The good news: help is on its way with the recently passed Housing and Economic Recovery Act of 2008!
However, not all is good—at least for the near-term.  One section of this new legislation accomplishes the
longtime HUD goal to sunset seller-funded down payment assistance, which used third-party intermediaries
to create what were essentially zero down payment FHA mortgages (e.g. Nehemiah type programs).  This
part of the Act will serve to suppress the housing market, as according to the Washington Post, “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…”

With many of these buyers essentially removed from the market, home sales in all price ranges will experience
a domino effect and hinder other aspects of the legislation that are intended to spur on buyer activity. HUD’s
goal to eliminate these types of programs is grounded in solvency concerns. According to NAR, “A recent GAO
study found that loans with seller-funded downpayment assistance experienced more than double the risk of delinquency
than loans with other types of downpayment assistance, and almost three-times the risk of loans with no downpayment
assistance.”

In regards to the real estate market, it’s a long-term gain requiring short-term pain equation. The solvency of FHA is
critical to a healthy real estate market; even more so now, following the meltdown of the alternative and subprime
markets. FHA has resurfaced as the best option for buyers who are skinny on down payment and income qualifying
criteria.

The FHA prohibition on Seller-funded down payment assistance programs goes into effect on October 1, 2008.

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