FHA may stop subsidies to low-income homebuyers

"The largest zero-down loan program in America is getting money from mom and dad," Harris said. "It doesn't make sense that you have someone who is creditworthy and working, but are renting because they weren't born into a family that can hand them a few thousand bucks."

Harris created Nehemiah after realizing there were many programs for the poor, but "not a lot of programs for those caught in the middle."

"If you don't help those caught in the middle, you can't get them out of the way for the very needy," he said.

The program targets people like Rita and Donald Price, who say the program was the only way they were able to buy a house. Rita Price earns minimum wage as a full-time caregiver for her husband.

"My husband is disabled and on Social Security, so our income is limited," Rita Price said. "We didn't have much money for a downpayment."

Carol Pope of Sacramento, a recently divorced single mother, said she just out "browsing and wishing" for a new house when a real estate agent told her there was someone who would give her the money for a downpayment.

She had a steady job at Sutter Health, where she'd worked for nine years, but she didn't have the savings to cover the 3 percent down-payment required for an FHA loan.

"It was hard saving the money, being a single parent," said Pope, who works as a technician in the workers' compensation department and has a daughter.

The program is funded by a 4 percent fee the property seller or home builder pays Nehemiah. Three-fourths of that fee is put into a trust fund for future gifts and one-fourth goes toward Nehemiah's administrative costs.

FHA officials say consumer complaints and possible abuse have led them to consider banning that type of financing assistance, even though it helps the very people FHA programs target. A decision is expected by mid-month.

Under the proposed rule, buyers would not be able to use a gift from a nonprofit or charitable organization if the money came from the builder or seller, either directly or indirectly.

FHA officials are concerned that the selling price is inflated to cover that fee, leaving the agency guaranteeing a loan that's worth more than the property, FHA Commissioner William Apgar said.

The FHA has had reports of companies offering two prices for the same house - with a higher price listed for FHA-approved buyers in gift programs, Apgar said.

"Nehemiah has developed a pretty nice process, but not all the imitators have the same degree of community involvement and care that the Nehemiah people have," Apgar said.

People who put little or nothing down on a mortgage are considered risky for lenders because they don't have much invested in the property, he said.

The gift programs target low-income or first-time buyers who aren't "the most sophisticated of buyers," Apgar said.

"You have to have safeguards so these people don't get bamboozled," he said.

Apgar and Harris are optimistic that a compromise can be reached that will include greater oversight of the industry. There are other companies that offer gifts for downpayments, but Nehemiah is the largest, FHA officials said.

"Clearly, our intention is not to close down the legitimate nonprofit programs," he said.

The programs should be required to offer loan counseling for clients, appraisals that ensure the selling price hasn't inflated the price and appropriate costs "so the buyer doesn't have a bunch of fees tacked on," Apgar said.