30% of FHA Foreclosures Linked to Downpayment Assistance

Nearly one third of Federal Housing Administration foreclosures completed in 2008 involved FHA loans with seller-funded downpayment assistance, HUD secretary Shaun Donovan told senators. FHA loans where the downpayment assistance was arranged by non-profit housing groups represented only 12% of all FHA loans at the start of 2008. "Much or our recent loss activities have been attributed to the growth of seller-funded downpayment assistance," the Department of Housing and Urban Development secretary testified. Congress banned such down payment assistance on FHA loans. That ban went into effect October 1, 2008. "The termination of this program should substantially reduce FHA losses in new originations in the years ahead," Mr. Donovan testified.