The largest U.S. provider of seller-funded downpayment assistance today made a plea to reinstate the practice, using FDIC Chairman Sheila Bair’s recent testimony regarding foreclosure prevention as a backdrop for its argument.
Scott Syphax, president and CEO of the Nehemiah Corporation of America, made the following remarks in a press release:
“As families and communities struggle under the overwhelming weight of foreclosures, it is imperative that the Administration consider reinstating seller-funded downpayment assistance (DPA). Before its elimination last month, DPA helped more than a million hardworking families become homeowners. If given the option, hundreds-of-thousand more working families would happily take advantage of depressed prices and purchase foreclosed homes, deflating the overstock of inventory that is fueling the housing crisis.”
“Further, distressed families could easily refinance out of risky adjustable rate mortgages into low-interest, fixed FHA mortgages using DPA. I applaud Chairwoman Bair for offering solutions to the foreclosure fallout and call upon our elected officials to open their eyes to the role that DPA can play in alleviating stress on the economy and families in this foreclosure crisis.”
There’s just one problem, according to FHA Commissioner Brian D. Montgomery, FHA loans that rely on seller-funded DPA go into foreclosure three times more than loans where borrowers make their own down payment.
Not only that, but he noted that the billions in losses incurred by the FHA were fueled by an increased number of seller-funded DPA loans, putting the FHA itself at risk as a going concern.
On October 1, 2008, seller-funded downpayment assistance was eliminated as part of the Housing and Economic Recovery Act of 2008.