FHA Contemplating Reduced Seller Paid Concessions

On Friday, FHA released a letter proposing that the maximum allowable seller concessions be reduced from the current 6% limit to something less.  FHA is contemplating this change to “better manage risk” as they feel the current level exposes the FHA and borrowers to excess risk by creating an incentive that inflates the appraised value.  FHA first mentioned this as a possibility all the way back on July 15, 2010.  After bringing up the possibility of such a reduction a full year and a half ago, nothing has been heard from FHA again on the subject, until now.  Reducing how much of the buyer’s costs that the seller can pay at closing would be a major blow to the real estate industry.  Reducing this limit from 6% to say 3% would require most FHA buyers to bring more money to the table, to the tune of several thousand more $’s.  This is money they simply don’t have in many cases.  The official proposal will be finalized soon and then there will be a 30 day comment period in which we’ll be able to make lots of noise.  Hopefully, our industry lobbyists will show up in a big way and keep this limit from decreasing!  I will send you more info on how you can make your feelings known about this once the proposal is officially issued. 

In the same announcement, FHA also mentioned they may soon require indemnification for “serious and material” violations of FHA originated loans.  This means that any inaccuracy in a loan file could be interpretted as fraud or misrepresentation and cause the lender to have to repurchase the loan.  A few of these repurchases could put a small lender out of business.  Stated another way, FHA is proposing to make it harder for lenders to make FHA loans.  Just what we don’t need right now!

January 24, 2012 by · Leave a Comment

About James

James A. Williamson is currently the Sr VP of Sales Development for Shelter Lending Services (formerly Fairfield Mortgage). James joined Shelter in 1994 and was the company's top Loan Officer in GA for 20 straight years helping over 2500 families finance their homes. James now oversees an incredible group of Loan Officers in Atlanta while further building Shelter's Atlanta business.

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