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FHA Proposes to Halt Seller-Funded Downpayments
On June 16, the Department of Housing and Urban Development published a proposed rule that would prohibit home sellers from contributing to a purchaser’s downpayment either directly, or indirectly through a third party, when a home purchase is being financed with a mortgage loan insured by the Federal Housing Administration (FHA).
HUD’s proposal would allow home buyers to receive downpayment assistance from family members, government or public agencies or the borrower’s employer or labor union. Contributions from a tax-exempt charitable or educational organization would also be permitted as long as the downpayment doesn’t come from a party involved in the sale transaction.
The comment period on the proposal closes on Aug. 15.
First adopted in 1999 and updated in 2006, NAHB’s policy on seller-assisted downpayments calls for the development of criteria under which such assistance would be allowed.
When this proposal was originally published in the May 11, 2007 Federal Register, NAHB urged HUD to refrain from implementing an absolute prohibition of seller-provided downpayment assistance. NAHB recommended allowing sellers to provide downpayment assistance to buyers under appropriate circumstances in which there are prudent credit analysis, appraisals and underwriting and adequate home buyer information and counseling. HUD does not address NAHB’s recommendations in its latest proposal.
HUD was prevented from implementing the rule when it was scheduled to take effect on Oct. 31, 2007 after two courts found that the department had violated the Administrative Procedures Act. The rule was subsequently remanded to HUD, which was left with the option of either abandoning the rulemaking or revising its analysis and reissuing the rule.
In a related development, the Senate version of the latest housing bill (H.R. 3221) includes language that, if enacted, would prohibit downpayment assistance from parties to the home sale transaction.
The House version of this bill does not include this restriction and it would support such programs.
NAHB opposes the Senate provisions and has informed Senate leaders that it favors reform, not elimination, of seller-provided downpayment assistance programs. Members of Congress are being urged to include the House provisions in a final bill.
For more information, e-mail Michelle Hamecs at NAHB, or call her at 800-368-5242 x8425.
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