In the late 1990s, the program was suspended for investors because of a scandal in New York City and was never reinstated. However, it is time for FHA to bring back 203(k) for investors. There have been great improvements in technology and the ability to track and oversee these loans. More importantly, this is a tried and tested tool to help communities deal with dilapidated homes one property at a time.
Over the past several years, it has become clear that there is no "silver bullet" to dealing with the housing crisis, yet some are still searching. The latest idea put forth by the Federal Reserve is a rather complex suggestion to essentially sell REOs in bulk so they can be rented out on the theory that this would help address a shortage in rental housing. Needless to say, there are countless shortcomings to this proposal. First, each market is different, so merely identifying a group of properties in a market doesn't mean a bulk sale is going to provide adequate return or even meet the needs of that market. Second, each property is different. One property might be suitable for a rental and another might be better for a sale. Third, how does one price the bulk sale to ensure investor demand through a foreseeable return?
A better answer is to focus less on what can be done in grand fashion and more on what can be done by communities and individuals to meet the challenges in their own neighborhoods. They are truly best positioned to make this determination. Along with other locally focused efforts and restoring reasonable standards for credit, restoring 203(k) for investors can provide a powerful tool to address problem housing one home and one neighborhood at a time.
A local investor-say, for example, a contractor whose crews have lost work due to the lack of new construction-could use a 203(k) loan to purchase a dilapidated home or two in a given neighborhood and restore it to the standards of other homes in the neighborhood. It could then be resold at a price commensurate with the other homes for a reasonable profit. The net result would be an improved home, improved property values, work for the contractor's crew and others, and one or two fewer homes on the REO list, all without any taxpayer expense.
The 203(k) loan provides the otherwise unavailable capital; local people in their communities provide the rest. In the beginning of the housing and mortgage crisis, it seemed reasonable to try quick fixes. At this point, it is time to look at the many little things we can do to keep people in their homes and provide foreclosure alternatives and tools for dealing with those homes we weren't able to save from foreclosure. 203(k) for investors should be put back in the tool belt so we can put those homes back together and put people back to work.
If you are an investor or regular purchaser you can utilize the 203K loan not only for homes that need a total rehab, but also for homes that may just have an outdated kitchen or bathroom. This is an excellent loan program for the savvy buyer.