MBA Letter Urges Changes to HUD 203(k) Consultant Policy

The Mortgage Bankers Association, in a letter to HUD, recommended the department make changes to its FHA Section 203(k) program to accommodate more flexibility in attracting consultants for repair of single-family properties.

Specifically, MBA urged HUD to allow consultants to charge “reasonable and customary” fees so that the program can remain competitive, and urged HUD to make 203(k) consulting fees financeable.

The FHA Section 203(k) program governs rehabilitation and repair of single-family properties; the Limited 203(k) program governs property repairs and improvements. An FHA-approved 203(k) Consultant is required for all Standard 203(k) mortgages and may be used for all Limited 203(k) mortgages.

FHA 203(k) Consultants have a wide range of responsibilities related to 203(k) transactions. These responsibilities include conducting preliminary property inspections, developing work write-ups and cost estimates, detailing the work being performed based on project proposals, monitoring rehabilitation or repair progress, and conducting final property inspections for work completion, quality of workmanship, and conformity to local codes and ordinances. Subsequently, qualified Consultants with a significant amount of knowledge and experience are critical to a successful 203(k) program.

MBA noted the 203(k) Consultant Fee Schedule has not been updated since 1995, resulting in stagnant fees that have not been adjusted for inflation. “Current restricted fees have minimized the number of qualified consultants who are willing to work on 203(k) loans,” wrote MBA Senior Vice President of Public Policy and Industry Relations Stephen O’Connor. “This has subsequently resulted in increased turn-around times and delays to the loan process.”

To remedy this MBA recommended HUD allow Consultants to charge fees that are reasonable and customary in the market for similar work performed by professionals with similar qualifications. “This will ensure a level playing field among Consultants and other comparable professions, such as appraisers and FHA fee inspectors who are already paid at the prevailing market rate, and will allow Consultants to receive sufficient compensation for their work,” the letter said. “Market-based fees will also better accommodate for regional expense differences and provide more pricing latitude if market pricing varies in the future. MBA believes that a market pricing structure will not pose additional risk to HUD as existing safeguards such as the mortgage calculation provide protections for the borrower and HUD, while reliance on the market rate and regional differences will mandate reasonable fees.”

MBA also recommended 203(k) Consultant fees be financeable. “This would not only assist in delineating costs for the borrower, but ensure that the lender and borrower are able to maintain the necessary funds to cover all required costs throughout the project to successfully achieve the desired results,” the letter said.

MBA suggested that these financeable fees remain uncapped to maintain the current fee flexibility based on variations in the market as HUD mandated financing caps would require monitoring and periodic adjustments by HUD.

Additionally, MBA recommended HUD allow borrowers the option to finance the cost of a 203(k) Consultant on a Limited 203(k) transaction. “Limited 203(k)s often require borrowers to review project plans and costs themselves or to rely on their contractor to describe the project, materials, and labor,” the letter said. “The option to finance a 203(k) Consultant would provide the FHA borrower with additional options to utilize the added value of a Consultant, who operates as a disinterested third party with the ability to provide the borrower, lender, and ultimately FHA with better security, control and review over the project.”