Just as seller-funded downpayment assistance appeared to be on its way out the door, new legislation has been introduced to bring it back.
H.R. 3221, The Housing and Economic Recovery Act of 2008, became law on Wednesday. Among numerous provisions in the bill was the elimination of DPA programs by Oct. 1.
DPA enables the seller of a property to give the buyer the downpayment. Such programs effectively create 100 percent loan-to-value mortgages where the borrower has no skin in the game.
In an announcement issued following the signing of the new law by President Bush on Wednesday, DPA provider AmeriDream issued a statement warning about lost homeownership opportunities and indicating that more than 1 million loans insured by the Federal Housing Administration have been made utilizing DPA -- generating almost $10 billion in home equity.
AmeriDream claims is has enabled more than 250,000 borrowers to purchase homes with DPA.
Rival DPA firm The Nehemiah Corporation of America had harsh words for Bush.
"As he signed the housing bill into law this morning, President Bush conceded with Congress that hard working Americans who have not been able to save a downpayment are not worthy of homeownership," Nehemiah President and Chief Executive Officer Scott Syphax said in a press release Wednesday. "We hope that Congress and President Bush wake up with a clear conscious tomorrow, knowing that millions of Americans will awake to a law that leaves them with zero alternatives for attaining homeownership."
Nehemiah cited research that claimed as many as one-quarter of potential homebuyers will be unable to purchase a property without DPA.
But FHA Commissioner Brian Montgomery recently told the National Press Club that FHA loans with DPA perform more poorly than those without DPA.
"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," he stated.
However, while the new law eliminated DPA programs, AmeriDream announced today that bipartisan legislation to reauthorize and reform charitable DPA was introduced by sponsors Rep. Al Green of Texas, Rep. Gary Miller and Rep. Maxine Waters, both of California, and Rep. Christopher Shays of Connecticut.
In addition to restoring DPA, the bill, H.R. 6694, also authorizes the secretary of the Department of Housing and Urban Development to implement risk-based pricing on FHA loans. The new housing law had delayed the implementation of risk-based pricing for one year.
"The bill further seeks to ensure that providers of the downpayment assistance operate in a transparent manner to guard against conflicts of interest," AmeriDream said.