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There was a news story published by the New York Times on June 10th declaring that The Federal Housing Administration is expecting to lose $4.6 billion because of unexpectedly high default rates on home loans. The story states, Brian D. Montgomery, the F.H.A. commissioner, attributed the unanticipated losses primarily to the agencys seller-financed down payment mortgage program, which has suffered from high delinquency and foreclosure rates in recent years.Housing officials said the agency was also hurt by poor performance in its traditional mortgage portfolio. Deteriorating economic conditions led some of its core clients - first-time buyers, minorities and lower-income owners - to default, they said.The article goes on to declare that the seller-financed down payment program, which accounted for 35 percent of its loans in 2007, is the root of the most losses. This has resulted in the fact that, the F.H.A. commissioner, Brian D. Montgomery, wants to put a stop to the seller-financed down payment program.Mr. Montgomery states, The mortgages had foreclosure rates three times those of traditional loans and would push the F.H.A. to the brink of insolvency.Mr. Montgomery revealed that the FHA is planning to reopen the comment period on a proposed rule to the Federal Register that would end the popular program. However, the F.H.A. has tried to eliminate seller-financed down payment loans for years, and it is anyones guess whether it will be successful now. Supporters of the loans, including some very powerful members of Congress, are determined that the program provides much-needed assistance to low-income and minority families who would not be able to buy homes in any other manner. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, remains steadfastly opposed to any F.H.A. rule that would eliminate the program. Regardless of whether Mr. Montgomery gets his way, or whether Mr. Franks desire prevails, thankfully there are other forms of down payment assistance available for first time home buyers besides seller-financed loans.Down-payment assistance programs enlist the participation of nonprofit organizations in a bid to help low-income families cover the costs of a down payment (along with, in some cases, closing costs and other upfront cash requirements). Today, nearly 35% of borrowers whose mortgages are insured by the Federal Housing Administration (the largest insurer of mortgages in the U.S.) make use of down-payment assistance programs. The most prominent of the nonprofit organizations that facilitate these transactions are The Nehemiah Program, AmeriDream Inc. and Partners In Charity. However, most states and counties also provide some form of down payment assistance programs.
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