Nehemiah Launches Web 2.0 Campaign to Save DPAs

Nehemiah Corporation, operator of the largest down payment assistant (DPA) program in the nation, launches an aggressive 50 day Web and social media campaign to save a program axed by the recent Housing and Economic Recovery Act signed into law by President Bush two weeks ago today. As the ban marches towards its effective date of October 1, Nehemiah is attempting to surge awareness and action in support of a reinstating bill (H.R. 6694) introduced into the House of Representatives on July 31.

Nehemiah DPA Claims $1 Billion in Home Buyer Assistance

Launched in 1997, the Nehemiah DPA Program, has provide over $1 billion in assistance to 300,000 home buyers. This program, and others like it, allow people to buy homes without putting down their own money. The Nehemiah Program was designed to assist low to moderate income families afford home ownership, yet some question its effectiveness and potential hazards.

The program is used almost exclusively with HUD's Federal Housing Administration (FHA) insured loans leveraging a unique provision that allows sellers to assist buyers with their mortgage down payment. Cleverly designed, this program seems to help all involved in transaction. A home buyer is given, from the nonprofit Nehemiah Program, their required 3% down payment to qualify for a FHA insured mortgage. The seller, at or soon after closing, contributes to Nehemiah a contribution equal to the assistance provided to the buyer, plus an administration fee (typically 1% of the home price). And to make sure the seller is without hardship the selling price of the home is often increased 4% to cover the cost of the contribution.

At face value to program looks to make all parties happy--buyer gets a home, seller sells a home, real estate and mortgage brokers fund a mortgage. However, time has revealed some hazards to this arrangement. Hazards that arise from key characteristics of the transaction: inflation of the sell price and mortgage, little or no down payment from the buyer, and FHA (taxpayers) insuring the default risk.

HUD and Nehemiah are Long-time Foes

Battling in the courts and the legislature HUD/FHA and Nehemiah are long-running adversaries.

Nehemiah has consistently defended and won in court its right to use the seller down payment assistance provision set within the FHA legislation. HUD claims that the Nehemiah Program violates the intent of this gift-based provision--citing Nehemiah's financial benefit in these circular transactions.

Meanwhile, in the legislature FHA clamors to shut-down this provision often characterized as a "loophole." HUD, supported by various audits and reviews, warns that borrowers using these down payment assistant programs are going to foreclosure at a rate of three times those who provide their own down payment.

In a recent speech to the National Press Club, HUD's Assistant Secretary for Housing-Federal Housing Commissioner Brian D. Montgomery stated that these types of down payment assisted loans make up a third of FHA's portfolio and are largely the reason for the booking of an additional $4.6 billion in unanticipated long-term losses.

However, Nehemiah cites their own study performed by the Milken Institute lobbying the economic, social, and cultural benefits of expanding homeownership in low to moderate income families with down payment assistance.

HUD Battles to Maintain Solvency

HUD appears to be in a clear battle to maintain as one of the few still solvent government back loan programs. HUD's Montgomery, in the same speech, cited the unwillingness of private mortgage insurers to sustain similar costs and loss trends. His warning was specific and clear, "Unless we take action to mitigate these loans, FHA will soon either have to shut down or rely on appropriations to operate."

Ironically, as the Nehemiah Web campaign was launching Freddie Mac revealed its own risk mitigation reaction to New York's new foreclosure friendly legislation, ceasing the financing of all subprime New York mortgages.

This question, and other mortgage market risk mitigation, may hinge on the macro versus microeconomic impact.

Nehemiah Uses Web 2.0 to Surge Support

In an interesting side story this campaign may signal another strategy, beyond lawyers and lobbyist, in waging these politically charged battles.

Nehemiah's campaign, already claiming 75,000 letters generated and hoping to spark over 250,000 individual actions, is leveraging Web 2.0 in an effort to amass a "ground swell" of support. The launch of www.DPAgroundswell.org as a "participation-platform" and strategically leveraging social media--YouTube, Facebook, MySpace, and Twitter--may be the key to out maneuvering the classic stodgy government agency.