Monday, October 1, 2007

FHA To Prohibit Seller Financing

The FHA is about to publish new rules that prohibit seller financed down payment assistance programs. With such programs, sellers can give money to charities, which, in turn, help buyers with their down payments, for a certain fee. The IRS has found that many of these deals are abusive to borrowers, because the fees are often included in the higher price charged. Studies have shown that borrowers using the assistance programs are twice as likely to default on their loans as those who don’t receive assistance. Because seller financing is involved in 30 to 50% of FHA loans, there’s some fear that the new rule will keep some of the borrowers out of the market. Officials at the Mortgage Bankers Association and the AmeriDream charity are against the ruling. The new rule will go into effect 30 days after publication.


Anonymous said...

The final rule HUD is reported to issue today will not go uncontested. The facts that HUD uses as its arguments will very likely be diputed in the courts.

The GAO study that HUD uses in its arguments do not report that defaults double, the sales price of the house is validated by HUD approved appraisers, and the list goes on.

Hundreds of thousands of deserving homebuyers have been helped with privately funded downpayment assistance programs. HUD should work to keep them, not eliminate them.

Angelina Colquit said...

yes, I'm aware of these facts. Seller financing is not the problem, fraud and unfair lending practices are. Top regulators seem to change their minds all the time these days, so we'll see what happens.