Lenders are urging the U.S. Department of Housing and Urban Development to let investors take advantage of a government-insured program that finances home improvements on rental properties, which previously have been banned from the program due to abuse by nonprofit organizations, lenders and others, Mortgage Daily reported June 8.

Section 203(k) rehabilitation loans are insured by the Federal Housing Administration. The program enables the rehabilitation and repair of single-family properties; however, a suspension on the program bans the use of 203(k) loans for rental properties and properties used as short-term investments.

“The moratorium was put in place because of serious waste, fraud and abuse to the program perpetrated by unscrupulous nonprofit organizations, dishonest lenders and others in the mortgage industry in the mid-1990s,” the Mortgage Bankers Association wrote June 5 in a letter to Federal Housing Commissioner Carol Galante, Mortgage Daily reported. “MBA believes that all REO properties should be eligible for the program; however, we would also support a phase-in approach that would begin with only FHA properties being eligible for the program.”

According to the MBA, allowing investors to participate in the program would be helpful to communities because it would reduce the number of real-estate-owned properties. As a result, home prices would stabilize, the number of vacant properties would be reduced, the supply of affordable housing would be increased and more job opportunities would be created, Mortgage Daily reported.