The Return of Assistance?

Posted by ecreal on December 20th, 2009

housing, mortgage

We could all use a little assistance now and then for things like washing dishes and jump-starting a car. How about some assistance making a down payment on a house? This might sound like a bigger favor than an extra hand with the dishes, but once upon a time there was such a thing as down payment assistance programs that allowed sellers or third party organizations to contribute to the funding of down payment and closing costs for FHA loans. These programs existed until 2008, when George W. Bush signed The Housing and Economic Recovery Act of 2008 (H.R. 3221), which included a ban on seller-funded down payment assistance programs.

Despite this ban, there may be a chance of a possible revival of these assistance programs in the future. In January 2009, a bill called the FHA Seller-Financed Downpayment Reform Act of 2009 was introduced. This bill is designed to amend the National Housing Act to allow for exceptions to the ban on mortgage insurance for mortgages involving down payments assisted by the seller, a third party, or anyone else that benefits as a result of the transaction. It only applies to creditworthy borrowers who meet specific credit standards.

As of now, the bill remains in the first phases. It has been referred to the House Committee on Financial Services, but has a ways to go before becoming a law.

How could passing this Act be beneficial?

Supporters of down payment assistance programs note that some programs offer additional cost coverage, easing the transition to homeownership for many first-time home buyers. In addition to the recently extended Home Buyer Tax Credit, down payment assistance could help stimulate the housing market and drive prices back up.

How could passing this Act be detrimental?

Some argue that down payment assistance programs allow for distortion of home values. They believe these programs encourage sellers to mark up prices to make up the difference. There is also speculation of higher rates of default for loans that received down payment assistance because it enables people to buy homes they can’t afford.

What do you think about the FHA Seller-Financed Downpayment Reform Act of 2009? Would you like to see it pass?

Sources: FHA.com. www.fha.com. Govtrack.us. www.govtrack.us.
Photo by: Rombla // CC BY 2.0