Housing-aid firm sues HUD

Nehemiah Corp. of America, a Sacramento nonprofit housing assistance provider, is suing the U.S. government to fight a ban on a down-payment program that gave birth to Nehemiah 10 years ago.

Nehemiah, which says its down-payment program has helped some 230,000 low-income and minority homebuyers, sued the U.S. Department of Housing and Urban Development on Sunday in U.S. District Court in Sacramento, seeking a court order overturning the ban. A Maryland nonprofit that offers a similar program announced its own suit against HUD.

The suit is the latest chapter in an ongoing skirmish between Nehemiah, which was founded with the help of an African American Baptist church in Sacramento, and the federal government. HUD says the down-payment assistance creates higher default risk on government-insured mortgage loans -- and has the perverse effect of inflating housing prices for the very people it's supposed to help.

Although Nehemiah has scaled back the program in recent years, the lawsuit "is a matter of principle," said Nehemiah President and Chief Executive Scott Syphax in an interview Monday. "It is about the principle of fighting for people that no one wanted to take a chance on."

Besides, he said, the program is still in demand because of the credit crunch that's hit subprime borrowers lately. "The liquidity is gone for low-income people," Syphax said.

The program works this way: Once contacted by a lender, Nehemiah sends a gift covering the homebuyer's down payment. Average gift: $4,000. The seller of the home then reimburses Nehemiah, plus a fee.

HUD's complaint is that often the sellers, despite being discouraged by Nehemiah, add those costs to the sale price. The agency says this leads to greater financial strain on the homebuyer, and more defaults for HUD, whose Federal Housing Administration insures the mortgages. "Loans made to borrowers who rely on these types of seller-funded assistance perform very poorly," the agency said in its final decision banning the program.

"There is two to three times greater risk of default" for borrowers who receive down-payment help from programs such as Nehemiah's compared with those who get aid from other sources, such as family, the agency said.

Nehemiah, though, takes issue with HUD's data and says the program has largely worked. "The vast, vast majority of (the homebuyers) were successful," Syphax said.

The Sacramento company called it "inconceivable" that HUD would act while a bill is pending in Congress that would overrule the agency. Syphax, before a House subcommittee in June in support of the bill, testified the down-payment program "can help with the problems caused by subprime lenders."

In a statement Monday, three members of Congress who are trying to overturn the ban -- Maxine Waters, D-Los Angeles, Gary Miller, R-Diamond Bar, and Democrat Al Green of Texas -- accused HUD of ignoring "thousands of homeowners who have benefited from these programs."

The ban is to take effect Oct. 31 for most providers of this type of assistance. Nehemiah would have until March 31; the extra time is because of a settlement of a 1998 lawsuit against HUD.

Nehemiah said it has made 230,000 gifts totaling $919 million since the program started, including some 4,000 in Sacramento. Along with other providers offering similar programs, Nehemiah estimates that some 600,000 homeowners have benefited over the years.

"This is something Sacramento has taken pride in," Syphax said. "It has benefited a lot of people in this region."

Also fighting the HUD ban is AmeriDream Inc., a Maryland nonprofit that has made $726 million worth of down-payment gifts since 1999. It announced it has filed a similar suit in U.S. District Court in Washington, D.C.

The down-payment program dates to 1997, when Antioch Progress Baptist Church in Sacramento loaned $5,000 to one of its ministers so he could help low-income Sacramentans make down payments. He eventually created Nehemiah and took the concept national.

Almost from the start Nehemiah ran into friction from HUD, which worried about foreclosure rates. At one point Nehemiah sued HUD as a pre-emptive strike, resulting in a 1998 settlement that allowed the program to go forward and gave Nehemiah extra time should HUD decide to close the program. A year later HUD threatened again to ban the program but retreated because of intense criticism.

This time, HUD received 15,000 public comments, with "the overwhelming majority" urging the government to let the program continue, according to the HUD final decision.

Nonetheless, the agency decided to go ahead with the ban.

About the writer:

• The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.com.