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More Lenders Offering FHA 203(k) Rehab Loans

With distressed and bank-owned properties often in need of work to make them move-in ready, more lenders are offering renovation loans backed by the Federal Housing Administration.

Irvine, Calif.-based Impac Mortgage says it will offer both standard and streamline FHA 203(k) loans through its consumer lending division starting in September.

Sherman Oaks, Calif.-based Prospect Mortgage is opening a correspondent lending division to help lenders serve customers in search of FHA renovation loans.

“With so many REO and foreclosure properties available today, renovation lending has grown from a niche product to one of the best financing solutions in today’s market,” said Doug Long, president of Prospect Mortgage Retail and Correspondent Lending, in a statement.

Correspondent lenders originate and fund loans in their own name and, after closing, sell those loans to other, larger lenders.

“Through our new correspondent division, we’re excited to share our experience — and our commitment to renovation opportunities — by helping lenders offer the 203(k) product to capture new business and help more homebuyers,” Long said.

The FHA Section 203(k) program insures loans made by FHA-approved lenders for the rehabilitation and repair of single-family properties. Prospect Mortgage’s new correspondent lending division will focus on funding FHA 203(k) loans.

Impac Mortgage — the “doing business as” name of Excel Mortgage Servicing Inc., a subsidiary of Integrated Real Estate Service Corp. — say’s it’s entered into a relationship with another company, RenovationReady, to provide services to home buyers who want to renovate or rehabilitate their homes.

RenovationReady, a joint venture between Granite Companies and Chadron Group LLC, provides property certification, loan fulfillment, and risk management services for banks and mortgage professionals originating renovation loans, including FHA 203(k) and Fannie Mae HomeStyle or HomePath loans.

“With 70 percent of America’s housing stock being built before 1992 and too many foreclosed properties damaged and uninhabitable, we see a tremendous opportunity to meet the demands of an underserved market,” said Impac Mortgage President William Ashmore in a statement.

Prospect Mortgage is backed by Sterling Capital Partners, a private equity firm with about $5 billion of assets under management and offices in Chicago, Baltimore, and Miami. Citing HUD data, Prospect Mortgage says it is the second-largest FHA 203(k) loan originator in the country.

“We’ve … achieved this position by focusing on our renovation lending platform and consistently supporting it with a team of sales and operations specialists with more than a quarter century of renovation lending expertise,” Long said.

In July 2011, Prospect Mortgage agreed to pay $3.1 million to settle allegations by federal housing regulators that the company entered into sham affiliated business arrangements in order to pay kickbacks to real estate brokers, agents, banks, mortgage servicers and others who referred business to it. The company denied the allegations and agreed to dissolve the affiliated businesses.