HUD has issued final rules designed to enhance program controls and strengthen financial viability of the Title I Property Improvement and Manufactured Housing Loan Insurance Programs.

Previously, lenders were permitted to disburse funds on a dealer loan solely to the dealer. This will prevent release of property improvement funds against the borrower's wishes and promptly inform the lender of any disputes between the borrower and dealer. In a dealer loan, the new disbursement rules also require that the lender conduct a telephone interview with the borrower to obtain the borrower's oral affirmation to release funds. Changes to this section are effective December 7, 2001.

24 C.F.R. § 201.2 is revised to provide in relevant part as follows:
Dealer loan means a loan where a dealer, having a direct or indirect financial interest in the transaction between the borrower and the lender, assists the borrower in preparing the credit application or otherwise assists the borrower in obtaining the loan from the lender. In the case of a property improvement loan, the lender may disburse the loan proceeds solely to the borrower, or jointly to the borrower and the dealer or other parties to the transaction. In the case of a manufactured home loan, the lender may disburse the loan proceeds solely to the dealer or the borrower, or jointly to the borrower and the dealer or other parties to the transaction.

24 C.F.R. §201.26(a)(6) and (7) were amended to provide as follows:
(a) * * *
(6) In the case of a dealer loan made on or after December 7, 2001, the lender may disburse the loan proceeds solely to the borrower, or jointly to the borrower and the dealer or other parties to the transaction.
(7) In the case of a dealer loan, the lender must conduct a telephone interview with the borrower before the disbursement of the loan proceeds. The lender, at minimum, must obtain an oral affirmation from the borrower to release funds to the dealer. The lender shall document the borrower's oral affirmation.

Changes were also made to the lien position required for Title I loans. Prior legislation did not specify the required lien position for a Title I loan, other than to state it must have priority over any lien securing an uninsured loan made at the same time. The final rule now provides that a lien securing a property improvement loan in excess of $7,500 must occupy no less than a second lien position. This change is effective December 7, 2001.

24 C.F.R. § 201.24 is revised to provide as follows:
(a) Property improvement loans--
          (1) Property improvement loans in excess of $7,500.

(i) Any property improvement loan in excess of $7,500 shall be secured by a recorded lien on the improved property. The lien shall be evidenced by a mortgage or deed of trust, executed by the borrower and all other owners in fee simple.
(ii) If the borrower is a lessee, the borrower and all owners in fee simple must execute the mortgage or deed of trust. If the borrower is purchasing the property under a land installment contract, the borrower, all owners in fee simple, and all intervening contract sellers must execute the mortgage or deed of trust.
(iii) The lien need not be a first lien on the property; however, the lien securing the Title I loan must hold no less than the second lien position. This requirement shall not apply where the first and second mortgages were made at the same time or the second mortgage was provided by a state or local government agency in conjunction with a downpayment assistance program.

(2) Property improvement loans of $7,500 or less. Any property improvement loan for $7,500 or less (other than a manufactured home improvement loan) shall be similarly secured if, including any such additional loans, the total amount of all Title I loans on the improved property is more than $7,500.
(3) Manufactured home improvement loans. Manufactured home
improvement loans need not be secured.

Other changes were also made regarding the required net worth of dealers and insurance reporting.