NAR Strongly Supports Downpayment Assistance Programs

The Housing bill being considered in Congress this week does NOT eliminate all downpayment assistance programs from eligibility for FHA insurance. The legislation would only prohibit seller-funded downpayment assistance, or assistance from someone who financially benefits from the transaction. Other forms of assistance - such as family members, government-sponsored programs, or gifts from non-profits would still be permitted. The Housing bill also contains many reforms that we believe are critical to housing markets. The bill includes FHA reform, GSE reform, a homebuyer tax credit, and permanent increases to the FHA and GSE loan limits. This bill will help millions of American families avoid foreclosure and safely and affordably achieve the dream of homeownership.

FHA is the only mortgage program that has allowed seller-funded downpayment assistance. However, FHA’s recent default rate is troubling. Due to the current performance of its loans, FHA must receive a federal subsidy for the first time in its history, or raise it premiums on borrowers in order to remain solvent. This is primarily due to loans with seller-funded downpayment assistance, which have a default rate 3X higher than other FHA loans. Loans that receive downpayment assistance perform less well than loans without downpayment assistance. A recent GAO study found that loans with seller-funded downpayment assistance experienced more than double the risk of delinquency than loans with other types of downpayment assistance, and almost three-times the risk of loans with no downpayment assistance. (Additional Action Needed to Manage Risks of FHA-Insurance Loans with Downpayment Assistance, United States Government Accountability Office, November 2005.)

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