The 203(k) rehabilitation loan is a valuable HUD product that is underused, at a time when there is an affordable housing shortage.  A coalition of housing groups submitted comments on the Request for Information (RFI) regarding 203(k) Rehabilitation Mortgages to make this home loan program easier and more effective in rebuilding America’s aging housing stock

We submitted comments on the barriers regarding the use of FHA’s 203(k) Rehabilitation Mortgage Insurance Program to increase the safety and affordability of and equitable access to repairing houses available to low-to-moderate-income households.

We believe that the 203(k) program provides a critical financing opportunity to low-to-moderate-income individuals and households for an affordable home during this severe housing shortage crisis. In this context, Freddie Mac recently estimated that there is a shortage of 3.8 million homes, as production falls behind the demand of a growing population. 

Access to the 203(k) program could provide much-needed credit and purchasing power for buyers of color and in communities of color. 

We recommended the following:

  • HUD should train and engage the HUD-approved housing counseling agencies as 203(k) resources, given their work in underserved communities.
  • HUD requires 203(k) borrowers to contract with a housing consultant to oversee the bidding and construction process for loans over $35,000.  This valuable role provides consumer protection and assures quality work.  However, there is a significant shortage of consultants, especially as more retire. HUD should start an apprenticeship program to train the next generation of consultants.
  • HUD should make a commitment to a robust training program to develop cohorts of construction consultants in every part of the country, including rural areas.  Special efforts should target centers for independent living and organizations serving people with disabilities and seniors. 
  • HUD should increase public awareness for this program by working with state housing agencies, local community organizations, HUD-approved housing counseling agencies, lenders, real estate agents, fair housing organizations, and other local entities to inform households about this 203(k) program. 
  • FHA should partner with land banks to improve the 203(k) program. Land banks serve communities with an inventory of vacant, abandoned real estate. Working with land banks to explore how to better serve the acquisition and rehab mortgage needs of underserved borrowers has the potential to jump-start the 203(k) program and move the needle on affordable homeownership. 
  • Waiving the upfront FHA mortgage insurance fees would have a positive effect on affordability. We recommend starting a pilot program to waive insurance in underserved areas to help house underserved communities.
  • Non-occupying co-borrowers should be allowed in 2, 3, and 4 family properties where there is at least one owner-occupant. 
  • This program can be restructured to be more accessible and usable for communities of color, people with disabilities, marginalized populations, and first-time homebuyers across the United States. 
  • Maintaining fraud prevention and consumer protection while enhancing accessibility of the program; 
  • Loan underwriting should not be based on projected energy savings, which often do not materialize and could jeopardize homeowner sustainability; 
  • Homeowners who have been harmed by a contractor or lender should have clear avenues to obtain restitution;
  • Data evaluation is an important part of the program, including demographic data, loan performance, contractor issues and energy efficiency.

Thank You!

We thank the coalition of organizations for their assistance on submitting these comments:

  • Americans for Financial Reform Education Fund 
  • Center for Community Progress 
  • HomeFree-USA 
  • National Community Reinvestment Coalition (NCRC) 
  • National Community Stabilization Trust (NCST) 
  • National Consumer Law Center (on behalf of its low-income clients) 
  • National Fair Housing Alliance 
  • National Housing Law Project 
  • National Housing Resource Center
  • UnidosUS

If you are interested in discussing 203(k) loans, contact:

Cristy Villalobos-Hauser
Housing Policy Director
National Housing Resource Center
cvillaloboshauser@hsgcenter.org