HUD eyes changes to 203(k) renovation loan program to boost housing supply

Officials at the U.S. Department of Housing and Urban Development (HUD) are signaling potential changes to the Federal Housing Administration (FHA) 203(k) renovation program, aiming to increase its utilization as a tool to address housing affordability and supply constraints.

Matt Jones, the FHA’s deputy assistant secretary in the Office of Single Family Housing, noted that a scarcity of HUD-approved consultants is a significant obstacle for the standard 203(k) program. He expressed a desire to review and improve the consultant issue while maintaining existing safeguards. Jones indicated that the standard 203(k) program currently assists only 3,000 to 4,000 housing units annually, a small fraction of the FHA's overall single-family mortgage activity.

The 203(k) program allows borrowers to finance both the purchase or refinance of a home and its rehabilitation costs into a single FHA-insured mortgage. This approach is seen as a method to update older housing stock and bring it back into productive use, complementing new construction efforts to expand housing supply. The FHA offers the standard 203(k) for major rehabilitation projects and the Limited 203(k) for smaller projects, allowing up to $75,000 for repairs and upgrades.

In June, the FHA announced an update to the Limited 203(k) rules, permitting up to four contractor draw requests. This change aims to simplify the process for smaller projects, which are particularly important in older and lower-priced housing markets. Jones stated that this adjustment smooths the draw schedule and serves as a risk mitigation measure by allowing contractors to receive payments in smaller installments.

Ginnie Mae President Joe Gormley, who is slated to take over the FHA commissioner role pending Senate confirmation, commented that renovation products are currently underdeveloped relative to their potential, especially in urban areas. He indicated that efforts are underway to unlock their full capabilities.