“Before the housing boom got underway in the late 1990s, a California nonprofit group hatched an idea to help families who qualified for government-backed mortgages but still couldn't raise the down payment.
A home builder would agree to make a donation to the nonprofit in an amount equal to the down payment. The nonprofit would give the cash to the buyer, often earning a generous fee for its role as middleman. In less than a decade, nonprofits had arranged more than a million no-money-down house sales around the country. By 2008, they represented more than a third of all loans backed by the Federal Housing Administration.
Now many of those loans have gone bad. Defaulting at up to three times the rate of other FHA loans, they are one reason the housing agency's insurance fund is about to drop below its required capital level for the first time since it was created during the Great Depression.
Congress last year stopped the FHA from insuring any more of the loans, saying they were risky and carried the potential for fraud and abuse. One case in July confirmed those concerns: As part of a settlement of criminal charges in U.S. District Court in North Carolina in July, Beazer Homes USA Inc., acknowledged that its employees had defrauded buyers by simply rolling the extra cost of the down payment assistance into the house price.
Little attention has been paid to the role of the down payment programs in the origins of the financial crisis. Government and court records examined by the Huffington Post Investigative Fund illustrate how two large housing nonprofits - Nehemiah Corporation of America and AmeriDream Inc. -- worked closely with the mortgage divisions of the nation's biggest home builders, adding fuel to the housing bubble and in effect paving the way for even riskier subprime loans by private lenders.” - Home Loans Brokered By Nonprofits Helped Fuel The Housing Crisis, Huffington Post, 03/02/2012 [first posted 12/01/2009]
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