Beware of strangers bearing free cash to reduce your home purchase down payment, especially when your mortgage lender won't know a thing about it.

That's one conclusion emerging from the recent start-up -- and abrupt suspension -- of a zero-down payment program called SNAP, which stands for "sell now assistance program." Until recently, it was promoted for use by home sellers and buyers in 48 states -- all but Hawaii and Alaska -- by the Franklin Foundation Inc., a Gaithersburg-based nonprofit organization.

Now, SNAP is on ice, at least temporarily, but the details of its operation should give pause to lenders and mortgage borrowers alike. Late this summer, Franklin Foundation announced a new wrinkle for no-down payment programs, an approach it then called "generations ahead of other programs," according to the Web site That site is now almost blank, referring visitors to Franklin's toll-free phone number.

The new wrinkle was this: For interested home buyers and sellers, Franklin would "facilitate" the creation of a bank account in the name of the home buyer, after the borrower signed a federal W-9 taxpayer identification form. The buyer's bank account would receive deposits of up to $50,000 from third-party "funding sources" working with Franklin.

As part of the arrangements, participating home sellers would be required to repay the amount of the funds deposited in the buyer's bank account, plus an "administrative fee" of 10 percent, to the funding source that made the deposits. The cash in the account could be used for the buyer's down payment and closing costs on a mortgage, which would be forwarded to the closing agent in time for the loan settlement.

The money in the borrower's new bank account would be the identical sum that Franklin's own documents, required to be signed by the home seller, defined as "a loan that is repayable following settlement." On its Web site, however, Franklin emphasized that the source and nature of the down-payment cash in the home buyer's new bank account would "NOT appear on the HUD-1" settlement sheet. In other words, the mortgage lender funding the loan through a mortgage broker would likely be in the dark about the fact that the home buyer's cash -- documented in the loan application file with a Verification of Deposit form signed by the participating bank -- had been provided by a third party.

Franklin Foundation also "strongly" recommended that all SNAP loan transactions, anywhere in the country, receive title and settlement services from one company -- First Title & Escrow Inc. of Rockville. Franklin explained in its promotional materials that closing the mortgage with First Title was important because that company "can be relied upon not to jeopardize the buyer's loan application through improper disclosures to the lender, either on the HUD-1 or otherwise." First Title did not reply to a request for comment.

Why keep a lender in the dark about the source of a buyer's down payment? Is it to make loan applicants appear more financially qualified than they really are? Is it to make home sales go through that otherwise would not?

Scott Nash, representing Franklin Foundation, contacted me with this explanation: "The truth is we do not have the answers to these questions." Nor would Nash reveal how many loans had been closed with SNAP money, the names of the lenders or brokers involved, or the identities of the "multiple real estate attorneys nationally" who the SNAP Web site claimed had "reviewed and approved" the program.

"For the time being," Nash said, SNAP is "being put on hold." That was good news to some large national mortgage lenders, who agreed that the lack of down payment cash -- and the presence of a verified bank account deposit up to $50,000 in a loan application -- might fool them into seriously misjudging the financial risk presented by a home buyer.

Countrywide Home Loans does not knowingly participate in programs such as SNAP, spokesman Ken Preston said. But he conceded that it would be difficult to detect such loan applications in any event.

"I would fire anybody who participated in this," said Paul E. Skeens, a loan officer with Carteret Mortgage Corp. in Waldorf. "It's obvious that you are circumventing the rules."

Lenders are not the only potential losers in such cases. The buyers also put themselves in jeopardy by trying to buy a house they can't really afford.

Kenneth R. Harney's e-mail address is