Housing Bill Bans FHA Seller Downpayment Assistance
The landmark housing bill signed into law by President Bush last month (H.R. 3221) prohibits any of the funds for the downpayment on a single-family mortgage insured by the Federal Housing Administration from being provided by the seller or any other person or entity that benefits financially from the transaction, or any third party or entity that is reimbursed, directly or indirectly, by the seller or other party to the transaction.
NAHB opposed this change and will be working with the Department of Housing and Urban Development and Congress to remove the ban on seller-funded downpayment assistance.
Under Section 2113 of the housing bill, family members are allowed to loan downpayment funds to a relative who is purchasing a home, but the loan is required to be secured by a lien that is subordinate to the FHA-insured mortgage.
Even though it is not specifically addressed in the new law, the FHA has confirmed that outright gifts from family members will still be permitted.
There have already been efforts in the Congress to restore seller assistance for FHA downpayments.
A bill introduced on July 31 by Reps. Al Green (D-Texas) and Gary Miller (R-Calif.), H.R. 6694, would repeal the ban on seller-funded downpayment assistance for certain FHA-insured mortgages. The bill also would overturn the 12-month moratorium on risk-based mortgage insurance premiums that were established under Section 2133 of the housing bill.
If enacted, H.R. 6694 would require more stringent underwriting — including higher credit scores and counseling — for home buyers to obtain seller-funded downpayment assistance. The bill also would require higher risk-based mortgage insurance premiums for these loans based upon a borrower’s credit score.
The FHA has interpreted “credit approval” as follows:
- If a loan is manually underwritten, the approval date is the day on which the underwriter signs the Mortgage Credit Analysis Worksheet (MCAW) or the FHA Loan Underwriting and Loan Transmittal (LT). According to Mortgagee Letter 2008-15, issued on May 22, lenders may submit either form until Oct. 1, after which the MCAW is being replaced by the LT.
- For automated underwriting, it is the last scoring event or the one upon which the lender is basing its credit decision. This transaction cannot involve seller-funded downpayment assistance if a purchaser contracts for a home prior to Oct. 1, but the sale will be closing after Oct. 1, or if the lender “re-verifies” the purchaser’s credit after Oct. 1.
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For more information, e-mail William Renner at NAHB, or call him at 800-368-5242 x8597.
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Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
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