A key provision of the new housing stimulus is set to take effect Oct. 1, and its impact will be felt by both homebuyers and builders.
Under the provision, FHA can no longer insure mortgages in which the down payment comes directly from the seller or other interested party.
According to the National Association of Realtors (NAR), down payment assistance from family members, government programs or charities that are not seller funded is still permitted.
David Zugheri, cofounder of Houston-based First Houston Mortgage, said seller-funded down payment-assisted FHA loans have a high default rate, and he sees the new provision as a good thing.
NAR reported that the default rate on these types of loans was more than 28 percent last year, about three times the default rate on FHA loans without seller-funded down payment assistance.
“If [this provision] can save 100,000 people from going into foreclosure, I think we have to say that it’s worth it,” Zugheri said.
While homebuyers will be affected, Center Research Economist Dr. Jim Gaines said the provision will impact home builders the most.
“Many builders offer down payment assistance as a way of depleting inventory,” he said. “They’ve basically been offering manufacturer rebates similar to those offered by car manufacturers.”
Source: Real Estate Center