Home Down Payment Assistance Programs To End – The Morning News

Last updated Friday, September 19, 2008 6:44 PM CDT in Business


By Kim Souza




SPRINGDALE — Connie Stephens of Gentry thanks her lucky stars each night.


Stephens is grateful because she got into her new home before the U.S. Government pulls the plug on seller-assisted down payment programs Sept. 30.


“There is no way I could have bought my dream house without the down payment help, totaling roughly $8,000. Doug True, my Crye-Leike agent, and my lender were able to get me into the house with very little out-of-pocket costs because of the seller assistance programs,” Stephens said.


In the last year, Stephens is one of dozens of local homeowners who have used programs offered by Austin, Texas-based Genesis, or Sacramento, Calif.-based Nehemiah Corporation. The programs let sellers contribute up to 6.5 percent of the home’s sales price to cover the buyer’s down payment and closing costs.


True said instead of sellers reducing the price of the house, buyers usually pay full asking price in return for the seller covering the down payment and all closing costs.


He said sellers of both new and existing homes have used the practice in order to secure a contract and complete a sale in the recent slower market.


The practice is legal and has been widely used in the local real estate market with qualifying buyers using FHA loans, said J.P. Sexton, president of the Northwest Arkansas Chapter of the Mortgage Bankers Association.


Sexton, a loan manager at Liberty Bank in Springdale, estimates that about half of all the FHA loans he has underwritten in the last year have used such programs.


He said the government’s upcoming ban on the practice will no doubt keep some people from being able to buy a home.


True said all but one of the buyers he has represented since last fall have used the programs.


Richie and Lacey Shaw of Springdale also recently took advantage of a similar program.


The couple saved for more than a year, living in a small two-bedroom duplex with their two children in hopes they could eventually purchase a home of their own.


In June, the family learned of the Nehemiah program through their Crye-Leike agent, Jan Holland.


“Even though we had some money to put down, Arvest recommended we use the seller-assisted down payment and keep our savings for emergencies,” Lacey Shaw said.


She said it came in handy when the couple had to replace an electrical box and hot water heater in the first couple of months.


“We are very grateful to have had the program. It saved us about $7,000 in down payment and closing costs, and it’s sad that more young families won’t be able to take advantage,” She said.


Sexton said Congress’ reason for banning the seller assistance programs is a direct consequence of the massive number of foreclosures underway in the national housing market. Language to ban the practice was part of the National Housing and Economic Recovery Act that was passed in July to help homeowners facing foreclosure.


“Time-tested data indicates that seller-funded down payment assisted FHA loans have a very high default rate,” Sexton said.


The National Association of Realtors Web site said the default rate on seller-funded down payment loans was more than 28 percent in 2007, roughly three times the default rate on FHA loans without seller-funded down payment assistance, according to government data.


FHA is the only mortgage program that has allowed seller-funded down payment assistance, Sexton said.


“Before we had seller assistance programs, we still managed to get people financed, but it’s becoming clear that a minimum 3.5 percent down payment will likely be required by most lenders, except in lower-income Rural Development loans and Veterans Administration loans,” he said.


Both Genesis and Nehemiah Corporation have lobbied Congress to extend the program. House Resolution 6694 was introduced in committee last month.


Sexton said the comprehensive housing legislation which banned the practice is so new, it is doubtful that Congress will act to amend it any time soon.


In the same legislation, Congress also granted certain first-time home buyers a $7,500 tax credit, which essentially works like a zero-percent interest loan, as the credit must be repaid within 15 years. Income limits and purchase dates are used to qualify home buyers for the credit.


Stephens is glad she won’t have to worry about those details. The pediatric nurse at Arkansas Children’s Hospital in Little Rock wanted desperately to settle down near her daughter and three young grandsons in Gentry. The move would mean a commute to Little Rock each Thursday night for her three-day shift until she can retire in a few years. But it also allows her to keep her grandchildren Monday through Thursday, which is the best gift of all, she said.


“I am like the egg yolk inside the shell, in this home that fits me perfectly,” Stephens said. “I can’t believe the program is being discontinued. How fortunate I am to have gotten in when I did.”