Released: July 22, 2008

Congress to limit down-payment assistance

Source: Dina ElBoghdady, Washington Post (Free Registration)

Mortgage programs that helped nearly 79,000 people buy homes using government-insured loans last year would be eliminated as part of a broader housing package that Congress expects to pass this week, key lawmakers said.

Under these programs, nonprofit groups provide buyers with money for down payments. Home sellers then reimburse the organizations and pay an administrative fee. More than half a million people—including many first-time home buyers, minorities and single mothers—have bought homes this way in the past decade using loans insured by the Federal Housing Administration.

But the FHA said seller-funded down payments present the single biggest challenge to its solvency. Borrowers who take part in these arrangements go to foreclosure at nearly three times the rate of borrowers who put their own money down, according to the agency.

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