Ban on down-payment aid takes effect

Group continues to lobby for reinstatement

By Inman News, Thursday, October 2, 2008.

Nehemiah Corp., a nonprofit corporation that has offered a privately funded down-payment assistance program to buyers since 1997, is continuing to push for reinstatement of its program after a ban on such assistance for borrowers seeking FHA loans took effect on Wednesday, Oct. 1.

Such programs use seller contributions or other third-party contributions that are reimbursed by the seller to assist buyers in obtaining loans insured by the Federal Housing Administration. The U.S. Department of Housing and Urban Development had sought to end the use of seller-funded down-payment assistance programs with FHA loans, claiming that the practice drives up home prices and puts borrowers who use those down-payment gifts at greater risk of default. An estimated 20 percent to 30 percent of new-home sales were driven by borrowers using down-payment gifts during the second quarter.

Scott C. Syphax, president and CEO for Sacramento, Calif.-based Nehemiah, said in an Oct. 1 letter that the corporation "will continue to work with our congressional supporters" to restore down-payment assistance programs for buyers seeking FHA-insured loans and urges backers of the program to ask for the program to be included in the financial bailout legislation that was passed by the U.S. Senate on Wednesday and is expected to be considered by the U.S. House of Representatives on Friday.

A House bill, H.R. 6694, that sought to reinstate down-payment assistance (see Inman News article) before the Oct. 1 termination of the programs did not make it to a full vote of Congress in time to prevent the ban's implementation, and Syphax asked for that language to be included in the bailout bill. The bill would allow FHA to charge higher premiums for its mortgage insurance for borrowers using down-payment assistance programs based on the borrowers' credit scores.

The Congressional Budget Office issued a report on Sept. 29 about H.R. 6694, concluding that implementing the legislation would lead to a net decrease in discretionary spending of about $13 million from 2009-13, based on the enactment of related laws in implementing the program, though it "would not affect direct spending."

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Submitted by John Owen on October 2, 2008 - 2:20pm.

John Owen

I find it disheartening that anyone in our industry would continue to advocate for down payment assistance programs. They are, and always have been, a near brush with fraud. The proven levels of default ought to be enough to tell us this is bad policy.

There are legitimate 100% programs out there for borrowers who fit. Perhaps it is far better, though, if we limit financing to those who have at least a little "skin in the game".

This, by the way, comes from someone who has a married child living under my roof because they do not yet fit normal lending guidlines.