Down payment gift mortgages too risky
'more costly and riskier'
"Because of this
fact," Montgomery writes in a reply to the GAO, "FHA has determined
that additional requirements or restrictions that would prevent these borrowers
from obtaining FHA financing would not be beneficial, leaving this population
with financing options that are more costly and riskier than FHA."
In other words, it's better for a home buyer to get
down payment assistance and an FHA loan than to get a high-rate subprime loan
that would have an even higher likelihood of ending up in foreclosure.
The FHA wants Congress to approve a zero-down-payment
program that is, in Montgomery's words, "designed to address
the concerns that GAO raises in the report -- that buyers using
seller-funded gifts are paying too much for their homes and putting
themselves in a risky position."
Citing an opinion from the housing department's attorneys,
Montgomery denies that seller-funded down payments are an "inducement
to purchase," which would make them unallowable. The way the
FHA sees it, money is given to the buyer out of the nonprofit's
general fund and the seller's contribution is made a few minutes
or hours later to that same general fund. Therefore, the money can't
be traced directly from the seller to the buyer.
For their part, the nonprofit middlemen have always challenged
assertions that loans with seller-funded down payments are riskier or that the
sellers raise their prices by the down payment amount.
if the loans are risky, the benefits for FHA home buyers outweigh the costs to
those buyers who end up losing their homes to foreclosure, the nonprofits say.
FHA home buyers are, by definition, at higher risk of foreclosure, "but they
are still deserving of an opportunity for homeownership," says Ann Ashburn,
president of AmeriDream.
She proposes a partnership between
the FHA and down payment providers in which the nonprofits would adhere to a code
of conduct. She envisions a joint effort where the government and nonprofits provide
homeownership education for first-time buyers and loss mitigation to help people
keep their homes after they have fallen behind on payments.