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FHA Press Releases
(May 7):
No Assets? No Problem.
Maurna Desmond,
04.29.08, 3:30 PM ET"
You probably thought
nothing-down mortgage loans disappeared in the wake of the American
subprime lending crisis, which has ensarled much of the world in
a
credit crunch.
They didn't. Even more surprising, many Americans can still buy
homes with nothing down thanks in large part to the federal
government and a legal loophole that lets builders and bankers
ensure a steady stream of asset-challenged borrowers for
taxpayer-insured loans.
With
quietly expanded powers, the
Federal Housing Administration is already offering the next-best
thing to nothing down on a house: a payment of just 3.0% will get
practically any American with a pulse and a job a mortgage of up to
$729,000, at least until the end of this year.
But for those who lack the wherewithal to put even a little skin
in the game, there's a workaround: a not-for-profit organization can
give prospective buyers the teensy downpayment. The spigot is wide
open. Of the 180,881 loans that the FHA insured in the first half of
fiscal 2008, 36.7%, or 66,337, were seller-funded. With home
builders and sellers desperate to make sales in a slowing real
estate market, this percentage is likely to grow. (See
"Builder's Block")
The FHA has traditionally allowed family and friends to gift a
downpayment to homebuyers. In the last 10 years, homebuilders and
sellers have gotten into the act by funneling their upfront
consideration through down-payment assistance not-for-profits.
Technically wiping out a conflict of interest, the charitable outfit
collects the cash and hands it over to the mortgage lender taking a
bit off the top for all its trouble.
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