A new article in the Sun Sentinel today suggested after extensive study that it was not proven that Chinese drywall is a health hazard even though people could feel and smell a difference in many of the homes. We will definitely continue to hear more about this issue.
Chinese Drywall is a massive problem, however renovation loans may help. It is also may be a long term problem. It is being found in many locations across the country. Florida and Louisiana are two states that seem to be hit the hardest at this point. It seems that the hurricanes from 2005 along with the housing boom caused a huge shortage in available drywall. It may have been partly lack of supply and partly cost. According to some accounts the Chinese drywall was going for as little as $3.00 per sheet compared to $22.00 for US drywall. If it was due to price that builders used as a deciding factor it seems to have been a very bad choice indeed.
Not only new homes built during this period were built with Chinese drywall. Many home remodels, renovations and homes that needed repairs due to the hurricane damage may have also been performed with this possible dangerous material. With the housing boom along with the homes damaged by hurricanes a perfect storm was created. It is estimated over 100,000 homes may be involved. Class action lawsuits are now making their way through the courts. One includes the Lt Governor of Florida Jeff Kottkamp.
I first became aware of the problem while doing a weekly radio show in Fort Pierce Florida in the fall of 2008. Word of this problem came up on the show from local contractors who were made aware of HVAC systems that were failing multiple times. They also noticed that many of the systems had black corroded copper pipes that were way beyond normal wear and tear. It seemed entire subdivisions throughout Southwest and Southeast Florida. We were broadcasting the radio show from St Lucie county and it was pointed out that this area had many areas that may be effected by the drywall. The panel of the weekly radio show included an attorney and TOP REO agents in the market. Since they were experiencing a surge in foreclosures at the time, we pondered what the effects would be on homes already with dramatic price drops. It looked like now homeowners would suffer another hit since this problem might make the homes they were living in unsalable at any price.
Moving to today, the problem is growing and the confusion is growing as well. Many builders are moving people out and putting them up in other housing while the Chinese drywall is being ripped out and replaced. In addition to the drywall the pipes and HVAC systems are being ripped out and replaced as well. One potential solution to the problem is to use the FHA 203k renovation loan or the conventional renovation loan. I have been talking to local builders who need to sell properties and since the price is so much lower than market value due to the need to spend so much on renovation by any potential home buyer, providing funds for the renovation may be a way to increase the buyer pool away from just a cash buyer as the only option. Since the repairs will be extensive the FHA 203k Streamline may not be the answer since the amount of the renovation can only be $35,000 under the streamline 203k. The amount of work needed will be much greater than that amount in my opinion.
This topic will be with us for years and years to come. Already the contracts for sale in Florida contain verbiage on potential Chinese drywall. Unless every house built with this material was bulldozed the extent of this problem will last decades.
This Blog is my opinion and does not represent the views of my employer Wells Fargo Home Mortgage in any way.
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