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June 16, 2008BUSH ADMINISTRATION RENEWS EFFORT TO ADDRESS RISKY LOANS ON GOVERNMENT-BACKED MORTGAGES |
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From HUD Press Releases: The Bush Administration today renewed its efforts to address risky government-backed seller-funded downpayment assistance loans that are significantly more likely to lead to foreclosure. HUD's Federal Housing Administration (FHA) will reopen the public comment period on a proposed rule that would ban seller-funded downpayment assistance on mortgage transactions insured by the FHA. The proposed rule will be re-published in the Federal Register and comments will be accepted for 60 days following publication. This year, as a result of its annual re-estimate, FHA had to book an additional of $4.6 billion in unanticipated long-term losses, mostly due to the increased number of certain types of seller-funded loans in the FHA portfolio. We are concerned about this business because the substantial losses affect FHA's bottom line and FHA's ability to serve American citizens who need access to prime-rate home loans," Montgomery stressed. That, I think, would have a far-reaching impact on the economy: it would severely reduce the number of new homeowners each year; and it would also sharply reduce the need for the services required to build and maintain homes. Specifically, it would prohibit downpayment assistance provided before, during, or after closing of the sale by the seller, any other person or entity that financially benefits from the transaction, or any third party or entity that is reimbursed directly or indirectly by any of the parties benefiting from the sale. The rule would clarify that downpayment funds for FHA-insured mortgages cannot be derived from sellers - directly or indirectly - or any other party that stands to benefit from the transaction financially. "The IRS, GAOÂ and our own Inspector General have previously expressed concerns with these circular financing schemes.
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