Below is my comment to HUD on the proposal to lower seller concessions on FHA transactions. I just sent this to some of the Philadelphia real estate professionals, but it would really hurt in numerous markets and the loan officer, realtors, and home buyers should all take the time to submit their own comment…here is the link and below it is the link to the actual proposal…
FR–5572–N–01 Federal Housing Administration (FHA) Risk Management Initiatives: Revised Seller Concessions
Document ID: HUD-2010-0063-0908
I am a loan originator that personally writes over $100,000,000/yr in residential financing in the City of Philadelphia with a large amount of FHA originations. I can appreciate the FHA evaluating their risk & reducing exposure. The substantial increase in FHA originations the last few years makes this a necessity. All this being said, reducing the seller concessions on FHA transactions will deal a critical blow to arguably one of the biggest advantages to utilizing an FHA insured loan. The seller concession is negotiated carefully on many of the FHA transactions originated which directly impacts the ability of the applicant/homebuyer to get into the home with some available funds after closing. If you would like to reduce potential homebuyers you will achieve this by lowering the allowable seller concessions.
The revision to a lower seller concession will especially restrict FHA financing in Philadelphia and other areas with expensive transactional costs. Our transfer tax on every transaction is 4% of the sales price with buyer and seller customarily splitting this cost. It is a very expensive cost to bear. Many first time homebuyers purchasing in the city would be driven out of the market if they could not negotiate a minimum of a 4-5% seller concession to help offset a majority of their transactional costs.
The current housing market does not need its government restricting the ability to wisely negotiate a real estate transaction that allows the seller to pay the buyer’s closing costs. There are a number of other ways to offset some of the risk the FHA bears in the flexibility it offers by insuring low down payment financing. I suggest you further explore those options and leave the 6% seller concession exactly where it is.