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#33212 - 09/18/02 10:46 AM Lending shenanigans ... or ok?
SteveG Offline
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Seller and buyer negotiate a 90,000 sale price with a contingency for a 87,300 mortgage (FHA). The mortgage department commits to a 93,000 mortgage to cover the FHA premium and wants the Seller to show the sales price on the final HUD as 95,000 with a 5,000 closing cost credit to buyer. Is this okay? Seems like it is manipulative and misleading and certainly wasn't the deal negotiated. Thanks for feedback.

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#33213 - 09/18/02 01:42 PM Re: Lending shenanigans ... or ok?
Andy_Z Offline
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I want to sell my car to you for $10M but you don't have a down payment. So I say I'm selling it for $15M and you only need to finance $10M. So now you'll qualify.

Sounds like Creatively Rigged Accounting Principles
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#33214 - 09/18/02 01:54 PM Re: Lending shenanigans ... or ok?
Dan Persfull Online
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Steve, we don't deal with FHA, VA or other government loans and the only investor we sell to is Freddie and they definitely would not buy this. To borrow Andy's phrase, it sounds like CRAP to me also.
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#33215 - 09/18/02 01:55 PM Re: Lending shenanigans ... or ok?
rlcarey Online
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Galveston, TX
I agree with Andy. However, if the seller and buyer came up with this agreement, and it was presented as such in an earnest money agreement, I would say - so be it. But for the mortgage lender to be coercing the seller and buyer into an agreement I think is a dangerous practice (although it happens all the time). I'm not familiar with all the requirements, but I would think that such a stunt may jeopordize a lenders FHA lender status. Somebody with closer ties to that may be able to chime in.

On another front, there better be a very good documentation trail on how the application and the overall transaction progressed from what it was to what it became. The other thing is that the lender needs to do this for every applicant that comes in under a similar circumstance, or you are going to have some glaring fair lending issues.
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#33216 - 09/18/02 03:05 PM Re: Lending shenanigans ... or ok?
Anonymous
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I am under the impression that the HUD 1A must be exact. Putting one together this way wouldn't match the way the funds were disbursed/collected.

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#33217 - 09/18/02 03:28 PM Re: Lending shenanigans ... or ok?
rlcarey Online
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First, you wouldn't use a HUD-1A, as that is only used when there is not a seller of the property. Second, I don't see a problem in using the HUD-1 appropriately to show the closing credit flowing from the seller to the buyer.
Last edited by rlcarey; 09/18/02 03:28 PM.
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#33218 - 09/18/02 03:46 PM Re: Lending shenanigans ... or ok?
NotALawyer Offline
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NotALawyer
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I think we might need more information about this transaction to comment effectively (then again, it might just be me... )

"The mortgage department commits to a 93,000 mortgage to cover the FHA premium and wants the Seller to show the sales price on the final HUD as 95,000 with a 5,000 closing cost credit to buyer." Why does the mortgage department want to show this? Is it because the purchase contract says the seller is providing a $5,000 credit for the purchaser? (I did this when I sold my last house.) Or because it is "what is needed to close the deal? (Sorry to say that I've seen mortgage brokers try this in the past.)

Another question that I have is (and I'm asking because I don't know the answer) can the seller pay the buyer's closing costs, or even a portion, on an FHA loan?

Thanks all!


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#33219 - 09/18/02 04:08 PM Re: Lending shenanigans ... or ok?
SteveG Offline
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It would all be disclosed in the HUD-1; my problem with it is that it wasn't really the price agreed to at the time the deal was struck. I think it is perfectly okay and within FHA lending guidelines to have a seller pay part of the closing costs ... except I always thought this was negotiated up front. Here, the broker structured it this way and the parties are being asked to adopt this as their deal at the closing table. The seller is the one apparently skittish about it, even though the appraisal supports the upped price. Any other thoughts? Thanks.

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#33220 - 09/19/02 02:52 PM Re: Lending shenanigans ... or ok?
Suwannee Offline
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Florida
When the seller and the purchaser wrote the contract, I would take a guess that neither of them knew what type of loan the borrower could qualify for, or even how much money the borrower would need in closing costs. Once the borrower was qualified, not only for ratios, but also for funds to close, they probably realized that the borrower was a little short. By increasing the sales price, the borrower's closing costs could be added into the sales price, to be paid by the seller and the borrower's ratios could go to 29/41 instead of 28/36. FHA guidelines are less restrictive, allowing the borrower to qualify for more money. Conventional guidelines restrict the amount the seller can pay towards closing costs, especially at a 97% LTV. With an FHA loan, the seller can pay 6% towards closing costs, no matter what the LTV is.

In my opinion the mortgage company did nothing wrong. They suggested a program that the borrower could qualify for.
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#33221 - 09/19/02 03:14 PM Re: Lending shenanigans ... or ok?
SteveG Offline
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Thanks for input Suwanee ... does it change your mind that the contract said it was to be an FHA loan and said nothing about seller paid closing costs? It just doesn't want to sit right with me that you manufacture a new sales price after the fact to get a bigger loan (insured by the government). What if they found an appraiser who said the property was worth 10 or 15% more ... could they up the price and have the seller pay 6% of the higher price as closing costs?

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#33222 - 09/19/02 03:17 PM Re: Lending shenanigans ... or ok?
rlcarey Online
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Well, technically, they aren't suppose to find the appraiser - you are. It sounds like you might be dealing with a mortgage broker. If this is a common practice you may want to reassess your relationship with this one.
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#33223 - 09/19/02 04:00 PM Re: Lending shenanigans ... or ok?
Suwannee Offline
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Florida
Steve, in my opinion, it is the lender's responsibility to try to find a way to do the loan. You said that there was no mention of seller paid closing costs in the contract. You also said that the lender wanted to raise the sales price and include a closing cost credit of $5000 to the buyer. This is seller paid closing costs. I still think that this was a viable way to do the loan IF (and only IF) it was suggested because the borrower was short on funds to close. And, it appears from your statement of the $5000 credit for closing costs that this is what we have here. I have seen this scenario over and over and over. The buyer signs a contract, but does not have funds for the closing costs. If the value is in the property, they amend the contract to increase the sales price to include seller paid closing costs.

We rely on honest appraisers to come back with a fair market value of the subject property. If the value is not there, then the borrower should look for another property that will not cost them as much out of pocket.

In this particular case, I don't believe that the difference in the originator's commission would be enough to influence them to do something unethical. Even at 2.5 points, it would only be a difference of around $100.

The truth is in the borrower's bank statements.

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