HUD Publishes Revised Proposal for Limiting Seller Concessions

Mortgage Origination HUD

On February 23, HUD published for comment a revised proposal for reducing seller concessions that supplants its initial July 15, 2010 issuance.  In its previous issuance, HUD had proposed, as one of its initiatives to reduce risk to its insurance fund, reducing the cap on seller conditions from six percent of the lesser of the sales price or appraised value to three percent.  In response to the significant public comment on its July proposal, HUD is now proposing to reduce the amount of seller concessions permitted as offsets to three percent or $6,000, whichever is greater, although the offsets would not be permitted to exceed the borrower’s actual costs. To address future increases to closing costs, the $6,000 cap would be indexed to increase at the same rate as the FHA national loan limit floor. HUD also proposes limiting acceptable uses of seller concession to payments toward borrower closing costs, prepaid items, discount points, the FHA Up Front Mortgage Insurance Premium, and an Interest Rate Buydown. Comments on this revised proposal are due March 26, 2012.