Where Most Needed

A striking example of the misuse of charities that ostensibly help people.  A Government Accounting Office  report calls attention to the adverse impact of homebuilder-funded charities that give home buyers help with their down payments.  The result, says the GAO, has been higher home prices and more loan defaults that leave the government-sponsored FHA holding the bag.  The charities have in effect given homebuilders and sellers a back door key to Federal treasury. 

Curiously, it is the  Columbus Dispatch that seems most interested in the report and the practice.  (With a follow-up story here.)  The Seattle Post-Intelligencer has also provided some coverage.  All of them note that conventional mortgage lenders do not allow sellers to provide down payments, as it allows for buyers who don't have any stake in home purchases.  Only FHA allows an exception for charity support for down payments, and then they went a step further to allow sellers to fund the charities.  Enter the abuse. 

These charities are not small.  AmeriDream reports $97 million in income, Nehemiah Corporation of America $143 million, and The Buyers Fund $167 million.  All of these organizations follow the buyer-funded model, and the bulk of their income appears as fees rather than contributions.  Family Housing Resources a non-seller funded organization mentioned in the GAO report is much smaller.

While the GAO report is recent, the problem is not that new, and this story from Bankrate.Com describes some of the history of the practice and previous efforts, thwarted by the industry, to control or end the practice.