Lenders were given a ray of hope Thursday that the Federal Housing Administration may come down on the side of flexibility when it finally issues a final rule regarding seller concessions.
The FHA has proposed reducing the maximum share of a buyer's closing costs that sellers can pay, from 6% to 3%. (The cap applies to a percentage of the loan amount.)
It's no secret that mortgage bankers are not thrilled with the cap, something that has not escaped the watchful eye of Vicki Bott, deputy assistant secretary for single-family housing at the Department of Housing and Urban Development.
Speaking at the New England Mortgage Bankers Conference in Providence, R.I., she said HUD received more than a thousand comment letters on various proposals the FHA has made to shore up its mutual mortgage insurance fund. But Bott told the conference, "the vast majority" have been about the plan to halve seller concessions, presumably against it.
But Bott, who is responsible for the direction and management of all 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, she said the FHA realizes "there are a lot of things to consider."
One, she said, is that the impact of the proposal has a far greater impact on $50,000 loans than it does on $500,000 mortgages. Another is that a major part of a buyer's closing costs stems from one item, title insurance.
Ultimately, the HUD official told the conference, the agency must balance its need to maintain the long-term viability of the insurance fund with its core mission of serving the underserved. "Any decision we make," she said, "someone loves it, someone hates it."
