Re-Open HUD 203k Program to Investors
The troubled housing sector needs some new life breathed into it. Housing values are still anemic, according to the Standard & Poors / Case-Shiller housing index. Based on their data the average home prices are now only up to their late 2003 early 2004 price level. Add to that, the dramatic increase in foreclosures over the past six months, it will take a very long time for the housing industry to recover. One prescription could be lifting the moratorium on investor participation in the Housing and Urban Development (HUD) 203k program.
What is the HUD 203k Program?
The HUD 203k program is mortgage insurance for the rehabilitation and repair of single-family homes. In a typical home purchase a lender requires that all improvements be completed before entering into a long-term mortgage commitment. Under the HUD 203k program a homebuyer can secure a mortgage that is federally insured for both acquisition and rehabilitation of the housing unit. The program allows for its use for the purchase of individual condominium units, single-family homes, two to four unit buildings, and mixed-use buildings. With respect to mixed-use the funds can only be used to rehab the residential portion. The owner has to occupy one unit.
Since 1996 a moratorium has been in place that precludes investors from utilizing this program to rehabilitate housing. In the current housing environment, allowing investors to participate in the 203k program might clear out some of the nation’s weaker or troubled housing units.
Let Investors use the Program to Improve the Housing Market
Due to the current economic conditions with weak job growth, little or no income growth and overall economic growth languishing, there is increase in what housing demographers call the permanent class of renters. Why not deploy an additional tool, the 203k program, to improve the nations housing stock by real estate investors. Yes, it is sometimes troubling to allow the government to get more involved in the housing sector. However, the ability to introduce new capital in areas where the housing is, for lack of a better term, crumbling, could improve broad areas in some of our nations cities. To address the concern of too much government involvement, Congress and HUD could sunset any legislation to allow investors use of the 203k program.
Opening back up the HUD 203k program to investors might just move the overall housing market to a better place, thereby improving this economic sector that makes up a good portion of our economy.
Tags: 203k program, Housing market, HUD, real estate investors
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