WASHINGTON — Down payment assistance–a controversial home purchasing practice that was eliminated under the massive housing bill recently signed into law–could be resuscitated.
A bill requiring that the FHA accept seller-provided down payments has been introduced in the House of Representatives. The FHA Seller-Financed Down Payment Reform and Risk-Based Pricing Authorization Act of 2008 (H.R. 6694) was given the light of day with bipartisan support from the House.
NAFCU Associate Director of Legislative Affairs Eddie Ambrose said, "In general we support programs that allow consumers to borrow, but we want to make sure that consumers can afford the loan. We also recognize that with subprime loans, it can be a difficult call to make because not all subprime loans are inherently bad. We are concerned that credit terms dictated in the statute do not provide for market flexibility and that regulators should have the authority to make regulatory changes."
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Down payment assistance allows the seller of a property to give the buyer the down payment needed to purchase the property.
The Housing and Economic Recovery Act of 2008–the major housing bill signed into law as a response to the mortgage lending crisis–eliminated DPA programs as of Oct. 1 as part of a compromise between the House and Senate versions of the legislation. The Senate version of the housing bill had banned the practice, while the House version let it stand. The Bush administration supported the ban against DPA as did the Federal Housing Administration.
FHA Commissioner Brian Montgomery has said that loans with DPA perform much worse than those without DPA.
"Data clearly demonstrate that FHA loans made to borrowers relying on seller-funded down payment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own down payments," he stated.
The agency has also argued that the practice increases home prices because sellers who take advantage of DPA inflate the price of their homes in order to give buyers the cash needed to make the down payment.
Proponents of private DPA programs said numerous homebuyers will be adversely affected if DPA is not reinstated. The Nehemiah Corp. of America, one of the largest DPA firms, said that that as many as one-quarter of potential homebuyers will be unable to purchase a property without DPA.
The bill also authorizes the FHA to apply a risk-based pricing structure for FHA mortgage insurance on loans. The pricing would be based on the borrower's FICO credit score. The new housing law had delayed the implementation of risk-based pricing for one year.
H.R. 6694 was introduced in late July by Rep. Al Green (D-Texas) and co-sponsored by Reps. Gary Miller (R-Calif.) and Maxine Waters (D-Calif.). The bill has been referred to the House Financial Services Committee.
CUNA could not provide a statement by press time.
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