IMPORTANT CALL TO ACTION - Hot topic - Reduction of seller concessions on FHA loans to 3% max
I wrote this article the other day, HUD seeks public comment on three main issues for FHA loans. - The main issue and focal point is that FHA wants to reduce the seller concession from 6% to 3%. I can understand why. Two reasons I can think of :
1. The real estate market has crashed and home values have dropped significanly in some areas, that homes are upside down. Some feel that with a FHA mortgage, that you basically start underwater if you need to sell quickly.
2. HUD/FHA feels that home values are inflated some, pushed a tad higher to cover the seller concessions so that it actually doesn't come out of the seller's pocker per se. This is an never ending argument by several.
So we have a slight debate from some thinking that anyone receiving 3% to 6% seller help is to much. And then we have another side that feel that making 3% as a maximum percentage, that it could cripple an already devistated real estate market.
The basic argument - 6% is just to much. Okay, I agree, on a $300,000 house, because that would be $18,000 in seller help. Not many sellers actually would be willing to give up $18,000. Many don't even have the room to do this.
Reality depending on certain real estate markets - What about those homes that are selling for $50,000 to $100,000. AT 6% that would be a seller concession from $3,000 to $6,000. Make it a maximum of 3% and it drops from $1,500 to $3,000.
The defense to such an argument - Example - $80,000 home. If the seller could on give 3%, that is only $2,400 in help. The down payment alone would be $2,800. Depending on taxes, how many months that must be escrowed, etc, etc, you could be looking at $3,400 to $4,000 in closing costs. In the state of PA, 12-13 months of escrows must be collected and there is either a 1% to 2% stamp tax that must be paid by the buyer. So you add that into this equation, that is another $800 to $1,600 just on the stamp taxes. And this example is not even including points or lender fees. I would rather have the borrower keep at least $2,000 or more in their account as cash reserves. You take that away from them for the costs, then you have nothing. What if something happens, then what? Just food for thought.
Important Reminder : Keep in mind, real estate is local and each state is different on their different fees that must be collected. Some states have state stamp taxes, transfer taxes, or require taxes to be escrowed for 6 or 13 months. This greatly adds to the buyers costs.
Jeff Belonger's solutions :
Why don't we come to terms, meet half way. How about impossing checks and balances if a borrower gets 3.01% to 6% in seller help. Or have a graduated scale. Maybe add some specific clauses.
1. Appraisal Values - FHA is concerned about values being pushed higher to cover these concessions. Why not get 2 full appraisals. An appraisal is an opinion of value determined by several factors, to include average market values and true comparisons. Real Estate Appraisal by wikipedia.
2. Credit Scores - This one could be tricky and hurt the less fortunate. But if are to receive more than 3%, that you have to have higher credit scores, possibly making a graduated scale.
3. Cash reserves - That the borrower must have at least 2 months in reserves in order to receive from 3.01% to 4%. Maybe 4 months to go from 4.01% to 5% and so on.
SUMMARY : SOme of my solutions might seem harsh or hurt those that don't fit. But isn't this much better than just reducing the seller concessions to 3 percent no matter what? Let's think this through, come up with a comprimise. I feel that if we don't do this, that it will cripple our economy even further.... We need not be rash in our decision making and not just for political agendas. What se thee?
List of solutions from other comments :
1. From Julie Odum - comment #2 - In my comment to HUD, I recommended a sliding scale for seller help. 6% for sales under $125,000, 5% for 125-150k, 4% for150-175 and 3% for 175+k.
2. From Tim Bradford - comment #9 - Similar to rules on Reverse Mortgages - A 3% limit with a mininum of $3,000 being allowed and a Maximum of $6,000.
3. From Drew Sygit - comment #21 - Tie the seller concessions above 3% to other lower risk identifiers. Examples: to get the 6% require either higher credit scores, more reserves, maybe 5% down instead of 3.5%, allow lower DTI ratios, etc.
Here is the actual page to go and make your comments - Comments for reduction of seller concessions and new loan to value with credit scores - Click submit a comment which is on the right side of this page, in blue.
CALL to ACTION : Send this to other agents and loan officers. Don't hesitate to reblog this, to get the message out. And you can even copy the link to this post in your comment when commenting to FHA/HUD, so it repeats the message to FHA, the government, and to others that fight this issue. Link :
Please don't hesitate to leave your own solutions in the comments below, so others can read them. I will then come back and list those solutions in this post. Thanks & thanks for your support.
I will be forwarding this post to FHA, to HUD, and to some members of congress before the 30 days is up. This way they can have all of our solutions rolled up into one. Just like the Declaration of Independence. Why not make it our Declaration of FHA Financing !!!
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