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It looks at least one congressman is trying to resurrect the downpayment assistance program. Part of the recent housing bill was a provision that halted a program that allowed people to buy a house through the FHA with no money down. The program was a blatant loophole in FHA regulations but it was a very useful loophole. FHA currently will finance up to 97% of the value of a home. Sellers are not allowed to pay that other 3% directly but buyers are allowed to use gift funds for the extra 3%. There was a loophole that allowed sellers to give the 3% to a “charity” organization with the understanding that this non-profit “charity” would then pay the other 3% of the purchase price on the house as a “gift” to a buyer. This work around was openly used and even defended in court a few years ago. The new legislation officially will put an end to these so-called charity organizations acting as a go-between in order to skirt the rules on downpayments.

The new law was championed by the FHA itself. The leadership of the FHA insisted that people who did not use their own money as a downpayment were significantly more likely to default on the loan later, leaving the FHA holding the bag on the foreclosed home. Proponents of the practice insist that the program opened the door for home ownership to millions of Americans who otherwise would not be able to buy.

There is a good article over at FortBendnow.com on the subject. Here is an excerpt:

Just before Congress recessed last week, Rep. Al Green (D-Houston) introduced a bill that would reinstate the FHA seller-funded down payment assistance loans.

Green, a member of the House Financial Services Committee, introduced HR 6694, also called that FHA Gift Down Payment Reform and Risk-Based Pricing Authorization Act of 2008, last Thursday. Green had previously attempted to include the down payment plan as a part of the American Housing Rescue and Foreclosure Prevention Act, which was signed by President Bush a week earlier.

Green’s provision was left out of the final version of the mortgage relief act that Bush signed.

Working with Housing Subcommittee Chair Maxine Waters and members of the Financial Services Committee, Green crafted the new legislation to allow borrowers with certain credit scores to obtain seller-funded down payment assistance through charitable organizations.

Green said mortgage assistance is a proven way to help Americans become homeowners.

Comments (0) Posted by G.R.A. Admin on Monday, August 4th, 2008


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