The Housing and Economic Recovery Act, which became law last week, contained a provision which forbids the Federal Housing Authority (FHA) from insuring mortgages where the borrower’s downpayment comes from a private downpayment assistance provider. The provision goes into effect beginning October 1, 2008. Also, as of that date, the minimum downpayment will be increased from 3% to 3.5%. The elimination of such private downpayment assistance would not stop the Flagstaff or Coconino County downpayment assistance programs, which help first-time homebuyers in the Flagstaff area who are employed in or around Flagstaff. Nor would the provision eliminate gifts from family members, from the borrower's employer or labor union, or from a charitable organization that qualifies as a tax-exempt charitable or educational organization. So, what private sources will be eliminated? Essentially, “gifts” that come from the seller of the home and pass through Nehemiah Corporation of America and other similar private corporations that take money from home sellers and pass them through as “gifts” to the home buyer specified to receive the down payment assistance. FHA’s chief said in June that "Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded down-payment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own down payments." Since part of the purpose of the Housing and Economic Recovery Act of 2008 was to put FHA on firmer financial footing, it seemed to make sense to address these high risk loans. But, halting such assistance as the housing market is trying to recovery could be a problem, too. Nehemiah Corporation claims “By FHA's own estimates, [downpayment assistance] comprises nearly 40% of FHA's volume. This means more than 300,000 working class families will be locked out of homeownership in the next year alone. Communities across America will take the brunt of the $50 billion in lost real estate sales, not to mention the indirect impact on the real estate, mortgage and building sectors that will be forced to shed tens of thousands of jobs due to this dangerous legislation.” Congress to the rescue! The ink was hardly dry on the President’s signature on the new law when four Congressmen introduced bipartisan legislation, H.R. 6694 that would reauthorize and reform charitable downpayment assistance. According to its supporters, the bill would “re-authorize and reform non-profit downpayment assistance and secure it as an allowable source for FHA borrowers. The bill seeks to ensure that providers of the downpayment assistance operate in a transparent manner to guard against conflicts of interest. The bill also includes language to ensure that FHA maintains its financial stability by permanently authorizing the Secretary to assess higher premiums to higher risk borrowers.” (I'm quoting from an e-mail message that I received from AmeriDream, a Nehemiah look-alike.) Of course, if the borrowers have higher mortgage insurance premiums to pay, as proposed in the new bill, don’t the risks of default and foreclosure rise even higher? Whether or not to continue this program seems to me a difficult question and one deserving of more attention than it got in the legislative process as part of the massive Housing and Economic Recovery Act. Whether the issue will get a fair hearing or merely serve as a political football in the election season remains to be seen. | 
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