HUD WARNS AGAINST DECEPTIVE PRACTICES
BY HOME IMPROVEMENT LOAN CONTRACTORS

"We have zero tolerance for those who would deceive homeowners seeking home improvement loans," said Nicolas P. Retsinas, Assistant Secretary for Housing/Federal Housing Commissioner. "The FHA's Title I program has given thousands of Americans the opportunity to fix up their homes, and we will not allow it to be damaged by an unscrupulous few."

Some recent Title I advertising has implied that it is an official government notice, that Title I is a grant or government assistance program, or that the advertiser is a government entity. In a recent California case, a newspaper ad headlined: "WANTED: Important Notice to Homeowners," was supposedly placed by "FHI." Calls to a toll free number were answered with voice-mail for the "Federal Home Improvement Office."

In the fall of 1995, HUD announced a comprehensive crackdown on deceptive Title I advertising. Among practices the Department deemed impermissible were: stating that home improvement funding is limited or available for a limited time; stating that borrowers or properties are pre-approved; implying that a dealer or contractor is approved by FHA or HUD; stating or implying that loan funds may be used for debt consolidation or stating that poor credit or no credit is acceptable.

The Department also encourages consumers that, as in all major financial transactions, great care should be taken in shopping for a home improvement loan. For the Title I program to work properly, all improvements specified by contract must be completed and are subject to an on-site inspection.

HUD's Office of Lender Activities requires that Title I lenders report to HUD improper dealer activity, including failures to comply with contractual obligations, false certification of completed improvements and failure to permit on-site investigation. Lenders must also report instances of misstatements on credit applications and fraudulent use of the Title I program, including use of loan proceeds for items other than home improvement and potential "kick backs" of a portion of loan proceeds to borrowers. The FHA recently issued Limited Denials of Participation (LDP) prohibiting two Texas dealers doing shoddy or incomplete work from participation in HUD programs.

Retsinas said that FHA-approved lenders bear the responsibility for assuring the performance of dealers and contractors they work with. In addition to assuring on-site inspections of all improvements, Title I lenders are required to review and approve dealer and contractor advertising. Title I lenders continuing to do business with entities using deceptive advertising will be subject to sanctions and civil money penalties. Dealer/contractors found in violation may be barred from participation in federal programs.

Since announcing its crackdown on deceptive Title I advertising in 1995, the Department has initiated penalty actions against 19 lenders. Penalties for lenders and dealer/contractors are $5,000 for each violation with a maximum of $1 million per year. Lenders may also be barred from participation in HUD programs.

One of the nation's leading sources for home improvements, Title I been used to insure almost 35 million loans since it began in 1934. In 1995, almost 98,000 property improvement loans worth $1.33 billion were originated -- a 36 percent increase in loan volume over 1994. Loans, obtained through an FHA-approved Title I lender, can range up to $25,000 for a single family home. While 96 percent of the loans originated in 1995 were for single family homes, the Title I program may also be used for multifamily and nonresidential property and manufactured homes.

Lenders with questions about the FHA's deceptive advertising requirements should call the Quality Assurance Division at 202/708-2830. Consumers wishing additional information about the FHA's Title I home improvement program may call the HUD Customer Service Center at 800/767-7468.