Monday, March 31, 2014

Lots of Streamlined k Loans Changing to Standard 203k Lately


Prior to 2005 all FHA 203k loans were Standard 203k's then along came the Streamlined k in an effort to save the consultant's fee primarily... I have to laugh because according to HUD the Streamlined k loan accounts for about 98% of the problem 203k loans. mmm...

We save our clients several times our fee typically when they call us out on a project. We just had one where there were several contractor bids in place prior to calling us out... we took a look at the bids, gave our analysis and found there was about $35,000 in construction cost that we just couldn't account for, mmm... about the cost of a 10% contingency reserve.

The contingency reserve is typically 10% but it is also typically exposed as it belongs to the borrower or home owner if it isn't used. In any case was our fee justified? Of course. Who wouldn't pay $1000 more to save $35,000?

Now lately we have taken over about six new projects that were all to be streamlined k loans that for one reason and another became full or standard 203ks. The typical reasons are as follows:

1) Bid exceeds $34,200... oh, you thought it couldn't exceed $35,000 but we know better. Once it trips through the check valve and becomes a full 203k there is no going back. You can't just go back and take a few hundred dollars out of the project cost to make it a streamline k again... nope, it doesn't work that way.
What a consultant might do in this case is anylize the work and if an EEM (Energy Efficient Mortgage) can be piggyback it can be added into the mix and you can exceed the maximum mortgage amount of $35,000 by up to $8,000 under the right circumstances and still keep it a Streamlined k loan.

2) Structural issues... very typical. No one provided the Structural Pest Control report to the lender till it was about to close and it had damage to the rim joist and support system under the bathroom where a leak existed for a few years and rotted out the sub structure. Oops... it is structural therefore it is is a Standard 203k loan

3) The main roof support had a 24' post that had no footing, it was sitting on the floor but didn't even extend to a footing at ground level. Oops... structural again.