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>FHA To Ban Seller-Assisted Homes

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FHA Officials Seek to Ban
Seller-Assisted Payments
June 10, 2008; Page A13

Federal housing officials are trying again to ban seller-assisted down payments on federally insured mortgages, amid concerns about mounting losses tied to these loans.

The Federal Housing Administration has reopened a public-comment period on a proposed rule on such assistance, which the agency says leads to higher-than-normal foreclosure rates.

Under the seller-funding practice, a third party — typically a charity — provides the down payment for the buyer and is then reimbursed by the home seller, often a home builder. This can help home sellers close deals with buyers who can’t come up with down payments on their own.

FHA Commissioner Brian Montgomery said Monday that the government-backed loans made to borrowers who receive down-payment assistance go into foreclosure at three times the rate of loans in which borrowers pay for their own down payment. Loans with seller-assisted down payments make up about 35% of the FHA’s loan portfolio, up from only 5% in 2001.

After a recent evaluation, the FHA estimates it will incur an additional $4.6 billion in unanticipated long-term losses, primarily due to loans involving seller-funded down-payment gifts.

Read the complete story at WSJ: