WASHINGTON - Fannie Mae announced a $100 million pilot program last week to buy government-insured home rehabilitation loans.

The Title I loans, which are insured by the Department of Housing and Urban Development, have mostly been used by homeowners in older urban neighborhoods to make small improvements. The availability of a secondary market could broaden their appeal, as well as help lenders find new business in a tight market.

"Our goal is to take this unstandardized and fragmented market and create something as commodity-like as possible," said Herb Moses, director of housing initiatives at Fannie Mae, formally the Federal National Mortgage Association.

The pilot program was announced Saturday in Houston at the annual meeting of the National Association of Home Builders.

Title I loans are based on the ability to repay rather than on equity in the property.

This "makes them particularly attractive . . . where the appraised values do not reflect the value of improvements," Mr. Moses said.

In recent years, the Title I program has shrunk. Last year, $750 million of home rehabilitation loans were made under the program.

At present, there is no conventional secondary market for Title I loans. They are either securitized privately or sold by lenders to other lenders, who hold them in portfolio.

The Title I program is the oldest government housing program. It was established in 1934.

About 20 lenders will participate in the one-year pilot.

HUD insures 90% of the loan. As the investor, Fannie Mae will pick up the remaining risk.

The government caps the loans at $25,000.

To make sure the loans are reasonably priced, the agency will limit the rates lenders can charge to about 5 percentage points above Fannie Mae's posted yield of about 10%, Mr. Moses said.

Fannie Mae also buys home improvement loans aimed at the higher end of the market.

The agency's two-year-old program, dubbed "Homestyle," is "just starting to take off," Mr. Moses said. Under the program, Fannie buys home improvement loans of up to $101,575.

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