FHA Making Argument to Ban Seller-Assisted Payments

FHA officials continue to push HUD for ban seller-assisted down payments on federally insured mortgages, amid concerns about mounting losses tied to these loans.

The Federal Housing Administration has reissued a public-comment period on a proposed rule on such assistance, which the agency says leads to higher-than-normal foreclosure rates. Under the seller-funding practice, a third party -- typically a charity -- provides the down payment for the buyer and is then reimbursed by the home seller, often a home builder. This can help home sellers close deals with buyers who can't come up with down payments on their own.

According to, By Michael Corkery, the FHA Commissioner Brian Montgomery stated that the government mortgage loans made to consumers who have received down-payment assistance go into foreclosure at three times the rate of loans in which borrowers pay for their own down payment. Loans with seller-assisted down payments make up about 35% of the FHA's loan portfolio, up from only 5% in 2001.