine offices.

The switch will not only save millions of dollars annually, but it will mean better service for everyone, the VA official said.

"Whereas policies were often interpreted differently, in many cases with 45 different views, there should be greater consistency when the change takes effect Oct. 1," he said.

Both Morris and Pedigo also said higher loan limits, a long-time NAHB goal, would mean more people could buy homes. Mostly as a result of an increase in its loan limit for fiscal 2002 from $50,750 to $60,000, the VA will guarantee 350,000 loans, up from 250,000 in fiscal '01. About 8 percent of all VA loans this year will be for new homes.

The new ceiling is enough to support a no-downpayment VA loan of up to $240,000. But "it would be nice if it were a little higher," said Pedigo, noting that "it's not enough" in the West, New York, Washington and other high cost areas.

Morris would like to see higher FHA loan limits, too. But he'd settle for a single, nationwide ceiling, especially since the staff member who calculates annual changes for each of the nation's 3,200 counties is leaving the agency.

Currently, the FHA ceiling is $261,609 in high-cost areas and at least $144,336 everywhere else.