FHA: Zero-Down Needed to Fill DPA 'Void'

FHA Commissioner Brian Montgomery maintains that a recent IRS revenue ruling that downpayment assistance providers are not nonprofit corporations will give a shot in the arm to efforts to revamp the government's oldest housing program.Noting that 25%-30% of the FHA's volume is from loans in which the seller "donates" all or part of the downpayment through a third-party entity, Mr. Montgomery said he's "not sure what will fill the void" if Congress fails to give the FHA permission to back 100% mortgages. While the ruling is "not a complete death knell" for downpayment assistance, "it highlights the need" for lawmakers to act, he told the Mortgage Bankers Association's Government Housing Finance Conference. The FHA commissioner said he thinks "we have a real shot at modernization," adding that he was "encouraged" and "truly surprised" by bipartisan support in the House, where 61 members have signed on to a bill that has been cleared by the House Financial Services Committee. And he said he is "seeing growing enthusiasm in the Senate." Conventional and subprime lenders have been eating away at the FHA's bread-and-butter market of low- and moderate-income borrowers, and the agency's market share has dropped from 13% in 1990 to just 3.5% last year, said Martha Simmons of SunTrust Mortgage, vice chair of the MBA's Residential Loan Committee.