Congress Is Set to Limit Down-Payment Assistance

Syphax and the FHA disagree about the most basic statistics on these loans. Syphax maintains that the agency's assessment is skewed. He said it has undercounted the number of loans made while properly capturing the number of foreclosures it has had to pay for -- thus inflating the percentage of bad loans.

The FHA strongly denies that. It also maintains that programs backed by Nehemiah and other nonprofit groups aim to skirt its policies that prohibit a seller from directly financing a buyer's down payment. Seller assistance distorts "the fundamental economics of a mortgage agreement," Steven Preston, secretary of housing and urban development, said in a letter to Congress.

Sellers who reimburse the cost of a down payment and shell out related fees of $400 or more try to recoup that money by raising prices on the homes they're selling, government officials said.

Those higher prices result in larger mortgage loans, making it more difficult for buyers to keep up with their payments, they said. The inflated prices also make it tough for buyers to refinance or sell if they lose their jobs, get ill or face some other financial setback -- hence the high foreclosure rates.

"While the seller and lender are able to close a transaction, it is the home buyer and general taxpayer who ultimately bear the long-term risk," Preston said in his letter.

It's unclear how quickly the new policy would kick in if it's enacted.

Supporters of seller financing, including members of the Congressional Black Caucus and the Congressional Hispanic Caucus, said they will push to revive it, perhaps under another administration.

"The Bush administration does not have a lock on history," said Rep. Al Green (D-Tex.), a member of the black caucus. "They only have a lock on the moment."

The administration is not getting all it wants on the FHA front. While the compromise bill would get rid of seller assistance, Frank said, it also would wipe out a new FHA initiative under which the agency charges borrowers insurance premiums based on credit risk, instead of one flat rate.

Salmineo Sherman Sr., who recently used seller assistance to buy his first home, is not tuned in to the horse trading on Capitol Hill.

But yesterday, he said he felt lucky that he bought his seven-bedroom house in Clinton this month. Without seller assistance, he and his wife would not have been able to close the deal. They have six children, two of them grown.

"I do not see myself as any risk at all because I'm not stretching with this house," Sherman said. "We can afford the monthly payments. . . . We're staying put, right in this house."