Congressman Tries to Revive Seller-Funded Down Payment Assistance Program

Washington, DC — September 16, 2008
By: Benton Ives, CQ Today

The House Financial Services Committee will mark up legislation Tuesday that would reinstate a program allowing home sellers to provide down payment assistance for buyers with government-backed mortgage insurance.

The recently enacted housing law (PL 110-289) eliminated a program that allowed sellers to provide down payment assistance for mortgages backed by the Federal Housing Administration (FHA). Many Republicans and the Bush administration oppose the program. They argue that loans with down payment assistance are much more likely to default than loans made to buyers who come up with a down payment on their own.

But low-income-housing advocates say the program is essential and eliminating it would disproportionately hurt minorities. The bill (HR 6694) to be considered Tuesday would allow down payment assistance under the current program guidelines for borrowers with credit scores higher than 680.

Borrowers with credit scores above 620 could participate but would have to pay a risk-based mortgage insurance premium to cover possible defaults. The premium would be 3 percent of the principal initially and about 1.2 percent of the principal balance as an annual premium.

“I introduced this bipartisan bill, HR 6694, to revive this critical program under new standards that will effectively balance the risk of potential foreclosures with the goal of increasing homeownership,” said bill sponsor Al Green, D-Texas.

“Seller-funded down payment assistance helps hard-working Americans achieve the dream of homeownership with no cost to taxpayers. I strongly believe that we can mend the seller-funded down payment assistance program rather than end the program by passing HR 6694.”

The National Association of Black Mortgage Brokers, National Urban League, National Association of Mortgage Brokers and Nehemiah Corporation ofAmerica support the bill.

Difficulty Seen in Senate

The measure would face an uphill climb to enactment. With the session drawing to a close, there is a shrinking time frame for moving significant legislation. And strong opposition from the Bush administration would likely doom the bill in the Senate.

Bill supporters point to an analysis from Matrix Global Advisors, a Washington consulting firm, showing that minorities, particularly African-Americans, will be disproportionately hurt by eliminating the program.

The research, which analyzes public data provided by the Department of Housing and Urban Development, found that more than 40 percent of all African-Americans who receive FHA-insured loans rely upon seller-funded assistance. Some 27 percent of Hispanics with FHA-backed loans receive seller-funded down payment assistance.

The markup is scheduled for 1 p.m. Tuesday in 2128 Rayburn.

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For additional information, please contact Shelley Mitchell, smitchell@nehemiahcorp.org, 916-231-1999.

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