It may be true of the Department of Housing and Urban Development, as Thomas Wolfe said of Brooklyn, that no man living knows it through and through.
It is certainly true that HUD sometimes seems to lose track of its own programs, because they are out of step with the department's current priorities or because they lack a workable set of regulations.
And even more occasionally, the department rediscovers one of these lost sheep, scrubs it up and finds unexpected life in it.
Such was the case with the 223(f) program.
On the books since the mid-1970s, Section 223(f) of the National Housing Act had been designed to provide owners or buyers of apartment buildings with cut-rate loans through a Federal Housing Administration-style guarantee program. By making it easier for owners to sell or to pull out equity, it was thought, ownership could be made more attractive, rents held down a bit and, indirectly, more units generated.
But HUD guessed wrong about who the lenders would be. Expecting that banks and savings and loans would be the main participants, the department "mistargeted" the program, as one HUD official put it, at those depository institutions. They turned out not to be very interested.
In addition, the department's emphasis in the late 1970s was on production of housing units, and 223(f) didn't produce any, at least not directly. So HUD field offices tended to put 223(f) applications on the bottom of the pile. The delays stretched out as long as 18 months, and in a time of rising interest rates, this meant that a project "that was feasible when the application was submitted might not be feasible when the loan was approved," one HUD official said.
Consequently, the program guaranteed only about 400 loans in eight years, according to one survey.
Beginning this spring, however, HUD began offering a revamped 223(f) program that is open to mortgage bankers and that allows approved lenders to handle the processing. Not surprisingly, considering that the program offers 35-year, 12 1/2 percent, fixed-rate, assumable loans, borrowers are leaping at it.
Already, two local lenders, DRG Financial Services Inc. and York Associates, have qualified to make the loans, and giants of the industry, such as Norwest Mortgage Corp., are getting into the act.
Michael I. Lipson of York says that business is already "pretty brisk," and he attributes the program's popularity to its timing as well as its favorable terms. He points out that a lot of multifamily projects of the 1970s were built with seven- or eight-year balloon financing that is now coming due.
More recent builders and buyers have had to contend with interest rates over 15 percent, and are anxious to refinance.
The program follows a recent HUD pattern of "privatizing" more and more of its loan guarantee and insurance programs. HUD sources say the department is planning to do the same with the 221(d)(4) program, which provides low-interest loans for apartment construction. And this spring, HUD began allowing qualified lenders to handle much of the paperwork in the FHA single-family loan program.
Several department sources agreed that HUD will be able to cut back significantly on its work force as private companies take over most of the detail work in these programs.
One current and one former HUD official expressed concern that the potential for abuse is growing. "The downside of this is the potential exposure" from bad loans, one said, adding, "I think everyone lenders will be very careful at first, but wait till they've been at it about a year, then look."
But other HUD officials say that standards for admission of lenders to 223(f) are very tight and will be just as tight for other programs. And they say that "co-insurance" is really a bit of a misnomer--that a better term would be risk-sharing because the lender agrees to absorb up to 5 percent of the loss on the outstanding principal in the event of foreclosure, as well as a share of other costs.
"That's a pretty real incentive to be careful," said one.