Professional Home Staging and Photography Blog: HUD Re-Issues Proposed Rules to Prohibit Seller-Funded Downpayment Assistance

HUD Re-Issues Proposed Rules to Prohibit Seller-Funded Downpayment Assistance

HUD recently proposed again regulations that would prohibit seller-funded downpayment assistance.

Generally, under current FHA regulations and guidelines, in order for a mortgage to be eligible for FHA insurance, a borrower is required to put down at least 3% of his own money in the transaction. However, that 3% downpayment could also be gifted from relatives, from his or her employer, or from a non-profit organization.

On June 16, 2008, the HUD re-published its proposed rule concerning seller-funded downpayment assistance gifts in connection with FHA mortgages. The re-published regulation, if enacted, would prohibit a borrower from receiving certain seller-funded downpayment assistance in order to meet the 3% requirement.  Notably, the regulation would prohibit downpayment assistance that "consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale: the seller, or any other person or entity that financially benefits from the transactions; or any third party or entity that is reimbursed directly or indirectly by the seller, or any other person or entity that financially benefits from the transaction."

Comments regarding the re-published rule must be submitted to HUD on or before August 15, 2008. The Notice also states that if, after reviewing the comments, HUD issues a final regulation, it will be made effective 180 days from the date of publication with regard to all mortgages involving properties for which contracts of sale are dated on or after the effective date.

the Notice of Proposed Rulemaking (NPRM) can be seen at edocket.access.gpo.gov/2008/pdf/08-1356.pdf

Hmmm. One wonders why they're trying to end the program through seller-assist when they themselves promote it. See http://www.hud.gov/offices/hsg/sfh/np/sfhdap01.cfm

 

 

 

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Lew Corcoran, ASP®, IAHSP, IAHSP-CB
Accredited Home Staging Professional
Professional Real Estate Photographer

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Comment balloon 1 commentLew Corcoran, ASP® • June 26 2008 02:26PM

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HUD's rational for banning certain downpayment assistance programs is that is "has resulted in disproportionately high borrower default and claim rates among FHA borrowers," which have "significantly jeopardized FHA's ability to maintain the solvency ... of its insurance fund and to facilitate the provision of affordable home financing to millions of American families." HUD cites research indicating that default and claims rates are 2 to 3 times higher in FHA-insured loans involving seller-funded downpayment assistance.

HUD also emphasizes that the propsed rule does not eliminate all privately-funded downpayment assistance.  Borrowers will still be able to receive downpayment assistance for an FHA mortgage from relatives, the borrower's employer, state, local, or tribal governments, labor organizations, or charitable organizations that do not rely upon "a party with a financial interest in the transaction for downpayment assistance" such as the home seller.

Posted by Lew Corcoran, ASP®, Home Stager & Real Estate Photographer (Scena Home Staging & Decora Photography) over 10 years ago

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