Burlington-Camden County NJ Real Estate

HUD Limits FHA Proposal to Seller-Paid Assistance

Posted at 5:11 AM, Jun. 30, 2007

A number of state and local associations of REALTORS® have received reports of a proposed U.S. Department of Housing and Urban Development (HUD) rule that implies the department is seeking to prohibit the use of downpayment assistance programs in Federal Housing Administration (FHA) transactions. To clarify, the HUD proposal would only prohibit seller-paid downpayment assistance. For background, HUD's proposal is consistent with a report of the U.S. Government Accountability Office, which found that the average price of homes using seller-paid assistance was inflated by 3 percent and had a higher foreclosure rate. The proposal also follows action by the Internal Revenue Service (IRS), which has published a rule that strips organizations found to be "middlemen" for seller-paid assistance of their 501(c)(3) tax-exempt status. Looking ahead, FHA reform legislation under consideration in Congress would allow for zero-downpayment FHA loans, which would then abrogate the need for any downpayment assistance.

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re: HUD Limits FHA Proposal to Seller-Paid Assistance

Posted by Scott Nash at 6:35 AM, Jul. 3, 2007

This proposed rule would do more than that. The intent of the proposed rule is to eliminate a widely used downpayment program run by non-profits whereby they replenish their pool of grant funds by charging a fee to the property seller. The actual language of the rule goes far beyond eliminating “seller-funded” DPA and if adopted as written, will have wide reaching implications for real estate professionals.

Here is the relevant proposed language that gives us the greatest concern.

(c) Restrictions on seller funding. Notwithstanding paragraphs (e) and (f) of this section, the funds required by paragraph (a) of this section shall not consist, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale: (1) The seller or any other person or entity that financially benefits from the transaction; or (2) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in paragraph (c)(1)of this section. It appears that through intent or poor drafting, that real estate commissions will no longer be allowed on properties real estate professionals are purchasing for themselves. This effectively eliminates people from using their commission towards their downpayment on homes that they are purchasing and eliminates any commission from being received when they are a party to the transaction. The comment period ends on July 10, 2007.

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RE: HUD Limits FHA Proposal to Seller-Paid Assistance

Posted by Paul Howard at 6:29 AM, Feb. 15, 2008

Putting an end to this shell game is way past due. Not only did the "non-profit" 501C3 funnel money from the seller to the buyer they kept several hundred dollars of the money in the process.

This turned a 3% down mortgage into a zero down and at a higher sales price. If HUD wants to allow zero down on FHA loans they should do so by regulation - which may be what is about to happen.

Paul Howard

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