HUD May Ban Certain Downpayment 'Gifts'

The Department of Housing and Urban Development wants to ban all downpayment "gift" assistance provided to homebuyers by sellers and, in some instances, nonprofits working with sellers.Under a proposed rule, the ban would apply only to mortgages insured by the government. A spokesman for the Federal Housing Administration said gifted downpayments from sellers represent one-third of its business, but a "higher percentage of defaults" at the agency. HUD would ban downpayment gifts before and after a sale if the money comes from the seller "or any other person or entity that financially benefits from the transaction" or from "any third party or entity that is reimbursed directly or indirectly by any of the parties" to the sale of the house. The ban, if approved, would affect nonprofits such as the Nehemiah Corp., Sacramento, Calif., which pioneered gifting programs a decade ago. HUD says it believes that in some cases, downpayment gifts wind up being added to the sale price of the home and covered by a larger mortgage amount. The rule was slated for publication on May 11. The industry and public have 60 days to comment.