Lenders were given some hope Thursday that the Federal Housing Administration may come down on the side of flexibility when it issues a final rule regarding seller concessions.
To mortgage bankers' chagrin, the FHA has proposed reducing the maximum share of a buyer's closing costs that sellers can pay, from 6% of the loan amount to 3%.
Vicki Bott, deputy assistant secretary for single-family housing at the Department of Housing and Urban Development, said it has received more than 1,000 comment letters on various proposals the FHA has made to shore up its mutual mortgage insurance fund. "The vast majority" have been about the plan to halve seller concessions, she said at the New England Mortgage Banking Conference in Providence, R.I., Thursday.
Bott, who is responsible for the direction and management of all of the FHA's single-family mortgage insurance products, said she expects the agency to take a "balanced approach" with the final rule, which should be posted "toward the end of the year."
Although loans with a high percentage of seller concessions are 1.3 to 1.5 times more likely to go into default, Bott said, the FHA realizes "there are a lot of things to consider."
One, Bott said, is that the proposal would have a far greater impact on $50,000 loans than it would on $500,000 mortgages. Another is that a major part of a buyer's closing costs stems from one item, title insurance.
