New Bill Aims to Save Down Payment Assistance

August 3, 2008 No Comments »

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Just days after the landmark housing bill was signed by President Bush, a bipartisan group is already seeking to amend the provision pertaining to charitable down payment assistance funded in part by sellers.

The bill, known as the “FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008,” or H.R. 6694, is sponsored by Al Green (D-TX), Gary Miller (R-CA), Maxine Waters (D-CA), and Christopher Shays (R-CT).

It would essentially reauthorize and reform charitable DPA, which the group argued has helped more than one million low and middle-income families and individuals achieve homeownership since 1999.

Non-profit down payment assistance would be permitted for FHA loans so long as operators worked in a “transparent manner” to prevent any conflicts of interest.

The bill would also protect the FHA’s financial stability by permanently authorizing risk-based premiums to higher-risk borrowers going forward.

In early June, FHA Commissioner Brian D. Montgomery disclosed that his organization realized about $4.6 billion in long-term losses largely related to seller-funded loans.

And noted that borrowers who relied on seller-financed DPA went into foreclosure three times more than borrowers who came up with their own funds.

He said the loans accounted for a third of the FHA’s loan portfolio, and warned that changes such as risk-based premiums would need to be implemented to mitigate losses and keep FHA solvent.

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