The Mortgage Bankers Association is urging the Federal Housing Administration to reopen its 203(k) program to local investors wanting to buy and renovate foreclosed properties.
The Department of Housing and Urban Development slapped a moratorium on investors using the 203(k) program back in 1996 due to abuses and fraudulent activities. (Eventually the private sector emulated the program, giving birth to the 125% high LTV loan, an experiment that ended badly.)
FHA still allows homebuyers to use the special financing program, which allows the cost of renovations to be included in an FHA-insured purchase mortgage.
In testifying before the a House subcommittee this week, MBA president and chief executive David Stevens discussed ways to increase refinancings and REO sales to stabilize the housing market.
"MBA recommends that FHA lift the moratorium on investors participating in the 203(k) program and reinstate it as a pilot to facilitate the purchasing and rehabilitating of REO properties by local investors," the former FHA commissioner testified.
To prevent future abuses and fraud, MBA is recommending six reforms, including a 15% to 20% downpayment requirement and a limit of ten 203(k) loans per investor.
"Local investors understand their local rental market and have a long-term stake in the stabilization of the neighborhood," Stevens said.
