Congressman Al Green Introduces Bill to Reinstate FHA Seller Downpayment Assistance for Certain Borrowers
(Washington, DC)--Yesterday, Congressman Al Green (TX-09), a member of the House Financial Services Committee, introduced H.R. 6694, the FHA Gift Downpayment Reform and Risk-Based Pricing Authorization Act of 2008. On Wednesday, President Bush signed H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act, into law. While this legislation provides a comprehensive response to the current mortgage crisis, it included a provision barring the Federal Housing Administration (FHA) from insuring seller-funded downpayment-assisted loans. In response, Congressman Al Green worked closely with Housing Subcommittee Chairwoman Maxine Waters and fellow Financial Services Committee members Reps. Gary Miller and Christopher Shays to craft bi-partisan legislation which will allow borrowers with certain credit scores to obtain seller downpayment assistance from charitable organizations.
“Seller downpayment assistance has helped more than one million Americans who are able to afford a monthly payment but do not have the downpayment needed to become homeowners,” Congressman Al Green said. “While the mortgage rescue package contains numerous provisions to aid hardworking American homeowners, it is regrettable that charitable downpayment assistance funded by sellers was omitted from this otherwise comprehensive package.”
The Department of Housing and Urban Development (HUD) has argued that foreclosure rates for seller downpayment-assisted loans are “three times” that of other FHA loans. However, HUD often compares the success rate of seller downpayment-assisted loans to loans that do not receive any type of down payment assistance. According to a U.S. Government Accountability Office (GAO) report, seller downpayment assistance loans have a 94 percent success rate after three years and government, employer, union, parent or family assisted loans have a 95 percent success rate after three years.
“If we can maintain FHA loans with downpayment assistance from the government, employers, unions, parents, or family, we can maintain loans with assistance from sellers. I believe that we should compare apples to apples when discussing the foreclosure rates associated with seller downpayment-assisted loans,” Congressman Al Green said. “I introduced this bipartisan bill, H.R. 6694, to revive this critical program under new standards that will effectively balance the risk of potential foreclosures with the goal of increasing homeownership.”
H.R. 6694 will reinstate FHA seller downpayment assistance for persons with certain credit scores by establishing three classes of eligible barrowers:
- Those with FICO scores above 679 will be allowed FHA seller downpayments under current HUD guidelines
- Those with FICO scores of 620 through 679 will pay a risk-based mortgage insurance premium to cover their possible defaults in the amount of 3.0% of the original principal for a single premium AND 1.25% of the principal balance as an annual premium
- Those with FICO scores of less than 620 who may be deemed as eligible by HUD for FHA seller downpayments will be subject to HUD-established risk-based pricing.
H.R. 6694 will also create an on-time payment incentive based upon a refund of premiums paid in excess of normal premiums if the borrower makes on-time payments for a specific number of years and pays the mortgage obligation in full. If these requirements are met, the borrower will receive a refund in the amount of the difference between the amount normally paid and the amount actually paid.
“Seller down-payment assistance helps hardworking Americans achieve the dream of homeownership with no cost to taxpayers. I strongly believe that we can mend the seller downpayment assistance program rather than end the program by passing H.R. 6694,” Congressman Al Green said. “I want to thank Financial Services Chairman Barney Frank and Housing Subcommittee Chairwoman Maxine Waters for their leadership on this bill and my colleagues, Reps. Gary Miller and Christopher Shays, for their work in support of increasing homeownership opportunities in this great country.”
