PROVIDENCE, RI—Lenders were presented with a glimmer of hope last week that the Federal Housing Administration may be somewhat flexible when it issues a final rule later this year regarding seller concessions.
The FHA has proposed reducing the maximum share of a buyer's closing costs that sellers can pay, from 6% of the loan amount to 3%. And most lenders don't like it.
But Vicki Bott, deputy assistant secretary for single-family housing at the Department of Housing and Urban Development, indicated at the New England Mortgage Bankers Conference here that her agency will strike a "balanced approach" with the final rule.
"We received more than a thousand" comment letters on the various proposals the FHA has made to shore up its mutual mortgage insurance fund, Bott told the conference. "The vast majority" have been about the plan to halve seller concessions, presumably against it.
Bott, who is responsible for the direction and management of all the FHA's single-family mortgage insurance products, said that although loans with a high percentage of seller concessions are 1.3 to 1.5 times more likely to go into default, the agency realizes "there are a lot of things to consider."
One, she said, is that the impact of the proposal has a far greater impact on $50,000 loans than it does on $500,000 mortgages. Another is that a major part of a buyer's closing costs stems from one item, title insurance.
Ultimately, the HUD official told the conference, the agency must balance its need to maintain the long-term viability of the insurance fund with its core mission of serving the underserved.
"We want to continue to help the housing crisis," she said. "But at a 50% market share, low-downpayment, high-delinquency mortgages are not good for the FHA long-term."
Bott also said the agency would be getting tougher when looking into how lenders use their discretionary underwriting powers to approve loans that probably should have been turned down.
The intention, she explained, is to "nip in the bud" poor decisions that have a way of finding their way into the system.
"Discretion is great," Bott said. "But when it goes too far over the edge, it results in poor underwriting, and that kind of behavior will continue until someone notices."
