Thanks to the recently signed housing rescue bill, Bowen Family Homes in Duluth, Ga., has its next marketing campaign: "Buy a house now while you can still get down-payment assistance."

Like many builders, Bowen Family Homes has made strong use of seller-funded down payment assistance programs since the subprime mortgage market collapsed and 100 percent financing all but disappeared. So the builder is maximizing the value of this program while it still can.

"We’ll put on a huge blitz,” says Stephen Palmer, chief financial officer of Bowen Family Homes and president of the Greater Atlanta Home Builders Association. “DPA goes away Oct. 1. You have a 60-day window to take advantage of no money down.” With the president’s signature on the housing rescue bill, seller-funded DPA programs will no longer be allowed for FHA-backed loans starting this fall, and builders are scrambling to figure out what to do next. Housing market analyst Ivy Zelman reported this week that based on a survey of private builders, DPA has been used in about one in every five closings so far this year, with percentages as high as 70 percent in some markets.

“Clearly, this will be an impact because it’s grown to be such a large program,” says Dave Ledford, staff vice president for housing financing and housing policy at the National Association of Home Builders. “Some people will be able to find resources to buy if they have to, but there will be people who will need to wait (to save money for a down payment). It is a significant barrier, no doubt about it.” At Bowen Family Homes, about 30 percent of their buyers have gotten the assistance, and the loss of the program will make it that much tougher to close deals. “In the easy credit days, we could sell a house to 60 out of 100 prospects,” Bowen Family Homes' Palmer says. “With today’s tight credit, we can close 20 out of a hundred. If we eliminate down payment assistance, it’s down to five out of a 100.”

The elimination of seller-funded DPA isn’t the end of sales to first-time or entry-level buyers. To be sure, some of the people who have utilized seller-funded DPA programs have money they could put toward a down payment – or can qualify for other down-payment assistance programs.

“We think anybody in our community with less than 120 percent of area median income can get down-payment assistance,” says Patrick Neal, owner of Lakewood Ranch, Fla.-based Neal Communities. “There’s the Florida SHIP program, the federal HOME program, and other nonprofit programs. We need to find people and inspire their confidence that now is the time to buy.”

Builders also are trying to leverage tools the housing bill did provide. Centex Homes executives has told industry analysts that they were looking at ways to monetize the $7,500 tax credit for first-time home buyers to create some form of down-payment assistance. And down-payment assistance programs may not be gone for good. Rep. Maxine Waters, D-Calif., a strong proponent of seller-funded DPA, has indicated her intent to file new legislation that would allow such financial help for buyers. Advocates of such assistance also are pressing for their reinstatement.

“We’ve only started the battle,” says Scott Syphax, president and CEO of Sacramento, Calif.-based The Nehemiah Corporation of America, the largest and oldest seller-funded DPA provider. “We still have a lot of support in Congress. … The 50,000 families who utilize down-payment assistance on a monthly basis have nowhere to turn. The language of the Senate bill was taken verbatim from a proposed (HUD) rule that was thrown out of two federal courts. It’s so overbroad that it bars local governments and housing agencies similarly. Once those local governments find out that this ban destabilizes programs that have been successful in their communities, sometimes for decades, we believe the cry will be so loud, Congress will be forced to act.”

It might be tough. HUD administrators had lobbied for some time for elimination of the programs, citing a significantly higher default rate than for loans in which the seller didn’t contribute the down payment. The Senate's Committee on Banking, Housing, and Urban Affairs has consistently opposed the programs, says Megan Booth, senior policy representative for the National Association of Realtors. The NAR supported elimination of the programs in the interest of stabilizing the FHA fund.

“There are a couple of staff members on that committee who really don’t believe in seller-funded DPAs,” Booth says. “It could make it difficult to get anything through the Senate.”

In the meantime, NAR has been talking with seller-funded DPA groups and the House Financial Services Committee “to see if there’s a way around this,” Booth says. “There may be ways to still allow it and protect the FHA at the same time. We’re also trying to work on expanding other DPA programs.”

In the short term, builders should take advantage of the time before the new rule becomes effective this fall. After that, buyers need to be prepared to spend their own cash or find it elsewhere. Palmer estimates that about half of the people who used DPA gifts with his company “have a couple of dollars, if pushed, that they could use” for the 3.5 percent down payment that will required by FHA under the new law, or will find other sources for the gift. “People will go back to begging their parents for money,” he says.

Pat Curry is senior editor, sales and marketing, at BUILDER magazine.

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