FHA to limit seller help at closing

FHA to limit seller help at closing
WASHINGTON – Jan. 23, 2012 – Acting Federal Housing Administration (FHA) Commissioner Carol J. Galante announced the latest in a series of steps designed to strengthen FHA’s Mutual Mortgage Insurance Fund. FHA issued a final rule governing its lenders and announced a new rule, which it has not yet published, to “reduce the maximum allowable seller concession from its current level to one more in line with industry norms.”

Under current law, a seller may contribute 6 percent toward the buyer’s closing costs, which include prepaid expenses, discount points and other financing concessions. FHA previously proposed a lower rate in July 2010 and says its soon-to-be-released rule proposal will be based, in part, on comments received following that recommendation. The new proposal will also have a 30-day comment period once published in the Federal Register. FHA says a final rule will become effective after all comments are analyzed.

Any rule change remains controversial. If a seller cannot contribute more than 3 percent or 4 percent to closing costs, a buyer must bring more money to the table. The change could impact a housing market still finding its feet after the recent meltdown.

FHA, however, says the change is needed to keep FHA funding viable. According to FHA, the 6 percent cap creates “incentives to inflate appraised value.”

Lender requirements

The tighter lender rules call for FHA-approved banks, which insure more than 80 percent of all FHA forward mortgage loans, to meet stricter performance standards.

HUD may require indemnification for ‘serious and material’ violations of FHA origination requirements. A lender must also show a low delinquency rate. FHA says it will monitor lender performance on an ongoing basis.

The new lender rules have been published by HUD and are available online.

© 2012 Florida Realtors®