Home buyers lose another option

DEVONA WELLS; devona.wells@thenewstribune.com
Last updated: August 2nd, 2008 01:27 AM (PDT)

Private down payment assistance, which allowed the seller to contribute up to 6 percent toward the buyer’s purchase, was banned as of Oct. 1 under the national mortgage bill signed this week by President Bush. Such down payments were used for loans insured by the Federal Housing Administration.

But it turns out the FHA, along with the Internal Revenue Service, had long criticized the down payment programs because of their relatively high failure rate and for supposedly inflating the price of the home to cover the seller’s contribution to the down payment.

Doing away with the programs eliminates one of the few remaining ways borrowers still could get into a home with little or no money down, said David Erickson, president of the Washington Association of Mortgage Brokers.

“There are instances where it works and where it’s done wrong, and that shouldn’t be tolerated,” he said.

No-money-down options still available include loans made through the Department of Veterans Affairs and a USDA program for rural properties, he said. The zero-down mortgage might make a limited comeback once the market settles down, he said.

“If it comes back, it will be extraordinarily restrictive,” he said.

Mortgages in recent years that required little money from the borrower shoulder much of the blame for today’s housing and credit market slowdown.

But Nicole Rosen, a mortgage broker in Roy, said this week that the soon-to-be-banned down payment assistance helped prospective buyers as housing prices outpaced their ability to save.

Rather than taking options away from borrowers, she said, resources should be used to better educate them.

“I think it’s going to be absolutely devastating to the industry as a whole. FHA’s own estimate is that down payment assistance comprises about 40 percent of their transactions,” she said. “If the seller is willing to give you equity in the house, I don’t see why we’re closing the door on that.”

Sellers who participated in the down payment programs made a donation to an organization, such as The Nehemiah Corp. of America, that would then give it to the buyer.

A statement from Scott Syphax, CEO of The Nehemiah Corp., said Wednesday that the group would fight to get the down payment assistance program reinstated.

“We hope that Congress and President Bush wake up with a clear conscience tomorrow, knowing that millions of Americans will awake to a law that leaves them with zero alternatives for attaining homeownership,” the statement said.

From a lender’s point of view, said Rich Bennion, executive vice president of Seattle-based HomeStreet Bank, money contributed by a borrower tends to make a better loan than one without.

“On another hand, I’m an advocate for homeownership and I’m an advocate for tools to aid the buying and selling of homes, so part of me feels like I hate to see this go away. But I think there are other avenues to address situations where people need a down payment,” he said.

He pointed to mortgage assistance through the Washington State Housing Finance Commission and gifts, such as money from a parent, that the FHA allows a borrower to use as part of a down payment.

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Originally published: August 2nd, 2008 01:27 AM (PDT)