Is HUD Gambling With the Housing Market?

On July 15, 2010 (75 FR 41217), HUD issued a notice seeking comment on three initiatives that HUD proposed would contribute to the restoration of the Mutual Mortgage Insurance Fund (MMIF) capital reserve account. On September 3, 2010 (75 FR 54020), HUD published a follow-up final rule implementing the proposal to introduce a minimum credit score and reduce the maximum loan-to-value ratio for FHA single family mortgage insurance. HUD is in the process of implementing another notice tightening the underwriting standards for mortgage loan transactions that are manually underwritten.

This announcement addresses the third proposal; namely, the proposal to reduce the amount of closing costs a seller may pay on behalf of a home buyer purchasing a home with financing insured by the Federal Housing Administration (FHA). HUD’s ruling will likely change the allowable seller concessions to from up to 6% of the sales price of a home to 3%, or $6,000, whichever is greater as not to penalize lower priced homes, the very market that FHA loans were meant to serve.

Alex Clavijo, a loan officer with Gateway Funding urges home buyers, home sellers and Realtors alike to call their state housing representative. Clavijo said, “As FHA originator, where FHA financing is my bread and butter, I can tell you that HUD’s ruling reducing seller’s concessions would not be beneficial to first-time home buyers as their biggest obstacle to buying a home tends to be coming up with the down payment money, let alone closing costs.” Angie Perez, Realtor and Broker Salesperson for Weichert Realtors in Edison NJ said, “More than 85% of my sales transactions have some form of seller’s concession, albeit a closing cost credit for unforeseeable home repairs. A reduction to this credit is a blow to the industry given FHA’s recent announcement of Monthly and Upfront Mortgage Insurance Premiums increasing on April 1st.”

“The last thing the real estate industry needs is another adjustment period,” said Perez who commented that on the brighter side, real estate investors and cash home buyers are reaping the rewards of lower real estate prices and the increasing demand for rentals properties.”

FHA seller’s concession reduction comment period is open till the end of Marc26, 2012 of which you can voice your opinion at

FOR FURTHER INFORMATION CONTACT: Karin Hill, Director, Office of Single Family Program Development, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW., Room 9278, Washington, DC 20410; telephone number 202-708-4308 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Relay Service at 800-877- 8339.

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