|
Got down-payment help? Be careful
who gives it By Lew Sichelman, United Feature Syndicate Though imitation is the sincerest form of flattery, home buyers should be careful in dealing with the entities formed to donate the funds they need to obtain financing. In 1994, the Nehemiah Foundation first introduced the down-payment assistance concept. Since then, dozens of copycat groups have sprung up around the country to funnel money to buyers who are a little short of cash. Some are legitimate, but others are clearly not what they seem. If buyers aren't careful with whom they deal, they could quickly find themselves in over their heads and eventually out on the street. "Many of the programs out there don't have the long-term concerns we have," says Scott Syphax, president of the Sacramento-based Nehemiah Corp., which has provided down-payment assistance to almost 100,000 people throughout the country. "They're more a mechanism to drive the transaction than to create long-term, stable homeownership." Some would say that Nehemiah wants to stifle competition. But Syphax is not alone in his concerns. Richard Ferguson of Neighborhood Gold, a rival based in Orem, Utah, formed less than two years ago, also is worried that many similar organizations "are acting unethically, if not illegally." Former Federal Housing Administration Commissioner William Apgar says that just because someone offers you free money doesn't mean you should take it. Be skeptical "If it's too good to be true," he says, "at least check it out first." Besides, Syphax says, the more groups like his, the better. "There's plenty of need and, therefore, plenty of room for other organizations like ours," he says. "There are many more people who could become owners but never heard of programs like this." But, if the rush of imitators into the marketplace who "don't really give a darn" is left unchecked, Syphax warns, it could prompt an overreaction from both the mortgage business and federal regulators. Rather than separating the good from the bad, that could end up shutting down everyone. Because it's possible that buyers who receive down-payment assistance won't have to put a dime of their own money into the deal, the entire concept already is on tenuous ground. One concern is that borrowers who make little or no cash investment of their own pose a greater risk and are more likely to walk away from their homes if things get too tough. Another worry, though, is that because Nehemiah and other down-payment assistance providers get their money from the sellers of the property, sales prices are inflated so the seller's net proceeds are not significantly reduced. If a buyer of a property whose value has been overstated should default, it is highly unlikely the lender will recover the full amount owed. FHA took action Two years ago, the FHA was so concerned with the whole concept of seller-assisted down payments that it proposed a rule that would have all but eliminated sellers as a source of funds used for a down payment on government-insured mortgages. Sellers have long been allowed to pay the buyer's closing costs. But the FHA requires that down-payment money come from the borrower's own funds. It could be in the form of savings, a loan secured by real assets, a gift from relatives or a grant from a non-profit organization, but not from the seller, at least not directly. But then along came Nehemiah, which takes its name from the Old Testament figure who governed Jerusalem after rebuilding the walls, section by section. Recognizing that some sellers might be willing to fund their buyers, Nehemiah began testing a program in which the seller donated a portion of the sales price. Under Nehemiah's program, the seller contributes 4 percent of the price to the nonprofit organization. In turn, 75 percent of that is given to the buyer, and the other 25 percent is used to administer the program and support the charity's other housing activities. With the Department of Housing and Urban Development's blessing, Nehemiah went national in 1998. But when others started to emulate Nehemiah, the government began to worry. When the FHA pulled its proposed rule last year, an entire industry was spawned. FHA decided not to yank the plug on seller-assisted down payments, not because it was satisfied that quid-pro-quo programs posed no risk to borrowers or the FHA insurance fund, but because of the overwhelming response against such a move. "It would have killed everybody," says Apgar, the former FHA commissioner who has returned to the Joint Center for Housing Studies at Harvard University. A reprieve HUD found that while there were abuses, says Apgar, there were also "programs that did something really good." It decided that, while buyers who were paying inflated sales prices weren't getting much of a bargain, homeownership for them wouldn't be possible otherwise. But that leaves unsuspecting buyers to fend for themselves. So, to avoid being put into a house you cannot afford and having your credit ruined, look for these warning signs:
|
