by Calculated Risk on 7/06/2010 06:53:00 PM

Early this year, the FHA announced a proposal to reduce allowable seller concessions from 6% to 3%.

David H. Stevens, Assistant Secretary of Housing and FHA Commissioner, discussed the reasons for this proposal in May:

We are also proposing a third policy measure to reduce the maximum permissible seller concession from its current 6 percent level to 3 percent, which is in line with industry norms. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. ... FHA's experience shows that loans with high levels of seller concessions are significantly more likely to go to claim. Experience to-date on loans insured from FY 2003 to FY 2008 suggests that claim rates on high-concession loans are 50 percent higher or more than those on low-concession loans.

I was told by the FHA today that a notice for public comment would be announced "VERY shortly". (I'm guessing that means in the next few weeks - if not this week).

The notice will be posted in the Federal Register, and will go into effect after a 30-day comment period.