Every week, 2,000 - 3,000 Second District residents write to me about the issues pending before Congress, and I work hard to respond to each person as promptly and thoughtfully as possible. On this "Letter of the Week" blog, I highlight constituent letters that are of general interest. If you'd like to share your own views, please feel free to e-mail me at any time!

Dear Nancy,

The long term well-being of our economy depends on strength in the credit markets, i.e., strength of the loans made to borrowers. As a mortgage originator for 30 years, I believe seller-funded DPA's foster loans to weak borrowers. The default of such borrowers far outweighs the benefit of these programs. I am opposed to seller funded DPA's.

Sincerely,

Sharon from Ottawa, KS.

Dear Sharon,

Thank you for contacting me regarding the recent decision to end charitable and seller assisted down payment assistance for Federal Housing Administration loans. Please accept my apologies for the delay in this response. My office receives literally thousands of pieces of correspondence a month, and my staff and I work hard to answer each constituent’s concerns.

Congress recently passed, and the President subsequently signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008. This was a large bill that contained many different provisions designed to help the economy by strengthening the housing market and the different government programs that participate in the market.

One important provision in H.R. 3221 was the elimination of down payment assistance that is provided by the seller of the home or charities to people buying a home with a Federal Housing Administration insured loan. The Federal Housing Administration (FHA) is a government agency charged with trying to make it easier for people to buy homes who cannot get mortgages in the private market. As opposed to most loans, which require a 20% down payment, the FHA guaranteed loans only require a down payment of 3% of the price of the home. The FHA makes a guarantee to the mortgage originator that if the home buyer defaults then the mortgage originator will still get 95% of the value of the home. Without this insurance the home buyer would not be able to get a mortgage because they are too much of a credit risk.

The FHA has been around since 1934 and it has always funded itself. Unfortunately, due to poor performing loans and the overall sluggish housing market it is expected that Congress will have to provide the agency money for the first time in over 70 years.

One of the biggest problems for the FHA has been the rise in seller and charitable assisted down payments. The FHA’s required down payment has recently risen to 3.5% of the total purchase price but it is still significantly lower than what someone would have to put down as a down payment to buy a home without the FHA insurance. Many people found it difficult to save enough money for even the 3.5% down payment so they turned to charitable organizations to help pay the down payment. In 1998 this activity accounted for less than 1% of all of the FHA’s loans. By 2007, it accounted for over 35% of all the FHA loans.

Often, when a home owner is being given down payment assistance from a third party or the seller themselves, the home buyer will see the price of the home go up equal to the amount of the money given to them for the down payment. The FHA has repeatedly asked Congress to make seller and charity financed down payments to be made illegal and that is what we did in H.R. 3221. I believe that this change in law is necessary for the FHA to remain solvent and to continue to promote home ownership to deserving families.

If a person is unable to save up 3.5% of the purchase price of their home then they will probably not be able to make monthly payments on time. Recent data collected by the Department of Housing and Urban Development shows that people who receive assistance with their down payment from a charity or third party have defaulted twice as often as people who have provided their own down payment without this assistance.

Charities are still allowed to help people buy houses. However, now the money goes towards lowering the overall cost of the home rather than down payment assistance. There are many other agencies that can still help people buy homes such as the U.S. Department of Agriculture Rural Development and the Kansas Housing Resources Corporation. If you know of anyone who is looking for assistance in purchasing a home I encourage you to suggest that they contact my Topeka office at (785)234-8111 and we can point them in the right direction.

Thank you again for contacting me on this important issue. I am fond of saying that democracy is a team sport, and your advocacy is an important part of that. I hope you will continue to keep in touch and let me know if I may be of assistance in the future.

Very truly yours, 

Nancy Boyda
Member of Congress