www.hudclips.org 


U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

August 7, 1996
 
MORTGAGEE LETTER 96-42
 
TO:  ALL APPROVED MORTGAGEES
 
SUBJECT:  Single Family - Public Housing Homeownership Strategy
 
     The Department has announced a Public Housing Homeownership
Strategy with a goal of helping twenty-five thousand American
families living in public housing to become homeowners by the
year 2000.  This initiative is HUD's first comprehensive
homeownership plan for public housing residents, building upon
earlier efforts focused on the sale of public housing units to
residents.
 
     The new initiative has several elements:  sale of single-
family homes and townhomes and garden apartments already in the
public housing inventory; sale of homes developed or acquired by
housing authorities for homeownership as part of efforts to
replace demolished high-rise projects; and an effort to enable
qualified public housing residents to graduate from public
housing to homeownership on the private market.  (The paper
enclosed describes the initiative in greater detail.)
 
     FHA single family lenders are encouraged to support this
effort in partnership with housing authorities, nonprofit and
resident organizations, banks and savings and loans, neighborhood
organizations, community development corporations, and city
agencies.  The FHA Section 203(b) and 203(k) insurance programs
offer tools for lenders to participate in this new business
opportunity while helping to meet unmet community needs.
 
     The Section 203(b) program can be used to make loans to
credit-worthy borrowers with a lower cash investment than may be
required by other financing alternatives.  It can also be
combined with downpayment assistance programs from governmental
sources.  This assistance can be structured as either secondary
financing or by offering grants to qualified homebuyers.  For
certain homebuyers that may not yet credit qualify for
homeownership, Public Housing Authorities or other local
government entities can obtain high-ratio FHA-insured financing
and then lease the properties to families under a lease-purchase
arrangement.  When the family becomes qualified, usually after
counseling, the property would be transferred from the local
public entity to the new homebuyer through a credit-qualified
assumption.
 
     The Section 203(k) program also offers a variety of options
for making this initiative a success.  A homebuyer can purchase a
property which requires rehabilitation with the insured 203(k)
loan covering both the funds necessary to acquire the property
and funds necessary for rehabilitation.  Local public entities
and non-profit organizations can also obtain high ratio FHA
insured 203(k) financing to rehabilitate properties and use the
lease-purchase arrangements described previously.
 
     HUD has published a booklet that describes case studies of
successful public housing homeownership initiatives, many of
which involve FHA-insured loans.  A copy of Moving Up To the
American Dream:  From Public Housing to Private Homeownership, is
available by contacting HUD User at 1-800-245-2691.
 
     The Department is committed to making homeownership a viable
option for responsible, qualified residents of public housing.
If you are interested in being part of this effort, please
contact your local HUD Office.
 
Sincerely yours,
 

Nicolas P. Retsinas
Assistant Secretary for Housing-
Federal Housing Commissioner
 
Enclosure