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Buyers of 'handyman specials' can get a mortgage-repair loan package


CHICAGO -- Some buyers of "handyman specials" and other homes in need of repair will soon be able to apply for mortgages that will enable them to get funds both for purchase and rehab work in the same loan.

The program, called community home improvement loans, was announced last month at the Mortgage Bankers Association of America convention in Chicago by the Federal National Mortgage Association, also known as Fannie Mae, and GE Capital Mortgage Insurance Companies.

Up to now, two separate loans have typically been issued for purchase and repair work. The new program, which for the first time provides a secondary market for purchase-and-rehab loans, should make themmore widely available.

The loans, to be made available around the country early next year, will be offered for "modest-income" buyers, which Fannie Mae defines as those making a maximum of 115 percent of an area's median income.

The U.S. median family income as of July 1990 was $34,358, according to the National Association of Realtors figures, which would put an income ceiling of about $40,000 on eligible buyers.

The loan will allow financing -- or refinancing -- of a home and repairs amounting to up to 30 percent of the after-repair appraised value of the home. Eligibility is restricted to single-family units, including condominiums, that serve as the borrower's principal residence.

The mortgage will "enable modest-income home buyers to make the home improvements necessary for home purchase by obtaining a single loan," said Martin D. Levine, Fannie Mae's vice president of low- and moderate-income housing.

"Fannie Mae and GE also expect that this mortgage will prove useful in helping to revitalize neighborhoods," added Mr. Levine.

He also pointed out that the new mortgage can help financial institutions meet their obligations under the Community Reinvestment Act, the federal law that requires financial institutions to do a certain amount of lending in the neighborhoods in which they are located.

Although such purchase-and-rehab loans have been available previously on a spot basis, particulary through institutions with strong community lending programs, there has been no secondary market for them. Under the new program, Fannie Mae will buy the inclusive loans.

"I think this will encourage lenders to make these loans," said Calvin Bradford, head of Community Reinvestment Associates, a Chicago-area consulting firm that does work for community groups.

Lenders can make such loans now, he pointed out, but a special program and a place to sell them will be "useful," he said.

The new home improvement loans will follow the underwriting guidelines of Fannie Mae/GE Capital's Community Home Buyers' program, tooled for low- and moderate-income home buyers to allow them to devote higher-than-usual shares of their income -- up to 33 percent -- to housing expenses.

That program also accepts utility payments and rent payments as for income and credit verification, and offers a home-buyers' education course.

Financing will be available for up to 95 percent of the "as completed value" of the house, and there are no restrictions or requirements on the types of repair allowed.

Mr. Bradford said that the few purchase-rehab loans that have been issued in the past have typically required a 20 percent down payment. The new program, with 5 percent down payments possible, makes possible a considerable liberalizing of such loans, he said.

Fannie Mae, the nation's largest investor in home mortgages, has dedicated more than $4 billion in specialized home financing for about 80,000 low- and moderate-income families nationwide since 1987, when it began its program targeted to that group.

GE Capital Mortgage Insurance is a subsidiary of GE Capital, a diversified financial services corporation.

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