The Pohnpei Area Office of Rural Economic
and Community Development
While in Pohnpei, I visited the Pohnpei Area Office of Rural Economic and Community Development (RECD), formerly known as the Farmers Home Association (FHA), under the US Department of Agriculture. Shelton Neth, the office supervisor, was kind enough to make time in his busy schedule to meet with me. The RECD is the primary source of residential construction finance in Micronesia. I was interested in how the money supply influences the final product in housing. I wanted to know the typical process that someone goes through when building a new home.
Sheldon explained that the purpose of the first meeting with prospective homebuilders was to establish an estimate of the borrowers resources and to present them with six different house plans they could chose from. While the design is not limited to the six stock plans, choosing one of these options is highly recommended. Applicants fill out the loan forms and are sent home to decide on a house design. There is a wait of about one-month to see if they qualify for the loan. After they qualify, applicants finalize their house design and put together a cost schedule.
The loan most often used for new construction was Section 502. This was the only loan option mentioned until I asked about alternatives. The amount available for the Section 502 loan was limited to $180,000 and the interest rate varied to as low as 3%. If one is willing to use one of the stock plans, the Section 502 package would be quite attractive. It even covers the cost of solar power and a water catchment system.
The construction loan comes with construction specification requirements (see Appendices A and B). The walls and floors must be of concrete and the roof can be of metal or concrete. If the roof is of metal, the wind pressure it must withstand increases from 75 mph to 150 mph. The building is to be safe, decent and sanitary. These terms, though pronounced quickly, were not as easily defined.
I asked Sheldon if a new homebuilder could finance a house built in a traditional manner. He said this was not an option, that the traditional buildings were not strong enough to withstand a hurricane nor did they satisfy the requirements to be "safe, decent and sanitary." Inquiring further, he told me about another loan, the Section 504 loan. Its purpose is to function as a home improvement loan. It was limited to $30,000 and has slightly higher interest rates. I suppose, if someone already owned a home, it is not as necessary to subsidize an addition or repair. This loan did have the option of using, at least in part, some of the indigenous construction methods. It still stipulated that part of the building two rooms be constructed of concrete.