Written By: Gail Foster
I don’t know about you but it just seems to go from bad to worse. May home sales statistics were the slowest ever and June doesn’t seem much better. I have seller’s listing their homes hoping that low interest rates will give pop to the market and buyers are just taking their time. We haven’t recovered from the loss of the tax credit and now FHA is changing the closing costs parameters for seller contributions in October, just as we head into what has traditionally been the slowest home sales months of the year. I do understand that the more one has in the transaction the less likely a foreclosure will result but an across the board decrease in seller help is very detrimental to those buying lower priced homes.
It seems to me a better solution would be a graduated decrease using home pricing as a guide. Three percent seller contribution on a $300,000 home can offset a good amount of buyer closing costs while three percent on a $150,000 barely scratches the surface. Lower income buyers have a harder time finding and saving the funds for a home purchase yet want the American Dream just like most of us. Many of the services on a settlement sheet aren’t priced as percentages and so as a rule closing costs on lower priced homes is a greater percentage of the purchase price than on higher priced homes. With 1% origination fee a standard charge for a loan and an average of 1.5% for transfer and recordation costs, most of the 3% seller help is eaten up. This still leaves other loan fees, title and escrow costs to be covered by the buyer.
I’d like to see some statistics on defaults based upon purchase price. Are there lower income owners in default right now? Is there a specific price range of homes that have higher default rates? It seems reasonable that a lender loses more money on the default of a $500000 home than on the default of a $150,000 home. But it’s not really my area of expertise so I could be wrong. Cutting seller contributions could have an impact on a lot of lower priced real estate markets and lower income borrowers, creating an even greater slow down in the market.
I understand the mindset behind the change and I do think that buying a home is a serious responsibility that one should prepare for. I understand that defaults and foreclosures are not good for the economy nor the mortgage business. But credit is tight, it’s harder than ever to get a loan to the settlement table and now we are making it more difficult for buyers to qualify. A housing recovery is necessary to put the economy back on track, what changes are we putting in place to help that happen? I wish this change had been addressed a little bit differently.
About The Author
Gail Foster - As an active real estate industry professional for the past twelve years, Gail Foster is a proud licensed mortgage officer and a Realtor in the state of Maryland. If you would like to become a writer for NAMU®, please email us at: contact@mortgageprocessor.org.
