Rule change could hit program for low-income homebuyers

The Associated Press
Friday November 03, 2000



SACRAMENTO — Carol Pope, a recently divorced single mother, was just out “browsing and wishing” for a new house when a real estate agent told her there was someone who would give her the money for a downpayment. 

Pope had a steady job at Sutter Health, where she’d worked for nine years, but she didn’t have the savings to cover the 3 percent down-payment required for a Federal Housing Administration loan. 

“It was hard saving the money, being a single parent,” said Pope, who works as a technician in the workers’ compensation department and has a daughter. 

Without the gift from the Sacramento-based Nehemiah Corp., which gives low-income home buyers the downpayments on FHA-guaranteed loans, Pope said she’d still be renting. 

But FHA officials say consumer complaints and possible abuse have led them to consider banning that financing technique, even though it helps the very people FHA programs target. A decision is expected by mid-month. 

The proposal would drastically affect the Nehemiah Corp., a nonprofit organization that grants gifts to those who have good credit and a steady income, but don’t make enough to save a downpayment. 

The program is funded by a 4 percent fee the property seller or home builder pays Nehemiah. Three-fourths of that fee is put into a trust fund for future gifts and one-fourth goes toward Nehemiah’s administrative costs. 

Under the proposed rule, buyers would not be able to use a gift from a nonprofit or charitable organization if the money came from the builder or seller, either directly or indirectly. 

FHA officials are concerned that the selling price is inflated to cover that fee, leaving the agency guaranteeing a loan that’s worth more than the property, FHA Commissioner William Apgar said. 

The FHA has had reports of companies offering two prices for the same house – with a higher price listed for FHA-approved buyers in gift programs, Apgar said. 

“Nehemiah has developed a pretty nice process, but not all the imitators have the same degree of community involvement and care that the Nehemiah people have,” Apgar said. 

People who put little or nothing down on a mortgage are considered risky for lenders because they don’t have much invested in the property, he said. 

The gift programs target low-income or first-time buyers who aren’t “the most sophisticated of buyers,” Apgar said. 

“You have to have safeguards so these people don’t get bamboozled,” he said. 

The 5-year-old Nehemiah program has given $34.4 million in downpayment subsidies to more than 7,350 families in California, said president and founder Don Harris. Nationwide, the program has helped more than 60,000 families with $200 million in gifts. 

“The largest zero-down loan program in America is getting money from mom and dad,” Harris said. “It doesn’t make sense that you have someone who is creditworthy and working, but are renting because they weren’t born into a family that can hand them a few thousand bucks.” 

Rita and Donald Price say the program was the only way they were able to buy a house. Rita Price earns minimum wage as a full-time caregiver for her husband. 

“My husband is disabled and on Social Security, so our income is limited,” she said. 

There are other companies that offer gifts for downpayments, but Nehemiah is the largest, FHA officials said. 

Apgar and Harris are optimistic that a compromise can be reached that will include greater oversight of the industry. 

Apgar said FHA has started tracking the gift programs, and will eventually be able to tell which programs have higher loan default rates. 



“Clearly, our intention is not to close down the legitimate nonprofit programs,” he said. 

The programs should be required to offer loan counseling for clients, appraisals that ensure the selling price hasn’t inflated the price and appropriate costs “so the buyer doesn’t have a bunch of fees tacked on,” Apgar said. 

Pope, who has been in her house for more than two years, said she still attends Nehemiah workshops on home improvement and gardening. She said she’d hate to see gift programs closed down. 

“There are so many people out there that really need it,” she said. 


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