Activist and hip hop mogul Russel Simmons joined Rep. Al Green and Scott Syphax, president and CEO of Nehemiah Corp., one of the primary U.S. providers of seller-funded down payment assistance, on an emergency press teleconference today in support of down payment assistance programs (DPAs), claiming that banning such programs would have a negative effect on potential home buyers as well as the overall mortgage market.
Supporters of seller-assisted DPAs tout the programs as the last remaining resource available to help working families with low to moderate incomes achieve the goal of homeownership. However, Congress is poised to eliminate DPAs as part of a compromise in its efforts to finalize the housing bill by the end of the week.
The housing bill, which has dropped support for DPAs, was passed last night by the House, with the Senate scheduled to vote tomorrow. Given that the Republicans do not appear to have enough votes for a veto, it is likely that the bill will pass into legislation.
Opponents of DPAs argue that borrowers who use seller-assisted down payment funds are more likely to default on their mortgage as they have no personal equity in the home--and hence no proverbial skin in the game. Additionally, the case has been made that sellers may increase the price of the home in order to recoup their investment, thereby artificially inflating housing prices.
However, Green stated that Congress had offered to raise DPA FICO score requirements to better establish the credit-worthiness of borrowers for FHA, as well as to implement a blind-pool appraisal process, which would ensure that neither the seller nor the buyer could collude to escalate the home's price. Such concessions were rejected by HUD, according to Green, who said of DPA that Congress should "fix it rather than nix it."
Green further pointed out that, in its determination that loans utilizing DPAs are more likely to default that traditional loans, HUD compared such loans to those where there was no down payment assistance at all--seller-funded or otherwise. "If they would compare the assistance from a seller to assistance from a relative, they will find results that are quite similar," he said.
Loans utilizing DPAs currently make up approximately 40% of FHA's originations, according to Syphax, who noted that the passage of the housing bill into law would eliminate such usage as of Oct. 1. Further, he argued that the language of the provision is "too broad," which could extend its effect beyond charitable DPA organizations.
"[The provision] will bar cities, counties, state finance agencies, and even the federal government from providing down payment assistance to market properties that they own," Syphax said. "This will further bar people from homeownership and close the door to opportunity."
Syphax also called HUD's data into question, alleging that the amont of DPA loans issued during the program's early years were undercounted by as much as 200% to 300% on both a monthly and annual basis. While admitting that HUD's data collection has improved as of 2005, Syphax maintains that there is still a 25% to 33% underestimation. "Their results show a higher level of [foreclosure] intensity than is the case," he said, adding that Nehemiah has attempted to present this information to HUD, but that HUD was not receptive and would not provide its own source data.
In response to a question regarding home builders using DPA loans to get buyers into houses they can't ultimately afford, Syphax countered that the commonly-reported notion that DPA is primarily a builder-driven program is a misperception. "In fact, almost 75% [of DPA loans go] to existing homes, not new construction," he said.
When asked why FHA would take umbrage with only seller-assisted DPAs, as opposed to down payment funds being gifted by family members, for example, Syphax chalked it up to "professional jealousy," noting that--until recently--FHA had been pushing for a zero-down program of its own.
But with an increase in the FHA down payment requirement from 3.0% to 3.5% and DPAs on the chopping block, Syphax argued that homeownership has been placed farther out of reach for hundreds of thousands of Americans--a fact that Simmons expects will result in public outrage.
"It's not about Republican/Democrat; it's about the people that are suffering and kind of a lackadaisical attitude about their suffering," said Simmons.
Simmons plans to raise awareness of the issue through the Hip-Hop Summit Action Network, which has presented events in the past hosted by such iconic figures as Rev. Run, Doug E. Fresh, Jay-Z, Will Smith, Ludacris, and more. "These may not be popular artists to you, but they're the ones with the biggest mouths," said Simmons. "They make cultural changes; they build brands. ... We're going to make sure that the people are involved in this process. [When the public finds out about the provision], they're going to want to know why they aren't being bailed out and supported and protected."
Syphax said that Nehemiah will also continue to fight, though he was not at liberty to speak to specific plans at this time. When asked about the possibility of litigation, his response was a succinct, "No comment."
Noting the bipartisan support enjoyed by DPA in Congress, Green asserted his belief that there are members committed to bringing the issue back to the table under the next presidential administration. "In the final analysis, the administration that's in power now has a lock on the moment," he said. "They don't have a lock on history."