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Down-Payment Spigot to Shut Off
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FHA officials have never targeted down payments from other sources, such as family, employers or churches. They say those perform well and function as "gifts." The down payments at issue do not fit the "gift" definition, they maintain. Instead, they skirt FHA policies that prohibit a seller from directly financing a down payment.
Nationwide, there are at least 100 groups that enable seller assistance. The largest is Nehemiah Corp. of California, which has been lobbying feverishly to resurrect this type of financing. Scott Syphax, the group's chief executive, said the FHA's numbers are skewed. They undercount 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, Syphax says. The FHA denies that.
The National Association of Home Builders was "distraught" about the decision to abolish seller-funded down payments but did not oppose the housing package because other elements of it helped the industry, said Jerry Howard, the group's chief executive.
Still, some builders are stunned that Congress would get rid of a program so vital to their sales, especially heading into a time of year when demand for homes tends to be seasonally low.
The decision is "absolutely ludicrous" and incompatible with the housing bill's goal to spur sales, said Donald J. Tomnitz, chief executive of builder D.R. Horton.
"I'm absolutely shocked by it, and I'm upset by it," Tomnitz said during a recent call with analysts.
Just about every large public builder has raised this issue in recent months. Lennar said about a third of the loans it closed in the quarter used seller-funded down payments. Trailing were D.R. Horton at 29 percent, Centex at 25 percent and Meritage Homes at 15 percent.
These builders do not contend that they would have lost all those sales without seller funding. But the big unknown is: How many of these buyers could have come up with their own cash if they had to?
"We don't know the answer to that until we put it to the test. . . . But it's certainly not 100 percent," Tomnitz said.
Randi Grimsley, 27, said she could not possibly have ponied up the cash needed to buy her new townhouse near Chantilly without help.
Grimsley and her boyfriend rented for about five years. They started house-hunting only because prices were down and their landlord was about to raise their rent.
Their lender suggested that they take out an FHA loan and use a seller-funded program so that the required 3 percent down payment -- about $7,500 in their case -- would not be an issue.
