U.S. Representative Al Green (D-TX) introduced H.R. 600 on Jan. 16, calling for the reinstatement of seller-funded down payment assistance (DPA) programs, an issue that has had prominent figures voice both support and opposition.

DPA programs were banned by the government on Oct. 1, with the Federal Housing Administration citing an increased rate of defaults and foreclosures among loans that utilized such funds.

FHA commissioner Brian Montgomery in a speech at the National Press Club in June called out for legislation addressing the risks associated with DPA, saying: "Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded down payment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own down payments."

However, those who built a home building business on DPA loans disagree. LGI Homes executive vice president Mike Snider said that up until the October ban, 99% of his company's transactions utilized DPA programs. LGI Homes closed 2008 with 475 homes sold--averaging 42 closings a month through September, which were then cut in half once DPA went away, resulting in just 21 sales a month October through December.

"We don't believe DPA has brought us to where we are today," said Montgomery. "It was the loose standards for getting loans."

Montgomery's remarks were made in June when foreclosures were up 53% from the previous year. Foreclosure rates at the close of 2008 stood at 81%, and some in the industry who had previously opposed the use of DPA are rethinking their standpoint.

"Long term, I don't like the program, but it makes sense to bring it back temporarily," said Stephen East, managing director for home building and building product equities at Pali Capital.

A two- to three-year stint for the programs--with stricter regulations such as credit matrices, FICO scores, and repayment plans--could do much to improve the program, East said.

Needless to say, those on the nonprofit side, who are main DPA players, are elated that Green is pushing ahead with his legislation.

"H.R. 600 is a common sense solution to the unprecedented problems in the U.S. housing market," said Anne Ashburn, president of AmeriDream Inc., an affordable housing nonprofit organization. "This bipartisan plan will encourage creditworthy home buyers to enter the market and will do so without adding to the taxpayer's burdens. H.R. 600 will also give a sorely needed boost to home goods stores, mom and pop shops, construction companies, and cash-strapped local governments that depend on a stable housing market."

According to AmeriDream, passage of H.R. 600 would result in the eligibility of an estimated 300,000 creditworthy home buyers for DPA every year.

"Through H.R. 600, DPA offers a simple solution that can empower thousands of worthy families to take advantage of depressed home prices, thereby reducing the glut of homes on the market," said Scott Syphax, president and CEO of Nehemiah Corp. of America, another nonprofit homeownership assistance organization. "Further, it does so without spending a single government or taxpayer dime according to the Congressional Budget Office."

Prior to Oct. 1, 2008, AmeriDream offered home buyers gift funds up to 10% of the home's purchase price, which did not have to be repaid. However, buyers had to agree to return any funds that were not used toward down payments or closing costs and to return the funds if the sale of the home did not close on the scheduled closing date. Nehemiah Corp. offered DPA funds to anyone who qualified for an FHA-approved loan. Buyers were able to receive up to 6% of the final contract sales price for down payment and/or closing costs.

A town hall conference call hosted by Nehemiah Corp. regarding H.R. 600 will be held Friday, Jan. 23 at 12:00pm EST. For more information on the virtual town hall meeting, go to www.DPAgroundswell.org.