October 29, 1996


SUBJECT:  Single Family Production - Moratorium on Investor Loans
            in Conjunction  with the 203(k) Rehabilitation
            Mortgage Insurance Program 

     This Mortgagee Letter is to advise you that the Department
has placed a moratorium on 203(k) investor loans.  This
moratorium on 203(k) investor loans also applies to the sale of
HUD-owned property.   These restrictions are in response to audit
findings issued by the Office of the Inspector General and are in
effect until further notice.

     Applications approved by the Direct Endorsement underwriter
within ten working days from the date of this Mortgagee Letter
may continue through closing and endorsement.  No new
applications may be accepted after this date until further
notice.  Sales contracts executed by the local HUD office prior
to the date of this Mortgagee Letter with regard to HUD-owned
properties will be honored and should be processed through to
sales closing.  No new sales contracts will be executed after ten
working days of this letter.

     This moratorium will allow the Department to consult with
the industry and affected communities to explore legislative and
policy reforms that will result in a program which will provide
the neighborhood rehabilitation benefits of the investor program
without the abuse and risk to the insurance fund.
     If you have questions regarding this Mortgagee Letter please
contact your local HUD Office.

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