FHA Loan Expert Blog

Support Down Payment Assistance
Support H.R. 6694

UPDATE 8-25-2008

Just a few short weeks ago President Bush signed into law legislation that contained a provision to eliminate charitable down payment assistance, effective October 1, 2008.

BUT IT”S NOT TOO LATE…

…The very next day Congress introduced bipartisan legislation H.R.6694 that would reauthorize, reform and save charitable down payment assistance. H.R.6694 must be passed by September 30th and we need your help! It’s time you tell your elected officials in Congress that you support downpayment assistance and urge them to support H.R.6694.

Today, AmeriDream has added a new page to our website: “Upcoming Events”  - Forums’ for you to voice your support of Downpayment Assistance in your communities, to your elected officials. This page will continually be updated and serve as a resource for our supporters to find Events, Rally’s and Town Hall meetings happening in your communities.

Please take the time to join AmeriDream, other industry professionals and homebuyers to support such a critical issue. Together we need to educate your elected officials on the impact the prohibition of non-profit downpayment assistance will have on your community, the entire home buying chain, and the economy. Click here for statistics in your state.

Since 1999, downpayment assistance programs have helped more than one million HUD approved individuals and families become homeowners, using absolutely NO taxpayer dollars! Click here for talking points and to learn more about Downpayment Assistance and H.R.6694. 

Thank you again for your continued support of AmeriDream and Affordable Homeownership Opportunities. We look forward to seeing you at a local event soon.

SupportHomeownership.com

The Bush Administration renews its efforts to address risky government-backed seller-funded downpayment assistance loans that are significantly more likely to lead to foreclosure.  HUD’s Federal Housing Administration (FHA) will reopen the public comment period on a proposed rule that would ban seller-funded downpayment assistance on mortgage transactions insured by the FHA.  The proposed rule will be re-published in the Federal Register and comments will be accepted for 60 days following publication. The rule can also be viewed on FHA’s website. 

In a speech to the National Press Club, HUD’s Assistant Secretary for Housing-Federal Housing Commissioner Brian D. Montgomery warned FHA must take action because these loans, which now make up one third of FHA’s portfolio, are causing substantial losses.  This year, as a result of its annual re-estimate, FHA had to book an additional of $4.6 billion in unanticipated long-term losses, mostly due to the increased number of certain types of seller-funded loans in the FHA portfolio. 

“Given these concerns, we cannot just stand by.  No private mortgage insurance companies back these types of loans.  We are concerned about this business because the substantial losses affect FHA’s bottom line and FHA’s ability to serve American citizens who need access to prime-rate home loans,” Montgomery stressed.

Stressing that FHA is still solvent with reserves of about $21 billion, Montgomery also noted:  “However, no insurance company can sustain that amount of additional costs year after year and still survive. Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate.  That, I think, would have a far-reaching impact on the economy: it would severely reduce the number of new homeowners each year; and it would also sharply reduce the need for the services required to build and maintain homes.  In other words, the negative impact goes far beyond the individuals who would not be able to purchase homes, and would likely be felt across the entire economy.”

The primary focus of HUD’s rule is to establish appropriate standards for downpayment assistance that is categorized as a gift.   Specifically, it would prohibit downpayment assistance provided before, during, or after closing of the sale by the seller, any other person or entity that financially benefits from the transaction, or any third party or entity that is reimbursed directly or indirectly by any of the parties benefiting from the sale. 

The rule would clarify that downpayment funds for FHA-insured mortgages cannot be derived from sellers - directly or indirectly - or any other party that stands to benefit from the transaction financially.  “The IRS, GAO and our own Inspector General have previously expressed concerns with these circular financing schemes.  Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments,” noted Montgomery.

“In its entire 74-year history, FHA has been self-sustaining.  That means that our income has exceeded our costs and we have not needed an appropriation of taxpayer dollars to cover FHA’s operations. That’s pretty unique for a federal program,” Montgomery said.

Permissible sources of gifts as a source of the homebuyer’s investment include a family member, a governmental or public agency, the borrower’s employer or labor union, and a charitable organization that qualifies as a tax-exempt charitable or educational organization.  

In these cases, there is a clear quid pro quo between the homebuyer’s purchase of the property and the seller’s “contribution” or payment to the charitable organization.  Often, these contributions function as an inducement to purchase the home.  One of FHA’s primary concerns with these transactions is that the sales price may be increased to ensure that the seller’s net proceeds are not diminished, and such increase in sales price is often to the detriment of the borrower and FHA.  

Discussing the Bush Administration’s effort to help families stay in their homes, Montgomery also called on Congress to pass legislation that modernizes FHA, which includes addressing the risks associated with seller-funded downpayment assistance.  “Frankly, we need reasonable solutions to the housing crisis.  And I think there is considerable common ground on confronting it.  There is surely a consensus on a number of actions.  But some in Congress are advancing legislation that, while well intentioned, could be problematic for the economy and the country.  Some of the proposed Congressional actions could actually weaken FHA and endanger the housing market by turning FHA into a less stable, less solvent, more bureaucratic entity,” stressed Montgomery.

Clearly, this matter remains an area of significant concern for FHA, and HUD looks forward to receiving and reviewing public comments on the proposed rule.  Commissioner Montgomery’s full remarks can be found on HUD’s website.

Seller funded non-profit FHA down payment assistance appears to be here to stay.  The Penobscot Indian Nation and Ameridream, Inc. have won their lawsuit agains the Department of Housing and Urban Development.  Per the March 2008 order: 

The final rule entitled Standards for Mortgagor’sInvestment in Mortgaged Property, 72 Fed. Reg. 56,002 (Oct. 1, 2007) (codified at 24 C.F.R. § 203.19) is vacated and remanded to the United States Department of Housing and UrbanDevelopment. The Clerk of this Court shall remove Civil Action No. 07-1752 from the docketof this Court. This is a final appealable order.

So, FHA zero down payment continues for millions of homeowners.  Contact your FHA lender for details on how to purchase a home with no money down and non-profit assistance based on the March 2008 Court order.

All-

$100 Down Payment on HUD Homes! 

HUD has announced several new sales incentives on HUD homes that will make these homes more affordable for homebuyers.

The incentives vary from State to State but may include one or all of the following:

- $100 down payments on HUD Homes financed with FHA-insured financing.
- Sizable sales allowances that can be used to pay closing costs, make repairs, or pay down the mortgage amount.
- Broker bonuses for real estate brokers that close owner-occupant sales.

Now is a good time to consider the purchase of a HUD home. Visit the following HUD website for more information about buying a HUD home and to determine the sales incentives that HUD may be offering in your area: hud.gov/salesincentives

AND

Mortgage Industry:  The U.S. Department of Housing and Urban Development, Oklahoma City Field Office, invites you to attend a free FHASecure training in Oklahoma City, OK on December 12, 2007 from 1:30 pm to 3:30 pm conducted by the FHA Denver Homeownership Center.  Please register online at:hud.gov/apps/calendar/event.cfm?state=ok&record=7844&scheduleID=7607&calendarID=40

As a special treat, we would like to invite you to attend the HUD Oklahoma City Field Office “Holiday Come and Go Open House”, also on December 12, 2007.  Please join us prior to the training - the celebration starts at 10:00 am.  If you are unable to attend the training, we hope you still attend our Open House.  All you need to do is show up, enjoy light refreshments, and celebrate the season with us!  Our address is 301 N.W. 6th Street, OKC, OK  73102.  Metered and open parking are available in the surrounding area.

AND

FHA’s National Servicing Center (NSC) has awarded a new mortgage servicing contract.  Effective, December 10, 2007, all correspondence, calls, and servicing will transfer to the following:

C&L Service Corporation –Contractor
Morris-Griffin Corporation-Sub-contractor

Office Address:  2488 E. 81st Street, Suite 700, Tulsa, OK 74137

Main Phone number: 918-551-5300
Main fax number: 918-551-5399
Toll Free Phone: 877-377-8667 
Toll Free Fax:  877-249-0626

AND

San Diego Housing Summit in San Diego will focus on FHA:

On December 5, 2007, the Housing Opportunities Collaborative will present a San Diego Regional Housing Summit that will discuss housing market updates, FHA Programs and FHASecure.  The event is open to housing counselors, realtors, lenders, and other real estate professionals.  Contact: Myrna Pascual at: (619) 557-5310, or Pamela Beard, Housing Opportunities Collaborative: (619) 282-6647, ext. 373 to register.

AND

Other FHA Training around the nation:

December 4-6, 2007 - Irvine, CA. FHA Direct Endorsement Underwriting Training. Sponsored by The FHA Santa Ana Homeownership Center, & the National Association of Professional Mortgage Women. Registration required, fee. More info at: hud.gov/offices/hsg/sfh/events/sca120407.pdf

December 5, 2007 - Phoenix, AZ. FHA Loss Mitigation/FHASecure Class. 9:00a.m. - 5:00p.m. One N. Central, Suite 600, Phoenix, AZ 85004. Register at: 602-379-7132

December 6, 2007 - Rolling Meadows, IL. Originating FHA Loans Training. Sponsored by the Illinois Mortgage Bankers Association. Registration required, fee. More info at: imba.org/

December 11, 2007 - Phoenix, AZ. FHA Programs Update & HECM Training For FHA Mortgage Professionals. Sponsored by The FHA Santa Ana Homeownership Center, The HUD Phoenix Field Office, & the National Association of Professional Mortgage Women. Registration required, fee. More info at: hud.gov/offices/hsg/sfh/events/saz121107.pdf

January 8-9, 2008 - Chicago, IL. FHA Processing & Underwriting training. Sponsored by the Illinois Mortgage Bankers Association. Registration required, fee. More info at: imba.org/

January 16, 2008 – Denver, CO. Basic Direct Endorsement Underwriting. FREE, one-day class covers basic FHA underwriting procedures and updates. The class is geared toward all beginner underwriters, loan officers and processors and will provide a thorough understanding of underwriting FHA-insured loans. Registration required. More info at: hud.gov/event_registration/index_2.cfm?eventID=791

January 17, 2008 – Denver, CO. Advanced Direct Endorsement Underwriting. FREE, one-day class covers advanced FHA underwriting procedures and updates. The class is geared toward all experienced underwriters, loan officers and processors and will provide a thorough understanding of more complex situations regarding underwriting FHA-insured loans. Recommended for those with at least 1 year experience of DE underwriting. Registration required. More info at: hud.gov/event_registration/index_2.cfm?eventID=792

February 20-21, 2008 - Oklahoma City, OK. Early delinquency servicing activities and HUD’s Loss Mitigation program training for HUD-approved mortgagees, HUD-approved Housing Counselors, and Nonprofit Housing Counselors. Registration required, no fee. More info at: hud.gov/offices/hsg/sfh/nsc/training.cfm

May 14-15, 2008 - Oklahoma City, OK. Early delinquency servicing activities and HUD’s Loss Mitigation program training for HUD-approved mortgagees, HUD-approved Housing Counselors, and Nonprofit Housing Counselors. Registration required, no fee. More info at: hud.gov/offices/hsg/sfh/nsc/training.cfm

August 20-21, 2008 - Oklahoma City, OK. Early delinquency servicing activities and HUD’s Loss Mitigation program training for HUD-approved mortgagees, HUD-approved Housing Counselors, and Nonprofit Housing Counselors. Registration required, no fee. More info at: hud.gov/offices/hsg/sfh/nsc/training.cfm

Online FHA Processing Training Class for Mortgage Processors, Underwriters & Originators. Sponsored by the IRC. Live, instructor led online FHA training classes to students nationwide. Registration required, fee. More info at: fha-training.org/

For more information on, and to register for these training opportunities please visit: hud.gov/offices/hsg/sfh/events/events.cfm

There are many rumors swirling around the rule HUD issued to eliminate down payment assistance on FHA loans.  HUD has been ordered by a Federal District Court judge that they are not to enforce the rule, until the court has made a determination of whether the rule is legal and proper.

There are a number of mortgage loan programs that are available in Florida.  One of the most popular these days is the Florida FHA loan.  The advantages of an FHA loan in Florida are apparent.

FHA provide a 3% down payment option that can be gifted

Many Florida properties are within FHA loan limits

Florida FHA loans may be obtained with some bad credit

FHA loans in Florida have low fixed rates

OK, I’ve typed enough about the Florida FHA loan for today.  Please consider your FHA options in FLorida for a Florida fixed rate FHA loan carefully.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 203 [Docket No. FR-5087-F-02] RIN 2502-AI52
TITLE: Standards for Mortgagor’s Investment in Mortgaged Property
AGENCY: Office of the Assistant Secretary for Housing–Federal Housing Commissioner, HUD.
ACTION: Final rule.

DATES: Effective Date: October 31, 2007.

SUMMARY: This final rule amends the Department’s regulations governing the specific standards for a mortgagor’s investment in property for which the mortgage is insured by the Federal Housing Administration (FHA). Specifically, this final rule codifies HUD’s longstanding practice, authorized by statute, of allowing a mortgagor’s investment to be derived from gifts by family members and certain organizations. The standards established by this final rule address a situation in which the mortgagor’s investment is derived from a gift, loan, or other payment that is provided by any donor, including an individual or an organization, and also specify prohibited sources for a mortgagor’s investment. The final rule establishes that a prohibited source of downpayment assistance is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale: The seller, or any other person or entity that financially benefits from the transaction; or any third party or entity that is reimbursed directly or indirectly by the seller, or any other person or entity that financially benefits from the transaction.
 
This final rule follows publication of a May 11, 2007, proposed rule and takes into consideration the public comments received on the proposed rule. After considering all comments received, HUD is adopting the May 11, 2007, proposed rule with certain minor clarification changes.

According to Nehemiah’s webiste getdownpayment.com, Nehemiah Corporation of America is “a not-for-profit community development corporation specializing in homeownership, affordable housing and community development….The nation’s largest privately funded downpayment assistance program. Since 1997, we have assisted over 230,000 families working with Realtors, builders and lenders nationwide to provide more than $900 million in downpayment gift funds.”  Here’s what Nehemiah’s president had to say about the recent HUD rule. 

October 1, 2007

Dear Colleague,

Today HUD published its rule known as “Standards for Mortgagor’s Investment in Mortgaged Property.” This rule threatens the existence of privately funded downpayment assistance. Below is an excerpt of a press release issued today that describes my assessment of the situation.

“HUD’s action to move forward with banning privately funded downpayment assistance programs is outrageous and we have responded by filing a lawsuit in Federal Court yesterday to challenge the merits of HUD’s damaging rule and to seek an injunction blocking implementation of this rule. It is inconceivable that HUD has taken this action in complete disregard for the House’s passage of legislation that would block it, driven by strong bipartisan support from House Financial Services Sub-Committee on Housing Opportunity Chair Congresswoman Maxine Waters (D-California) and fellow committee member Congressman Gary Miller (R-California). To date, privately-funded downpayment assistance programs have helped over 600,000 families become homeowners, and have been credited not only for helping people buy homes, but also stabilizing neighborhoods and cities and creating stronger families. As evidenced by the over 15,000 letters sent in opposition to HUD by families across the country, programs like The Nehemiah Program continue to be a lifeline for families working to reach the dream of homeownership. Further, broad opposition to this proposal by groups including the National Association of Home Builders, the Mortgage Bankers Association, the US Council of Mayors, and National Association of Counties speak to the validity and importance of seller-funded downpayment assistance programs. We remain hopeful that the legislative process reaches a successful conclusion.”

The HUD Rule has 3 major components:

1. Under the new rule downpayments cannot be derived from sellers directly or indirectly or any other party that benefits financially.

2. The rule takes effect on October 31, 2007 for all DPA providers except The Nehemiah Program.

3. Due to a 1998 legal settlement between Nehemiah and HUD, the effective date for The Nehemiah Program is March 31, 2008. The excerpt from the final rule states:

“…pursuant to an April 1998 settlement agreement resolving litigation between the Nehemiah Progressive Housing Development Corporation (Nehemiah) and HUD, the effective date shall be March 31, 2008 for the Nehemiah downpayment assistance program described in the settlement agreement between Nehemiah and HUD.”

Since May, Nehemiah has led the fight against this controversial rule, and will continue to take every possible step to preserve the option of privately funded downpayment assistance for low- and moderate-income homebuyers. We expect Congress to continue their opposition to the HUD rule. So far, the House of Representatives has opposed the HUD rule by including language in the FHA Reform Bill and the HUD 2008 Appropriations Bill that protects DPA. The Senate is presently working on its version of the FHA Reform bill and Nehemiah is diligently working with its leadership to make sure our concerns are heard.

We intend to prevail and ask for your support in preserving downpayment assistance by contacting your Congressperson and Senators to voice your concern about the elimination of downpayment assistance programs. Locate your elected officials by visiting takeaction.ahaanow.org/ahaa/home.

You can count on Nehemiah to keep you informed on the latest information surrounding the downpayment assistance industry. Stay up-to-date by visiting getdownpayment.com or call us at 877-634-3642 from 9:00 a.m. - 8:00 p.m. EST for answers to your questions.

On behalf of the Nehemiah family, I thank you for your support. Stay tuned!

Sincerely, 

Scott Syphax
President & CEO
Nehemiah Corporation of America
424 North 7th Street, Suite 250
Sacramento, CA 95811

Was today’s HUD rule the seller-funded-down-payment-knockout-punch?  Maybe it was.  Maybe it was not.

Stay tuned!

WashingtonPost.com reported on FHA Seller Funded Down Payment Assistance Programs (DPAs) yesterday.  I wonder if this HUD Rule will be challned in some way?  Time will tell.  For now, at least, it looks like here will be no more seller funded DPAs helping homebuyers to purchase.

From the WashingtonPost article we read:

The Federal Housing Administration will prohibit borrowers from using seller-financed down payment assistance programs that have helped hundreds of thousands of people buy homes but have come under the scrutiny of federal authorities.

Such programs allow home sellers to give money to charities, which in turn assist buyers with their down payments. The sellers pay the charities a service fee, but often recoup the money by charging a higher price for the homes, usually 2 or 3 percent more, or an amount equal to the down payment, according to a 2005 study by the Government Accountability Office.

In a conference call with reporters, Federal Housing Commissioner Brian Montgomery said the FHA will publish its new rule in the Federal Register on Monday. The rule, which is little changed from a preliminary version put out for comment in May, will go into effect 30 days after publication.

“These contributions often function as an incentive to purchase the home,” Montgomery said. “But these gifts are ultimately paid for by the borrower through a higher mortgage amount. The home buyers are often unaware that the ‘gift’ is something they end up paying for and is not a ‘gift’ at all.”

Almost 200 charities nationwide — one of the largest is AmeriDream in Gaithersburg — have participated in such arrangements. But the Internal Revenue Service and other government entities have raised concerns, particularly after the GAO study found that borrowers receiving assistance from the charities were more than twice as likely to default or become delinquent than other FHA borrowers were.

In a ruling last year, the IRS went so far as to call the seller-financed programs “scams,” accusing the charities of inflating home prices.

“Down payment assistance programs administered by charities have unfortunately been an area where my investigations and the IRS have found a great deal of abuse,” said Sen. Charles E. Grassley (R-Iowa), who has pushed for changes.

Ann Ashburn, president of AmeriDream, criticized the FHA rule and said there is no evidence that down payment programs raise prices.

The housing market has deteriorated so much that home prices cannot be inflated, she said. “At the end of the day, the buyer has the ultimate say.”

Borrowers with FHA-insured loans will still be able to get down payment assistance from family, employers, governmental entities or charitable organizations. But Ashburn said seller-financed down payment assistance has accounted for 30 to 50 percent of FHA purchase loans in recent years. The new rule, she said, would keep low-income borrowers from buying homes and further weaken the housing market.

“The rule does discriminate between the haves and the have-nots,” she said. “People who have money from mom and dad or have money on their own are still okay . . . but people who have no access to any sources — those are the have-nots — that group is now going to be discriminated against.”

The Mortgage Bankers Association also blasted the ruling. The programs provide “important assistance to cash-strapped borrowers,” said Steve O’Connor, the association’s senior vice president of public policy.

“While there is a need for stronger quality control measures, we shouldn’t throw the baby out with the bathwater and end the program,” he said.

Others called the ruling prudent.

“Given the poor performance of these loans, we can understand why . . . [the FHA] took the steps they did to shut it down,” said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.

Advanced Notice

This week we are anticipating that HUD will issue its final rule on down payment assistance (DPA) and attempt to eliminate all forms of “seller-funded” DPA.  If HUD takes this action, it will be challenged in order to protect homeownership opportunities for low-and moderate-income (LMI) homebuyers and your ability to serve them.

Congressional Support for DPA & Lower Income Homebuyers

Federal lawmakers have recently passed legislation supporting privately-funded DPA programs and barring HUD from implementing its rule on DPA.

The House of Representatives, by an overwhelming margin, has passed the Expanding American Home Ownership Act of 2007, which includes an amendment by Congressman Gary Miller to allow qualified DPA providers to participate in the FHA program. Also, the House passed its version of 2008 funding for HUD which includes language protecting DPA and LMI homebuyers by eliminating any funding for HUD to implement its DPA rule.

As the Senate works on passage of its FHA reform legislation, concerns about HUD’s actions have been raised. In a recent interview with National Mortgage News, Senator Allard stated, “HUD seems to feel they have the authority to move forward on their own. At the very least, I think they need to consult with the Congress and seek out our consent.”

As you know, Nehemiah and AmeriDream have a long history of successfully protecting and advancing homeownership opportunities for LMI homebuyers. Once again, we are prepared to protect opportunities for the homebuyers we serve.  Look for additional information from us as events unfold.  Be assured that we will continue to be your trusted source of information on this important matter.

Go to getdownpayment.com for more information.