Nonprofit Is Not the Same as Altruistic

Forbes is out with a warning that not every nonprofit has a warm and fuzzy back story informing its operations. It seems that home buyers who lack the assets to pony up even the teeniest down payment are finding more and more nonprofits willing to front them the scratch. It’s all legal under a Federal Housing Administration policy that allows family and friends to donate down payments to buyers, but the problem is that these organizations are little more than middlemen between homebuilders and sellers providing the money and mortgage companies receiving it. The problem? For starters, the U.S. Government Accountability Office has

found that homes sold with nonprofit assistance were appraised and sold for prices about 2 to 3 percentage points higher than comparable homes without such assistance. The report said that appraisers interviewed had sometimes been pressured by lenders, real estate agents and sellers to increase home prices to “bring in the value.”

Not only does this practice burden FHA borrowers with pricier homes, it also increases the odds that the new homeowners can’t afford their monthly mortgage payments. Indeed, seller-financed, no-downpayment loans have default rates that are three times the FHA average.

Even worse, because the loans are insured by FHA, if a buyer defaults on his loan, the mortgage company isn’t on the hook — you and I are. These mortgage facilitators may be nonprofits, but somebody sure is using them to make a lot of money, and the fact that they have Uncle Sam in their back pocket to provide insurance makes the arrangement even more unsavory. Yuck. | 501(c)

Tags: Federal Housing Administration, FHA