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HOMEOWNER DOWNPAYMENT ASSISTANCE
PROGRAMS AND RELATED ISSUES

HEARING
BEFORE THE

SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE

COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION

JUNE 22, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–45

(
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON

37–562 PDF

:

2007

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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania
MAXINE WATERS, California
CAROLYN B. MALONEY, New York
LUIS V. GUTIERREZ, Illinois
´
NYDIA M. VELAZQUEZ, New York
MELVIN L. WATT, North Carolina
GARY L. ACKERMAN, New York
JULIA CARSON, Indiana
BRAD SHERMAN, California
GREGORY W. MEEKS, New York
DENNIS MOORE, Kansas
MICHAEL E. CAPUANO, Massachusetts
´
RUBEN HINOJOSA, Texas
WM. LACY CLAY, Missouri
CAROLYN MCCARTHY, New York
JOE BACA, California
STEPHEN F. LYNCH, Massachusetts
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
AL GREEN, Texas
EMANUEL CLEAVER, Missouri
MELISSA L. BEAN, Illinois
GWEN MOORE, Wisconsin,
LINCOLN DAVIS, Tennessee
ALBIO SIRES, New Jersey
PAUL W. HODES, New Hampshire
KEITH ELLISON, Minnesota
RON KLEIN, Florida
TIM MAHONEY, Florida
CHARLES A. WILSON, Ohio
ED PERLMUTTER, Colorado
CHRISTOPHER S. MURPHY, Connecticut
JOE DONNELLY, Indiana
ROBERT WEXLER, Florida
JIM MARSHALL, Georgia
DAN BOREN, Oklahoma

SPENCER BACHUS, Alabama
RICHARD H. BAKER, Louisiana
DEBORAH PRYCE, Ohio
MICHAEL N. CASTLE, Delaware
PETER T. KING, New York
EDWARD R. ROYCE, California
FRANK D. LUCAS, Oklahoma
RON PAUL, Texas
PAUL E. GILLMOR, Ohio
STEVEN C. LATOURETTE, Ohio
DONALD A. MANZULLO, Illinois
WALTER B. JONES, JR., North Carolina
JUDY BIGGERT, Illinois
CHRISTOPHER SHAYS, Connecticut
GARY G. MILLER, California
SHELLEY MOORE CAPITO, West Virginia
TOM FEENEY, Florida
JEB HENSARLING, Texas
SCOTT GARRETT, New Jersey
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
JIM GERLACH, Pennsylvania
STEVAN PEARCE, New Mexico
RANDY NEUGEBAUER, Texas
TOM PRICE, Georgia
GEOFF DAVIS, Kentucky
PATRICK T. MCHENRY, North Carolina
JOHN CAMPBELL, California
ADAM PUTNAM, Florida
MICHELE BACHMANN, Minnesota
PETER J. ROSKAM, Illinois
THADDEUS G. McCOTTER, Michigan

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel

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SUBCOMMITTEE

ON

HOUSING

AND

COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman
´
NYDIA M. VELAZQUEZ, New York
JULIA CARSON, Indiana
STEPHEN F. LYNCH, Massachusetts
EMANUEL CLEAVER, Missouri
AL GREEN, Texas
WM. LACY CLAY, Missouri
CAROLYN B. MALONEY, New York
GWEN MOORE, Wisconsin,
ALBIO SIRES, New Jersey
KEITH ELLISON, Minnesota
CHARLES A. WILSON, Ohio
CHRISTOPHER S. MURPHY, Connecticut
JOE DONNELLY, Indiana
BARNEY FRANK, Massachusetts

JUDY BIGGERT, Illinois
STEVAN PEARCE, New Mexico
PETER T. KING, New York
PAUL E. GILLMOR, Ohio
CHRISTOPHER SHAYS, Connecticut
GARY G. MILLER, California
SHELLEY MOORE CAPITO, West Virginia
SCOTT GARRETT, New Jersey
RANDY NEUGEBAUER, Texas
GEOFF DAVIS, Kentucky
JOHN CAMPBELL, California
THADDEUS G. McCOTTER, Michigan

(III)

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CONTENTS
Page

Hearing held on:
June 22, 2007 ....................................................................................................
Appendix:
June 22, 2007 ....................................................................................................

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39

WITNESSES
FRIDAY, JUNE 22, 2007
Ashburn, Ann, President and CEO, Ameridream, Inc. ........................................
Burns, Margaret, Director, Office of Single Family Housing Program Development, Federal Housing Administration ..............................................................
Fuller, Dr. Steven S., Center for Regional Analysis, George Mason University
School of Public Policy .........................................................................................
Heist, James A., Assistant Inspector General for Audits, Office of the Inspector General, U.S. Department of Housing and Urban Development ...............
Osta, John F., Vice President, Gallinger Realty USA ..........................................
Queen, Beverly, Homeowner ...................................................................................
Richardson, Todd, Vice President of Legal Affairs, C.P. Morgan ........................
Shear, William B., Director, Financial Markets and Community Investment,
U.S. Government Accountability Office ..............................................................
Syphax, Scott C., President and CEO, Nehemiah Corporation of America ........

28
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30

APPENDIX
Prepared statements:
Carson, Hon. Julia ............................................................................................
Maloney, Hon. Carolyn B. ................................................................................
Ashburn, Ann ....................................................................................................
Burns, Margaret ...............................................................................................
Fuller, Dr. Steven S. ........................................................................................
Heist, James A. .................................................................................................
Osta, John F. ....................................................................................................
Queen, Beverly ..................................................................................................
Richardson, Todd ..............................................................................................
Shear, William B. .............................................................................................
Syphax, Scott C. ...............................................................................................
ADDITIONAL MATERIAL SUBMITTED

FOR THE

40
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70
73
76
82
100

RECORD

Waters, Hon. Maxine:
Statement of the American Enterprise Institute ...........................................
Statement of the National Association of Realtors ........................................
Miller, Hon. Gary:
Bloomberg News article dated June 5, 2007 ..................................................

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HOMEOWNER DOWNPAYMENT ASSISTANCE
PROGRAMS AND RELATED ISSUES
Friday, June 22, 2007

U.S. HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON HOUSING AND
COMMUNITY OPPORTUNITY,
COMMITTEE ON FINANCIAL SERVICES,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:10 a.m., in room
2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the subcommittee] presiding.
Present: Representatives Waters, Velazquez, Cleaver, Green,
Maloney, Sires, Ellison, Wilson; Biggert, Miller, and Neugebauer.
Also present: Representative Scott of Georgia.
Chairwoman WATERS. This hearing of the Subcommittee on
Housing and Community Opportunity will come to order.
The Chair asks unanimous consent that Mr. David Scott, the
gentleman from Georgia, and a member of the Committee on Financial Services, but not of this subcommittee, be allowed to participate in today’s hearing by delivering an opening statement and
asking questions of the witnesses.
Without objection, it is so ordered.
Ladies and gentlemen, I would like to thank the ranking member, Mrs. Judy Biggert, and members of the Subcommittee on
Housing and Community Opportunity for joining me today in this
hearing entitled, ‘‘Homeowner Downpayment Assistance Programs
and Related Issues.’’ Without objection, all members’ opening statements will be made a part of the record.
The downpayment assistance programs have been the basis for
audit reports by the HUD Inspector General as well as by the Government Accountability Office study issued in 2005. On May 11,
2007, HUD issued a proposed rule related to downpayment assistance programs that mimics a rule issued in September 1999 that
was not finalized. Further, the Internal Revenue Service issued a
ruling last year related to downpayment assistance programs and
charitable organizations.
I have not taken a position on downpayment assistance programs. The purpose of today’s hearing is to address public interest
on this issue and to answer questions surrounding downpayment
assistance programs that are offered in communities all over the
country. While the proposed HUD rule published on May 11, 2007,
changes the tenor and level of interest on the issue of downpayment assistance, I and other members of the subcommittee have
questions about downpayment assistance programs.
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Many of us have heard about the existence of downpayment assistance programs. Many of us have heard not only about the programs, but about the existence of downpayment assistance programs and our low/moderate income constituents’ reliance on some
form of downpayment assistance to purchase a home. Others claim
that this type of assistance has led to defaults because of inflated
sales prices tied to homes.
The Nehemiah Corporation of America, represented here today,
happens to have been the first major, nationally recognized provider of downpayment assistance programs. As far back as 1997,
Nehemiah Corporation began providing downpayment assistance to
homeowners. In fact, according to some estimates, downpayment
assistance is so prevalent in real estate transactions that between
2000 and 2005, 680,000 home buyers were supported by a gift from
downpayment assistance providers. Interestingly, the Federal
Housing Administration has routinely allowed downpayment assistance programs in support of its R203(b) program, and estimates
indicate that from 30 percent to 40 percent of FHA mortgages have
been supported by downpayment assistance.
In 2003, legislative proposals were introduced in Congress to provide downpayment assistance grants to as many as 40,000 homeowners under the American Dream Downpayment Act. In addition,
there is a provision in H.R. 1852, the Expanding American Homeownership Act of 2007—which I sponsored and the Committee on
Financial Services passed—that provides for zero downpayments
for first-time home buyers.
While downpayment assistance programs are not new, they have
not escaped some controversy. Under the typical downpayment assistance program, a low- to moderate-income person or family is
provided downpayment assistance as a gift toward the purchase of
a home. The gift must not be a quid pro quo. The seller cannot provide funds to an organization. In providing downpayment assistance in exchange for downpayment assistance to the buyer, in essence, the nonprofit organization cannot be reimbursed for the
downpayment assistance.
Sellers, buyers, builders, and other parties with an interest in
the transaction are also prohibited from providing downpayment
assistance to the home buyer. The homeowner does not repay the
gift. Downpayment assistance programs that meet these requirements appear to be legal. Downpayment assistance programs that
circumvent these programs appear not to be legal.
In an effort to further develop the public record on this issue, I
have asked today’s witnesses to answer several questions. As such,
I look forward to hearing the witnesses’ testimony on the issue of
homeowner downpayment assistance programs.
Now I would like to recognize our ranking member, Mrs. Biggert,
for 5 minutes for her opening statement.
Mrs. BIGGERT. Thank you, Madam Chairwoman, and thank you
for holding this hearing today on the use of downpayment assistance in FHA-backed mortgages. I will keep my remarks brief, as
I know we have three panels of witnesses to hear from this morning. But before I begin, I would like to say, ‘‘Happy Homeownership
Month,’’ to everyone; June is National Homeownership Month.

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I must disclose that in my former life I was a real estate attorney, and I learned, I think firsthand, about the difficulty that firsttime home buyers have had with presenting that downpayment
check. However, I also saw firsthand the joy that homeowners had
once they were handed the keys to their new homes; it was their
piece of the American dream.
This month, I have heard from a dozen of my constituents about
the benefits of downpayment assistance, and quoting one of their
letters, ‘‘Helping people become homeowners adds to the tax base,
improves communities, helps children to do better in school, and
helps people gain wealth through the equity in their homes. Home
equity is a family’s biggest asset and is often used to fund school
tuition and retirement. Homeownership should be encouraged for
all.’’ I could not agree more.
To overcome a barrier to homeownership for many low- and middle-income Americans, privately funded downpayment assistance
programs began surfacing in the 1990’s. In 2003, this committee
worked on legislation that resulted in a law which created the
American Dream Downpayment Initiative, ADDI. I would also like
to note that both my FHA modernization bill and the chairwoman’s
FHA modernization bill contain a provision that authorizes FHA to
offer zero downpayment insured loans.
As a result of downpayment assistance, more Americans are becoming homeowners. Today, over 70 percent of Americans own a
home. Administered as part of HUD’s Home Investment Partnerships Program, ADDI has helped thousands of Americans overcome
the downpayment hurdle and has helped them to secure a home.
I hope that we can discuss the downpayment assistance, ADDI,
as part of the dialogue. The program has been administered in my
district to a small extent, but particularly in my neighbor to the
east, the City of Chicago, and its surrounding counties.
We are here today to discuss the private sector’s role in helping
Americans achieve the dream of homeownership, and I would first
like to thank our witnesses today whose organizations have provided hundreds of my constituents with downpayment assistance,
have helped them secure a mortgage, and have enabled them to
own and stay in a home.
I understand there is some concern about the downpayment assistance industry, or perhaps some bad actors in this industry, and
downpayment assistance entities have been highly scrutinized by
HUD, by the IRS, and by GAO in recent years. I understand that
FHA data indicates that over one-third of homeowners receiving
downpayment assistance have low FICO scores and high delinquency rates.
In addition, my office has learned from a variety of sources in
Washington and in Illinois that downpayment assistance may contribute to an inflated house price, resulting in a seller’s seeing
more benefits than a buyer. I hope that we can address some of
these issues during today’s hearing.
Again, I thank the chairwoman for holding this important hearing, and I yield back the balance of my time.
We must also be thinking about the environment because I see
that there is an awful lot of green up here.
Chairwoman WATERS. Thank you very much.

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I would like to recognize Mr. Cleaver for 5 minutes.
Mr. CLEAVER. Thank you, Madam Chairwoman. I will hold my
opening comments in the interest of time. Thank you.
Chairwoman WATERS. Excuse me, Mr. Cleaver. Before you get
started, I have been advised that a vote has been called, and we
only have 7 minutes left on the vote. Let me beg your indulgence.
Please do not start your opening statement.
I would like to ask our witnesses to, if you can, remain here until
we return. We have votes on the Floor. It should not be too long.
How many votes do we have on the Floor? We have two votes on
the Floor, so we should return in about 15 to 20 minutes. Thank
you very much.
[Recess]
Chairwoman WATERS. Thank you very much, ladies and gentlemen.
Mr. Cleaver had started on his opening statement, but he has
not returned yet, and so I am going to recognize the gentleman
from California, Mr. Gary Miller, for a 5-minute opening statement.
Mr. MILLER. Thank you, Madam Chairwoman.
This hearing, I think, is absolutely appropriate. Since I have
been in Congress, one of the important endeavors I have taken on
is the creation of homeownership; and one of the keys to personal
wealth in this country is individuals being able to own a home, and
the prices as they inflate over the years create equity for individuals who otherwise do not have that opportunity. It is one of the
main drivers of the economy in this country.
One of the main barriers in achieving the dream of homeownership, in any case, is the lack of accumulated wealth and disposable
income. Rents are skyrocketing in this country. By the time people
pay their rent and they pay for their food and they pay for their
health care, there is really no money left for a downpayment, and
that is one of the problems we have seen in this country. Over the
years, some nonprofit organizations have developed programs to
provide downpayments to qualifying families. Such programs target
individuals and families who lack the necessary funds for a downpayment and other related costs, but who can afford the monthly
payment, and they become homeowners. These downpayment assistance programs have proven successful in providing homeowner
opportunities to low- and moderate-income families. These programs will allow families to enter homeownership years earlier
than if they had to save the money the traditional way and acquire
the downpayment on their own.
HUD has permitted the use of these programs in conjunction
with the FHA-insured loan programs. In fact, in 1998, HUD’s Office of General Counsel found that funds paid to homeowners from
a seller-funded nonprofit were not in conflict with FHA’s guidelines
that profit from further downpayment for assistance to sellers. Regulatory changes have been proposed by HUD that would basically
eliminate the programs that we have here today, and I guess one
of the problems I am having with this is—I have read a lot of information. In fact, I have read a lot of correspondence from HUD to
some of these nonprofits back to 1999 that when some of the nonprofits were asking to be regulated in certain fashions, HUD was

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saying, no, they did not think that was appropriate or necessary at
the time.
For a lot of the time we spend on this committee, we talk about
homeownership. That is our focus, and we deal a lot with PHAs
and government housing, and we get people out of government
housing, people who are in Section 8. And we have come up with
new programs to move people out of government housing, out of
Section 8, so that we can bring more people in who need assistance.
In fact, in 2003, we came up with the American Dream Downpayment Assistance Act where government comes in and provides
downpayment assistance.
Now, the problem I am having with this is that if it is okay for
government, why is it not okay for the private sector? If underwriting is a problem, let us fix the problem. If we are concerned
about appraisals, let us fix the appraisals.
We have programs here that basically, from the information I
have read, 85 percent of these loans are made to individuals who
do not have any money for a downpayment. So these are not people
who have a lot of disposable income. These are people who can afford to pay their rent, who are working hard in life, and they have
an income, but they just do not have money to pay the closing costs
and the downpayment.
If 85 percent are performing, the last time I was in school, 85
percent was pretty good. If I look at the subprime market today
and the problems we are having in the subprime, they are far
worse than what we are facing in this program, and we have
worked really hard to come up with a new proposal for FHA for
zero downpayment.
Now, that comes with oversight, with guidelines, with requirements, and restrictions, that have to be put in place to do that.
Why can’t we do it here? Instead of throwing the baby out with the
bath water, like we seem to be doing here, we are just closing our
eyes and turning our head and saying, ‘‘Well, we are just going to
eliminate the program,’’ and it is a program that when you figure
the percentage of FHA loans that are made to a buyer Downpayment Assistance Program there are a whole lot of people in this
country in homes who would not be in a home today; they would
still be out renting some home that maybe somebody who came off
of Section 8 might need to rent, thereby creating a situation where
there are no available rental homes. People are moving into homes,
and if they are moving into homes, 85 percent of these people have
acquired wealth who did not have wealth before.
I remember touring one of these nonprofits in 2000, and there
were probably 40 to 45 women working in this nonprofit, and as
I went through this place and talked to people—can I have an additional 1 minute, being as there is nobody on our side to speak?
Chairwoman WATERS. You may have an additional 25 seconds.
Mr. MILLER. 25 seconds.
Every one of these women had been on welfare, and every one
of these women owned a home. The majority of the loans made
from this Downpayment Assistance Program were to minorities.
These people had a dream of owning a home, but no opportunity.
It seems like we can do better than just saying ‘‘no.’’ If there are
problems, let us address the problems. If there are requirements,

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let us impose the requirements, but let us not just throw a program
out that obviously is benefiting hundreds of thousands of low-income people who otherwise would never have an opportunity to
own a home.
And I will have to talk later when I have a chance for questions.
Thank you. I yield back.
Chairwoman WATERS. Thank you very much.
Mr. Cleaver for 5 minutes.
Mr. CLEAVER. Madam Chairwoman, I think I will forgo a statement in the interest of time.
Chairwoman WATERS. Thank you very much.
Mr. Green for 5 minutes.
Mr. GREEN. Thank you, Madam Chairwoman, and I thank the
ranking member as well. Madam Chairwoman, I thank you for
framing this issue for us. I also would like to thank Mr. Miller because I think that he has stated quite well some of the concerns
that I desire to express.
I do want to say, however, that we know that there are many
persons who will inherit a legacy of poverty. They will not have the
same opportunities that many others will have, but they do have
the same hopes, the same dreams, and the same aspirations. I commend the organizations and institutions that have worked to assist
them in fulfilling the American dream of homeownership.
Homeownership does more than provide shelter. It causes persons to be in neighborhoods where they develop special relationships, where they have a greater degree of safety. The asset, itself,
can be utilized for education. Many people start their first business
with the equity in their home. It just means so much to give people
the leg up out of poverty.
So, as Mr. Miller has said, Congressman Miller, we should not
end this program. We should amend it and make it work. We
should not eliminate it. We can regulate it appropriately and make
it work. We should show some degree of patience and understanding when it comes to the least, the last, and the lost, the persons who do not find themselves in the same station of life that
most of the people in this room happen to enjoy.
So I am honored that the Chair has assembled these spokespersons this morning to give us the intelligence that we need to
preserve this program. There may be some who will differ with me,
but I think, in the final analysis, most people in this country would
like to see persons have the opportunity to own a home, notwithstanding the station in life that they are born into.
I yield back the balance of my time.
Chairwoman WATERS. Thank you very much.
Mr. Sires, would you like to have an opening statement for 5
minutes?
Mr. SIRES. Yes.
Thank you, Madam Chairwoman, for having such, what I consider to be, very important hearings.
I have been a mayor of a municipality where, of 73 percent of the
student body, their families fell below the poverty level. It is very
hard for those people, without any kind of assistance, to own a
home.

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I have seen this program where it has helped boost those families whom we were able to help, and I cannot think that such programs will be eliminated for these people. When we are spending
money abroad on all sorts of things, I think this is one of the things
that we have to focus on at home—giving people the opportunity
to own, to feel good. It just changes the whole family structure
when people have a place that they can be proud of.
I am surely a strong supporter. I know the chairwoman is, and
the members here, and I am looking forward to seeing how we can
make this program work better. This is taking these people who
are really in need and bringing them to another level, and if I can
assist a little bit, that is something that I will be very proud of
doing for the rest of my life.
So thank you very much, Madam Chairwoman.
Chairwoman WATERS. Thank you very much.
The gentleman from Georgia, Mr. Scott.
Mr. SCOTT. Thank you, Madam Chairwoman, and I really appreciate your kindness and generosity in allowing me to participate in
this subcommittee meeting on such an important issue and timely
issue as downpayment assistance.
Owning a home is so central to the American way of life. It is
so essential to a person or to a family in having a sense of selfworth. It is that instrument that helps start the cinder blocks for
building wealth, for having dignity, and we need to keep it. We
need to find ways to keep this, not of trying to find reasons or rationales for dismantling it.
We need to keep this. We need to do more to make sure that we
are reaching out to the people who need it and who need it the
most. Downpayment assistance has helped those who may not have
originally qualified for a home loan. It is so important, and it creates that instant equity for the homeowner.
I am particularly interested in hearing from the witnesses on
findings from the 2005 study conducted by the GAO in which outcomes of FHA loans with downpayment assistance programs were
compared with those loans that were originated without this assistance. I understand that the GAO and certain nonprofit housing organizations have differing views on the outcome of this report. That
is so essential, and I think it is important for this committee to
hear from both sides on this issue.
In addition, we are all concerned about our constituents and the
rising foreclosure rates throughout the country, especially in Georgia and especially in the Atlanta metro area, which leads the Nation. So I will be pleased to hear your thoughts on the relationship
and role, if any, between downpayment assistance and the
subprime market.
These programs have worked. They have been popular. They
have been successful. I think that when we look at situations, there
is no way we can look at perfection, because none of us is perfect.
The world is not perfect. What we can look at and continually
strive for is the goodness and decency in man. Nowhere is that
more applicable than in making sure that this Downpayment Assistance Program continues and is strengthened.
Thank you, Madam Chairwoman.
Chairwoman WATERS. Thank you very much.

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Having exhausted all of the opening statements, we will move to
our first panel. I would like to welcome you to this committee hearing, and thank you for your patience.
On Panel one, we have:
Ms. Margaret Burns, Director of the Office of Single Family
Housing Program Development, Federal Housing Administration;
Mr. James Heist, Assistant Inspector General for Audits, Office
of the Inspector General, U.S. Department of Housing and Urban
Development; and
Mr. Bill Shear, Director of the Financial Markets and Community Investment team, U.S. Government Accountability Office.
I want to welcome each of you, and thank you for appearing before the subcommittee today. Without objection, your written statements will be made part of the record. Each of you will now be recognized for a 5-minute summary of your testimony, and we will
begin with Ms. Burns.
STATEMENT OF MARGARET BURNS, DIRECTOR, OFFICE OF
SINGLE FAMILY HOUSING PROGRAM DEVELOPMENT, FEDERAL HOUSING ADMINISTRATION

Ms. BURNS. Chairwoman Waters, Ranking Member Biggert, and
members of the subcommittee, thank you for inviting HUD to participate in this hearing. My name is Meg Burns, and I am the Director of Single Family Program Development for the Federal
Housing Administration.
I appear today representing FHA Commissioner Brian Montgomery, who sends his regrets that he is unable to attend. I have
been asked to testify on the recently published proposed rule which
continues HUD’s longstanding policy of permitting FHA borrowers
to rely on downpayment assistance from family members, employers, governmental entities, or charitable nonprofits, but clarifies
that the funds cannot be derived from sellers or from any other
party that stands to benefit financially from the purchase transaction.
As you may know from previous public statements, and from testimony offered by the FHA Commissioner, our Agency has been
concerned with seller-funded downpayment assistance for some
time now. While well-intended, the programs have had a significant negative impact on FHA’s business for the last several years.
Loans made to borrowers who rely on these types of seller-funded
gifts perform very poorly. The foreclosure rates on these loans are
more than twice that of all other home purchase loans insured by
FHA.
Moreover, FHA experiences higher loss rates from the sale of the
properties associated with these particular foreclosures, a reflection
of the overvaluation that occurs with these programs. The higher
foreclosure rates represent a financial burden for FHA, but of
greater concern, they hurt the families who lose their homes and
the neighborhoods in which those homes are located.
The core problem with these programs is that they disrupt the
natural negotiations between buyers and sellers in a way that results in inflated sales prices and, thus, higher mortgage amounts.
Seller-funded downpayment assistance programs flourish in weak
real estate markets where sellers are less likely to get full asking

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prices for their homes. These programs help them sell at a higher
price than they would otherwise get. As such, the property overvaluation associated with these programs occurs in markets that
are least able to accommodate pricing variations. The harmful effects of seller-funded downpayment assistance were highlighted in
2004 and in 2005 studies prepared by Concentric Consulting on behalf of FHA and GAO.
In 2006, the IRS issued guidelines, stating that seller-funded
downpayment assistance from sellers to buyers through self-serving circular financing arrangements is not charitable. So why is
FHA proposing this rule, and why now?
Prior to November 2006, the FHA publicly acknowledged the
problematic nature of the seller-funded gift programs, stating on
several occasions that these programs pose a higher cost and risk
to borrowers and to the soundness of FHA’s insurance fund. However, the agency resisted the development of an outright prohibition of seller-funded gifts, pursuing instead an alternative FHA financing arrangement for borrowers lacking the funds for a downpayment.
FHA sought legislative authority to eliminate the 3 percent cash
investment requirement to offer cash-poor but creditworthy borrowers a safer, more affordable alternative to the seller-funded gift
programs. It was our view that a 100-percent financing option
would reduce borrowers’ reliance on seller-funded gift programs, an
outcome that would be good for borrowers and for FHA.
That said, we will continue to work closely with this committee
to enact needed reforms for FHA, such as 100 percent or zero-down
financing, as well as the reauthorization of the American Dream
Downpayment Initiative.
I want to conclude my testimony by thanking this committee for
the bipartisan support and leadership it has shown on FHA modernization. I also want to point out that if enacted, both the legislation introduced by Chairwoman Waters and the legislation introduced by Ranking Member Biggert, would go a long way toward resolving the issue before us today by authorizing FHA to ensure a
zero-down mortgage.
Thank you for having me here, and I will be happy to answer
any questions you may have.
Chairwoman WATERS. Thank you very much.
[The prepared statement of Ms. Burns can be found on page 54
of the appendix.]
Chairwoman WATERS. Next, we will have Mr. James Heist.
STATEMENT OF JAMES A. HEIST, ASSISTANT INSPECTOR GENERAL FOR AUDITS, OFFICE OF THE INSPECTOR GENERAL,
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Mr. HEIST. Chairwoman Waters, and members of the subcommittee, thank you for inviting me to testify today.
In 1998, less than 1 percent of all FHA borrowers received sellerfunded downpayment assistance from nonprofits. By 2006, loans
with nonprofit downpayment assistance approached 25 percent of
all FHA new business. The default and claim rates for these loans
are twice as high as are loans without gifts, and this adverse performance has become a serious financial concern to HUD. HUD has

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recently proposed regulatory changes that would establish specific
standards for an FHA borrower’s investment in the mortgaged
property.
The Office of the Inspector General strongly supports the Department. My office has recently audited FHA lenders. For example,
the Broad Street Mortgage audit found documents showing that
sellers increased sales prices to cover the cost of donations to downpayment assistance providers. Correspondence between lender staff
cited specific amounts needed from sellers to close the loan and the
price markups required to fund the seller’s gifts.
In 2002, at the request of FHA, we reviewed a statistical sample
of over 1,000 FHA files to determine the percentage of borrowers
who were receiving downpayment assistance from nonprofits and to
find out if the downpayment assisted loans were more likely to default than loans without such assistance. The audit found that such
loans have a greater tendency to default. We have not been the
only voice of concern.
The Government Accountability Office cautioned in a November
2005 report that the FHA needed to better manage the risk of
FHA-insured loans with downpayment assistance. FHA’s actuaries
have also commented on the impact of downpayment assisted loans
for fiscal year 2005. Their conclusion: an almost $2 billion decrease
in the estimated economic value of FHA’s insurance fund.
HUD’s contractors conducted an independent analysis in 2004.
Their conclusion: median house prices and seller contributions
tended to be higher when gifts from nonprofits were present.
In May 2006, the IRS issued a revenue ruling that nonprofit organizations that fund downpayment assistance programs with contributions from the property’s sellers do not meet legal requirements for tax-exempt status. The IRS is currently conducting a
large number of investigations of organizations involved in such activities.
Nonprofit downpayment assisted loans will continue to have a
negative impact on the economic value of the FHA insurance fund
and on FHA borrowers. FHA’s fiscal year 2008 budget states, ‘‘Because of adverse loan performance, the baseline credit subsidy rate
for FHA’s single family program is positive, meaning that the total
costs exceed receipts on a present value basis and, therefore, would
require appropriations of credit subsidy budget authority to continue operation.’’ This is primarily attributable to the poor performance of seller-funded, nonprofit downpayment assisted loans.
When the HUD Inspector General testified in March before the
Senate Committee on Appropriations, the committee was very concerned about having to fund a new appropriation to cover the
shortfall. Since HUD has indicated that it would not seek appropriations, this burden will fall on all new FHA borrowers through
increased premiums. The subcommittee will hear other testimony
highlighting the growth of homeownership opportunities through
nonprofit downpayment programs.
This growth comes at a price. It is often the borrower who suffers
the most when financed into a home at an inflated value because
the sales price was raised to pay for the nonprofit gift. Borrowers
are sometimes unable to keep current on their inflated mortgage
loans and eventually lose their homes to foreclosure. To prevent

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this, and to help address the looming budget shortfall, FHA should
implement the proposed rule to end seller-funded nonprofit gifts.
That concludes my testimony. I thank the subcommittee for holding this hearing, and I look forward to answering any questions the
members may have.
Chairwoman WATERS. Thank you very much.
[The prepared statement of Mr. Heist can be found on page 62
of the appendix.]
Chairwoman WATERS. Mr. Shear.
STATEMENT OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL
MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Mr. SHEAR. Madam Chairwoman, and members of the subcommittee, it is a pleasure to be here this morning to discuss issues
concerning downpayment assistance for home buyers.
Making a downpayment on a mortgage can benefit both the
home buyer and the mortgage provider. However, many families
have difficulty saving sufficient funds for a downpayment and loan
closing costs. In many instances, obtaining downpayment assistance from third parties, such as relatives and government agencies,
can create instant equity and make homeownership affordable to
more families.
Largely in contrast to other key mortgage industry participants,
the FHA allows borrowers to obtain downpayment assistance from
nonprofit organizations that operate programs supported partly by
property sellers, which I will refer to as ‘‘seller-funded downpayment assistance.’’
My testimony today is based on a report we issued in November
2005 on downpayment assistance used with FHA-insured mortgages. My discussion will focus on, first, trends in the use of downpayment assistance with FHA-insured loans; second, the impact
that the presence of such assistance has on purchase transactions
and house prices and; third, the influence of such assistance on
loan performance.
In summary, we found, first, the proportion of FHA-insured purchase loans with loan-to-value ratios above 95 percent; those that
were financed, in part, by seller-funded downpayment assistance
grew from about 6 percent in 2000 to about 30 percent in 2004
while the overall number of loans that FHA insured fell sharply.
Second, seller-funded downpayment assistance can alter the
structure of the purchase transaction in important ways. When
home buyers receive such assistance, many of the nonprofits require property sellers to make a payment to the nonprofit that
equals the amount of assistance the home buyer receives plus a
service fee. This requirement creates an indirect funding stream
from property sellers to home buyers that does not exist in other
transactions, including those involving more traditional forms of
downpayment assistance. According to mortgage industry participants, a HUD contractor study and our analysis, property sellers
who have provided such assistance then often raise the sales price
of the homes involved in order to recover the required payments to
the organizations.

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Finally, turning to loan performance, our evaluation included,
among other things, an analysis of the national sample of FHA-insured loans while we controlled for other variables affecting FHA
insurance claims. Here, we found that the probability of claims was
76 percent higher for loans with seller-funded downpayment assistance than it was for comparable loans without assistance. The
weaker performance of loans with seller-funded downpayment assistance may be explained, in part, by the higher sales prices of
homes bought with this assistance and the home buyers’ having
less equity in the transactions.
In fact, the higher sales price that often results can have the perverse effect of denying buyers any equity in their properties and
creating higher effective loan-to-value ratios. Due partly to the adverse performance of loans with seller-funded downpayment assistance, FHA has estimated that, in the absence of program changes,
its single family mortgage insurance program would require a subsidy in 2008.
Our 2005 report made recommendations, including a recommendation that FHA treat seller-funded downpayment assistance as a seller inducement and, therefore, subject to the prohibition against using seller contributions to meet the 3 percent borrower contribution requirement.
Madam Chairwoman, this concludes my oral statement. It is
really a pleasure to be here.
Chairwoman WATERS. Thank you very much.
[The prepared statement of Mr. Shear can be found on page 82
of the appendix.]
Chairwoman WATERS. I will now recognize myself for 5 minutes
for questions.
First, let me just try and clear up something with you, Ms.
Burns, and you, Mr. Heist.
The FHA did come to us regarding the formulation of our legislation and asked us to include in the legislation zero downpayments.
That means that they would like to outreach and to service the
same kind of people who are being serviced by the programs that
we are here to discuss today, who may not be able to afford a
downpayment. If the FHA is going after the same clientele, what
is going to be the difference in the so-called ‘‘foreclosure rate?’’
I also want you to be more specific and give me some hard numbers on the foreclosure rate.
I will start with you, Ms. Burns.
Ms. BURNS. Thank you. It is an excellent question.
We felt very, very strongly when we came to Congress with that
proposal because we want to reach these exact borrowers, just as
you said. We believe that these are the borrowers FHA was always
intended to serve. However, we are putting them in a program
today that gets them in trouble. We are putting them in harm’s
way today.
A 100-percent financing program is a way to reach them safely
and affordably. That is what FHA is here for. What we know about
these programs today is that the foreclosure rate is twice as high
as it is for—
Chairwoman WATERS. Excuse me. I only have 5 minutes.
Ms. BURNS. Okay.

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Chairwoman WATERS. I want you to tell me—
Ms. BURNS. Yes.
Chairwoman WATERS. —how the FHA is going to have a program
with no downpayments and not have the foreclosure exposure that
you have described here in some detail.
Ms. BURNS. That is right.
The reason that these particular borrowers get into trouble is because these programs only work in weak markets. Sellers do not
want to participate in this kind of a program in a market where
they can get the full asking prices for their homes. What that
means is, when borrowers receive one of these gifts and pay a higher sales price as a result and essentially finance their own gifts and
get an inflated mortgage amount, they are already upside down.
They do not have instant equity. They have no equity.
Chairwoman WATERS. In essence, what you are telling me is,
with the FHA program, there is going to be some assurance that
they are going to know that the selling price of the home that is
being purchased is of fair market value, that it is not going to be
inflated, that it is going to be a price where, if the same person
were to get a downpayment from these programs, he would be able
to perform better with the FHA? Is that what you are telling me?
Ms. BURNS. Yes. Absolutely.
Chairwoman WATERS. How will they guarantee a fair market
price on the purchase or on the sale of homes?
Ms. BURNS. For every financing transaction, there is an appraisal
performed, and the appraisal determines the appropriate value of
the home, and that is exactly what would happen.
Chairwoman WATERS. So am I to understand that they do not
have appraisals in Nehemiah and in the other programs?
Ms. BURNS. There are appraisals that are performed today.
Chairwoman WATERS. Is something wrong with those appraisals?
Ms. BURNS. I think we all—
Chairwoman WATERS. Are they illegal?
Ms. BURNS. No, absolutely not. They are not illegal. The appraisers are doing the best that they can.
Chairwoman WATERS. What is going to be the difference between
the appraisals that the FHA will have and the appraisals that are
now working with these programs? How do you know that the price
of the house will not be inflated?
Ms. BURNS. There will not be any reason for price inflation.
There will not be a nonprofit involved in the middle of the transaction providing the seller—
Chairwoman WATERS. So the only time that you have inflated
prices in the market is when you have a program like this, but
they are probably never inflated? When you are dealing with the
market and with the FHA or with other financial institutions, you
never have inflated home prices?
Ms. BURNS. I cannot speak to other types of transactions, but I
can speak to this particular type of transaction.
Chairwoman WATERS. So you cannot guarantee me that FHA
contracts will not have inflated prices?
Ms. BURNS. Yes, there will be no reason for an inflated sales
price. That is correct.

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Chairwoman WATERS. But you do not know that there will not
be. I am just trying to understand.
Ms. BURNS. Right. I mean, we do not know that there will not
be, no, but we know that there will not be a reason for it. We will
be eliminating the cause that exists today.
Chairwoman WATERS. So the reason for inflated prices, wherever
it occurs, is that people want to make more money.
Ms. BURNS. Oh, absolutely.
Chairwoman WATERS. Wherever it occurs, that is the reason for
inflated prices. You simply cannot tell us that the only place for inflated prices is in a program like this where you have the nonprofit
who is, in some way, inflating the price of the sale of the house just
to make the downpayment. I suspect that may be true, and I am
not arguing that point.
The point that I am arguing is that the prices of homes do get
inflated. The appraisals, we hope, would always be good appraisals,
but they are not. Those of us who are real estate people here on
the panel know something about that.
Okay. Do you have anything you would like to say about this,
Mr. Heist?
Mr. HEIST. Only that in conjunction with some of our audit work,
we have seen examples of where there is pressure put on the home
seller to raise the price of the property to cover the downpayment
gift that the seller has to provide to the nonprofit. In fact, we have
seen examples of where there is a list price put out by the builder
of the home, and actually, the borrower is going into the closing,
expecting that is going to be the price of the property, and yet,
when they come to the closing, they find that the price of the home
has increased to cover the cost of the downpayment gift that they
are expected to provide to the nonprofits.
So that is—
Chairwoman WATERS. So what you are basically describing to
me—as for the appraisers, as I understand it, when they go into
an area, they get comparables, and what you are saying is, if Nehemiah or if one of these programs is involved with the sale of a property, that they may increase it beyond the comparable value of the
other houses in the community; and the person who is selling does
not know, and the buyer does not know, that they are all being
duped.
Mr. HEIST. I am only saying that the buyer may not be aware
of the increase in the sales price. Oftentimes, these are first-time
home buyers who have not gone through the transaction they are
confronted with.
Chairwoman WATERS. I see. All right. Thank you very much. I
will recognize our ranking member, Mrs. Biggert.
Mrs. BIGGERT. Thank you, Chairwoman Waters.
Mr. Heist, on pages 7 and 8 of your testimony, you present two
cases there which, I think, are similar to what you were referring
to with Ms. Waters where there has been the gift. But after you
have gone through these two cases, you say that neither borrower
was able to keep current on their inflated mortgage loans, and they
eventually lost their homes to foreclosure.
In the FHA modernization bills we have put in, as for the zero
downpayment, there was one where, if you have the zero downpay-

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ment, then you have to pay more annually; at least in the bill that
I have, we raised the premium without the downpayment.
Would that same thing occur if the annual premium were raised
by FHA? I mean, the property value in that case would not be inflated, would it?
Mr. HEIST. I do not know if that would have an effect on the
price, but it would certainly affect the amount that would be financed under the mortgage because you have additional mortgage
insurance premiums which may or may not be financed as part of
the mortgage, so it may not affect the price, but it could affect the
amount of the mortgage, certainly.
Mrs. BIGGERT. Well, there seem to be people who do not have the
money for the downpayment, but—they have the money to meet
the monthly payments just based on salary, but they do not have
a savings to make the downpayment. I am trying to distinguish
what the difference is between that and having somebody give a
gift of the downpayment.
Mr. HEIST. Well, one thing that would not be present would be
the processing fee that the nonprofit charges to make the transaction.
Mrs. BIGGERT. Okay. Can you give us an idea of what those
charges are?
Mr. HEIST. I believe they run around 1 percent, but I am not certain.
Mrs. BIGGERT. Okay. Ms. Burns, do you know, or Mr. Shear?
Ms. BURNS. The most recent figure I had heard was that the average is $500.
Mrs. BIGGERT. So it is like another closing cost. Okay.
Then, Ms. Burns, I understand that FHA data indicates that
over one-third of homeowners receiving downpayment assistance
have low FICO scores and high delinquency rates; is that true?
Ms. BURNS. I am not familiar with those statistics. Sorry.
Mrs. BIGGERT. Okay. Well then, you would not know, on the flip
side, if two-thirds of homeowners receiving downpayment assistance have average or above average FICO scores and lower delinquency rates?
Ms. BURNS. No. I am not familiar with those figures.
Mrs. BIGGERT. Okay. Thanks.
I yield back.
Chairwoman WATERS. Thank you very much.
Let us just go right down and start with Ms. Velazquez.
Ms. Velazquez, do you have questions?
Ms. VELAZQUEZ. Ms. Burns, either you or Mr. Heist, can you tell
me, in terms of the audit that found that 19.39 percent of the loans
were in default for at least 90 days, how many of those at the end
became foreclosed?
Mr. HEIST. I believe, overall, there are statistics that suggest
that roughly a third of 90-day defaults end up in foreclosure. One
has to wait for a particular year’s portfolio to mature before you
realize what the exact percentage is.
Ms. VELAZQUEZ. How does that compare with a subprime foreclosure?
Mr. HEIST. I do not have that information.
Ms. VELAZQUEZ. Do you?

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Ms. BURNS. No, I do not know the subprime foreclosure rate.
However, the average foreclosure rate for these particular loans is
approximately 16 percent.
Ms. VELAZQUEZ. Ms. Burns, what is your response to those supporters of downpayment programs such as Nehemiah who argue
that even if HUD’s audit conclusion is correct, this Downpayment
Assistance Program serves low-income home buyers better than
subprime mortgages, which have even higher default rates?
Ms. BURNS. I would say that the FHA could serve them even better, which is why we would hope to have 100 financing—
Ms. VELAZQUEZ. Traditionally, you have not.
Ms. BURNS. Traditionally, the FHA, previous to the last 5 years,
did serve low- and moderate-income families. It is true that over
the last 5 years the trend has gone to subprime loans. That is very
true, and that is of great concern to us.
Ms. VELAZQUEZ. Well, let me just say this. I will recommend very
strongly to both the chairwoman and to the ranking member that
we study this further. The fact of the matter is that transformation
and renaissance have been taking place in neglected areas like in
New York. In New York, there were areas that were low-income
communities, totally neglected. The Federal Government never
really put any type of program to assist low-income earners to become homeowners.
Today, there is a renaissance happening in those places, and it
is because of Nehemiah’s presence in that community. So we need
to study this further. I am not convinced, and I will strongly advocate to oppose this regulation.
Thank you, Madam Chairwoman.
Chairwoman WATERS. Thank you very much.
Mr. Miller.
Mr. MILLER. Thank you.
I am usually the guy on HUD’s side, and I am really confused.
I mean, I have been going through this paperwork for weeks.
Mr. Heist, do you know who the bad guys are? You said you reviewed paperwork, and there were letters saying that the prices
were inflated.
Who is doing this? Do you know?
Mr. HEIST. Only to the extent that we—
Mr. MILLER. Well, no. If you read the stuff, then you know who
the bad guys are; is that not fair?
Mr. HEIST. Well, the focus of our lender audits is on the origination of the—
Mr. MILLER. No. I only have 5 minutes.
You told me in testimony that you read letters saying they inflated the appraisals, and they did this and that. So you have to
know who they were. What did you do?
Mr. HEIST. Our focus was on the—
Mr. MILLER. No. What did you do? I do not have time. Did you
do anything, ‘‘yes’’ or ‘‘no?’’
Mr. HEIST. To look at the—
Mr. MILLER. Did you do anything to correct the problem, ‘‘yes’’
or ‘‘no?’’
Mr. HEIST. Not to—
Mr. MILLER. Okay. Thank you.

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GAO, you came out with a study in 2005, and you made some
legitimate—I am on your side. I am not chewing you out. You made
some good recommendations.
Did you guys do anything, ‘‘yes’’ or ‘‘no?’’
Ms. BURNS. No.
Mr. MILLER. No, you did not do anything?
I read a letter from Nehemiah back in 1999 to HUD, and it says,
‘‘You need to regulate our industry. You need to do these things.’’
HUD’s response was, ‘‘At the very least, we believe that several of
your proposals may require the rather protracted and rigorous
process of rulemaking rather than the simple issue of a mortgage
letter, as you suggested. In any event, we will keep your letter and
accompanying brochures as reference material should we elect to
seek changes in the future.’’
So you have probably the largest downpayment assistance program saying, ‘‘Please regulate our industry so we do not have bad
guys,’’ and under Cuomo’s charge—and Carter wrote this letter—
he said, ‘‘No, we do not want to do anything.’’
Now, the problem I am having is, you have guys trying to put
them out of business—and I love you guys, we are buddies. So you
are trying to put them out of business. The IRS is trying to tax
them to death when they did not make any money. I have a real
problem with this.
Ms. Burns, you said it is better with the zero downpayment. You
set standards, and you guys require certain underwriting standards from an FHA loan, do you not, ‘‘yes’’ or ‘‘no?’’
Ms. BURNS. Yes.
Mr. MILLER. You do. Good. Okay.
Now, if you require standards for underwriting and standards for
appraisal, you are telling me that they are better off with a zero
downpayment on a $200,000 home than they are getting $6,000
from a nonprofit as a downpayment, only owing $194,000 rather
than $200,000. That does not make sense to me.
I was a developer for over 35 years. Sorry, it does not make
sense. I know nonprofits who require the seller to certify in writing
under penalty of perjury that they are not inflating this price at
all, that this is the normal market price, so some of them are trying to do it. If some are not, let us fix them.
You said this only works in a downward market; is that correct?
Ms. BURNS. Yes.
Mr. MILLER. What happened between 1998 and 2005? Were there
any downpayment assistance programs processed through you,
‘‘yes’’ or ‘‘no?’’
Ms. BURNS. FHA—
Mr. MILLER. Yes, there were.
What was happening during 1998 to 2005? Was it a bad real estate market or was it probably the best real estate market we have
ever seen in history? Was it better or worse?
Ms. BURNS. The real estate market—
Mr. MILLER. The real estate market was the healthiest market
we have ever experienced in my lifetime. I am 58 years old; that
is not young. So, if they are making all of these downpayment assistance programs in a marketplace where buyers are standing in

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line to buy homes, I love you, but the argument does not hold
water.
Now, if you are saying that in the last year things have been
tough in the marketplace, and buyers are sitting out there wondering who is going to buy their homes, well, okay.
Let us talk about the last 12 months. Nehemiah received a letter
on September 15, 1999 from HUD that said, ‘‘Please, let’s regulate
our industry,’’ because they believed that there could be problems
in the industry, that things could go wrong.
If you guys are doubting an appraisal, you need to hold people
accountable and fix it. If you are doubting underwriters’ standards,
hold them accountable and fix it.
But why not establish the same criteria for downpayment assistance as you do for zero down? Monitor it. Have oversight. Make
sure the guarantees are established in law. But you cannot convince me that if I borrow $200,000 from you on a zero downpayment, and owe $200,000, that I am better off than if I owe
$194,000, when somebody gives me $6,000 as a downpayment, and
there are, maybe, some closing costs.
So, somehow we have to fix this thing. If we can have the government’s help, we can sure allow the private sector to help if it
does not hurt us at all. And if we have to introduce legislation, I
am sure I can find a bunch of people on this to join me in drafting
legislation to say, let us tighten the restrictions and let us tighten
the requirements, but let us not throw the baby out with the bath
water, and let these people do their jobs as you are doing your job,
but let us work together.
If they want guidelines and oversight, give it to them. If they are
saying, hold the bad guys accountable, hold them accountable, but
let us not, please, adopt a rule where you get in a fist fight with
all of us over a program that we think has some viability.
And if there is something wrong, Lord, believe us, we want to fix
it. I think we are making a mistake.
I yield back.
Chairwoman WATERS. Thank you very much.
Mr. Cleaver.
Mr. CLEAVER. Thank you, Madam Chairwoman.
Let me, first of all, associate with the liberal comments of Mr.
Miller.
Mr. MILLER. I am buying you lunch today. We have to talk.
Mr. CLEAVER. When the DPAs are granted, are they tax exempt?
Ms. BURNS. Yes. The providers of downpayment assistance today
are nonprofit 501(c)(3)—
Mr. CLEAVER. No. No. No. No.
When someone receives a gift of downpayment assistance, is it
nontaxable?
Ms. BURNS. I am sorry. I cannot speak to the tax side of it.
Mr. CLEAVER. Mr. Heist?
Mr. HEIST. I cannot either.
Chairwoman WATERS. If the gentleman would yield, it is my understanding that if you receive a gift of $10,000 or more, it is reportable. I do not think it is necessarily reportable under $10,000.
Is that your understanding, Mr. Tax Attorney Green?

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Mr. GREEN. I do not claim to be a tax attorney, but I believe that
is correct.
Mr. MILLER. Would the gentleman yield for 1 second? I can directly respond to that.
They are trying to not only tax the people who gave the money,
where the nonprofits charge them a tax, but they can also go to the
person who received it and tax him for a gift.
Mr. CLEAVER. Yes, that is where I was going. Thank you. We are
kindred spirits, Mr. Miller.
I know the IG is an independent agency, or it is supposed to be.
Did the IG’s office have any impact on this new rule? Was there
any influence from the Inspector General’s office in HUD or on
HUD that resulted in this new proposed rule?
Mr. HEIST. Well, we have certainly expressed our concerns and
have made that recommendation in the past, and as other studies
have confirmed the results of our initial concerns, we have continued to make that recommendation, yes.
Mr. CLEAVER. So then, you would know the number of non-FHA
loans using downpayment assistance, and you would probably also
know the ratio of foreclosures with non-FHA to those with FHA?
Mr. HEIST. No, sir, I would not. Our jurisdiction is basically auditing FHA’s program.
Mr. CLEAVER. Well, how do we know whether or not this is something that is horrible or how do we know that this is, you know,
the way the market is moving?
Mr. HEIST. Because one can measure the performance of these
loans versus the rest of the portfolio.
Mr. CLEAVER. But that is comparing apples and pineapples.
I mean, the only accurate comparison, I think, and maybe you
would agree, are the non-FHA loans using downpayment assistance
that go into foreclosure and the FHA loans; isn’t that right?
Mr. HEIST. That might be a legitimate comparison if one could
make one. That is not something that we have done now.
Mr. CLEAVER. That is the point I am making. That is precisely
the point I am making, so—
Mr. HEIST. What our initial work did back in 2002 was to compare downpayment assisted loans with loans that did not receive
gift assistance.
Mr. CLEAVER. Just stop right there. Let’s hang out right there.
You can’t make a comparison like that. I mean, they don’t go together, don’t you agree?
Mr. HEIST. Respectfully, I don’t agree with that.
Mr. CLEAVER. Explain to me why those comparisons are legitimate.
Mr. HEIST. The point is, the loans represented increased risk to
the insurance fund above and beyond what you could expect with
loans that either to the extent they are funded through gifts from
relatives or don’t require a gift and actually meet the 3 percent investment requirement and are able to make a downpayment. Those
homes have a greater degree of equity going into the transaction.
Mr. CLEAVER. Okay, thank you.
My last question, can you give me an idea of the cost to the
Treasury of this benefit? I mean, how much revenue is lost because
of the DPA?

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Ms. BURNS. I don’t know.
Mr. CLEAVER. Would you say negligible?
Ms. BURNS. No. I would say from an FHA perspective that the
concern is with the budget, and that if we continue to permit these
kinds of programs, we would grow positive next year; we would
need appropriations to operate next year.
Mr. CLEAVER. But we don’t know how much they are losing. We
just know that they need to go next year with appropriations, but—
Ms. BURNS. I am sure someone in FHA’s budget office could provide you with those figures if you would like us to provide that
after the hearing.
Mr. CLEAVER. I would. It would seem to me that a major issue
here is, I was expecting someone to say that we are losing $25 billion a year.
Thank you, Madam Chairwoman.
Chairwoman WATERS. Thank you very much.
Mr. Neugebauer.
Mr. NEUGEBAUER. Well, thank you, Madam Chairwoman. I have
been in a markup. I understand that my good friend from California, Mr. Miller, had some interesting dialogue going on prior to
my getting here, and so I will yield him my time to let him have
some follow-up time.
Chairwoman WATERS. Very good.
Mr. MILLER. Thank you very much. Oh, welcome back.
How do you propose preventing risk in the future associated with
the new zero downpayment program?
Ms. BURNS. There are several measures we will take. One is
clearly on the underwriting side; with underwriting the core components that you look at are the credit history of the borrower—
Mr. MILLER. Standards, that is good. And what else?
Ms. BURNS. It would be primarily on the underwriting standards.
That is really where we will—
Mr. MILLER. Could you not apply this same standard to downpayment assistance?
Ms. BURNS. Yes.
Mr. MILLER. Could you enforce that standard?
Ms. BURNS. Absolutely.
Mr. MILLER. So you are telling me that it is possible to be certain
on appraisals, it is possible to be certain on underwriting standards
where the program would be safe and sound. That is possible? Because I am very concerned about whether we are making loans
that put the program at risk. I don’t want do that.
Based on your testimony, it is possible to do that?
Ms. BURNS. It is possible to put—
Mr. MILLER. Then why don’t we?
Ms. BURNS. —more stringent underwriting standards.
Mr. MILLER. Why don’t we?
Ms. BURNS. Well, we are in the middle of a rulemaking process.
Mr. MILLER. No, we are in the middle of saying, we don’t want
these babies thrown out—
Ms. BURNS. That is an indication of FHA’s position but—
Mr. MILLER. I would like to propose that you listen to your testimony, and if it is possible—I think we should do it. So I am just

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adding to the debate at this point in time; you haven’t released the
rule.
I am strongly suggesting, and I think many will echo this, that
maybe that is the approach we should take, because that is not the
approach I am reading of this coming down.
Ms. BURNS. Right. And just so you know, we certainly hear you
and that is what the rulemaking process is all about.
Mr. MILLER. I love you, and I am glad.
Do you know how many people in the last 8 years, who are lower
creditworthy borrowers, who would not be in a home today if it
weren’t for downpayment assistance programs? Do you have any
idea?
Ms. BURNS. I believe the figure is approximately 50,000.
Mr. MILLER. I think it would be more than that. I know they
made more than a million loans.
Let’s say a million people out there wouldn’t be in a home today.
There are 850,000 families in homes that are making the payments, they are not a risk, they would probably be renting an
apartment somewhere.
Let’s say some of those people could have put together the money
for a downpayment, let’s say—is 15 percent a fair number? Is 20
percent a fair number? Throw me a number. Give me a number.
I will go with it.
Let’s say 20 percent.
So let’s take 180,000, out of 850,000, might have gotten into a
home, and then the other 15 percent that maybe you might come
back and foreclose the other 5 or 6 percent; the others might work
it out somehow.
Some of the 15 percent may sell that house and even pay you off
and make a profit. If they bought their home back in 2000, something happened that they can’t make the payment today, the numbers are there they are probably going to be able to sell that home
and make a profit. Even if that market had inflated that sales
price by 6 percent or 4 percent or 3 percent to come up with the
downpayment, because when I read the charts on how much housing was inflating from 2000 to 2006, it doubled in most areas.
So if they inflated to 3 percent, they will probably still make a
profit. And that is where I am having problems: If it was possible
to establish standards, and we didn’t establish standards, and GAO
said, you should have established standards in 2005. And Nehemiah said in 1998–1999, do we need some standards? In all the paperwork I have back here everybody says, ‘‘no.’’
Why didn’t you implement some standards?
Ms. BURNS. We decided internally that a better way to deal with
this was to request additional authority to offer 100 percent financing programs. We have been pursuing that.
Mr. MILLER. You have asked us to implement—I have been
working for 3 years on the zero downpayment. I think it is a good
idea. Because that was a concept that we couldn’t guarantee would
happen, we did nothing with what was assumed to be a problem.
I love Alphonso.
Shame on us. If we had known there was a problem and we do
nothing about it—and the problem is not everybody, I don’t believe
that at all. There are some bad apples, and some doing a great job.

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So if we did nothing about the bad apples, and now based on language I am seeing in the proposed ruling, we are going to throw
them all out, maybe we need to rethink it.
Thank you. I yield back.
Chairwoman WATERS. Thank you very much.
Let me say, Mr. Miller, before I call on Mr. Green, that none of
us were told that is the reason why FHA wanted zero downpayment in the bill that we had put together. I feel a little bit duped.
Mrs. Biggert was not told; I just consulted with her. You may
want to look at the FHA bill and may want to save the trouble
with pursuing the regs by just overlapping with legislation.
I call on Mr. Green at this point.
Mr. GREEN. Thank you, Madam Chairwoman. I want to thank
Congressman Miller for showing some love this morning. You indicated that you love Secretary Jackson. I want you to know that I
love you. Just to make sure that I spread the love around, I want
all of the panelists to know that I love you too.
What Mr. Miller has made clear, I shall now make transparently
clear. You agree—I have to say this, sometimes when people finish,
I don’t know whether they have said, ‘‘yes,’’ or ‘‘no,’’ so I am going
to ask that you say, ‘‘yes,’’ or ‘‘no,’’ and then perhaps we will hear
an explanation.
But do you agree that price inflation was one of your primary
concerns in instituting this new policy? Do you agree? Do you agree
that a seller can cover the cost of downpayment and you can have
a legitimate transaction, one that is not invidious, that is not onerous, do you agree that that can take place, ma’am? Or are you saying that every time a seller covers a downpayment, it is inherently
evil? No.
Ms. BURNS. No.
Mr. GREEN. So do you agree that you can have a legitimate
transaction where the seller covers part of the downpayment, assuming that the price is right, meaning the price has not been inflated? Do you agree?
Ms. BURNS. Yes, that can happen.
Mr. GREEN. Do you agree, sir?
Mr. HEIST. I would say it is possible.
Mr. GREEN. It is possible. If the price is not inflated, and the seller wants to give his money away, the law does not prevent people
from giving their money to whomever they choose.
Do you agree that a seller can give his money to whomever he
chooses and pay a downpayment and that can be legitimate?
Mr. HEIST. Well, the law addresses that—
Mr. GREEN. Can you have a legitimate transaction with the seller paying a part of the downpayment?
Mr. HEIST. I think that depends on how you evaluate legitimacy.
Mr. GREEN. Assuming that the price has been properly staged,
that there is no inflated price.
Now, sir, if there is no inflated price, and the seller wants to give
his money to someone, do you agree that he can?
Mr. HEIST. Under current guidelines and interpretations, yes.
Mr. GREEN. Sir?
Mr. SHEAR. I would say the answer is ‘‘yes.’’ It is a question of
facts and circumstances.

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Mr. GREEN. All the facts and circumstances are legitimate; the
seller has a legitimate appraisal and the seller decides, I want to
give some of my money to this buyer.
Mr. SHEAR. Yes. Then it is a gift. It is a gift and, yes, that can
happen.
Mr. GREEN. That can be a legitimate transaction?
Mr. SHEAR. Yes.
Mr. GREEN. Listen, now, you have to realize people are listening
to you and this makes sense to the other people here and to the
people who may not be in this room who are listening. People with
common sense can tell you that a seller can have an appraisal that
is legitimate and give his money to whomever he chooses. That
makes sense.
Now, if this is the case, if you can have these legitimate transactions, the question becomes, why would we end a process as opposed to amend the process to make the process legitimate such
that we can continue the process?
Why would we want to eliminate as oppose to regulate? That is
the question we are trying to get to, because truthfully, it appears
to me that what you have done is overreact. It was not necessary
to go to the extreme that you have gone to when you could have
done some things in between and protected people who truly want
to buy homes and don’t have downpayments.
Now, given that we can have this legitimate transaction, the
question becomes this as to your statistical information. In your
statistical information, do you agree that it includes those loans
where the persons were foreclosed on—the 16 percent that we are
talking about, it includes those loans where you had persons who
could not pay the inflated price, as well as persons who probably
could not have paid a price that was not inflated?
You see, you commingled inflated, and you don’t know whether
the persons—let me give you an example since you are shaking
your head, ma’am.
Suppose some of these persons actually went into foreclosure and
they had to file for bankruptcy. It may have been totally unrelated
to the home, they could have had some other circumstance in life
that they had to cope with. So you have those persons who could
not have paid even a lower loan included those with the inflated
prices.
So you commingled them, have you not—if you do statistical
analysis appropriately, you have to dissect and take out those that
would have paid less and would have still lost their homes.
Madam Chairwoman, you have been very generous with the
time, and I want you to know that I truly do love you; you will get
Christmas cards from me. Thank you.
Chairwoman WATERS. Thank you very much.
Mr. Sires.
Mr. SIRES. There is a lot of love going on here, but I just want
to thank Mr. Miller for clarifying a couple of things in your questioning that I had some doubts about.
What is the average mortgage payment for people who get downpayment assistance?
Ms. BURNS. Monthly mortgage payment?
Mr. SIRES. Yes.

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Ms. BURNS. I don’t know. It would depend on the loan amount.
The average loan amount for FHA borrowers is approximately
$130,000, an average payment for that would be—actually, I am
not sure. I don’t know.
Mr. SIRES. Somebody mentioned that 16 percent of these people
are foreclosed, the people that you give loans to, something around
that area.
Ms. BURNS. The borrowers who rely on downpayment assistance
from seller-funded nonprofit, correct.
Mr. SIRES. Are there any programs for the people who fall in this
16 percent to assist them so they don’t lose their homes? Do these
people maybe qualify for Section 8 so they don’t lose their homes?
Do people on Section 8 qualify for first-time payment assistance?
Ms. BURNS. These people would certainly receive loss mitigation
services, but part of the problem is that once someone is in a position where the loan balance is substantially higher than the property value, there are fewer options available to them, which is why
we are so concerned that these problems operate—or thrive, I
should say—in weak markets.
Foreclosure rates are higher when that event occurs. When they
can’t get out from under that loan balance, they can’t sell, they
can’t get out from under.
Mr. SIRES. There are no assistance programs?
Ms. BURNS. There are loss mitigation services and counseling
services that try to help—
Mr. SIRES. Monetarily, there is nothing?
Ms. BURNS. Offered by the Department of Housing and Urban
Development?
Mr. SIRES. Yes.
Ms. BURNS. There are HOME funds that go to State organizations, CDBG money to go to State organizations that run rescue
funds, but there is not a specific pot of money that is intended specifically for foreclosure prevention, no.
Mr. SIRES. I was involved with tax credits, building affordable
homes. When you build with tax credits, these people qualify for
the downpayment assistance program after you are building affordable housing. Do you know that?
Ms. BURNS. I am sorry, I don’t know.
Mr. SIRES. If I build 50 homes for low income and these people
qualify, are they entitled to get the money for the downpayment of
those homes? Do you know that?
Ms. BURNS. If they qualify for FHA financing?
Mr. SIRES. Yes.
Ms. BURNS. Could they rely on downpayment—
Mr. SIRES. Even though it is a tax credit project?
Ms. BURNS. I am not sure. I am sorry.
Mr. SIRES. I think the public-private partnership is the way to
go, in my eyes, in the future. If these people would need a home,
have an assistance on the downpayment, even though it is a tax
credit project, I think that is something that may be worthwhile exploring, to help these people get their homes.
I don’t know why you wouldn’t qualify, if you qualify for an FHA
loan for the downpayment assistance.
You are not following me?

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Ms. BURNS. No, I am sorry, I am not.
But people who qualify for FHA financing can rely on—
Mr. SIRES. They automatically qualify for the downpayment assistance.
Ms. BURNS. Right. I am just not familiar with tax credits in
owner occupancy scenarios, only in rental development. So I am
sorry, I am not really sure.
Mr. SIRES. There is a problem out there, at least in the State
that I come from, and I know some of the other States also have
it, where you build affordable housing. But many times the problem is, you are trying to find people who need homes, but again
they can’t afford the downpayment. And it is not so much the
monthly payment, because I think the average mortgage for those
is something like $800, $875.
So I think that is something we might want to work on to qualify
people under these programs.
Thank you, Madam Chairwoman.
Chairwoman WATERS. Thank you very much.
Mr. Wilson.
Mr. WILSON. Thank you, Madam Chairwoman.
Ladies and gentlemen who are testifying here today, I am one of
the Representatives from the State of Ohio where we have the absolutely terrible reputation of leading the Nation in foreclosures.
Somehow, some way, we are going to find solutions to these problems and I believe that not necessarily your group that is here
today, but other Federal regulators that we have talked with—and
that is the OCC, the FDIC and the Fed—it just seems to be sort
of a disconnect.
I think the reason there is a disconnect, it is not the banking
community that are these predators. It is really the secondary
mortgage people that are causing it, and I am not sure how,
Madam Chairwoman, and what we can do, but it is certainly going
to change.
Last year, when I was in the Ohio senate, we did senate bill 185,
which was a beginning, and we identified one of the problems with
some of the appraisals that were going on. And I recently introduced a bill that says that we won’t have favoritism, but rather the
appraisers will be distinguished by a draw, where we had copies
of e-mails, ladies and gentlemen, where the loan generator had emailed to the appraiser the number he had to hit to get the loan.
So that is the kind of thing that we can’t have.
And one of the things my colleague from New Jersey was saying
was about the homeowner downpayment assistance program.
Couldn’t that be a connecter, that if a person would be able to qualify, Madam Chairwoman, for the downpayment assistance,
wouldn’t that help validate the value of that home and the fact
that it wouldn’t be overappraised. That would be a question I have
to you.
In other words, if someone applies for downpayment assistance,
I would assume that would be scrutinized so that they were not
buying something that was overly inflated; is that correct?
Ms. BURNS. Yes.
Mr. SIRES. Is there anything that we can do that will make sure
that those—in other words, I just get the feeling, as a relatively

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new legislator here, with 6 months, that we are just not connecting
the dots. I think that everybody’s interested in the oversight that
needs to be done so that we in Ohio, and certainly in the Nation,
don’t continue to have these predatory lendings and have people
who are just victims of certainly the educational process, but I believe the initiative in this committee is to try to connect the dots
so that we make sure that we are protecting people who in many
cases just don’t understand what they are going through, how we
can get more people into homeownership. And I think that is
where—it comes back to the opportunity for the downpayment program.
So those are the kinds of things, at least that I am hearing, and
I look forward to learning more about.
Thank you, Madam Chairwoman.
Chairwoman WATERS. Thank you very much.
Mr. Scott.
Mr. SCOTT. Thank you, Madam Chairwoman.
Ms. Burns, would you explain the proposed HUD rule that you
are proposing to eliminate regarding downpayment?
Ms. BURNS. Yes. The proposed rule frankly clarifies that FHA
does permit downpayment assistance from a variety of sources.
However, the funds cannot be in any way derived from the seller
or another party to the transaction who will financially benefit
from that transaction.
Mr. SCOTT. Does this rule eliminate the downpayment assistance
program?
Ms. BURNS. This rule would prohibit downpayment assistance
that comes from a source that is related to the seller or from any
other party to the transaction.
Mr. SCOTT. But does it eliminate the downpayment program?
Ms. BURNS. No.
Mr. SCOTT. Okay. So what are the exact stipulations behind the
program?
Ms. BURNS. Well, downpayment assistance providers can not continue to provide assistance to other borrowers, those who receive
funds from the sellers.
For FHA borrowers, they can only receive downpayment assistance from parties where there is not seller money involved or
money from any other party to the transaction.
Mr. SCOTT. I want to try to get it sort of plain where I can understand it.
So, first of all, the proposed HUD rule does not or has no plans
to eliminate the downpayment assistance program?
Ms. BURNS. No.
Mr. SCOTT. How are individuals chosen to participate in the
downpayment program?
Ms. BURNS. Are you referring to the seller-funded downpayment
programs that exist today?
Mr. SCOTT. The program that the rule does not eliminate.
Ms. BURNS. For FHA borrowers, FHA makes it possible for them
to rely on downpayment assistance from any source, but there is
not a particular program for which they are eligible. We don’t deem
them eligible to receive downpayment assistance. It is a personal

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choice on the part of the borrower to go out and seek some form
of downpayment assistance.
Mr. SCOTT. So there are no requirements, no requirements that
are there to make a person eligible? I am looking for reasons why
this person is chosen to participate in the program.
Ms. BURNS. Right. No, no, FHA does not have criteria for eligibility.
Mr. SCOTT. What role is the downpayment program playing in
the subprime market?
Ms. BURNS. I don’t believe any role today. I believe on the
subprime side, when people need 100 percent financing, they get a
first and a second mortgage or they get a full 100 percent financing
product.
Mr. SCOTT. Now, should your rule go through, how will this affect those individuals in the process now of receiving downpayment
assistance?
Ms. BURNS. It would not. We would obviously recognize all borrowers who had signed a sales contract prior to an effective date
for the rule to take effect so that anyone who was in the process
of purchasing a home and financing that home, they would not be
affected.
Mr. SCOTT. So your proposal rule changes are retroactive?
Ms. BURNS. Proactive. It would only be for those transactions
that occur in the future.
Mr. SCOTT. Okay. Are there any plans in place—I know you said
this will not eliminate the program, but are there any other plans
in place that could very well take the place of this program?
Ms. BURNS. I don’t know if you call it a ‘‘plan,’’ but there is a
hope that FHA will offer a 100 percent financing product of its
own.
Mr. SCOTT. Why are my constituents calling me very concerned?
Why are they saying to me that you are proposing in this rule to
eliminate the program? And when I ask you the question, you say
you are not eliminating the program.
Where is this misunderstanding?
Ms. BURNS. I understand that there is a campaign of some misinformation out there to try to stop FHA from moving forward with
this rulemaking process. And I would also say that the rulemaking
process is actually beneficial for parties who feel that the rulemaking is inappropriate.
This is an opportunity for parties to comment to FHA, to the Department of Housing and Urban Development, to make substantive
constructed proposals for alternative regulatory fixes. This is an opportunity for that to take place.
The campaign of misinformation won’t necessarily do that. It is
really through the rulemaking process, through those protocols that
a change could occur.
Chairwoman WATERS. Thank you very much.
I would like to thank the panel for your testimony here this
afternoon and a question has been asked of me about the possibility of extending the rulemaking process. As I understand it, you
have until July 10th to give comments; is that right?
Ms. BURNS. That is right.

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Chairwoman WATERS. What is the possibility of extending that
another 30 days?
Ms. BURNS. I am not an attorney, but we can certainly look into
that and let you know.
Chairwoman WATERS. Would you please get back to me early
next week about extending that while we talk more.
We thank you for being here. The Chair notes that some members may have additional questions for the panel which they may
wish to submit in writing. Without objection, the hearing record
will remain open for 30 days for members to submit written questions to these witnesses and to place their responses in the record.
Chairwoman WATERS. Panel One is now dismissed, and I would
like to welcome our second panel.
I am going to combine the second panel and the third panel. I
am pleased to welcome our distinguished second and third panels
of witnesses. Our first witness will be Ms. Ann Ashburn, president
and chief executive officer, AmeriDream, Incorporated. Our second
witness will be Mr. Scott Syphax, president and chief executive officer, Nehemiah Corporation of America. Our third witness will be
Mr. John Osta, vice president, Gallinger Realty USA. Our fourth
witness will be Mr. Todd Richardson, vice president of legal affairs,
C.P. Morgan. Next, we will have Dr. Steven Fuller from The Center
for Regional Analysis, George Mason University School of Public
Policy. And, finally, we will have Ms. Beverly Queen. Would you
please join us at this end of the table?
I wanted to make sure that we got everyone in. With that, Ms.
Ashburn, would you please begin with your testimony for 5 minutes.
STATEMENT OF ANN ASHBURN, PRESIDENT AND CEO,
AMERIDREAM, INC.

Good morning, Chairwoman Waters, and Ranking Member
Biggert. Thank you for your work in increasing and supporting affordable housing policy and the opportunity to testify today.
My name is Ann Ashburn, and I am president of AmeriDream,
a 501(c)(3) organization that increases homeownership possibilities
for the underserved. AmeriDream was established in 1999 and is
now one of the largest affordable housing nonprofits in the country.
I ask this committee to bear in mind one proposition: Downpayment assistance works. I appreciate the comments you made earlier and I hope the added comments will support and affirm your
earlier comments.
We have educated 61,000 home buyers, counseled 1,200 people in
foreclosure prevention, built and committed over $30 million to affordable housing projects, and have provided downpayment assistance to over 200,000 lower-income home buyers in every congressional district in the United States.
Our gift recipients are lower-income individuals including minorities, legal immigrants, women-headed households, and firsttime home buyers. We are not subprime lenders and we are not a
lender.
No one disputes that DPA programs have assisted hundreds of
thousands of lower-income families. No one questions whether the
beneficiaries of these programs have received every penny prom-

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ised, and no one doubts that these programs have lifted homeownership rates to record levels, particularly among minority
groups.
HUD itself has used our downpayment assistance program when
selling its properties. This is a new charitable sector, barely a decade old, and it has experienced significant growing pains.
AmeriDream and Nehemiah here today have recognized that the
program is not perfect, and we have aggressively sought guidance
from HUD and the IRS.
Unfortunately, that outreach has been rebuffed, and policies
drafted without our input which seek to shut the program down.
I respectfully suggest to this committee that such a result would
be disastrous for the housing market, for the families we serve, and
for the major work that this committee does to promote homeownership for all Americans.
I would like to take a moment to address a few points that came
up and clarify and reaffirm your understanding. Appraisals: claims
have been made that, using DPA, lead to overvalued property. The
fact of the matter is, all FHA homes have HUD-certified appraisals. We have long recognized that the appraisals were an issue
with DPA as well as the entire lending industry. We proposed a
system of a line draw similar to the Veterans Administration. Unfortunately, HUD ignored our suggestions. However, we commend
Congressmen Wilson and Clay for their bill on appraisal reform
and for taking the steps to restore the integrity in the appraisal
process.
The claim rates: The DPA claim rate has been consistently overstated. Page 10 of the GAO study today shows a true national
claim rate in figure 2. Loans seasoned 3 and 5 years have a 94 percent and 91 percent success rate.
DPA-assisted loans should be compared to other assisted loans,
particularly family-assisted loans. These are both groups that need
help with the downpayment. When you compare these groups,
there is only a 1 percent difference in the claim rate. This 1 percent
allows home buyers who do not have family wealth to become
homeowners.
Fund insolvency: The assertion that the downpayment assistance
program is primarily responsible for potentially making the FHA
fund insolvent is inaccurate. GAO studies in 1990, 1998, and 2002,
to name a few, have cautioned that if the market slowed down, and
the private sector became more active, for instance, the insurance
fund would be in danger. We have seen subprime loans reduce
FHA’s market share. In times of low house appreciation, such as
today, foreclosures are more likely to occur and would impact the
fund.
GAO also determined that HUD did not have the ability to reliably estimate or evaluate the full impact of policy changes on the
fund, and HUD relaxed its underwriting standards to increase
homeownership—all actions that will impact the fund. All of these
issues have contributed to the proposed HUD rule which, if implemented as drafted, will eliminate DPA.
We oppose the rule because the program works and the related
issues can be addressed through specific policy adjustments, be-

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cause requests to HUD have gone without action for the past 10
years.
Finally, one of the most alarming statements about DPA came
from comments from HUD officials in which they suggested that
despite public comment, they were determined to implement the
final rule. This is alarming because over here we have 7,000 comments that have been received in support of DPA and requesting
HUD to withdraw the rule. Only 16 comments are in favor of the
rule.
[The prepared statement of Ms. Ashburn can be found on page
43 of the appendix.]
Chairwoman WATERS. Thank you very much.
Our next witness is Mr. Scott Syphax.
STATEMENT OF SCOTT C. SYPHAX, PRESIDENT AND CEO,
NEHEMIAH CORPORATION OF AMERICA

Mr. SYPHAX. Madam Chairwoman, Ranking Member Biggert,
and members of the subcommittee, thank you for inviting me to
testify today. I am Scott Syphax, president and CEO of Nehemiah
Corporation of America, the oldest of the downpayment assistance
providers under discussion today. Since our inception, Nehemiah
has made $909 million in downpayment assistance grants to over
228,000 families across the United States.
When I joined Nehemiah 7 years ago, it was because I believed
in the mission of homeownership among the traditionally underserved, and helping those folks who had been locked out, whether
it was because of their recent immigration to this country, the fact
that their families never received their 40 acres and a mule, or just
that they were locked out of opportunity because of family circumstance, that this model brought promise, hope and success to
the ability of people to reach the American dream.
The Nehemiah program was birthed in a way that I think is important for all of you to hear. It was birthed by a grassroots movement. A small black Baptist church in Sacramento, California, Antioch Progressive Baptist Church, put up a pool of $5,000 because
a local city councilman had found someone who wanted to help 160
low-income renters become homeowners and couldn’t figure out a
legal way to do it.
When he moved forward and was able to come up with the program to fix that problem, a young man by the name of Don Harris
sought out HUD’s assistance in establishing a pilot project. That
pilot project has now grown into the movement that this committee
is discussing today.
However, along the way, groups like AmeriDream, Nehemiah,
and others have sought out HUD’s partnership and assistance in
taking care of the issues that we ourselves brought forward to the
government and tried to address in a way before they became a
large outstanding issue, but as Congressman Miller pointed out, to
no avail.
We stand before you here today because of the fact that we are
threatened once again, the second time in a decade, with an extinction. Whose interest does it really serve? Well, it is certainly not
the almost 1 million families that we have served collectively in the
time this program has been around. It certainly does not serve the

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communities where those homeowners pay taxes and strengthen
the very civic fabric of the cities and towns that they live in. In
fact, it is ironic that today, in the middle of National Homeownership Month, we would be in a place where HUD would be proposing the extinction of this program.
I have said to many, mend it, don’t end it, and the reason is,
whatever outstanding issues there are, there is a willing community that wants to fix the problems, only our arms are not long
enough to box with HUD’s god.
So, therefore, we come before you today humble and thankful for
your interest in this issue and ask once again, please assist us in
assisting the dreams of the millions of families yet unserved, not
only by this program, but by the programs that this committee has
authored through the reformat.
We look forward to that competition. We look forward to HUD
having additional tools, but we too can play a role. It is ironic that
at this very moment HUD would immediately eliminate 40 percent
of its business today. No, it does not stand to rational reason.
I will close by asking all of you to consider a question that, frankly, I borrowed from one that Ronald Reagan asked in the 1980 election, but I have rephrased it in my own way. And that is, would
America and the million or so families that downpayment assistance has served because of organizations like AmeriDream, and
Nehemiah, and others, would America and those families be better
off today if we had never come into existence and all those people
were renters?
If you believe the answer is ‘‘yes,’’ then kill us, allow HUD to do
their deed and take us out. But if you agree with us, that in fact
America and those families and the communities they reside in are
better off today because of their existence and the help provided,
then please help us to continue to help others.
Thank you very much.
[The prepared statement of Mr. Syphax can be found on page 100
of the appendix.]
Chairwoman WATERS. Thank you very much.
Witnesses, I am going to ask you to keep your testimony very
tight and reduce it to 3 minutes, because we are going to have to
go and vote. If we leave, we will be gone for almost an hour because we have 50 minutes’ worth of votes, and I know you don’t
want to sit here and wait another hour for us to come back. So I
will get Mr. Osta started right now.
Mr. MILLER. Madam Chairwoman, based on HUD’s testimony, I
think this should be introduced into the record:
‘‘June 5th, Bloomberg, U.S. Department of Housing and Urban
Development will ban a downpayment assistance program for home
buyers over the objection of nonprofit groups. HUD Secretary
Alphonso Jackson said, ‘I am very much against it.’ Jackson said
in the interview, ‘I think it is wrong and I don’t want this to continue to be a partner.’ Jackson said in the interview that HUD intends to approve the new rule by the end of the year, even if the
agency receives critical comments.’’
That is germane to our discussion earlier.
Chairwoman WATERS. Without objection it shall be submitted
into the report.

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Mr. Osta.
STATEMENT OF JOHN F. OSTA, VICE PRESIDENT, GALLINGER
REALTY USA

Mr. OSTA. Thank you for allowing me to be here. I have submitted my remarks, but after listening to representatives of HUD,
I did want to reiterate that I am affiliated with a real estate company. I have no affiliation with any of the downpayment assistance
programs.
In my whole career, I have had the same dream as many of you
have had, and that is trying to provide affordable housing for all
Americans. This program, when first introduced to our company
and to me, certainly met those criteria.
The only comments that I would like to make to stay within your
timeframe is that I was sort of almost breathless in listening to
some of the comments that came from HUD about the facts and
figures of what buyers and sellers do in this program. Some of it
was inaccurate, in some cases very inaccurate.
The fact of the matter remains that a seller has a right to sell
a property and a buyer has a right to buy a property. It is a negotiated item. All of the statements made from some of the HUD representatives really are not factual in the real world, and I just
wanted you to be aware of that, and also state that you and your
committee have said a lot of things that are in my testimony, so
I really am pleased to hear what is happening.
My concluding remark would have been to you, please do try to
bring these parties together.
Congressman, you said it, I had it in my mind: Don’t throw the
baby out with the bath water; let’s keep this going.
[The prepared statement of Mr. Osta can be found on page 70 of
the appendix.]
Chairwoman WATERS. Thank you very much.
Mr. Richardson.
STATEMENT OF TODD RICHARDSON, VICE PRESIDENT OF
LEGAL AFFAIRS, C.P. MORGAN

Mr. RICHARDSON. Thank you, Chairwoman Waters, and members
of the subcommittee, for the invitation to speak today regarding
downpayment assistance. Also, thank you for the robust discussion
that occurred with Panel One; most of those points were also in my
document, and I can truncate my discussion.
There are many different opinions on downpayment assistance
that I will allow others to more eloquently state. However, as a
home builder that serves the first-time home buyer market, I hope
to provide a unique perspective on the topic of the downpayment
assistance program, the impact it has had on our homeowners, and
the implications the proposed HUD rule would have, effectively
eliminating downpayment assistance.
Over the last 24 years, C.P. Morgan has had the pleasure of
building over 23,000 homes for first-time home buyers. Nearly half
of our home buyers are minorities. Nearly one-third of our home
buyers utilize downpayment assistance, namely the Nehemiah program, and have done so with great ease. Downpayment assistance

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clearly has enabled otherwise underserved groups the opportunity
to take part in the American dream.
C.P. Morgan’s mission and statement is to provide more people
with more home than they have ever dreamed possible. Downpayment assistance has served as a useful tool to help C.P. Morgan
achieve its vision.
With that said, it is important to understand what will happen
if and when the proposed rule goes into effect and downpayment
assistance is eliminated.
Thousands of our customers, specifically minorities and first-time
home buyers, will be precluded from experiencing the dream of
homeownership. With the appropriate dissolution of the subprime
market, these home buyers will be left with few funding options
and will be forced to continue renting.
Furthermore, with one-third of C.P. Morgan, there will be an adverse impact on our employees, subcontractors, and suppliers. This
impact will occur throughout the Nation and is not C.P. Morganspecific. Remember that over 100,000 homeowners utilized downpayment assistance in 2006; imagine the national impact caused by
eliminating 100,000-plus home sales annually.
All of this discussion raises questions that I trust HUD will respond to, and it is quite evident you all have your eyes on: Number
one, is a reformed downpayment assistance program possible using
the experience we have gained over the last 10 years?
If it is determined that downpayment assistance should be eliminated, is it appropriate to put the rule into effect without first having an alternative mechanism?
Would it be prudent also to note the fate of the FHA Modernization Act?
And an issue that hasn’t been necessarily been spoken about
here, but with downpayment assistance representing 40 percent of
FHA loans, what will happen to the FHA reserve fund if downpayment assistance is eliminated?
Chairwoman WATERS. I am sorry to do this to you, but if we
want to finish this before we take those votes, I have to move to
Dr. Fuller.
Mr. RICHARDSON. I understand. Thank you.
[The prepared statement of Mr. Richardson can be found on page
76 of the appendix.]
STATEMENT OF DR. STEVEN S. FULLER, CENTER FOR REGIONAL ANALYSIS, GEORGE MASON UNIVERSITY SCHOOL
OF PUBLIC POLICY

Dr. FULLER. Thank you very much. Thank you, Madam Chairwoman, and distinguished members of the subcommittee.
You have my comments. There are a couple of points I would like
to make in the few minutes I have.
We have just completed a study called, ‘‘A Comprehensive Analysis of Nonprofit Downpayment Assistance.’’ It hasn’t been released
yet, but we will make sure you get a copy.
One of the issues that we undertook in this analysis was to look
at the criticism of the nonprofit downpayment assistance programs.
The opponents of the NDPA industry based their arguments primarily on three studies; we heard from those today. There are two

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important issues that I think are important to bring to your attention because I have heard statistics used here this morning that
just aren’t correct.
It is useful to recognize that the Department of Housing and
Urban Development Office of Inspector General’s report only looked
at four cities. It is not a national study; its results cannot be applied nationwide.
The results of the GAO study provide more rigorous analysis, but
they also have some problems in them. And all of the comparisons
today, the comparisons were made between the total industry nationwide and the recipients of the downpayment assistance—two
different groups.
They also have another group. There are other kinds of downpayment assistance—from family, friends, parents, and that kind of
thing. We look at these differences. Nationwide it is a 1 percentage
difference in the default rate between the two groups.
One last point that I think is very important: The claim rates
quoted here, the 15 percent, are from three cities. That isn’t a national statistic; it is only 8 percent, 1 percent more than similar recipients.
[The prepared statement of Dr. Fuller can be found on page 57
of the appendix.]
Chairwoman WATERS. Thank you very much. We’ll have your
written testimony to review.
I would like to get to Ms. Beverly Queen, the homeowner, before
we go to vote.
STATEMENT OF BEVERLY QUEEN, HOMEOWNER

Ms. QUEEN. Yes, Madam Chairwoman, and distinguished committee members. Thank you for taking the time to hold this hearing on such an important issue.
I grew up in a housing project in Washington, D.C., with my
eight brothers and sisters. My mother was a high school graduate
who supported our family on roughly $1,500 a year, as a sole
breadwinner.
When I heard about the downpayment assistance program, I was
living in a basement in Section 8 housing with my four children.
I knew it was time to get out when my eldest son, then 17, was
robbed by a group of kids in our neighborhood for his tennis shoes.
He also started falling in with the wrong crowd and getting into
fights.
I was worried for the welfare of my youngest son, then 12, because I didn’t want him to follow the same path. I prayed to God
to take us away from that place. At that time my husband, who
was still my boyfriend back then, and I worked full-time jobs to afford our $795 a month rent and tried to make ends meet, but we
were not able to save any money for a downpayment on a house.
Nevertheless, we knew that owning our own home was the answer, so we went looking for property. When we found our dream
home, the real estate agent introduced us to a lender who was familiar with the Homeowners Assistance Program. They walked us
through the process, and we were comfortable when we decided to
go with the Downpayment Assistance Program through
AmeriDream.

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One of the best parts of the process was learning how to budget
our income and save. AmeriDream provided us with so much information and told us about things that we never knew before.
Our home has four bedrooms with a full dining room, kitchen,
sitting room, and a family room, on a half acre of land in Fort
Washington, Maryland. It borders government land, so there are
often cows grazing, much different than our basement view, which
was a brick wall.
When we bought our home in 2000, it cost $173,000. This was
a lot of money actually for many people in our country, but for
Washington, D.C., it was cheap. I am happy to say that the value
of my house has doubled in the 3 years that I have lived there. And
I am so also proud to say that we have never been late on our
mortgage payment.
Without a downpayment assistance program like AmeriDream, I
know in my heart that I would have lost my dream home, and in
the time it would have taken for me to save up for my own house,
it would have been sold, plus I would have needed to stay in a desperate living situation until I was able to scrape together the
money.
The most important part of my story is how downpayment assistance enabled me to give my children a better life. My youngest son
is now a 4.0 student, studying criminal justice and is working as
an intern for the State’s Attorney—
Chairwoman WATERS. I am sorry, I am going have to ask you to
discontinue. I think we get the point. Your written statement will
be part of the record for all of us to review.
[The prepared statement of Ms. Queen can be found on page 73
of the appendix.]
Chairwoman WATERS. Members, we have 10 minutes left. I will
not ask any questions. I will yield to my ranking member, Mrs.
Biggert.
Mrs. BIGGERT. I will yield to the gentleman from California.
Mr. MILLER. Thank you for yielding. My question is for Nehemiah. I read this letter that you gave me yesterday, and when you
asked HUD to impose additional regulations on nonprofits, what
were you asking them to do?
Mr. SYPHAX. Well, we were asking them to do a number of
things. We were asking them, one, to oversee and create a more robust appraisal process.
As Ms. Ashburn recently testified, we did ask for two things. One
was some sort of appraisal process where people had to sign, upon
penalty of perjury, that there was no manipulation of the appraisal,
or secondly, the blind pool arrangement where HUD could contract
with the VA or create their own blind pool.
Secondly, mandatory homeownership education for everyone who
received downpayment assistance.
The third thing, for existing homes, was multiyear home warranties.
And number four, we were looking to impose a mandatory requirement for post-home-ownership counseling, which is something
that AmeriDream and Nehemiah do today. So none of the things
that we asked for are new; we have been consistently asking for
them for over a decade.

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Chairwoman WATERS. Thank you very much. We are going have
to go. We have about—
Mr. MILLER. I yield back the balance of my time.
Chairwoman WATERS. Mr. Green.
Mr. GREEN. Yes, ma’am; quickly, Madam Chairwoman.
It seems to me that someone has made the assumption that we
will trade one program for another, and you have commented on
this, Madam Chairwoman, so I think it would be appropriate for
us to somehow send a message to the appropriate authorities that
we never intended to trade one program for another.
I can see how both of these programs have a place and can be
maintained and should be.
Chairwoman WATERS. Thank you very much.
Mr. Ellison, I know you have been in and out today; quickly,
about 6 minutes?
Mr. ELLISON. Is there room for the rule change and for the sellerfunded downpayment assistance providers? As I listen to both presentations, and I had read the remarks earlier, the question that
came to mind is, would the rule change wipe out seller-funded assistance or is there room for both the rule and seller-funded assistance?
I do believe in hearings like this sometimes people draw stark
and clear lines because they want to be persuasive, but in truth,
is there room for in the market for both?
Ms. ASHBURN. I think I will answer that, because Scott and I
have talked about it. And please amend these remarks, as written.
As written—if it is passed as written, it does absolutely eliminate
the work that our programs do. Our request is that the rule be
withdrawn, so that there is a public debate and discussion about
the issue. Because it is a significant issue, it is complex, there are
a lot of nuances to it; and we don’t think it can be satisfied through
paper dialogue. I think people have to sit down and come together.
Mr. ELLISON. Have you had a chance for dialogue with HUD?
And one last question, do you deny that the seller-funded downpayment programs inflate the price of the house?
Mr. SYPHAX. To answer question one, which is, have we had the
opportunity for a dialogue, we have been attempting to have that
dialogue for a decade and the paper record reflects that, that is, on
both of our parts.
Number two, with regards to whether or not there is room for
this rule and whether that can take place, theoretically, sure, but
the fact of the matter is that for over a decade we have attempted—and one of the reasons that we so much appreciate this
forum is because, frankly, after 10 years of not taking action, it
may be that it takes legislation to figure this out.
Number three, in terms of the denial issue, price appraisal can
and does take place on an anecdotal basis. We have standards very
similar to each other where it is that we actually kick out home
purchases if we can find evidence of manipulation. The problem is
that without broad standards that everyone has to pay attention to,
whoever tried to originate that loan can take it down the street to
somewhere else. And so we need help because of the fact that ultimately we are the ones that are punished by the fact that whatever

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lawless activity takes place does take place. It is too honest to benefit from regulation.
Chairwoman WATERS. Thank you very much, I am sorry, we are
going to have to leave to go to the Floor.
The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing.
Without objection, the hearing record will remain open for 30 days
for members to submit written questions to these witnesses and to
place their responses in the record.
This panel is now dismissed. And before we adjourn, the Chair
notes that the record of the hearing will remain open for 5 days
to allow for the submission by members of additional materials.
The Chair would ask unanimous consent that the letter containing the written statement of Dr. Kevin Haskett of the American Enterprise Institute be included in the record and the written
letter of the National Association of Realtors also be included in
the record without objection. It is so ordered.
This hearing is now adjourned. I thank all of the witnesses for
being here today. You are now officially on the record in describing
what it is and what it is not.
We have other members who will be taking some action as a result of this hearing. We will look closely at the FHA bill and the
no-downpayment program. We will also be looking at the other bill
that was referenced here today about appraisals to see if we can’t
be fair and just in the way that we manage the ability for our constituents to have assistance with downpayments.
Thank you very much.
[Whereupon, at 12:38 p.m., the hearing was adjourned.]

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APPENDIX

June 22, 2007

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