CUOMO ANNOUNCES HOMEOWNER PROTECTION INITIATIVE TO END
WASHINGTON -- Housing Secretary Andrew Cuomo today
announced a new homeowner protection initiative designed to end
fraud and abuse in a loan program that has victimized thousands
of American families and cost taxpayers millions of dollars. He
also announced enforcement sanctions against 16 bad contractors.
CONTRACTOR RIPOFFS IN HUD'S HOME IMPROVEMENT LOAN PROGRAM
To end the scam, Cuomo said the Department of Housing and
Urban Development has initiated rule-making to shut down the
contractor-originated portion of the Title I home improvement
HUD insures loans under Title I to help finance home
renovations and repairs. More than half of the homeowners are
HUD's rule would prevent contractors from working directly
with homeowners to provide HUD-insured financing for home
improvement loans through approved lenders. Instead, homeowners
would deal directly with lenders. Loans originated by lenders
would not be affected by the new rule.
Cuomo said a four-month HUD review of the 63-year-old Title
I home loan program found that unscrupulous contractors are
performing shoddy work, falsifying documents, overcharging
homeowners, and circulating deceptive advertising.
Cuomo said HUD is taking complaints from the public about
contractor fraud under the Title I program on a toll-free
telephone line: 1-888-466-3487.
"These people are not legitimate contractors," Cuomo said.
"They are moneychangers. They have led homeowners down a path of
deception. They promised beautiful homes, but instead delivered
shoddy work and overpriced materials. They literally ripped up
homes and then ripped off homeowners and the public."
Problems with the Title I program are not new. A 1986
Inspector General�s audit raised problems with the program. In
1989, HUD recommended terminating the program, but Congress
suggested more mandatory and tougher sanctions. The problems have
There are two types of Title I loans. Dealer loans are
originated by contractors who act as middle-men between
homeowners and lenders. Lender loans are made directly to
Because HUD insures Title I loans, it loses money every time
a homeowner defaults. From 1987 to 1996, HUD paid $114 million in
claims on contractor-originated loans.
"We want to eliminate the fraud but protect the service to
homeowners," Cuomo said.
"Elimination of contractor loans will not impact the ability
of homeowners to get their services," Cuomo said. "Homeowners
still will be able to obtain home improvement loans directly from
Title I lenders -- loans that are not often available to working,
low-income families in the conventional market. However, these
families will be protected from unscrupulous contractors; there
will be greater accountability, and the cost to taxpayers will be
Title I loans range in amounts from under $5,000 to a maximum
The Secretary also announced enforcement action against 16
contractors as part of a crackdown on Title I ripoffs.
HUD barred these four Texas contractors from doing any
business with the federal government for a year: National Homes
Services, American Applicators and Texas Remodelers of Houston,
and American Eagle of Hockley.
In addition, HUD barred these 10 contractors from
participating in the Title I program for a year and levied civil
penalties of up to $5,500 against each: Landmark Building and
Remodeling, Inc. of Little Rock, AR; Fort Bend Builders and
Supplies, Inc., of Stafford, TX; Modern Exteriors of Houston, TX;
Classic Siding, a division of G.R.B.D., Inc, of Beaumont, TX;
Lane's Home Improvement Co., Inc., of North Kansas City, MO; Lone
Star Remodeling of Texas of Friendswood, TX; First Capital Home
Improvements of Memphis, TN; Five Star Ventures of Houston, TX;
All Town Construction of Manahawkin, NJ; and First Choice Siding
and Windows, Inc., of Kansas City, MO.
Two more contractors -- Classic Exterior Designs of Mobile
AL, and A&W Siding & Window of Denver, CO -- were barred from
Title I participation for a year.
Cuomo said additional enforcement actions will be taken
against contractors after HUD's review is completed in other
states with high contractor/dealer activity, such as California,
Pennsylvania and Illinois.
"This scam is really three crimes in one," Cuomo said.
"Homeowners get suckered, scam contractors get off scott-free,
and taxpayers get stuck with the bill. Since at least 1989,
Congress and HUD have tried to correct these problems through
various laws and regulations, to no avail. Enough is enough. We
want to end this."
Joining Cuomo in today's announcement was Bernice Shepard, a
member of the Board of Directors of the American Association of
Retired Persons. Many borrowers under the Title I program are
"AARP supports the regulatory reforms being announced today
by Secretary Cuomo to end the potential of abuse by
dealer/contractors and to increase the responsibility of lenders
to ensure that Title I funds are made available for proper
purposes," Shepard said.
Typical contractor abuses include:
- False advertising by contractors and their implication
that loans had been pre-approved.
- Contractor failures to complete work, falsifying work as
completed, and contractor coercion of borrowers to get them to
claim work was completed.
- Contractors working with borrowers to falsify financial
information -- such as income, assets, and liabilities.
- Contractor-originated loans to borrowers who didn't earn
enough to repay loans.
- Contractor falsification of loan documents to allow
borrowers to exceed their borrowing limits.
This "path of deception" costs taxpayers millions of dollars
because the claim rates for loans originated by contractors are
consistently higher than for lender loans.
HUD's analysis of the loans originated from 1987-1994 shows
a claim rate for contractor loans of 6 percent, compared with 3.5
percent for lender loans. This rate means borrowers failed to pay
on 6 percent of the loans originated by contractors. Most of
the contractors that HUD is acting against are based and work
primarily in Texas, the state with the largest number of
contractor-initiated loans, also known as "dealer" loans.
Contractor loans are made by contractors that advertise
their services through newspaper ads or door-to-door marketing.
The loans provide HUD-insured financing through the use of an
installment sales contract, which is purchased by approved Title
FHA first began offering home improvement loans in 1934 in
an effort to assist low-income families with home repairs and
renovations. Since that time, almost 35 million loans have been
made to homeowners. From 1987, 790,000 loans have been made --
43 percent by contractors, and 57 percent by lenders -- totalling
$2.9 billion in contractor loans and $5.1 billion in lender
Content Archived: January 20, 2009