Down payment assistance bites the dust |
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| Controversy swirls around
seller-funded down payments
The FHA has tried for some time to ban
seller-funded down payments in connection with FHA-backed loans. The agency argues
that sellers' "donations" result in artificially inflated house prices and that
homebuyers who use such assistance are more likely to default on their loans.
Two federal government reports in 2005 concluded that these programs made homeownership
more expensive for homebuyers who used them. The IRS has revoked some of the providers'
status as tax-exempt nonprofit organizations.
Proponents say these programs create opportunities for minority
and low-income families to become homeowners. Thompson believes
the ban will push some well-qualified buyers who only lack a down payment out
of the housing market, though he also thinks it would make sense to take a closer
look at these programs to make sure people aren't abusing them. Seller-funded
down payment assistance "is one of the things that is getting more people into
the housing market when this is what we really need to get the economy going,"
he says. "It doesn't seem like the timing (of the ban) makes sense." FHA
may raise cost of mortgage insurance
The housing recovery act also
makes two other important changes to FHA loan programs.
- The minimum down payment required for an FHA-guaranteed loan will be increased
from 3 percent to 3.5 percent, effective Jan. 1, 2009.
- A brand-new risk-based
pricing structure for FHA mortgage insurance will be discontinued, effective Oct.
1, the same day when seller-funded down payment assistance will be ended..
The
FHA had pushed hard for its plan to charge riskier borrowers higher mortgage insurance
premiums. HUD Secretary Steve Preston said in a statement that without such flexibility,
the FHA will have to increases prices for all borrowers or eliminate its refinancing
program for subprime borrowers. Program
providers plan to fight back
Homebuyers may want to monitor H.R. 6694,
a bill introduced by Rep. Al Green, D-Texas, that would require the FHA to accept
seller-financed down payments and authorize the agency to apply a risk-based pricing
structure for FHA mortgage insurance on loans that utilized such down payments.
The pricing would be adjusted on the basis of the borrower's FICO credit score.
The bill has two co-sponsors, Reps. Gary Miller, R-Calif., and Maxine Waters,
D-Calif., and has been referred to the House Financial Services committee. "The
recent housing bill may have slammed the door on working families, but we are
heartened that Congress has begun to take steps to re-open it," AmeriDream president
Ann Ashburn said in a statement in support of the bill. Nor
has Nehemiah given up on reinstatement of the seller-funded down payment assistance
model, Syphax says. Yet even he hints that perhaps these programs shouldn't be
brought back in exactly the same format as they previously existed. He says the
programs were "tremendously effective," but "could and needed to be improved." "We
will be fighting to bring back the program as we always thought it should have
been and that we have been asking HUD for over a decade to help us create, which
is a program with higher standards, more services provided to homebuyers and one
where there is effective data capture, so we can continue to learn how to improve
the program even further," he says. "That's what we're fighting for." | 
