The Department of Housing and Urban Development this week reissued a proposed rule that would reduce by half the maximum allowable seller concessions in an FHA loan transaction to 3%.
Currently, the Federal Housing Administration allows sellers to kick in 6% of the sales price to cover the buyer's closing costs, discount points and upfront premiums.
The new proposal, which has a short 30-day comment period, also caps seller concessions at $6,000 or 3% -- whichever is greater. The original proposal issued back in July 2010 did not have a $6,000 cap.
HUD's proposal is designed to align the Federal Housing mortgage insurance program with Fannie Mae/Freddie Mac guidelines and reduce foreclosures.
But the National Association of Home Builders claims that FHA has a different mission than Fannie and Freddie. FHA has a mission to provide financing for homebuyers when credit is tight, especially in times of high unemployment, according to Steve Linville, NAHB's director for single-family finance.
In today's environment, seller concessions can make an owner's property more advantageous to the buyer than foreclosure, Linville told National Mortgage News.
HUD research has found that a higher incidence of default and foreclosure occurs on FHA loans where borrowers receive seller concessions north of 3%.
The new proposal specifically prohibits sellers from paying for the buyer's condominium or homeowner association fees, mortgage interest payments or mortgage payment protection plans. The comment period on the proposed rule ends March 26.
