Major housing legislation took its first small step towards the President's desk this week with a House Banking subcommittee unanimously approved a measure to shore up the federal government's ailing home improvement loan program, provide incentives for seniors to use government-insured reverse mortgages to help pay for long-term health care, and tweak existing affordable housing programs so they can serve more families.

The measure also contains an important provision allowing the Federal Housing Administration to use up to 40 percent of its capacity to insure adjustable rate mortgages, and permitting the FHA to back ARMs that have fixed rates for the initial three to ten years of their term.

The FHA provisions were inadvertently left out of the bill due to a "technical drafting error" but were inserted later by agreement of the panel's members.

Even though ARMs are back in vogue because of rising mortgage rates, only 30 percent of FHA's volume can be in adjustables, and the agency can only insure ARMs which adjust every year.

The reforms to the FHA's 203(k) home improvement loan program come in response to reports by the General Accounting Office, the Department of Housing and Urban Development and the press uncovering instances of fraud and abuse, and were welcomed by lender groups.

"This legislation offers common-sense solutions to shortcomings in the FHA's well-intended, but ailing, renovation loan program," said Peter Bell, executive director of the National Renovation Lenders Association. "The program itself needs to be renovated."

The 203(k) program allows borrowers to obtain a single loan to pay for the purchase and the rehabilitation of a house. Otherwise, buyers would need two separate mortgages one for the purchase and the other at a higher rate for the renovation work.

Furthermore, the loan amount is based on the appraised value of the property after the improvement area made, resulting in more money for borrowers.

However, the GAO found that HUD was not properly training or monitoring inspectors and consultants, or making sure that lenders and non-profit organizations were complying with the rules.

The bill cleared by the Subcommittee on Housing and Community Opportunity would restrict any business affiliation between a lender, consultant, contractor, non-profit agency, realty agent, inspector, appraiser or anyone else that has a financial stake in the property. It also would require lenders to ensure that the work has been completed to the borrowers' satisfaction before disbursing the final loan payment.

The measure also approved consumer-friendly improvements in the FHA's reverse mortgage program, which allows senior homeowners to convert a portion of their equity into additional cash.

Among other things, it would reduce the cost of home equity conversion mortgages for borrowers who use the proceeds to pay for long-term health care insurance, streamline and reduce the cost of refinancing an existing HECM by cutting the upfront insurance premium, waive the requirement that borrowers receive counseling a second time when they refinance, and require lenders to tell borrowers how much the new loan will costs and how large an increase they will see in their payments.

The health-care proposal was introduced just last week by Rep. John LaFalce, D-NY, the ranking Democrat on the full banking committee. The other changes came from a non-binding report that was part of the fiscal 2000 appropriations bill enacted for HUD, the Department of Veterans Affairs and Independent Agencies.

The bill also calls for a pilot program to demonstrate the use of Sec. 8 rental vouchers by disabled persons to purchase a home, adds a provision to assist law enforcement officers to buy houses in locally designated high-crime areas, makes it easier for HUD to transfer unoccupied and substandard federally-held housing to local governments and community development groups, and makes technical corrections to the year-old private mortgage insurance cancellation law.

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Published: February 17, 2000

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.