Are 'Gifts' From Builders Inflating a Price Bubble?
By PATRICK BARTA and QUEENA SOOK KIM
Staff Reporters of The Wall Street Journal
From The Wall Street Journal Online
Dec. 18, 2002 -- Some aspiring homeowners spend years saving enough for a down payment. Not Tongela English. The 31-year-old single mother, a sorter for the Postal Service in Columbus, Ohio, got into a new $148,000 three-bedroom house even though she had scant savings.
What she had was a referral to Nehemiah Corp., a not-for-profit group that was willing to provide her with a $4,400 down payment, no strings attached. "I thought there had to be a catch," Ms. English said recently in the dining room of her new split-level in a subdivision called Williams Creek, the smell of paint still in the air. "They just gave me the money."
It wasn't Nehemiah's money, though. It was a home builder's. After Nehemiah made a down-payment gift to Ms. English, the builder gave Nehemiah a gift of the same amount. In effect, the builder itself was paying the down payment.
That sort of thing didn't used to happen, for a good reason: Buyers who have none of their own money in a house -- nor even any money from a close relative -- were considered default risks. Lenders weren't interested in making such loans. And the Federal Housing Administration, a mortgage guarantor that often deals with first-time buyers, in most cases wasn't interested in guaranteeing the loans.
But a few years ago, the FHA, after intense internal debate, changed its attitude. Accepting Nehemiah's program, the agency agreed to guarantee loans in which home buyers got a down-payment gift that was ultimately paid for by the seller.
Now such deals are proliferating. According to a trade association, roughly 17,000 Americans per month buy homes with down payments from "gifting" groups, which turn around and collect contributions covering the gifts from the sellers. That amounts to 3% of U.S. home buyers, enough to extend the housing boom in some regions and to affect market dynamics for all involved, from buyers to builders to lenders. |
