In a notice quietly published in the Federal Register, the Department of Housing and Urban Development (HUD) has withdraw a proposed rule that would have prohibited gifts from community groups and non-profit organizations helping FHA homebuyers with down payment assistance.

According to HUD, the proposal drew 1,871 comments, but of this number only 21 favored the government plan.

One housing group that would have been directly impacted by the proposal is California's Nehemiah Corporation. Under the proposed rule, Nehemiah explained, it would be "inappropriate for a seller to contribute money towards a down payment for a buyer to purchase the seller's property." In contrast, so-called "seller contributions" are routinely permitted with most loan programs, amounts that can total from 3 to 9 percent of the purchase price. In addition, 25 percent of all first-time buyers receive help from relatives and friends, according to the National Association of Realtors.

The Nehemiah Program provides homebuyers with gift money from sellers equal to 3 percent of the closing price, money or credit that can be used for the downpayment and closing costs. Since its inception in 1997, Nehemiah says it has helped more than 67,000 homebuyers, distributed over $227 million in gift funds, and generated more than $7 billion in real estate transactions.

The attraction to buyers under the Nehemiah program is a reduced closing cost and the opportunity of ownership. The provision of additional funds and credit at closing allows individuals who might otherwise not qualify for a loan, or who might qualify for financing but not have enough cash to pay settlement fees, to become buyers.

The attraction to sellers is that in markets where owners cannot readily find buyer willing to pay full asking prices, the offer of a seller contribution may allow owners to obtain a higher sale price than might otherwise be possible and also to market the home more quickly, thus reducing monthly costs such as mortgage payments and property taxes. In effect, owners in such markets may generate an equal or greater net proceed at closing because they are attracting a larger pool of buyers and possibly a higher selling price.

"Generally," says Nehemiah, "when a seller is first introduced to The Nehemiah Program their impression is it will cost more money which reduces their bottom line. This is not the case. When you truly look at and compare the use of The Nehemiah Program to a non-Nehemiah transaction you will find that you can walk away with the same amount of money (or more), whether you sold your home using The Nehemiah Program or not."

HUD's withdrawal of the proposed rule comes after extensive negotiations with Nehemiah regarding how down payment programs are structured. Nehemiah presented data to HUD demonstrating that the homebuyers it helped were repaying loans at a level that was equal to or better than FHA borrowers in general.

"We are very pleased that Mr. Apgar, the FHA Commissioner, has decided to withdraw the proposed rule," said Don F. Harris, Nehemiah's founder and Chairman.

Published: January 15, 2001

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