No down payment? No problem. Loophole still allowing risky mortgages by disguising money as a gift.

Photo - Marcio Jose Sanchez / AP

Highlights:

• FHA Traditionally: "Allowed family and friends to gift a downpayment to homebuyers. In the last 10 years, homebuilders and sellers have gotten into the act by funneling their upfront consideration through down-payment assistance not-for-profits".
  

• 2005 U.S. Government Accountability Office report: "Agency found that homes sold with nonprofit assistance were appraised and sold for prices about 2 to 3 percentage points higher than comparable homes without such assistance."
  

• Seller-Financed: "This practice burden FHA borrowers with pricier homes, it also increases the odds that the new homeowners can't afford their monthly mortgage payments. No-downpayment loans have default rates that are three times the FHA average."
  

Comments:

Desperation: Mix anxious homebuyers with homebuilders who have high inventory together and watch the creative solutions fly. The problem is most homebuyer have a cup of money versus a homebuilder or seller who has a bucket of cost.

Non-Profits: Don't paint the entire group with the same brush. The majority do a stellar job in educating their target group and helping them become responsible homeowners.

FHA: Is under the gun to perform, especially during this subprime crisis. I continue to look for agency improvement but understand that the economic landscape makes it difficult for everyone to perform as they would prefer.


Jim