In the weeks leading up to the elimination of seller-funded down-payment assistance (DPA), Greg Shumate, president of Lawrenceville, Ga.-based Brand Mortgage began asking the question that virtually every builder and lender in the country had on its mind: What can we do if it goes away? One of the ideas that quickly emerged was a local version of DPA. To get it going, Shumate talked to the owner of his parent company, 103-year-old The Brand Banking Co., as well as the bank's builder clients, area non-profit agencies, representatives of the Department of Housing and Urban Development, and legal counsel.

On Oct. 1, the day that seller-funded DPA was eliminated for FHA-insured loans, the Northeast Georgia Down Payment Assistance Program went into effect. Since then, it has funded down payments for about a dozen houses, totaling more than $2.1 million in home sales.

The program was designed to address the issues most commonly raised about seller-funded DPA: that the borrowers had much higher default rates than those who qualified for an FHA-insured loan without it, and that sellers tended to inflate the sales price of the house to cover the contribution.

The Brand Bank seeded the Northeast Georgia Down Payment Assistance Program with a $50,000 contribution; the on-going source of revenue is a 4½ percent fee attached to the construction loans of 16 participating builders on houses selling for less than $300,000. That translates into about 3½ percent of the sales price, which covers the minimum down payment for an FHA-insured loan and the cost of home buyer education, Shumate says. The funds are held by the Community Foundation for Northeast Georgia and are disbursed on a first-come, first-served basis to eligible applicants. The funds are not tied to specific transactions.

"It's just fabulous," says Judy Waters, executive director of the Community Foundation for Northeast Georgia. "To me, it's the best shot at turning something very bad around [for the builders]."

Eligibility is controlled by The Impact Group, a local non-profit, HUD-certified housing education provider. Borrowers must work with The Impact Group to complete a home buyer education course, after which they can use the assistance to purchase a home from any participating builder in the program.  "We make sure the client is eligible and signs the gift letter [documenting the source of the funds]," says Anthony Mitchell, director of The Impact Group's homeownership center. "Before they leave my shop, I grab their hand, look them in their eye, and tell them if there's a problem making the mortgage, I expect to be the first person to know."

Besides controlling eligibility, The Impact Group's Mitchell cited one other key factor for his willingness to participate in the program. The participating builders agreed to freeze the sales price of the houses. That addressed the issue of pricing being inflated to cover the cost of the contribution.

"That brought some comfort to us on the non-profit side," Mitchell says.

One of the participating builders is Lawrenceville-based Richardson Housing Group. The Brand Banking Co. has the financing on two of its communities; sales prices in those neighborhoods range from the $130,000s to the $220,000s.

"When Congress passed the housing bill and eliminated [seller-funded down-payment assistance], it was very short-sighted on their part," says Jason West, vice president of corporate affairs for Richardson Housing Group. "We were very concerned about those first-time buyers because they're such a big part of our market. We're very fortunate Brand Bank thought outside the box, called a meeting of local builders to participate, and put this program together. We thought it was a wonderful opportunity and we very gladly signed up."

Richardson Housing Group understands that there's no guarantee that the money it puts into the pool will result in a sale, West says. But they've marketed the program heavily, and since it started, about a third of its sales at those communities have come through the program.

"We have seven communities; I wish we could find a way to offer it to the other five," West says. "I'd love for some of our other banking partners to come up with something similar."

Shumate says he wishes the same thing. Since the program started, he says he's talked to more than two dozen lenders, all of whom tell him the same thing–his program is too complicated and they want something easier. His response: That's what got borrowers in trouble in the first place.

"Other people could join with us," he says. "It shows you’re doing something for the community and the buyers. But it takes commitment and work and nobody wants to do it."

He's also concerned about the proliferation of suspect programs that have popped up since seller-funded DPA was eliminated. Last week, he heard about a program in which the seller has to give 5 percent of the sale price of the house to a college in Belize.

"They're creating this junk," he says. "It gives people who are trying to do something right a bad name. What we're doing is real."

Pat Curry is senior editor at BUILDER magazine.

Learn more about markets featured in this article: Atlanta, GA.