HUD Chief Plans to Shut Down Home-Loan Program

WASHINGTON — Housing and Urban Development Secretary Andrew Cuomo announced plans Thursday to abolish a home improvement program that he says has been widely abused by unscrupulous contractors.

Cuomo said the $499-million program, under which private contractors help poor and middle-income homeowners obtain long-term loans to pay for renovations and repairs, has been “riddled with fraud” in California and other states.

In a continuing investigation, Cuomo said, HUD investigators have determined that 16 dishonest contractors have pocketed the proceeds of the loans after performing unusually shoddy or overpriced work, leaving homeowners obligated to make monthly payments on the loans for as long as 20 years. More than 4,000 contractor-initiated loans--roughly 28% of those made nationally--were made in California last year. A separate program in which homeowners deal directly with lenders and then choose their own contractors will not be affected, Cuomo said.

“If housing is our business, our mandate is in maintaining the public trust,” Cuomo said. “The contractor program is by nature a crime waiting to happen.”

Under the program, which has operated since 1934, homeowners can obtain Federal Housing Administration-insured loans of up to $25,000 for repairs and remodeling. The program is popular among low-income homeowners because they may stretch out payments over 20 years, a longer time than most commercial loans allow. Also, many of these homeowners have bad credit and would not qualify for conventional loans.

In a four-month review of the program, federal investigators found widespread abuse by contractors who sometimes take out advertisements in newspapers or go door-to-door in low-income neighborhoods telling homeowners that repair work can easily be done for $25,000--rarely an accurate estimate.

Many contractors fill out loan applications for the homeowners, pocket the money and then do poor work or leave with the work unfinished, Cuomo said. The homeowners then often refuse to pay back the loan or are financially unable to, and the FHA must pay the claim.

Last year, the government paid commercial lenders more than $56 million in claims in the loan program, with more than $30 million going to California.

Paul and Sandra Griffin of Greenville, Miss., told of a contractor who charged them $25,000 to remodel their home and repair the roof. The work was so poorly done that water poured into their home during the first rainstorm. Their cabinets had no shelves, floors sagged, electric outlets fell off the walls and shingles blew off the roof. Renting another place to live and paying to repair the problems caused by the initial work has put the Griffins $40,000 in debt.

“I make $400 every two weeks, and my husband is an orderly at a local hospital,” Sandra Griffin said. “I have to figure out how to pay this now. I can’t lose my home.”

Cuomo said HUD is helping the Griffins pay off their debt, fining the couple’s contractor $5,500 and prohibiting him from participating in the loan program for a year.

Cuomo announced similar enforcement action against 15 other contractors who investigators determined were abusing the program. Cuomo said additional action will be taken against contractors after the government review is completed in states with high numbers of loans, including California. No California contractors are among the first 16 to be accused of fraud.

“These people are not legitimate contractors,” Cuomo said. “They are money-changers. 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.”

Homeowners with Title I federal loans who believe that they are victims of contractor-con artists can call this toll-free number for help: 888-466-3487.

Cuomo’s proposal to eliminate the contractor-initiated loan program will be reviewed by Congress and the public before his department performs an internal review of comments and officially abolishes the program.