Nehemiah Draws Its Last Breath

The US House of Representatives voted yesterday (check the date of this article, how’s that for a early scoop) 272 to 152 to pass the housing bill that is steaming through Congress on the fast track. This is the little piece of legislation that authorizes additional funds for FHA guarantees, props up Fannie Mae and Freddie Mac, and wipes out the Nehemiah down payment assistance program and all its lookalikes.

Here is the wording from Section 113 of the Bill regarding down payment:

(C) PROHIBITED SOURCES.—In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:

(i) The seller or any other person or entity that financially benefits from the transaction.

(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).

IF THE TRUTH BE TOLD

Let’s face it, it was a little surprising that Nehemiah was approved in the first place. Lenders have never allowed a seller to give the buyer the required down payment.  That opens the door a little too wide for creative financing arrangements between desperate sellers and buyers who might otherwise not qualify.  Critics argue that Nehemiah allows sellers to do just that.  However, the process is tightly regulated because the borrower must qualify for a primary loan–FHA is one of the few–that allows the gift to come from a non-profit company.

The other accusations leveled against the program, that a) it is responsible for increased FHA defaults and b) it artificially inflates housing prices thereby putting out of reach the purchase of homes by the very folks it is designed to help, are arguable. While a seller who contributes to Nehemiah might ask a higher price, the same is true for sellers who give credits for closing costs or rate buydowns.

The biggest issue to my way of thinking is timing. This is a lousy time to pull the plug on the last program propping up real estate values…at least in this market. Once Nehemiah goes, there will be fewer people who can afford to buy at any price.

Share This