Federal funds aid new home buyers

First-time home buyers will have access to $161.5 million in funds this year to help with down payments and closing costs, Housing and Urban Development Secretary Alphonso Jackson announced yesterday.

“Homeownership is extremely important, and it has long been the American Dream,” said Sen. Wayne Allard, Colorado Republican, one of the program’s supporters. “Our forefathers came to America because there was one basic principle: They got to own something that was theirs. We’re just carrying forward that legacy.”

The money will be given out by 434 state and local governments under the American Dream Downpayment Act, which President Bush signed into law in December.

The money will be available in grants of $10,000, or 6 percent of the home’s purchase price if it is greater, to people earning less than 80 percent of their area’s median income.

The program includes money for the District and suburbs of Maryland and Virginia.

This is the first federal block-grant program to aid first-time home buyers, but it is not the first program to reduce down payments.

For example, Fannie Mae, a government-chartered company that buys mortgages and encourages homeownership, has a program that allows for down payments as low as $500 and considers “nontraditional” credit histories, such as those of recent immigrants, said spokesman Jon Searles.

It also has a program in which people who are “credit impaired” can reduce their interest rates by making payments on time as well as other incentives to encourage mortgage lenders to “reach out” to low- and moderate-income borrowers.

Cities and counties nationwide also offer down-payment assistance programs.

The federal government, however, has not had success with such programs. A program begun in 1968, known as Section 235, provided low down-payment mortgage loans guaranteed by the federal government, leading to a wave of abuse that ended the program in the early 1970s after what one policy analyst called “a complete disaster.”

“The experience was so bad that nobody has ever proposed a revival of a program like that since then until now,” said Ron Utt, a senior research fellow at the Heritage Foundation, a conservative think tank based in Washington.

The program failed, he said, because people who don’t save the money for their down payment have no reason to treat the house differently from a rental. “They have no personal stake in it because they haven’t worked for it.”

Still, some local agencies see the initiative as beneficial. Increased homeownership increases economic stability and community within neighborhoods, said D.C. Housing Authority spokesman Zachary Smith. The District will get $713,779 under the program.

“There’s always a need for additional homeownership,” Mr. Smith said, noting that the District has several programs to encourage homeownership.

Yet, Mr. Utt said, the program is a bad idea. “My major concern is that … if you’re going to have a housing program, you still have an enormous number of poor people who can’t afford any kind of housing at all.

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