Hud Changes May Streamline Fha Process -- Tom Kelly

I cringed when the U.S. Department of Housing and Urban Development recently announced its reorganization of regional offices. That department oversees Federal Housing Administration loans and I did not want to see any curtailment in FHA options - from low-down-payment mortgages for first-time buyers to reverse-mortgage programs for retirees.

However, it appears the shakeup will actually benefit consumers because more employees will be in the field, fewer in the office doing "review work."

"The changes will provide better service to the public," said Carmen Wiswell, public affairs officer in the Seattle HUD office. "We are consolidating some programs and the underlying goal to all of this is to remove some of the paperwork."

Ah, the paperwork. It seems that has been synonymous with FHA loans. Readers have consistently complained about FHA red tape, and the fact the agency annually runs out of money faster than a kid on vacation.

The new moves indicate that the department is trying to correct both knocks. The reorganization shows a commitment to the housing programs without a huge loss of jobs. According to HUD, it expects to save $150 million by cutting about 1,500 of its 13,500 employees through attrition or by inducing them to retire or resign by offering financial incentives. Housing Secretary Henry Cisneros said there will be no layoffs but some employees may have to move to keep working for the agency.

"We may even see some expansion of the programs in the future," said Dave Rodgers, deputy housing director in the Seattle office. "Congress has made many proposals, including the expanding of reverse mortgages to include duplexes."

FHA-insured reverse loans offer lump-sum payments, a line of credit, equal monthly installments for as long as a person lives in his or her home, or cash installments for a fixed term. If expanded to included duplexes, persons over 62 years of age could borrow against the entire building, not just the portion used for a personal residence.

The main reason the HUD shake-ups will not directly affect most borrowers is because lenders in this area are authorized "direct endorsers" of FHA loans. That means FHA loans can be originated and processed by local banks and other lenders without local HUD office approval.

Some attractive aspects of FHA first mortgages are:

-- All FHA loans are assumable while most conventional products are not.

-- FHA offers a higher loan-to-value ratio, in some cases up to 97 percent of the loan amount. This gives many "low-down-payment" buyers - usually first-timers - their only chance to enter the market.

-- A slightly lower interest rate - not as important a factor as many buyers believe it to be.

Although FHA is mostly known for its low-down-payment home loans, it has a home-improvement loan program, too, which can be helpful for folks who need cash and can't get a home equity loan due to already high loan amounts or slumping home values.

About 12 percent of all home loans in this country are guaranteed by the FHA, the agency established by the National Housing Act of 1934 to stabilize the depressed housing market and provide insurance on loans to homebuyers who otherwise could not find loans.

In 1983, the government ceased to control the interest rates on mortgages insured by the FHA, allowing the rates to float with the market, which meant lenders negotiating rates and points. I view the recent changes as comparable. Borrowers were given more options 10 years ago. Now, the programs are being taken one step further; more emphasis is being put on servicing instead of scrutinizing.

Tom Kelly is a private real-estate consultant. His column runs Sundays in the Home/Real Estate section. Send questions and comment to: Tom Kelly, P.O. Box 70, Seattle, WA 98111