An email just arrived in my inbox that was forwarded from my borrowers RE Agent. This is a purchase of a short sale property and Wells Fargo is the 1st & 2nd lienholder on the property.

The email was from a Wells Fargo representative stating that FHA guidelines will only allow the seller to contribute 1% of the purchase price towards the buyers closing costs.

I have not been able to find anything to confirm this. My research so far has shown that FHA still allows up to 6% seller concession and this purchase contract had asked for a 3% seller concession.

Does anyone in the community know of any special limitations for FHA on short sales?

Thank you!

CU Lender:

An email just arrived in my inbox that was forwarded from my borrowers RE Agent. This is a purchase of a short sale property and Wells Fargo is the 1st & 2nd lienholder on the property.

The email was from a Wells Fargo representative stating that FHA guidelines will only allow the seller to contribute 1% of the purchase price towards the buyers closing costs.

I have not been able to find anything to confirm this. My research so far has shown that FHA still allows up to 6% seller concession and this purchase contract had asked for a 3% seller concession.

Does anyone in the community know of any special limitations for FHA on short sales?

Thank you!

I have not heard of anything, a purchase is a purchase; what would it matter.  Wells Fargo may have an over lay requirement.  I would go on the FHA web site and reveiw the recent mortgage letters to ensure there has not been an update. 

Something like that would have a major impact on lending so I would think that if a change did come out changing it to 1% for short sales that we brokers would be flooded with e-mails from our account reps.

That is definitely not an FHA guideline.  Your facts are correct.  It may be a Wells Fargo short sale guideline and they may not approve short sales for FHA loans with more than 1% credit.  It sounds like they are playing hard ball.  Keep in mind that the people that man short sale dept's at lenders are the most knowledgeable people around.  They tend to make stuff up and lie.

Tell the Wells Rep to send you the HUD guidelines stating that OR you should be able to find the guidelines on the HUD website and email them back to the realtor.

Wells is Wells... they will make it difficult so they don't lose more than they have to.  They will nickel and dime the buyer to death to squeeze as much as they can out of the short sale.

IT is Well's thing.

The new loan does not care if the property is being sold via short sale. It is based on current value.

Wells Fargo may also be using a bogus FHA guideline as an excuse not to give more than 1% for seller concessions on the short sale.  It is the sellers right to give or deny any type of concession for closing costs.  You may also have to provide a GFE to show the Bank that you are not bumping up the closing costs with excess fees.

Thank you for the feedback.

This confirms my initial suspicion that Wells Fargo was simply trying to limit their losses on the Short Sale.  I acted on the suggestion to request a specific FHA/HUD guideline to reference regarding the 1% closing cost limitation and do not expect to have this answered as it most likely does not exist.

My instructions to the borrower and his agent were to push Wells Fargo as far as they can and be prepared to pay some of the closing costs out of pocket.  The good news is that the agent is receiving a full 3% commission from Wells Fargo and he is willing to give up to 1% to the buyer for his closing costs.  Considering that total closing costs + prepaids are 2.125% this will help the borrower tremendously.

I appreciate the additional information and advice.

Have a Great Day!

This is a HUD standard on all FHA short sales.  Not a wElls Thing,.  I have seen it with numerous banks.  People are not used to the short sale process, and then not used to the HUD guidelines on top of that.  Reference them at this link:

http://www.hud.gov/offices/hsg/sfh/nsc/rep/pfsfact.pdf

Hope this helps you.  It clearly states only 1% seller contribution to buyer if another FHA loan is involved, if the other loan is not FHA, then no contributions are allowed.  I know, it is wierd, but that is the way it goes.

brian bartley:

This is a HUD standard on all FHA short sales.  Not a wElls Thing,.  I have seen it with numerous banks.  People are not used to the short sale process, and then not used to the HUD guidelines on top of that.  Reference them at this link:

 

http://www.hud.gov/offices/hsg/sfh/nsc/rep/pfsfact.pdf

Thanks Brian Bartley for the information and link

http://www.hud.gov/offices/hsg/sfh/nsc/rep/pfsfact.pdf

I am a Realtor with a current Short Sale Listing.  I have been hearing this same thing but can't get verification from HUD on this.  The above pdf states that the PFS program is to help sellers currently in default.  My sellers hardship is not delinquency but job transfer.  My seller is current on the mortgage.  Would this still apply?  Anyone know?

Interesting. I just won a client because Wells would not allow any seller contributions. It was a bank owned, not a short. It must be something particular to Wells.