REALTORS’ Marketing Association

Frank says HUD supports compromise bill

By Matt Carter, Wednesday, September 10, 2008.

STOCKTON, Calif. — A last-ditch effort to head off an Oct. 1 ban on the use of seller-funded down-payment assistance with FHA-backed loans is picking up steam as a compromise bill, that would mend rather than end the practice, gains momentum.

HR 6694, which would allow home builders to continue funneling down-payment assistance through nonprofit groups to home buyers using FHA loans, is certain to pass the House of Representatives and has the blessing of the Department of Housing and Urban Development, Rep. Barney Frank, D-Mass., said at a hearing on foreclosures this weekend…

HR 6694 would automatically allow qualified borrowers with credit scores of 680 or above to use seller-funded down-payment assistance on FHA-backed loans, Frank said. Borrowers with scores between 620-680 who relied on seller-funded gifts might be subject to higher insurance premium fees.

Borrowers with scores below 620 would be excluded from using down-payment assistance until mid-2009, when HUD would be permitted to expand the program to include them if the Secretary of Housing determined it could be done without putting a dent in FHA’s insurance requiring taxpayer subsidies.

HUD has sought to end the use of seller-funded down-payment assistance with FHA loans outright, claiming the practice artificially inflates home prices and that borrowers who relied on the gifts are more likely to default.

Although FHA loan guarantee programs have always been self-sustaining — they are funded by premiums paid by borrowers, and not taxpayers — HUD said the enormous growth in the use of seller-funded gifts and the poor performance of the loans threatens to put the insurance fund in the red.

Nonprofits that funnel payments from home builders to lenders to help borrowers meet minimum down-payment requirements on FHA loans dispute HUD’s claims and have filed lawsuits that delayed HUD’s implementation of a rule change banning the practice… But the passage of HR 3221 made those court challenges moot.

Home builders — many of whom relied on seller-funded gifts to close 20 percent to 30 percent of their sales in the second quarter — have been bracing for the end of the program, and some lenders have already stopped processing such loans…

Democrat U.S. Rep. Dennis Cardoza, a former Realtor who represents Merced, Modesto and Stockton, also said down-payment assistance programs are “critical” in the region. “We have low-income folks who still have the ability to pay but don’t have the ability to bring large down payments. When I was a Realtor, I had hundreds of folks tell me that’s how they got into their house.”

If Congress does take action to preserve FHA’s ability to accept seller-funded down-payment assistance, it would have to move quickly. Although the ban mandated by HR 3221 doesn’t take effect until Oct. 1, builders like Lennar Corp. have set a Sept. 23 deadline for loan applications involving seller-funded gifts.

Nehemiah President and CEO Scott Syphax, who also attended the hearing, said he believes HR 6694 — currently awaiting a hearing in Frank’s Financial Services Committee — can emerge from the House and Senate in time to beat the deadline…

Nehemiah and other supporters of down-payment assistance programs, including the National Association of Mortgage Brokers, the National Association of Black Mortgage Brokers and the National Urban League are planning a rally in Washington, D.C., on Wednesday.

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Tags:  down payment assistance program