The U.S. Department of Housing and Urban Development last week ended a down payment assistance program it said leads to higher prices and more foreclosures for home buyers, over objections from the House of Representatives.
The program let non-profit organizations including AmeriDream Inc. and Nehemiah Corp. of America fund down payments for low- and middle-income home buyers, and be reimbursed by the sellers of the homes. It was used by more than 100,000 consumers last year and accounted for a third of all Federal Housing Administration loans.
Sellers sometimes try to recover the cost of the fee they pay nonprofits by raising the price of the house an average of 3 percent, a 2005 study by Congress’s nonpartisan Government Accountability Office found. The higher prices contributed to double the rate of foreclosures on homes paid for with FHA-backed assistance, agency audits found.
The new rule “will help prevent more people from being steered into a situation where they don’t understand the fine print and end up being foreclosed upon,” FHA Commissioner Brian Montgomery said.
In July, the House passed legislation that sought to stop the Bush administration from ending the program.
“I’m greatly disappointed and saddened by this action,” Representative Al Green, a Texas Democrat who co-sponsored the House bill, said. “The program could have been fixed and need not have been nixed. It’s of great benefit to persons who don’t have the disposable income for a down payment.”
Nehemiah and AmeriDream, the two largest providers of down payment assistance under this program, said they have filed separate lawsuits in federal courts seeking to block HUD from implementing the new rule.
“It is inconceivable that HUD has taken this action in complete disregard for the House’s passage of legislation that would block it,” Nehemiah President Scott Syphax said.
The U.S. Conference of Mayors and the Mortgage Bankers Association criticized the new rule.
“HUD has essentially pushed the dream of home ownership beyond the grasp of countless American families,” Trenton, New Jersey Mayor Douglas Palmer, the conference president, said.
HUD ruled the arrangements legal in 1998 in response to a request from Nehemiah. They have become increasingly popular with the growing awareness that nonprofit assistance eliminates the buyer’s responsibility for the 3 percent down payment required under FHA loans.
