FHA Threatens to Ban Downpayment Assistance Programs

Today, the New York Times revealed the FHA's plan to do away with downpayment assistance programs offered through non-profits because they expect $4.6 Billion in losses, which they attribute to these programs. FHA commissioner, Brian D. Montgomery, warns that the F.H.A., "would have to renew its efforts to end the seller-financed down payment program, which accounted for 35 percent of its loans in 2007."

Rachel L. Swarns, the writer of this news piece explains how these seller-financed downpayment programs work:

"Under the program, a home seller arranges to cover the buyer’s down payment, using financial help from a nonprofit company, but typically adds that sum or more to the price of the house. The deal has been particularly attractive to financially struggling buyers and to owners in depressed markets, according to Congressional officials."

There is much debate with congressional leaders as to whether or not the FHA should ban these programs. On one side, critics say that these programs put overpriced homes in the hands of the poor. On the other side, supporters claim that banning these programs would make homeownership unattainable for low income families.

I believe there is a middle ground somewhere. Downpayment assistance programs are ok so long as buyers can afford them. The problem starts when buyers cannot afford the higher purchase price that results from adding the downpayment and closing costs to the purchase price so that the seller is willing to pay them on the buyer's behalf. Instead of banning these important programs, it would make more sense to implement stricter income qualifying requirements for buyers intending to use these downpayment assistance programs OR any other alternative to a straight ban on downpayment assistant programs.

Read full article here, F.H.A. Faces $4.6 Billion in Losses.