Statement for Bloomberg News

GAITHERSBURG, MD – Ann Ashburn, president of AmeriDream, Inc., responded to the following questions from Bloomberg News.

Q: As I understand, the great strength of the seller-funded down payment assistance program was that it got families with a solid income but little in the way of savings over the down payment hurdle in acquiring a home. Now the FHA is complaining that those mortgages are defaulting at far higher rates than any other type in its portfolio. So what went wrong? Was the concept flawed or is this just a product of a freakish financial crisis and housing slump?

A: First, this assumes that HUD's data is accurate. As you acknowledge, these homebuyers have solid incomes. To receive an FHA-insured loan they must meet all FHA loan underwriting criteria and be approved by FHA-approved underwriters.

While HUD's data has been questioned in multiple reports, the data relates strictly to the old DPA program. Nobody is seeking to revive that program. Instead, AmeriDream supports H.R. 600, a wholly new program that resolves HUD's concerns by setting high credit quality standards for homebuyers in this program. Two years after Members of Congress worked with HUD on providing higher credit criteria, HUD is now proposing similar reforms for all FHA homebuyers.

Q: One criticism is that the buyers had no "skin in the game." (I hate that expression but everyone seems to use it.) With no personal cash in their home purchase the buyers felt less committed than someone who did, etc. Is there any truth to this in your view? Would it be better just to tell those families to wait and save the money for the down payment, because that would make for more stable home ownership?

Answer: Homebuyers using DPA do indeed have "skin in the game." The money they received for their downpayment becomes their money. Therefore, upon Day One of homeownership, these homebuyers have equity. The concern expressed was that sellers were increasing the price of the house and effectively offsetting the downpayment gift.

Again, that concern relates strictly to the old program, which nobody seeks to revive. The new program we support – embodied in HR 600 -- addresses this concern by toughening appraisal standards. Once home appraisals are valid than the downpayment gift is truly equity. HR 600 implements serious appraisal reform, and the Federal Reserve Board and HUD have recently implemented their appraisal reform for all homes.

Q: A GAO study and others have said that the sellers increased the sales price of homes to compensate for the "donation" they would make to the non-profit providing the DPA. Is that correct in your experience? If not, how did these studies get it wrong? If so, was this a serious flaw in the program?

Answer: The situation provided above is not how the program is intended to work. The references you cite are anecdotal and do not include quantitative analytical supporting data. That being said, the concern relates strictly to the old program which nobody seeks to revive. The new program embodied in HR 600 resolves this concern by instituting substantial appraisal reform to ensure the homebuyer is protected in the home buying process.

Q: I've heard it said that your program primarily helped minority families, an underserved population in the homebuying market. Is that true? Do you have statistics on the percentage of Ameridream's buyers who were from minority groups?

A: All homebuyers using the program and the homes they were purchasing met FHA's underwriting criteria. Eighty percent were first time homebuyers and 30% were minority families. In the GAO report you cite, the Commissioner of FHA reports to GAO that the population served by DPA is the population that FHA is intended to serve. George Mason University and the Milken Institute have each done studies on the DPA program and found that it begins the cycle of wealth generation for families intended to be served by FHA. These families break the rent cycle, build home equity, and often are able to help their children with a down payment in the future, and leverage home equity in their retirement years. During the years studied, the DPA program provided families with $9 billion in equity and contributed $24 billion to the economy.

Q: Can or should seller-funded DPA be brought back, perhaps with some flaws fixed? First, is that realistic in this environment? Secondly, what specifically would you change to make it work better?

Answer: Yes. H.R. 600 is bipartisan legislation that authorizes the use of private-sector dollars to be used for helping high-credit quality buyers with the down payment to purchase their first home. Let me be clear — this is not an exotic mortgage product. It is a fixed-rate, 30-year loan that has the same payment in the first month as it does in year 30. The bill allows for a down payment gift to be given so that on Day One a buyer has instant equity in his or her home and that equity is affirmed and certified through strict appraisal assessments. H.R. 600 includes tough reforms that protect the homebuyer throughout the process, including higher credit requirements and improved appraisal assessments, to ensure that we are promoting responsible homeownership for the long term.

Q: Last, there's a basic philosophical/policy issue behind the DPA problem. Is it really better for lower income families to buy rather than rent their homes? I know the theory: it has been demonstrated that middle class families have accumulated substantial wealth, and communities benefited from homeownership, so if we just get lower income families into their own homes they will enjoy similar benefits. Have we proven that that is not true? Are there some families that simply ought to rent, and we should let them and the markets determine who is able to buy without extraordinary assistance? What, in short, have we learned from this whole financial/economic debacle about the vulnerabilities of working class families and whether good-intentioned home buying assistance really helps all that much?

A: The question of whether lower income Americans should own homes was answered in the 1930’s when the federal government created the FHA. It is the stated policy of the federal government to assist the individuals at the heart of your question. Likewise, it is AmeriDream’s mission is to serve the exact same population. Further, down payment assistance existed long before AmeriDream and continues today in the form of gifts from family members, employers, unions, government-funded programs and the recent tax credit programs. The new DPA program embodied in H.R. 600 would help this same population of FHA-approved buyers but do so without using taxpayer dollars. HR 600 seeks to create a public private partnership and leverage private dollars so that limited government dollars can be used elsewhere.

###