May 6, 2004
No down-payment bill advances with Ney’s help
By PAUL M. KRAWZAK
Copley Washington correspondent
WASHINGTON — Legislation eliminating the need to make a down payment on a first home could open the door to predatory lenders who take advantage of people with poor credit ratings, several consumer advocates warned Wednesday.
But lawmakers who sponsored the Zero Downpayment Act, including Rep. Bob Ney, R-St. Clairsville, disagreed, expressing confidence the bill would provide little opportunity to unscrupulous lenders.
The proposal, introduced by Rep. Patrick Tiberi, R-Columbus, would eliminate the need for a down payment from first-time home buyers who get a mortgage insured by the Federal Home Administration.
A congressional housing subcommittee chaired by Ney approved the bill Wednesday. Ney predicted the legislation would pass the full House and possibly the Senate, where he said Sen. George Voinovich, R-Cleveland, supports the idea.
The program would benefit people who have little cash to put down on a home, including members of minority groups, lawmakers said.
Under the proposal, home buyers who could afford monthly mortgage payments would be able to get an FHA mortgage without making a down payment. At present, many home buyers who have little cash opt for FHA mortgages, which allow for smaller down payments than conventional loans.
For many, even a small down payment is out of reach.
As he left the committee meeting, Ney expressed little worry about the bill providing new opportunities for predatory lenders, who lend more money than a buyer can afford to repay, charge unnecessary fees or engage in other behavior that often results in loss of the property.
“Just because there is no down payment doesn’t mean a predatory lender would go after these individuals (who apply for no-down payment loans) any more than they would go after any individual,” he said.
Consumer advocacy and anti-predatory lending groups expressed some concern that unscrupulous lenders would exploit the program. But these same groups said they had not taken a position on the legislation, indicating it is not a major worry for them.
Allen Fishbein, director of housing and credit policy for the Consumer Federation of America, said the FHA would have to keep a close eye on the program to keep predatory lenders out.
“I think it’s going to involve a lot of monitoring for the FHA to weed out poor performing lenders who have a poor track record in making these loans,” he said.
Matthew Mayers, legislative representative for ACORN, an advocacy group for low- and middle-income families, praised a provision of the legislation that requires pre-purchase home-buying counseling for those who use the program.
As the bill was debated in Congress, several lawmakers argued that the bill should not allow four-family dwellings to be purchased without a down payment.
A buyer who encountered financial problems would be more likely to walk away from this income-producing property, leading to a foreclosure that would cost the FHA, the insurer, they said.
Tiberi, Ney and others countered that the required counseling and sophisticated procedures to determine the credit worthiness of a buyer were sufficient safeguards to include buyers of four-family homes in the program.
Condominiums are not included in the bill.