Homeowners are expected to improve their homes this year in record numbers, and that's good news for the mortgage industry.

With new home purchases likely to lag, home improvement financing will help pump up lending volume in 1996.

The economic setting: Home values in several areas of the country are weak, leading to fewer trade-ups, while surveys show consumer confidence remains low.

"A lot of people have decided not to move out of their homes," said Steven Vanderbilt, sales manager with Parsippany, N.J.-based Champion Mortgage Corp. "Look at middle-level management - these people are afraid of where their jobs are going to be."

For some homeowners, relocating is a financial impossibility, especially in California. Equity is low in many properties there, so homeowners are having a difficult time moving up to costlier quarters, said Peter Winterfield, assistant vice president at Aames Financial Corp.

The secondary market's hankering for home equity products has also helped increase lender's appetites, Mr. Vanderbilt added.

In fact, both banks and finance companies are aggressively pursuing some sort of home equity lending to beef up origination values. "They've been given pressure from Wall Street to improve the quality of their portfolios," said Mark Zandi, an economist with West Chester, Penn.-based Regional Financial Associates.

Consequently, the value of remodeling should reach $129 billion this year, a 5.7% gain from 1995, according to the National Association of Home Builders.

Nonbank lenders are hungry for a piece of the home improvement pie, and seem to be leading the move toward unorthodox avenues of origination. "Home equity lending has been our bread and butter for so long, and we understand the market a little better," said one lender.

Both Money Store and Champion Home Mortgage have launched home improvement loans geared toward developers and contractors. They are projecting phenomenal growth for 1996.

Establishing a link with Money Store makes good sense for contractors, said Mike Timperman, account executive with Money Store's home improvement lending branch.

When a contractor is out putting in a bid on a roof, for example, it can offer immediate financing, he said. Rather than saying "this will cost you $12,000, he can offer payments of $86 a month," he explained.

Capture rates are high for approved contractors. About 75% of siding, window, and roof jobs performed by contractors that offer loans through Money Store are financed by Money Store, Mr. Timperman estimates.

On the other hand, if a homeowner goes to a bank for a home improvement loan after getting a bid from one contractor, Mr. Timperman said, the bank may recommend a different contractor. Or, after receiving a bid, homeowners may stall when getting a loan.

Money Store allows homeowners 100% financing and home improvement loan application approval that takes only a few hours.

Loans typically last 10 years, although they can go to 20 years, and average $12,000. Money Store's home improvement division raked in $270 million in its first year, and is projecting over $450 million for 1996.

Approximately 40% of sales leads are generated by contractors calling Money Store, Mr. Timperman said. The other 60% are culled by sales associates themselves, he said, by cold calling or stopping by a contractor's office.

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