AmeriDream, Nehemiah Lobby for their Lives

Written by: Steve Cook   Tue, February 3, 2009 Market Analysis

Was the ban on seller-financed down payment assis­tance passed by Congress last July a death warrant to down payment assistance groups like AmeriDream and the Nehemiah Corporation and a blow to builders like Lennar Corporation, who at one point relied on down payment assistance for a third of all the mortgages it originated?

Or is it too soon to count DPA groups out? They’ve fought off the IRS and HUD in the past and now they are engaged in the struggle of their lives to bring back down payment assistance for HUD and FHA financed loans-a third of today’s market.

The ban ordered by Congress in July took effect Octo­ber 1. Since then, a borrower’s down payment for any loan backed by the FHA cannot come from 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.

HUD has charged for years that borrowers using seller-financed down payment assistance default at rates as much as two to three times higher than other FHA bor­rowers.

On Nightly Business Report last year, former HUD of­ficial Howard Glaser charged, “It’s a well-intentioned program that’s turned into little more than a Federally financed mortgage scam. The victim is often the bor­rower, who is lured into a home they can’t afford by a Federal program. The losses on these loans far out­weigh any other Federal housing program and indeed jeopardize the very stability of FHA at a time when we need it most. It’s the wrong policy at the wrong time.”

Even though they have been shut out of the FHA busi­ness, the DPAs have not given up. Nehemiah, based in Sacramento, CA, and AmeriDream, in Gaithers­burg, MD, have mounted a full court lobbying press to change Congress’ mind. Together the two charities spent nearly $1 million on lobbying the Hill last year-even by Washington standards an extraordinary sum for charities to spend on a single issue. The money went for top shelf lobbyists, lawyers, and the latest gimmick in Web advocacy, a “Web community,” at www.DPA­,

Their most powerful ally in the House, Rep. Maxine Waters (D-CA), chair of the House Financial Services Subcommittee on Housing and Community Opportu­nity, supports legislation introduced by Rep. Al Green (D-TX). Supported by Nehemiah and Ameridream, the Green bill tried to get around the default problem by limiting use of seller-provided down payment assistant to borrowers with credit scores above 679 (the national average is 730). Those with lower scores will pay a risk-based mortgage insurance premium to cover their possible defaults. Borrowers with scores below 620 would be subject to HUD-established risk-based pric­ing if HUD finds them eligible.

The DPAs claim they’ve generated 32,000 emails and calls to Congress from their supporters, a good start, but will it be enough? The DPAs may have contributed to a high default rate, but they also put thousands of families in homes who are still in them today. Chair­woman Waters is a powerful voice in the House. New HUD Secretary Shaun Donovan is a passionate advo­cate for affordability. The Green bill’s FICO score for­mula might just be the right tool at the right time to give down payment assistance another lease on life. Don’t count the DPAs out.

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