Officials at the U.S. Department of Housing and Urban Development (HUD) are signaling changes to revive the underused Federal Housing Administration (FHA) 203(k) renovation program as a tool to tackle housing affordability and supply constraints.
Matt Jones, the FHA’s deputy assistant secretary in the Office of Single Family Housing, said that a shortage of HUD-approved consultants is limiting the reach of the standard 203(k) program.
“When we look at the standard program, obviously the lack of HUD consultants across the country has been a headwind for the ability to do that,” Jones said during the Mortgage Bankers Association’s Annual Convention and Expo on Tuesday in Chicago.
“We’d love to look at the consultants issue and see if there’s a way we can make some improvements there while retaining the same safeguards that are provided through using a consultant,” Jones said.
Jones, who was nominated by President Donald Trumpfor the role of FHA commissioner, said the 203(k) program currently reaches only 3,000 to 4,000 units a year, a small share of FHA’s overall single-family footprint.
The 203(k) product allows a borrower to purchase or refinance a home and roll the rehabilitation costs into one FHA-insured mortgage. It’s viewed as a way to update aging housing stock and return it to productive use rather than relying solely on new construction to grow supply.
FHA offers the standard 203(k) mortgage for major rehabilitation and repair of single-family properties.
Under another option, the Limited 203(k) — which permits homebuyers and homeowners to finance up to $75,000 into their mortgage for repairs and upgrades — FHA announced in June that it would allow up to four contractor draw requests. The goal is to make it easier to complete smaller projects, which are critical in aging and lower-priced markets.
Jones said the change “smooths out the draw schedule and also is an important risk mitigant for us to make sure contractors are receiving it in smaller chunks.”
Ginnie Mae President Joe Gormley, who is expected to hand the FHA commissioner’s role to Jones — who is awaiting Senate confirmation — said the renovation products remain underdeveloped relative to their potential.
“We’re looking, trying to find ways to unlock it. In urban contexts, there’s a lot of potential there,” Gormley said.
