I attended my first town hall meeting with Mayor of Kansas City Missouri, Mark Funkhouser. I am impressed with his efforts. This man truly loves Kansas City and faces an uphill battle keeping the city viable.  Mayor Funkhouser began outlining his plans to improve communities in and around Kansas City. His “School First” program focuses on addressing safety, infrastructure, transportation, reducing crime and property code enforcement plus awareness in the community. I noted in reading the White Paper handout that quality, affordable housing was not mentioned in the mix? Yet, the Mayor said on a local Radio Talk Show (Shannin & Parks) that “Kansas City has 10,000 homes that are vacant and abandoned…”

The missing piece in all of this is the private sector affordable housing plan.  A feasible plan for affordable housing is necessary to make the Schools First Initiative a success. “To build a safer community where children can walk to school”; we would first need to build up the community itself. Neighborhoods and individual homes or this initiative may not get off the ground.  I know the Mayor is working on this; however, I wonder if it would be easier to get the monetary support needed for infrastructure when the public see’s homes being repaired and changed from vacant/abandoned to families living in them.  Once they see the homes coming back then support to pay for services will be more forthcoming and our citizenship will be more enthusiastic about the “Schools First” initiative.  I fear now we have more verbal support vs actual dollar support arguments. Where would this money come from?

Money for improving the housing stock can come in the form of assumable FHA loans.

The Magic Bullet-The Investor 203k.

• What is a 203k? 203K  Power Point Presentation The FHA Section 203(k) program is the HUD’s primary program for the rehabilitation and repair of single family properties. It is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.
  Advantages:
  * Bring these homes back on the tax roles
  * Provide quality Affordable Housing
  * Stimulate the Local Economy
  * Increase Home Ownership
  * Improve Neighborhoods
  *Utilize private sector to perform the task
  * No COST to the City, County, State or Federal Government

Here is some Background:

When our economic engine was moving at full speed HUD stopped this program by putting a moratorium on it because  of abuse in certain areas. Someone abused it so it was stopped for everyone. Like most government legislative and regulation actions they in essence “throw the baby out with the bath water!” I used this program in the mid 90′s in and around the inner city. It was a great success because we totally rehabbed the property, made it safe and energy efficient and put people in good FHA loans with a fixed payment. A fixed payment is needed for most if not all low to moderate income families. People were working, money was being made and this was a program that I know improved the inner city and motivated people to stay in the city.  Before this program was put on a moratorium it was a great vehicle to help keep home owners in the inner city. Stopping the 203k for investors helped support and spur the “Sub-Prime” industry especially in low to moderate income communities.

Then, Wall Street started the Sub-Prime Loans to fill gaps and find a mortgage programs to compete with FHA loans. When they put the moratorium on the 203k; the Sub-PrimeLoan was designed  to capture the low to moderate income buyer and steal their equity every two to three years when the loan  adjusted to a much higher interest rate. The goals here were to keep refinancing the home with initially easy qualifying standards. The loan would adjust significantly after 2-3 years forcing the consumer to either pay higher interest or refinance and give up equity immediately to have a normal payment. Either way Wall Street was going to make money in the mortgage industry. One of the unsung hero’s was FHA because it was a safer loan for consumers, but since the Sub-Prime Loans were so easy to obtain they became the loan of choice over an FHA loan. Now in 2010 after the implosion of the Sub-Prime Industry FHA is again the loan of choice for most lenders and buyers.  They now finance about 70+% of all loans.

One of the best FHA programs especially for the inner city was the investor FHA 203k program. It gave omeowners a chance to have a completely renovated home, at current market rates, and on a fixed rate vs the sub-prime adjustable rate.

Now  is time to bring this program back coupled with the “Schools First” initiative we can bring back people to the urban core. This program allows investors to secure the FHA loan first, repair the home and allow consumers to assume the loan. By Assuming the loan the buyer only has to take over the payment and not have to come up with a down payment. Down payment and closing costs are a major obstacle especially in the low to moderate income home buyers.

AW Pickel President of Leader One Financial says that “affordable housing is the key to making this initiative work” and he sites several studies supported by Fannie Mae including “Increasing Access to Low-Poverty Areas by Creating Mixed-Income Housing” by Diane L. Houk, Erica Blake and Fred Freiberg

“Increasing Access to Low-Poverty Areas by Creating Mixed-Income Housing. 2007. By Diane L. Houk, Erica Blake, and Fred Freiberg. New York: Fair Housing Justice Center.
This report examines 12 case studies of mixed-income housing located in low-poverty neighborhoods that previously lacked affordable housing options. The authors find that the factors most likely to spur mixed-income development in low-poverty neighborhoods are supportive state or local policies, land acquisition opportunities, the desire to create mixed-income housing as a community development strategy, and fair housing remedy mandates. Recommendations include expanding development and litigation tools and strengthening infrastructure for mixed-income housing.”

Call and write the Mayor and your congressman and help us advocate for this change that could help turn around the housing industry as well as boost the economy.  Subscribe to my blog to keep up with these important initiatives.

Steve Hillyer