Industry NewsMortgage

Government report warns of down-payment-assistance pitfalls

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Nonprofit groups such as AmeriDream and Nehemiah Corp. of America seem to offer great deals, giving "gifts" to consumers covering the down payments on their government-backed mortgages. But a new government report warns that these gifts may do more harm than good. Homes bought with seller-funded nonprofit help cost 2 percent to 3 percent more and are twice as likely to go into default, according to a November report by the Government Accountability Office, the investigative arm of Congress. Groups like Nehemiah and AmeriDream provide down payment "gifts" to individuals who meet the Federal Housing Authority's qualifications for a mortgage, but lack the cash to make a down payment or pay closing costs to buy a home. The "gifts" typically range from 2 percent to 5 percent of the purchase price, and home buyers aren't required to repay the money. While such practices sound good for consumers, concerns about their advisability have dogged the programs, which have been under examination b...