]IREHAI.I. I{I'F GYPSUM WAr.LBOARD

A pilot promotion in which all segments of the home improvement {ield would cooperate in selling the new program is being studied now by DFPA and NHIC. ACTION Housing, Inc., of Pittsburgh has pledged support of such an effort and the first program may be instituted there.

FHA Commissioner Neal J. Hardy said this is "the most constructive thing that could be done" and that FHA is willing to develop "an entirely new administrative approach" to handling 203(k) applications if necessary.

The conference was called to determine whether 203(k) had a chance to succeed in generating home modernizing loans of amounts hieher than those authorized for insurance It FHA under Title I.

Section 203(k) allows FHA to insure second mortgage home improvement loans of up to $I0r000 for periods up to 20 years. Title I limits are $3,500 and 5 years, written as unsecured loans. Interest for 203 (k) loans is 6 per cent simple, {or T'itle I, 5 per cent discounted.

The interest rate, translated into yield to the lender. came in for the most criticism, {ollowed by the lengthy processin6l required for 203(k).

Charles H. Underwoodo vice'president of Houston's T. J. Bettes Company, a large mortgage banker, outlined theproblemcon' cisely early in the conference.

"Cutting through all the confusing acounting jargon, we come to these facts," he said. "Under 203(k) the yield amounts to 6.38 to 7 per cent, depending on term. With Title I, the yield ranges from 8.5 to 9.3 per cent. Under our own, uninsured plan, the yield runs 9.8 per cent. A lender just isn't interested."

Hardy admitted this apparent shortcoming, but said lenders tend to classify 203(k) with high-yield consumer credito when it really comes closer to belonging in the mortgage department "or in some other, new, department."

We don't ever expect 203(k) toapproach Title I in volume." he said. "This section wasn't intended to supplant Title I, but only to fill a gap that neither Title I, nor re{inancing takes care o{."

Hardy made thesc other points:

The new program fills a real need and "could have a significant effort on the upgrading of American housing because many more families would undertake home improvements if financing were available."

It has not had a "fair trial," partly because o{ the unfavorable comparison with Title I, the "only FIIA program that became active as soon as enabling legislation was signed by the President." (Six months after the 1934 law was passed,73,000 Title I loans had been insured; in 1935' 636,000 more were insured. In the first six months a{ter FHA home mortgage insur- ance was offered, only one such loan was on the books. Section 203(k) generated IOl2 applications through May,1962; 472 commitments had been made, ll4 loans insured.

) The difficulty of fitting the new program into ooconsumer" or o'mortgage" departments has discouraged lenders. More familiarity with the program is needed.

Return is lower than unsecured consumer credit, but higher than the \l/a per cent rate available through refinancing the first mortgage, which Hardy said he still thinks is preferable. Hardy also emphasized that Congress almost certainly would reject airy change in the present interest rate.

FHA is flexible on forms of securitv and "willing to experiment and innovate" in processing. It may be poisible to work out simpler specifications than now are required with a submission.

Conference moderator James E' Lash, executive vice president of ACTION, Inc., steered the participants through a morning session that boiled with criticisms and defenses of 203(k), then divided the group, into four sections. Each of the smaller groups was assigned the job of providing conclusions and recommendations based on the problems discussed earlier. They were surprisingly alike:

The present progrlun definitely has merit.

Processing must be simPlified and speeded up. FHA required as much as six weeks in some offices, although others cut the time to a tolerable two weeks.

FHA appraisals should be based on the actual cost of the improvements, not on the value they add to the property.

Provision should be made for pay-outs during construction, instead of the present requirement that contractors carry all costs until completion.

Real efiorts should be made to educate lenders, contractors, local FHA offices and, the public on 203(k).

Some change should be made to make, the yield more attractive to lenders.

(Continued, on Page 32)

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