Battle Over Down Payment Assistance.

There was a story published in the New York Times on June 10th declaring that The Federal Housing Administration is expecting to lose $4.6 billion because of unexpectedly high default rates on home loans.

The story states, “Brian D. Montgomery, the F.H.A. commissioner, attributed the unanticipated losses primarily to the agency’s seller-financed down payment mortgage program, which has suffered from high delinquency and foreclosure rates in recent years.

Housing officials said the agency was also hurt by poor performance in its traditional mortgage portfolio. Deteriorating economic conditions led some of its core clients — first-time buyers, minorities and lower-income owners — to default, they said.”

The article goes on to declare that the seller-financed down payment program, which was responsible for 35 percent of its loans in 2007, is the root of the greatest losses.

This has resulted in the fact that, the F.H.A. commissioner, Brian D. Montgomery, wants to put an end to the seller-financed down payment program.

Mr. Montgomery declares, “The mortgages had foreclosure rates three times those of traditional loans and would push the F.H.A. to the brink of insolvency.”

Mr. Montgomery revealed that the FHA planned to reopen the comment period on a proposed rule to the Federal Register that would end the popular program. However, the F.H.A. has tried to eliminate seller-financed down payment loans for several years, and it is anyone’s guess whether the FHA will be successful now.

Supporters of this program, including some very powerful members of Congress, are determined that the program provides much-needed assistance to low-income and minority families who wouldn’t be able to buy homes in any other manner.

Representative Barney Frank, the Massachusetts Democrat and chairman of the House Financial Services Committee, has been and remains completely Against any F.H.A. rule that would eliminate the program. Regardless of whether Mr. Montgomery gets his way, or whether Mr. Frank’s desire prevails, thankfully there are other forms of down payment assistance available for first time home buyers besides seller-financed loans.