Home loan aid groups targeted

Nonprofit groups are battling with the Bush administration over whether to kill programs that allow homebuyers without the money for a down payment to get funds from sellers that are channeled through charities.

Legislation being debated in the Senate this week eliminates nonprofit down-payment assistance programs, which have surged in popularity over the past decade. Lawmakers in the House, meanwhile, want to impose new regulations, but not get rid of the programs entirely.

Critics say defaults and foreclosures from these no-money-down loans are rising to such an extent that they threaten to put taxpayers on the hook if a government-run mortgage-insurance fund someday needs a bailout. They also question whether the charities involved deserve their nonprofit status.

The down-payment arrangements involve charities that receive money from a home seller eager to help the buyer and get the deal done. The charity then provides a similar amount of assistance to the borrower, after charging the seller a processing fee.

The programs, which receive no federal subsidy, help borrowers qualify for loans backed by the Federal Housing Administration.

While the FHA does not allow sellers to provide assistance directly to buyers, the government ruled in 1998 that money routed through a nonprofit doesn't conflict with that prohibition, allowing such programs to surge in popularity.

Opponents say sellers, including homebuilders, merely inflate prices to pay for the assistance. But supporters say that, without such programs, some borrowers would be locked out of the market.