Down-payment plan faces ban

A controversial down-payment gift program pioneered a decade ago by Sacramento-based Nehemiah Corp. of America and imitated by charities nationally is on life support, following an announcement that U.S. housing officials plan to ban it.

But operations at the Sacramento nonprofit group aren't likely to be greatly affected. Nehemiah has downscaled its down-payment program in recent years as 100 percent financing became readily available in the private sector and the government showed increasing signs of taking the action it plans Monday.

On Friday, Federal Housing Administration Commissioner Brian Montgomery said the FHA will publish a final rule Monday to close the loan program down in 30 days.

The government action would essentially end a financing tool that thousands of government-insured buyers have used to navigate what for many is the hardest part of homebuying: making the down payment. Nehemiah officials say they used it to put more than 227,000 people into their own homes since 1997, including about 4,000 in Sacramento.

Nehemiah President and Chief Executive Officer Scott Syphax criticized the FHA and said the move "will hurt the cause of low-income and minority homeownership."

Unlike others, Nehemiah will have six months to end its program. The clause is part of a legal settlement to a 1998 lawsuit Nehemiah filed against the U.S. Department of Housing and Urban Development regarding the practice.

Maryland-based AmeriDream Inc., a major player alongside Nehemiah in down-payment assistance, also criticized the government's planned action.

"By doing this they are eliminating 10,000 working-class buyers monthly out of the homebuying market," said Ann Ashburn, AmeriDream president and chief executive officer.

Nehemiah founders originated the down-payment idea at Antioch Progressive Baptist Church in south Sacramento to help members buy homes. The nonprofit group earned millions of dollars in fees as it went national.

Backers who lobbied the FHA for the programs included the National Association of Home Builders, Mortgage Bankers Association, National Conference of Mayors and the National Urban League. Ashburn said the FHA received 15,000 comments favoring the practice since it proposed banning it last May.

This is how it works: A lender contacts Nehemiah or a similar group and asks for a down-payment "gift" for a lower-income homebuyer. Nehemiah sends money to cover the buyer's down payment. The seller then sends Nehemiah a check for the same amount plus a $499 processing fee. Though Nehemiah discourages it, sellers sometimes add the costs to the price of the house.

But the Department of Housing and Urban Development, the FHA's parent agency, and the U.S. Internal Revenue Service maintain the program drives up home prices for those who can least afford it. The government campaign to end the practice has continued since the late 1990s. The FHA proposed a similar ban in 1999 only to withdraw it after a blitz of opposition.

"We want to stop this practice that often causes the most vulnerable of homebuyers to go into default, and in many cases, lose their homes," Montgomery said in a statement.

The commissioner also said he wants to prevent any more of "these poorly performing loans from entering our portfolio, and impacting the soundness of the FHA insurance fund."

Some federal studies have suggested that homeowners who receive down-payment gifts are more likely to default. Nehemiah commissioned its own studies that said the opposite was true.

Still, Nehemiah over the past two years has moved away from the lending practice, turning to, among other things, urban redevelopment in Sacramento. It plans up to 2,900 residences, offices and stores on 65 acres at Richards Boulevard and North Seventh Street just north of downtown. The Sacramento City Council approved the project Aug. 28.

About the writer:

• The Bee's Jim Wasserman can be reached at (916) 321-1102 or jwasserman@sacbee.com.