RISMEDIA, November 3, 2009—We’ve heard a lot about the ‘perfect storm’ over the past year—appreciating home prices, plus loans gone bad, plus unemployment equals a devastating downturn for real estate. But there’s another perfect storm you should know about: distressed properties, plus a growing pool of buyers, plus HUD’s FHA 203k program equals increased homeownership and brand-new business for Realtors. To spread the word about 203k—an FHA loan that enables home buyers to purchase and renovate properties—industry veterans Dennis and Teresa Walsh have launched RE-buildUSA, a designation/membership program that turns agents into 203k Specialists. Together with home improvement retailer Lowe’s, RE-buildUSA creates some much-needed hope and opportunity for Realtors and would-be home buyers alike. Here, the Walshes and Lowe’s Vice President of Consumer Marketing Mark Malone explain why this is one storm that will lead to brighter days.
Maria Patterson: Please begin by explaining what the 203k program is.
Dennis Walsh: The FHA Section 203k program was originally introduced by HUD in 1978 as a program to rehabilitate and repair single-family homes. HUD considers this an important tool for revitalizing neighborhoods and increasing homeownership. What’s unique about the 203k is that it’s a single mortgage loan that provides funds to purchase a home and make repairs and improvements. It’s intended for owner-occupants to purchase and renovate one- to four-unit residential and mixed-use properties. A simpler version, the Streamline 203k, was introduced in 2005. This version offers less documentation and lower loan fees for renovations that don’t exceed $35,000.
MP: Why does today’s market present the ‘perfect storm’ conditions for the 203k program?
DW: The reality is, the market has changed and, as always, change brings new opportunities. First, look at all the distressed properties out there that need repair and renovation. So many of these homes haven’t been properly maintained and others have been damaged somewhere along the line—the furnace is missing, the kitchen is gone, or the carpeting rolled up and carried away.
Secondly, conventional financing is simply out of reach for the majority of people. Without 20% or 25% to put down on a home and a perfect credit score, most Americans can’t get a conventional loan. However, with less-than-perfect credit and as little as 3.5% down, you can get an FHA loan, including the 203k. FHA financing opens up home-buying opportunities for many more people.
Teresa Walsh: Keep in mind that with FHA financing, it’s critical that the house meet certain code standards—if it doesn’t, you can’t get an FHA loan. There are lots of homes out there that could be sold if the needed work was done. And most people recognize that homes needing repair and updating are some of the best deals available—great homes in great neighborhoods that need a little love.
So the question is, how does a buyer take advantage of a great deal on a home that needs work done? Where does the money come from to make the improvements? Some might run up charge cards at higher interest rates, or tap into savings or even retirement funds, but that’s usually not the best financial decision. The 203k loan offers an ideal solution.
MP: Given these advantages, why haven’t 203k loans been more prevalent?
DW: There was no need to go through the process of FHA loan approval a few years back. We went through a long period of time where mortgage money was easily available to almost anyone who could fog a mirror—so use of FHA financing all but disappeared. It’s a whole new world now and, as a result, the use of FHA financing has grown to record levels.
It’s also about awareness. You may have noticed that the U.S. government has not won many marketing awards! The FHA has had no mandate or funds allocated for marketing the 203k loan or providing training and support to real estate professionals.
There’s also the fact that the 203k approval process is also a little more complicated than a conventional loan. For example, you’re required to secure renovation costs from an established, licensed contractor and deliver a package of the proper paperwork to the lender to secure FHA approval. This can be challenging for the average buyer, as well as agents without the training and resources.
MP: Is an FHA loan a government loan? Will an increase in FHA lending add to the country’s deficit and overall economic problems?
DW: The great news for taxpayers is that this is not a program that requires the federal government to allocate billions of dollars of support. The FHA does not actually provide mortgage funds, but instead provides lenders with insurance that protects them against losses in the event of homeowner mortgage default. This reduces the lenders’ risk, allowing them to offer loans to buyers with less-than-perfect credit and with lower down payments. Lenders must follow specific guidelines established by FHA to qualify for this insurance.
The FHA is funded entirely by proceeds from mortgage insurance included in the mortgage payments. As a result, the FHA is the only government agency that is entirely self-funded—operating at no cost to the American taxpayers! Additionally, the home construction and community development driven by FHA programs stimulate the economy through job creation, tax revenues and more.
MP: What’s the concept behind RE-buildUSA?
DW: RE-buildUSA is designed to simplify the 203k loan process for everyone involved—to drive greater awareness, provide training and a support platform to allow real estate professionals to work most successfully with buyers, lenders, contractors and inspectors.
Realtors involved in the program receive training to earn a 203k Specialist designation, a membership program for ongoing support and a technology program to facilitate 203k projects. We will work with Lowe’s to provide premier service to RE-buildUSA members and their customers.
MP: Mark, why was it important for Lowe’s to get involved with RE-buildUSA?
Mark Malone: We, at Lowe’s, fully understand and empathize with each agent out there trying to keep and grow their business in today’s economy. We are here to support their business any way we can, and 203k presents new opportunities for Realtors to build business. We want Lowe’s to be the back-pocket resource for all things home improvement, so it’s a natural for us to be involved in RE-buildUSA.
MP: Has RE-buildUSA officially launched?
DW: The first phase of our website, re-buildusa.com, is now live, with additional development under way. We’re scheduled to be launching the password-protected membership area some time in December.
To become a 203k Specialist, an agent must complete approximately five hours of interactive self-paced coursework online. They then gain membership in the RE-buildUSA program, which helps them reach consumers interested in the 203k program, plus continued training and support.
MP: What does an agent receive for becoming a member of RE-buildUSA?
TW: Agents will be featured in an online membership directory so that home buyers interested in working with a 203k Specialist can go to RE-buildUSA.com and find them. Members will also be able to identify themselves as a 203k Specialist on their websites and in their marketing. Members can access the RE-buildUSA membership site to download forms, checklists and sample marketing materials, as well as forums and a blog, highlighting up-to-date news, trends and best practices. RE-buildUSA is a one-stop shop for members, providing them with access to marketing materials, inspectors, lenders and a direct connection to Lowe’s to help their customers coordinate the bidding and renovation activities.
MP: If I’m a real estate professional, why do I want to become a 203k Specialist?
DW: We’re showing real estate professionals how the 203k program works because it will help them sell more homes and help more Americans move into homeownership. We’re also excited that we can work together as an industry to reduce the inventory of foreclosed homes and get our housing industry back to greater stability.
TW: When the market started to turn, a lot of agents steered away from listing foreclosures because it’s difficult business. There are a lot of out-of-pocket expenses, loads of paperwork, security issues and other challenges. Many other agents steered away from short sales because they didn’t want to deal with those headaches. Those, however, who recognized the opportunity and jumped in with both feet, are reaping the benefits today. So, I advise agents not to sit back and pass up the opportunity that now presents itself with the 203k program. Right now, the door is wide open all across America.
DW: I think it’s also important to recognize that while this is a here-and-now opportunity, it’s also a long-term opportunity as well. Many people are not aware that more than 80% of the homes in America were built before 1990—that’s over 100 million homes that are 20 years old or older. Almost every one of these homes need some amount of repair and updating. It’s our belief that almost every single real estate professional is going to need the education we provide through RE-buildUSA to offer expertise in the 203k as well as other similar loan programs that come along in the future.
MP: How is Lowe’s helping Realtors in today’s difficult market?
MM: Lowe’s has three main ways in which we help Realtors close more business. First, our free marketing tool, available to all Realtors, allows agents to send 10%-off coupons to their clients before they buy to help them envision how they can turn that house into a home. Second, we know what an effect foreclosures and distressed properties have had on housing and we want to empower agents to get those homes fixed up as quickly and cost effectively as possible. Realtors can download a 10%-off coupon to pass along to a trusted contractor or use it themselves to get these distressed properties to a presentable and, hopefully, sellable state. Third, and probably the most exciting, RE-buildUSA will help deliver a turnkey solution for agents who have buyers utilizing the 203k loan.
MP: If I’m a consumer, why do I want to work with a 203k Specialist?
TW: First off, most consumers don’t really understand the program, what improvements can be made, how to find a lender, steps in the process…there are an awful lot of questions that need to be asked and answered. A RE-buildUSA 203k Specialist will help them understand 203k details and options, evaluate available properties, compare neighborhoods and introduce them to an FHA-approved 203k lender. They’ll also coordinate the appropriate home inspection and help them evaluate the renovation work and the potential impact on the value of the home.
Just as in short sales and foreclosures, home buyers find it very difficult to wade into these waters without the help of an expert.
MP: How will a buyer benefit by choosing to work through Lowe’s for their 203k improvements?
MM: Safety, satisfaction and savings. All of Lowe’s installers are licensed*, bonded and insured so you can trust our team with the safety and the security of your buyer’s new home. We also stand behind the quality of our work with a 100% satisfaction guarantee. Don’t forget, the everyday low prices of the product in our stores insure home buyers will get the most value for their hard-earned dollars.
MP: How will working with a 203k Specialist benefit the lender?
DW: Lenders tell us all the time that it’s very difficult to work with a consumer or agent who doesn’t understand the program. They also agree that working with real estate agents supported by RE-buildUSA training and resources will make life much easier for them—leading to smoother loan approvals and closings. Because of this, a number of lenders are already gearing up to work more closely as partners with RE-buildUSA members.
MP: Why is the 203k program a critical program for today’s particular market conditions?
MM: We know that this is a different real estate landscape than we have ever dealt with before. Consumers are not in the same mindset as three or four years ago. More first-time home buyers are entering the market than ever before and we all need to be ready to help them learn how to make a house a home. Realtors are repositioning themselves to be even more of a trusted resource for home buyers, many of whom are gun-shy as they re-enter the market. Lowe’s is committed to the partnership we have with the National Association of Realtors and now with RE-buildUSA. We want to support Realtors in any way we can.
DW: I hear a number of agents telling buyers and sellers that we’re in a “correcting market” and waiting for things to return to “normal.” So what does the typical buyer or seller do? They’ll most likely sit back and wait until the market’s corrected!
We’re in a different market—a new market with new realities and new opportunities. Agents who are the first on the block to become 203k Specialists can take advantage of these opportunities right here, right now—and position themselves for the future as well. RE-buildUSA is about all of us working together to solve today’s problems and making a long-term investment in the stability of America’s housing industry and economy.