The Department of Housing and Urban Development's proposals to strengthen the Title I property improvement lending program would have just the opposite effect, a group representing many of the financial institutions engaged in Title I lending maintains.

A number of the suggested modifications "do not promote the program but rather hasten its demise," the Home Improvement Lenders Association says in a comment letter to HUD.

"Many of the proposed changes are impractical and do not lend themselves to home improvement lending in the 21st Century," wrote Executive Director Peter Bell.

Title I of the National Housing Act of 1934 was the first and is now the oldest federal mortgage program. Under the program, the Federal Housing Administration insures home improvement loans to home owners who have little or no equity in their homes. Loans of up to $25,000 are available for as long as 20 years.

Title I borrowers are largely people who purchased with as little as 3 percent to 5 percent down and have not had a chance to accumulate significant home equity. As a result, they are unable to qualify for conventional equity-based loans to make needed home improvements.

Loans may be used to finance a wide variety of alterations and repairs to improve or protect the basic livability and utility of a home, including structural additions and alterations, siding, roofing, insulation, plumbing, heating and cooling systems, solar energy systems, interior finishing and landscaping.

Title I loans can be obtained in one of two ways: directly from a lender or through home improvement contractors working as dealers for lenders. Almost two-thirds of the loans are direct, while the other 37 percent were dealer transactions. But in the latter group, too many unscrupulous contractors were absconding with the funds after doing a lousy job. In some cases, they didn't complete the job, and sometimes they didn't do anything at all.

That's why the government decided to institute some changes. But many of HUD's ideas, said HILA's Bell, are "impractical."

If they are implemented, he wrote, "the program will cease to be viable and borrowers will be forced to seek higher rate conventional loans or delay or cancel their home improvements altogether."

One fix HUD would like to make would prohibit funding lenders from disbursing loan proceeds solely to a dealer. But HILA, noting several legal objections, also wants to know what would prevent corrupt home owners or persons holding themselves out to be home owners from taking off with the lender's money without paying a contractor for the work he has already done.

A better way to make sure the work is done satisfactorily, the association said, is to require that proceed checks be made out jointly to both the dealer and lender.

HUD also wants to require than Title I loans in excess of $7,500 occupy no less than second-lien status. But HILA pointed out that many home owners already have two mortgages -- a first mortgage and either a home equity loan or a second mortgage to avoid paying private mortgage insurance. Therefore, they would be precluded from Title I financing.

HUD's proposal to institute a "draw" system to pay contractors for loans above $7,500 also drew fire from the lender's group. While the purpose is to reduce misuse of funds, Bell said, the solution is "costly and impractical."

For one thing, many Title I jobs are completed in just a few days, he explained, so by the time an escrow account is established, the work will be done. For another, who is going to pay for such a system? If the lender shoulders the cost, costs to borrowers will be increased. And if the cost comes out of the proceeds, there will be less money for the actual work.

"Either way," Bell said, "borrowers suffer." HILA said a superior method would be to require pre-funding and post funding inspections, the first to assure that the work was necessary and the second to confirm that it has been done in accordance with plans and specifications.

HUD also wants inspections, but HILA, again noting that many improvements can be done in just a few days, said the government's plan for two visits for loans under $7,500 and three for loans over $7,500 is "overkill."

HILA also objected to HUD's plan to increase the net worth requirement for contractors who act as dealers from $25,000 to $75,000, calling the idea "ill-conceived." Noting that many contractors are small-time operators, Bell said the change would has the effect of shutting down the Title I dealer program.

It would be better, the association said, to require greater dealer accountability by making sure they receive no money until their work passes a pre-funding inspection.

Published: May 29, 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.