Mortgage Bankers Call For FHA Overhaul After IRS Ruling
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By Benton Ives-Halperin
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--A home-lenders group renewed calls Friday for an overhaul of government assistance programs for first-time home buyers.
The calls from the Mortgage Bankers Association followed a government ruling that would eliminate the charity status of some down payment assistance programs used by Federal Housing Authority borrowers.
On Thursday, the Internal Revenue Service issued a ruling that would remove the tax-exempt status of down-payment assistance programs which are funded by a property's seller.
But the bankers association said the those assistance programs are important for many first-time and minority home buyers.
As impetus for the ruling, the IRS in a statement issued Thursday said "organizations claiming to be charities are being used to funnel down-payment assistance from sellers to buyers through self-serving, circular-financing arrangements."
With that in mind, the IRS removed the 501c(3) charitable tax status of seller-funded programs.
That ruling, according to the mortgage bankers, means that more than a third of FHA borrowers would no longer have access to a needed source of down payment funds.
"There is now a greater urgency to pass FHA reform legislation that would allow FHA to implement new flexible down payment programs for borrowers," said Steve O'Connor, vice president of government affairs at MBA, in a statement.
According to the MBA, most down payment assistance program users were first-time home buyers, and African Americans are more likely to use the assistance programs.
Current FHA regulations state that organizations giving money to borrowers for down payments should be for charitable purposes and "cannot have an interest in the sale of the property," according to the MBA.
Thus, if an organization loses its tax-exempt charitable status, gifts of money for a down payment would be considered an inducement to buy and prohibited by the FHA.
So the association is calling for passage of legislation that would broadly overhaul the FHA, and provide the federal agency with more flexibility to accept different kinds of down payment assistance.
An FHA overhaul measure sponsored by Rep. Bob Ney, R-Ohio, would grant the agency more flexibility on down payments, possibly eliminating the need for assistance programs by allowing new measures such as a zero down payment program.
The bill also would allow the FHA to take a risk-based approach to lending, meaning it could charge borrowers higher or lower premium rates, depending on their credit profile.
It also would eliminate the current 3% minimum down payment, which the government has said would reduce a significant barrier to homeownership and reflects the modern housing marketplace, where most first-time home buyers put down 2% or less on a home.
-By Benton Ives-Halperin, Dow Jones Newswires; 202-862-9255; Benton.Ives-Halperin@dowjones.com
(END) Dow Jones Newswires
May 05, 2006 17:41 ET (21:41 GMT)
Copyright (c) 2006 Dow Jones & Company, Inc.- - 05 41 PM EDT 05-05-06 |
