FHA 203(k) Rehabilitation Loans

203(K) Rehabilitation Program 

aA important FHA financing program that's been closed since the late 1990s  may be re-opened to investors -- provided HUD agrees to a proposal submitted recently by the National Association of Realtors.

  NAR president Charles McMillan asked the HUD Secretary Steve Preston and the department to rethink its decision to bar investors from the 203(K) rehabilitation program, under which FHA insures a combined home purchase and renovation mortgage based on the after-repairs valuation of the property.

McMillan said reopening 203(K) to investors could play a key role in disposing of large numbers of vacant foreclosed houses that have been damaged by vandals or prior occupants.

"Many foreclosed properties are severely damaged after they are vacated, making them difficult to sell," said McMillan. "Investors utilizing the 203(K) program could purchase dilapidated foreclosed properties for rehabilitation and conversion into rental units."

Amending 203(K) restrictions "will benefit neighborhoods across the country," he said, and give investors "access (to) credit that is unavailable (during) the current economic crisis."

McMillan suggested the change could be temporary -- ending with the expiration of HUD's "Hope for Homeowners" program, under which FHA refinances seriously delinquent mortgages.

HUD imposed a moratorium on investor participation in 203(K) in 1996 after a series of scandals involving the program - bogus repairs, straw buyers and other abuses by speculators.

In his letter to Preston, McMillan acknowledged those earlier problems, but said HUD's Inspector General had concluded that most of the abuses were connected with nonprofit groups and so-called "identity of interest" transactions.

McMillan proposed that both types of participation be prohibited under any limited return of investors to the 203(K) program.

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Jose Guerrero says...
on 01/08/09

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I am all for HUD/FHA re-instating and allowing the 203(k) for Investor's. Doing so will definitely have a positive impact in todays economic woes in stabalizing property market values and maintaining existing jobs and/or creating new jobs.

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