The Office of the Comptroller of the Currency is encouraging national banks to take a look at the FHA 203(k) program, which allows homebuyers to finance the purchase along with the cost of repairs and renovations in a single transaction.
“In today’s market, 203(k) loans help banks reduce the inventory of foreclosed homes and deteriorating homes across the country,” according to OCC’s Community Development Insights publication.
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“The potential first-year fee income, depending on market conditions, for originators with the capacity to originate, service and sell pools of 203(k) loans ranges from an estimated $6,100 to $8,600 on a $250,000 loan,” the Insights article says.
For lenders that don’t have the servicing or pooling capacity, they can sell 203(k) loans to other lenders or aggregators. Through this process, the sale can generate $1,875 to $3,750 on a $250,000 loan.
But not many lenders make FHA-insured 203(k) loans. Just 21,390 FHA 203(k) loans were originated in 2012 totaling $1.7 billion.
The OCC article points out ways lenders can use Community Development Block Grants and Neighborhood Stabilization Program funds to help borrowers acquire and renovate foreclosed properties.
For example, CDBG funds can be used for downpayments, credit counseling and some rehabilitation costs.
“Very few conventional mortgage and rehabilitation loans offer equivalent flexibility, guarantees and return,” OCC says.
