PUSH TO REVIVE RISKY LOANS
The riskiest type of government-backed mortgages could soon return to haunt the country.
Rep. Christopher Shays, the embattled lawmaker in a close race for his seat in tony Fairfield County, Conn., is quietly pushing to overturn a recently implemented White House ban on Federal Housing Administration mortgages made with seller-financed down payments to buyers who don’t have the cash for a down payment.
The Bush Administration, which barred these no-money-down mortgages as of Oct. 1 because they go to foreclosure three times as often as FHA mortgages in which the buyer puts a down payment on the house, said most of the $4.6 billion lost on FHA loans came from the seller-financed down payment assistance, or SFDPA, loans.
“We want to prevent any more of these poorly performing loans from entering our portfolio,” said Brian Montgomery, the commissioner of the FHA, a part of the federal Department of Housing and Urban Development. HUD is not supporting Shays’ attempt to revive SFDPA.
Shays told The Post he is co-sponsoring H.R. 6694, the bill that would bring back SFDPA – which was voted out of committee last month – because he wants to help low-income homeowners get out of subprime loans and into government-insured FHA loans.
However, Shays’ support of 6694 has raised a few eyebrows in his district.
For starters, the National Association of Realtors, whose members stand to benefit greatly from the commissions they will earn on the SFDPA mortgages, had its political action committee pump a staggering $804,371.69 into Shays’ campaign so far this year for direct mailings, TV time and other items, federal filings show.
The first NAR-PAC pro-Shays TV spot aired the same week he helped get his Financial Services Committee to approve 6694.
At the same time, Shays’ brother, Tony, is a real-estate broker whose Stamford firm stands to benefit from the reintroduction of the SFDPA program, as it caters to low-income buyers.
Earlier this year, Shays told the Stamford Advocate that “borrowers also needed to understand they could not live in their homes for free, and needed to borrow responsibly.”
A 2005 report by the non-partisan Government Accountability Office showed that up to 18 percent of SFDPA mortgages went to foreclosure within five years compared to 6 percent of buyer-funded down-payment loans.
Under the SFDPA program, a low-to-medium income buyer with no cash for a down payment signs up with a not-for-profit group which sponsors the FHA program. The seller of the house, often a home builder, sends a “gift” to the non-profit equal to the amount of the down payment – plus up to .75 percent of the price of the house as a fee.
The non-profit pockets the fee and passes along the balance of the down payment to the buyer.
SFPDA mortgages have accounted for more than one-third of the total volume of FHA loans in recent years. Critics of the program claim homeowners with no money invested in their houses have less incentive to keep paying the mortgage at the first signs of trouble.
Also, sellers can inflate the price of a home to offset the money they pay as down payment, thereby increasing the odds that neighborhood home values won’t be in line with true market value – a problem during recessionary times like the nation is currently experiencing.
Jim Himes, Shays’ opponent for the House seat, said of 6694 that “we are setting people up to fail when we offer no-down-payment home loans. Home owners need to demonstrate an ability to save, both so that they will be able to meet mortgage payments, and so that they will have funds in reserve when the inevitable headaches of home ownership come up.”