The Federal Housing Administration (FHA) is seeking industry feedback on its proposed changes to its 203(k) Rehabilitation Mortgage Insurance Program.
The 203(k) program is designed to help borrowers purchase a home or refinance an existing mortgage and include the cost of repairs or rehabilitation into one new mortgage. According to the FHA, the proposed changes would update key provisions of the program by increasing flexibility for borrowers while decreasing operational burdens for lenders, 203(k) consultants and other program participants.
Specifically, the proposed changes encompass the following:
- Increasing the maximum allowable rehabilitation costs for the Limited 203(k) program from $35,000 to $50,000 ($75,000 in high-cost areas) to address increased costs associated with repairs;
- Allowing 203(k) Consultant Fees to be included in the financed mortgage amount for the Limited 203(k) program, as is currently permissible in the Standard 203(k) program;
- Increasing the allowable rehabilitation period for the Standard 203(k) program from six months to 10 months, and for the Limited 203(k) program from six months to seven months, to account for longer repair and rehabilitation timeframes common for more complex projects;
- Increasing the allowable initial draw amount to include up to 75% of material costs, versus the 50% permitted under the existing policy, so the borrower can make payment to a supplier or manufacturer; and
- Updating the 203(k) Consultant Fee schedule, including a streamlining of and substantial increases for, allowable fees for preparation of work write-ups and architectural exhibit reviews. FHA is also proposing increases to the maximum amount for other allowable fees, including the Draw Inspection Fee and the Change Order Request Fee. Proposed fee increases are designed to appropriately compensate Consultants for their role and incent more Consultants to participate in the program.
“The thoughtful responses we received from the industry through our February request for help in identifying barriers to program use were instrumental in the development of these proposed policy updates,” said Deputy Assistant Secretary for Single Family Housing Sarah Edelman. “We are looking forward to receiving feedback on the draft Mortgagee Letter so that we can move forward to final policy updates.”
