Concern Grows About No- And Low-Money-Down Programs Supported by Builders, FHA
- Jun 24, 2008
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.