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The Kankakee Regional Land Bank Authority (www.krlba.org) has been acquiring distressed homes and putting them back on the market in Kankakee, IL. The city has a home ownership rate of 51%, which is below the statewide average, and 75% of the housing stock was built prior to 1970. Most of the homes acquired by the land bank require moderate to substantial rehab, which makes them challenging for homebuyers to purchase directly.

HUD offers a purchase-rehab loan product called a 203k loan, which could be a solution for bridging some of the challenges facing Kankakee. The loan allows a borrower to finance the purchase and rehab cost of a home in one loan. The loan is underwritten based on anticipated post-rehab values. The interest rate is competitive for an FHA-insured product and the 203k is really the only loan program of its kind. Unfortunately, it is not a widely used loan program in Kankakee or anywhere, frankly.

In researching how KRLBA might use the 203k, we find that there are two major impediments. One, lenders are not familiar with it and don't write the loans very often. There is a learning curve on the underwriting side. More significantly, there are no 203K-certified consultants in Kankakee County. HUD requires a borrower using a 203k work with a 3rd party consultant to ensure the rehab is completed properly and to protect the homebuyer from unscrupulous builders. If there is no consultant, there can't be any loan.

Nationally, these two challenges are major obstacles to what could otherwise be an attractive program for banks and other development organizations, according to a report from the Consumer Federation of America. We've linked the report here: https://zurl.co/7aZQk . One solution for land banks like KRLBA is to retain staff that are or can become 203k certified. Not only would this help expand the market for these products, but it would provide a revenue stream for land banks and other organizations that end up managing the rehab projects for their buyers.

Expanding financing options for homebuyers is critical to allow more homebuyers to restore older, distressed homes. Without the ability to buy and rehab one of these homes, most of them will end up as investor-owned rentals.

Consumer Federation of America CFA is an association of over 250 nonprofit consumer organizations that was established in 1968

https://zurl.co/bo5kq

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https://zurl.co/Jyo00

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