Mortgage Ceiling Raised in U.S. Quake Relief Package

A little-noticed provision of the $8.6-billion earthquake aid bill signed last week raised the limit for FHA-insured mortgages for earthquake-damaged homes from $151,725 to $203,150--a move that could benefit numerous homeowners and first-time home buyers.

Increasing the loan ceiling will make the mortgage program available to more middle-class quake victims. It is the first time the Department of Housing and Urban Development, which administers the program, has raised the limit as the result of a natural disaster.

The loans will be available to homeowners to repair damaged residences as well as to renters who buy a home if their domicile was damaged or destroyed by the Northridge quake. Renters who qualify for loans will be able to purchase a home with no down payment.

“It’s very significant because of the cost of housing in the Valley,” where the Jan. 17 quake was centered, said Joe Hirsch, director of housing for HUD’s Los Angeles office. “A large volume of homes out there (cost) between $150,000 and $200,000. I think that this is going to make those homes accessible” to many first-time buyers.

More than 26,000 dwellings were seriously damaged by the pre-dawn temblor, which inflicted as much as $20 billion in destruction. The median price of a home in Los Angeles is $195,000.

Mortgage brokers and officials say that the higher loan ceiling may permit some homeowners to retain their damaged homes rather than walk away from them. Others will be able to complete repairs more readily by simultaneously refinancing their homes and receiving a construction loan through a single mortgage.

“This is the greatest thing since sliced bread,” said Dick Richards, vice president and Los Angeles regional operator of Malone Mortgage, which is authorized to make loans under the HUD programs. “The greatest limit we have in California with FHAs is the loan limits. For the vast majority of people, they’re just too low.”

Phillip and Terry Pina, renters in Northridge for six years, agreed. Upon learning of the new loan limits they decided to buy their quake-battered house from their landlord and fix it up themselves. The cost is estimated at $190,000.

“It’s our best chance,” Pina said. “We were never able to afford it before.”

The change in the law, which will be in effect for 18 months, was tucked into the massive emergency spending measure by Sen. Dianne Feinstein (D-Calif.) at the request of HUD Secretary Henry G. Cisneros.

The increased limits apply to two kinds of loans. The 203(h) program allows the owner or renter of a damaged or destroyed property to qualify for 100% financing to purchase a single-family residence. The building to be acquired does not have to be quake-damaged or even located in the disaster area.

The 203(k) program provides mortgage insurance for an individual to buy or refinance a residence or investment property and rehabilitate it simultaneously.

Multi-unit buildings are not eligible for the 203(h) loans; buildings with as many as four units can receive loans under the 203(k) program.

Before government-approved private lenders can begin making loans, regulations must be adopted in the coming days.

Some quake victims may still find that more attractive loan terms are available from other government agencies, including the Federal Emergency Management Agency.

Alan C. Miller reported from Washington and Miguel Bustillo reported from Chatsworth.