Monday, Feb. 16, 2009 | 2 a.m.
- Feds offer assistance on mortgages – if lenders cooperate (10-1-2008)
- The down payment for your new home: $0 (9-3-2008)
Beyond the Sun
Boosters of down-payment assistance programs that had benefited poorer homebuyers before they were abolished by the Bush administration are lobbying for their revival, saying they could help rejuvenate the distressed housing market.
Since 1997, the programs have produced more than $2.36 billion in home sales in Clark County to buyers whose incomes averaged less than $60,000, according to a spokesman for one of the programs, and gained importance when the subprime market began collapsing.
Under the programs, the buyer’s cash burden is eased because the seller contributes from 3 percent to 6 percent of the purchase price toward the buyer’s down payment and/or closing costs, and the nonprofit organization donates up to 3 percent.
But the Bush administration reasoned that if homeowners didn’t use their own money for down payments, they were less financially committed to their homes and thus more likely to default.
The Housing and Urban Development Department lobbied Congress last spring to stop insuring loans where the programs were used, and Congress did so in July. The ban took effect Oct. 1.
Texas Democrat Al Green is pushing a House bill that would reinstate Nehemiah — a program popular in the Las Vegas Valley — and other programs like it, but with more restrictive credit conditions.
Representatives of the Nehemiah Corp. of America, based in Sacramento, say the bill would help stabilize declining home values and reduce the number of foreclosed homes glutting the market by empowering prospective homebuyers who are now on the sidelines to enter the market.
Scott Syphax, Nehemiah’s president and chief executive, estimates that an additional 40,000 to 50,000 homes would sell monthly nationwide if the program is reestablished.
Opening the market to them might prompt new-home construction, leading ultimately to 230,000 jobs, many in construction, Syphax says.
Area real estate agents who specialized in such down-payment assistance programs say their reinstatement would also stanch their falling incomes. With Nehemiah’s departure, agent Teresa McCormick says, her income has dropped by two-thirds. Carla Ross, another valley agent, estimates her income is down 30 percent.
Nehemiah’s critics point to data indicating higher delinquency rates under down-payment assistance programs compared with other Federal Housing Administration-sponsored loans. About 7.5 percent of down-payment assistance loans defaulted in 2007, the Los Angeles Times reported, compared with 2.9 percent of FHA loans that required homeowners to contribute at least 3 percent of the purchase price as a down payment.
But at least one economist questions the percent difference of FHA’s findings, pegging the actual default rate for borrowers in down payment assistance programs at closer to 5 percent. And Syphax notes that a default is not equivalent to a foreclosure and is often cured.
“If the measure of success is someone who has a perfect record, God help us what the true homeownership rate would be in the country today,” he says. “What we really need to focus on, is how to create support systems to create sustainable homeownership.”
The Obama administration has yet to tap an FHA commissioner, a HUD spokesman says, so it’s unknown whether it supports Green’s bill.
Among the concerns about the program is that a seller could increase the price of his house to recoup his contribution to the buyer’s down payment. Conservative economist Alex Brill estimates that if a seller increases the price of the house by, say, $2,500 to cover his contribution, it may add about $15 a month to the mortgage payment.
And McCormick disputes the notion that down payment dictates the odds of default.
“I put a lot of money down on my house, but I can’t pay my mortgage right now,” she says, noting that she’s two months behind. “If I can’t pay the bills right now, I can’t pay the bills. It doesn’t matter how much you put down.”
Senate Majority Leader Harry Reid thinks that even if home prices were artificially increased by homebuilders or sellers to recoup their costs of participating in Nehemiah, it didn’t contribute to the housing crisis, his spokesman Jon Summers says.
Nehemiah has stipulated that applicants have steady jobs. “And (applicants) need to show they can make a payment,” says mortgage specialist Shani Fazzi of South Wind Financial, a Las Vegas mortgage company, who supports the return of Nehemiah. “We’re not giving away free money. This is not like during subprime.”
New homeowner Susan Nagata concedes the seller of the four-bedroom house she bought through Nehemiah last year probably tacked the closing costs onto the asking price, but doesn’t regret the transaction. At about $1,000, her monthly mortgage is $300 less a month than what she and her husband had paid for an apartment.
“I had figured I’d never own a home again,” the 58-year-old says, noting their $1,500 savings at the time they bought the home.
Had the Nagatas looked for a house today, Nagata is convinced she and her husband would still be renting. Their income is fairly fixed, so there was little chance they could save enough for a down payment. The Nagatas live on her $621-a-month disability payments, his Social Security payments and his income as a security guard at the Skyline Casino.
Nagata says she’s not in any danger of defaulting on her mortgage.
Syphax and supporters of down-payment assistance programs have begun lobbying Congress to support Green’s bill, but he says Nehemiah has yet to approach Nevada Reps. Shelley Berkley, Dean Heller and Dina Titus.
Syphax hopes Congress will examine the Green bill as closely as members did an $8,000 tax credit for new homebuyers inserted into the economic stimulus bill. The Congressional Budget Office estimates that a revival of Nehemiah would cost the government nothing.
“Don’t you think it’s puzzling that if there’s a program that would cost zero that (Congress) would look at that program with equal intensity?” he says.
Berkley is approaching the Green bill cautiously, her spokesman David Cherry says. “She doesn’t want people to get into homes that they can’t afford.”
Sen. John Ensign will be tracking the bill, a spokesman says. Representatives for Heller and Titus did not respond to Sun inquiries, and a spokesman for the Greater Las Vegas Association of Realtors declined to comment.