The Department of Housing and Urban Development is getting closer to issuing a proposed rule for public comment that restricts downpayment assistance on Federal Housing Administration single-family loans if the funds come from a person or company selling the house.This proposal would prevent nonprofit groups from cycling funds from sellers to FHA homebuyers. It essentially incorporates guidance in the FHA Handbook that downpayment and closing cost assistance cannot come from a donor that has an interest in the sale of the property. HUD data show that defaults on FHA loans with downpayment assistance from nonprofits are twice as high as on other FHA loans and the claim rate is three times as high. The HUD inspector general has been very critical of these downpayment assistance programs. The White House Office of Management and Budget has cleared the proposal, and HUD is expected to send it to Congress for a 15-day review period soon.

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