Appraisal News For Real Estate Professionals

2006/05/11

Ruling on Nonprofits Latest Blow to the FHA - Nonprofits now play a role in many FHA purchase loans

Ruling on Nonprofits Latest Blow to the FHA - Nonprofits now play a role in many FHA purchase loans - American Banker Monday, May 8, 2006By See prior Appraisal News post - click here. An Internal Revenue Service ruling against down-payment gift providers is expected to make it even harder for the Federal Housing Administration mortgage insurance program to hold on to, much less regain, market share. Over the last few years, gift providers have grown to facilitate about a third of FHA loans for home purchases. The ruling, which the IRS announced last week and will publish May 22, would end the ability of many such gift providers to claim they are tax-exempt charities. And that would in turn eliminate their ability to provide the gifts under FHA underwriting rules, which allow gifts from only a small list of sources that includes relatives or an employer. "Because it's become such an integral part of the FHA program … the impact will be very significant," said Brian J. Chappelle, a partner at the Washington consulting firm Potomac Partners LLC. Steve O'Connor, a vice president at the Mortgage Bankers Association, agreed that the IRS ruling "could have a very significant impact on FHA." Such programs help borrowers get around the 3% down-payment minimums on FHA loans. Generally, they are supported by donations from home sellers of the same amount plus a fee. Born in the late 1990s, the down-payment-assistance industry has been beset by finger-pointing and infighting; a spate of scandals at some providers over things like executive compensation and inaccurate marketing of seller contributions as tax writeoffs; and concerns that such programs endanger borrowers and housing markets by inflating sales prices and put the FHA at risk. Indeed, despite the programs' huge role today in the FHA, the Department of Housing and Urban Development has expressed discomfort with them. For instance, it has refused repeated calls by several providers to issue guidance on how they should work. The Bush administration last month began pushing a broad slate of FHA reforms, including risk-based pricing, higher loan limits, and no-down-payment loans. Most of the proposal has been introduced as legislation in the House with bipartisan sponsors. Many believe that the Republican backing of measures to revitalize the FHA, which runs against conservatives' love of private-market solutions, means there is a good chance a bill will eventually pass, if not this year. Such reforms "would provide safer, more affordable financing options for this type of borrower, as opposed to mortgage products that are risky and more costly," a HUD spokesman said by e-mail. Some observers are also worrying about how eliminating the programs will affect what has appeared to be a weakening housing market. "This is really bad timing," said David Lereah, the National Association of Realtors' chief economist. The FHA's share of mortgage originations has fallen from about 13.5% in its fiscal 2000 and 2001 to 4.1% last year, according to HUD. The percentage of its purchase mortgages, by loan count, that included down-payment gifts from nonprofits rose from 1.7% in 2000 to 28.2% so far this fiscal year. Click here for the full article. Appraisal , , , , ,

0 Comments:

Post a Comment

<< Home