Re-opening the Federal Housing Administration
property rehabilitation loan program to investors will not happen anytime soon, according to Department of Housing and Urban Development
Secretary Shaun Donovan.
Donovan fielded the question Tuesday from new Mortgage Bankers Association
chairwoman Debra Still, CEO of Pulte Mortgage
. As the Obama administration draws
plans for unloading more than 150,000 foreclosed and vacant property owned by HUD, Fannie Mae
and Freddie Mac
, Still asked if the government would extend its 203(k) loan program to private investors.
"I'm open to looking at expanding 203(k). I think there are ways to do it safely and avoid some of the changes in the past. The problem is that we would need legislation to do this," Donovan said. "And unfortunately, I don't think it would be something that would move quickly given some of the disagreements we've had in Congress."
Congress established the 203(k) loan program in 1978 to help borrowers gain and rehabilitate single-family properties. It allows FHA-insured financing for structures with up to four-dwelling units in need of repair, but the owner must occupy the subject property or it can be owned by eligible nonprofits or government agencies.
Usually, borrowers looking to rehabilitate properties must obtain short-term financing to purchase the home, another short-term loan to cover rehabilitation costs and third line of credit to pay off the first two. The 203(k) loan condenses the rehabilitation financing process by allowing a borrower to take out one loan to cover costs rather than the three separate loans.
In October 1996, HUD placed a moratorium on 203(k) loans to private investors after an audit found abuses and risks to the insurance fund.
"There are other things in terms of what Fannie and Freddie can do through the FHFA that do not need legislation," Donovan said, but as for the desired
203(k) program, he added, "It's hard for me to imagine that Congress would be able to do something like that."
Write to Jon Prior
Follow him on Twitter @JonAPrior