Home sellers are allowed to chip in some money to help buyers afford their mortgage fees or moving costs. A lot of loan programs limit these seller contributions to 3 percent of the purchase price.
For a long time, the Federal Housing Administration's limit has been twice that: Sellers could contribute up to 6 percent of the home price.
That is expected to change in the middle of August, when the FHA halves the maximum seller contribution to 3 percent, in line with industry practice. The FHA says the foreclosure rate has been "significantly higher" among buyers who got seller concessions of more than 3 percent.
Industry analyst Sylvia Alayon of Capital Markets Assessment Corp. in Fort Lauderdale, Fla., warns that FHA lending might fall by as much as two-thirds because of the change.
"The one segment that appears to be moving is the FHA market, and that's about to collapse," she says.
Anthony Sanders, finance professor at George Mason University in Fairfax, Va., says lesser reliance on the FHA -- and on mortgage giants Fannie Mae and Freddie Mac -- would benefit borrowers and taxpayers, as private lenders "will be willing to take on risks that they deem appropriate."