Written By: Bonnie Wilt-Hild, Op-Ed Writer
We have been listening to the gossip (most of which I started), since November, 2010 about how HUD has discussed lifting the moratorium on the 203k program designed for investors. Believe it not, the program actually did exist at one point and was quite successful from a utilization standpoint, but do to program abuse which included mass property flip schemes in the 1990’s, HUD was forced to eliminate the program for use in 1996.
However current market conditions, an over the top foreclosure rate as well as tightening credit standards, particularly where investor mortgage money is concerned, has reignited an interest in the program, not only by would be investors, but also the Federal Housing Administration.
As I am sure everyone is aware, the 203k is HUD’s primary program for rehabilitation and neighborhood stabilization and it goes without saying that there is no better time for neighborhood stabilization than today. Take it a step further, it’s my personal opinion that the department is currently in a great position to implement the program now that Bob Ryan is Acting Assistant Secretary because after reading his testimony given to the House Financial Services Committee on April 14, 2011, I have decided the guy is a genius.
Based on this testimony, it is pretty clear that he is intelligent and rational (more the we can say for some of the more recent legislation) and clearly committed to the Federal Housing Administration objectives which we have come to know and love like sound underwriting principals, service to underserved communities as well as affordable homeownership, something, quite frankly, the “QRM” may do away with. The big question now is how to make it happen.
Based on my assessment, I would say that the department is busy with other things at the moment, like remodeling the current 203k offerings, tweaking those programs to make them slightly more user friendly and the investor 203k has been placed on the back burner. I think we as the mortgage community need to simply find a way to make it clear that this is a program that we really need.
Not only will it provide funds for investors who, like it or not, are an intricate part of the housing system, it will also go a long way to stabilize declining market values. Let’s face it everyone, from a collateral standpoint these days we have to consider the values of foreclosed properties in the subjects market area simply because they are not only prevalent but have also become more desirable to potential home purchasers. Additionally, considering that a basic model already exists in the form of the standard 203k, creating the magic that would be the investor 203k shouldn’t be extremely tedious.
Going out on a limb I would say, increase the UFMIP and Monthly MI factors slightly to mitigate risk, create minimum score requirement at no less than 680, implement reserve requirements, maximum LTV 85% and finally underwrite the contractors participating in the program. Make sure their licensed, check business references, collect resumes, and make sure they have a solid reputation.
This alone should weed out potential investors that may entertain methods by which program could be abused.
In closing I want to say that yes I am an industry advocate of the investor 203k. I underwrote them prior to 1996 and do believe that the program will go a long way today to not only stabilize neighborhoods as well as property values, but also provide affordable homeownership options to underserved communities while also creating a viable new source of business for the mortgage industry. I just hope Acting Asst. Secretary Bob Ryan sees it as I do. Happy Underwriting!
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".