Sunday, September 30, 2007

FHA charity gift program comes to an end

You probably already know this, but in case you haven't heard, it's finally over.

The Mortgage Lender Implode-O-Meter site lead me to this linked article in The Washington Post.

We close lots of Federal Housing Administration [FHA] transactions. So, for our FHA lenders out there, please don't fret. This isn't the end of the world as we know it.

I've been originating or closing FHA transactions since 1978 and believe me, most familes who want to buy a house can do so under the regular FHA program without the charity gift program.

The move by the FHA is part of the overall restoration of quality in mortgage lending. It's not a bad idea to call a spade a spade. Why have a middleman taking a piece of the transaction? Let the seller assist the buyer without throwing some of the cash to a third party.

Here's another good angle. Did you know that many transactions had gifts that were higher than actual costs? Yes, it's true. Since we often don't get real figures until the last minute, FHA lenders had to deal with last moment decisions when faced with too much money solidified into the gift deal.

How was this handled? Well, there wasn't enough time to re-craft the gift, so the lender would direct us to either force a principal payment of the excess OR give the extra money back to the charity.

So, if we go back to working direclty with the parties and NOT with a third party gift charity, we can adjust figures. If the buyer is getting a personal gift from the family, the buyer can keep the extra money. If the seller has agreed to assist with costs, the seller can keep the extra money.

The "new" old rules will take some adjustment, but I predict the FHA market will have much vitality and as an alternative to subprime, it's a much safer place for homebuyers.

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