Nehemiah & Seller-Funded Down Payment Assistance

The recent Housing bill sailed through Congress and across the President’s desk, easily gathering the required ink along the way.   Although complicated enough that some provisions won’t take effect until next year, it appears that the Nehemiah, a popular seller-funded down payment assistance program (SFDAP),  and it’s clones are headed to the freezer on October 1, 2008.

The problem with these types of programs lies in the phrase “seller-funded”.   It’s one thing to qualify for a government agency grant or silent 2nd loan, because those are designed to help low income folks who couldn’t save up the required down payment.   It’s another thing for a program to be funded by the seller and to require only that the buyer’s first loan allow for a gift from a non-profit.

Don’t get me wrong; I’m not against Nehemiah.  I have used the program a lot.  But as the lending industry continues to look for scapegoats in the current crisis, it will continue to cite higher default rates on these programs and deter investors from buying these loans in the secondary market.

I just received an email this morning from an underwriter at a prominent bank that was, until just now, allowing a 6% Nehemiah gift plus 6% in seller concessions.  Not any more.  She says the bank is going to get “really restrictive” on SFDAPs in the next few days, regardless of FHA’s policy.  “Investors don’t like these,” she says.   The bank will begin treating SFDAPs as part of the total seller concession and subjecting that to the normal limitations.