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Abstract: 

About half of all single-family home purchase mortgages the Federal Housing Administration (“FHA”) insured in fiscal year 2004 involved down payment assistance. Concerns about down payment assistance programs go back at least to 2000, when the Office of the Inspector General warned that the Department of Housing and Urban Development was allowing nonprofit organizations to operate down payment assistance programs that circumvented FHA requirements, that default rates for buyers receiving down payment assistance from nonprofit organizations (often claiming to be faith-based initiatives) were considerably higher than was true of comparable loans without assistance (some studies have suggested the default rate is about double for assisted loans), and that sellers were raising prices to cover the cost of the down payment assistance programs. More recent reports from HUD and the Government Accountability Office suggest that the problems have not been adequately addressed and, with the slowdown in the housing market, could get worse. Now the Justice Department and the IRS have begun to clip the non-tax wings of the organizations providing such programs.

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