FHA Officials Seek to Ban Seller-Assisted Payments

Wall Street Journal (06/10/08) P. A13; Corkery, Michael; Crittenden, Michael R.
A public comment period on a proposed ban of seller-assisted down payments has been reopened by the FHA, following a preliminary injunction against the ban proposed by HUD last year. This kind of down payment is fronted by a charity or another third party and repaid by the seller, and there are concerns because federally insured mortgages involving such down payments are three times more likely than conventional loans to end up in foreclosure, according to FHA Commissioner Brian Montgomery. Mortgages with seller-assisted down payments rose to 35 percent of FHA loans from 5 percent over the past seven years, and they likely will account for a substantial portion of the $4.6 billion in loan losses expected by the FHA. "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 stated during a June 9 speech at the National Press Club.