Concern Grows About No- And Low-Money-Down Programs Supported by Builders, FHA

Washington, D.C.–Although private lenders have basically phased out mortgages allowing consumers to put little to no money down, some are still available through a government-backed program–despite concern about the mortgages’ safety level, Federal housing officials are working to eliminate the loans, but homebuilders are currently utilizing no-money-down programs to sell excess inventory.”I just smell a massive taxpayer burden coming,”¬† Sen. Christopher Bond (R., Mo.) told The Wall Street Journal.Downpayment assistance programs run by nonprofit organizations support the mortgage plans, which can include 100 percent financing.¬†Builders aren’t the only ones providing funding. Private homeowners who are eager to sell their homes also fund groups that work to provide enough money for a 3 percent down payment so a buyer can qualify for a Federal Housing Administration-backed mortgage.Supporters say the programs help the Washington, D.C.-based FHA work with first-time buyers; critics fear the programs will cost taxpayers. This month, the FHA said that it will have to ask for a government subsidy for the first time in its 74-year history due to larger-than-average default rates for seller-assisted downpayment plans.Nonprofit-funded downpayments were used in 34 percent of all 200,000 FHA-backed loans so far this year, the FHA said. In 2003, 18 percent of FHA loans involved nonprofit-funded downpayments; less than 2 percent of the loans the FHA supported in 2000 involved nonprofit downpayment programs.