FHA Seeks To Shut Down Seller-Funded Down Payment Assistance Charities

In a bone-headed, blame the victim move that follows the IRS’ bone-headed blame the victim approach, the FHA has stated its opposition to charities that provide down-payment assistance to home buyers, according to a WaPo Article.    According to a recent report, such programs typically work like this:

Say you want to buy a house, but you don’t have the cash for a down payment. You sign up with a third-party intermediary, typically a tax-exempt charitable organization that advertises its specialty. The seller of the house sends a contribution to the organization roughly equal to the money you need. The intermediary pockets a fee of $400 to $600 and passes along the balance for the down payment.

Whatever happened to the free market and allowing the buyer to make her own decisions, rightly or wrongly, or is that just for rich people?  In his June 9, 2008 speech before the National Press Club, FHA Commissioner Brian Montgomery essentially blamed the housing market meltdown on downpayment assistance charities helping lower and middle income buyers get into starter homes:

Second, legislation must address the risks associated with down-payment assistance that comes from the seller or any other person or entity that stands to benefit from the transaction financially. The IRS, GAO and our own Inspector General have previously expressed concerns with these circular financing schemes. Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments. No private mortgage insurance companies back these loans. They now account for one third of our portfolio.  We are concerned about this business because the substantial losses affect FHA’s bottom line and FHA’s ability to serve American citizens who need access to prime-rate home loans. Given these concerns, we cannot just stand by – we must make our case again. So, today, I announce that we are reopening public comment on our proposed rule. Within hours, we will submit this rule to the Federal Register. It should be online at FHA.gov soon thereafter. The Department is eager to review all comments.

Bovine defecation!  The IRS has already, in another blame-the-victim move, since 2005 engaged in a serious and largely effective offensive against down payment assistance programs under the guise of the “public benefit” doctrine — a doctrines the Service couldn’t distinguish from a hole in its own backside.  THE IRS couldn’t tell us what “improper public benefit” means as it relates to tax exemption if public benefit bit them in the butt!  Anyway, the FHA proposed rule seeking to shut down down payment assistance charities is publisheed at 73 Federal Register 33941 and comments are due by August 8 2008.  At least the notice of proposed regulation admits that at two courts have shot down this stupid proprosal.  The only thing the rule will do is prevent lower and middle income taxpayers from buying a home. 

Still, we can’t have dangerous charities going around helping poor homebuyers get out of the rental trap, can we?  I guess once we get rid of these nefarious down-payment assistance charities the housing market will suddenly and miraculously right itself and fat cats speculating in houses, oil futures, and peddling adjustable rate mortgages can once again make their Bentley payments. 

dkj