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The End of Down Payment "Charities"
The End of Down Payment "Charities"
The nine lives of down-payment assistance groups - controversial players in the housing industry - appear to have run out.
Federal rules require that only a charity, family member or employer can gift a down payment to a buyer who uses mortgages insured by the Federal Housing Administration. That rule spawned a cottage industry of down payment "charities" that gave down payments to home buyers and were then reimbursed by the home seller, typically a home builder.
(Since 2002, The Wall Street Journal has published three Page One stories pointing out some of the risks of the down payment gifts. See U.S. Backed Mortgage Program Fuels Risks, Scrutiny of Down-Payment Gifts Threatens Charitable Movement, and Home Buyers' Down Payments Are Now Paid by Some Builders.)
In May 2006, the Internal Revenue Service ruled that these groups were essentially funneling down payments from the builder to the buyer, while also collecting sizable fees from the builders, and thus were not bona fide nonprofits. Despite the ruling, these groups kept giving out gifts, mostly to low-income buyers who would not be able to afford a house without them.
A year later, the Department of Housing and Urban ... more

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