It’s HUD that is doing away with down payment assistance. Fannie Mae does not allow it. And the reason is that the assistance was coming from the builders / sellers through community home buyer programs. So what you have is a seller who inflates the true price of the home and kicks back that extra to a community agency. The agency then “gifts” the down payment to the buyer.

The lender ends up making a very high-risk loan on a home that’s probably not worth the selling price to a marginal borrower with no investment of his/her own in the property. And when HUD discovered that these loans were far more likely to go into default than loans to people who came up with just 2% of the price, the agency wanted to stop them.

Because for the first time in history, FHA will be in the red, and that means taxpayers will likely be tapped. Since you are probably a taxpayer, and maybe a homeowner too, you probably don’t want to have to watch your home value go down because your neighbor who got this assistance blew off the mortgage. You probably don’t want your taxes to go to home sellers who profit from this program. Assistance is okay but I think that when the house value goes up the money should have to be paid back. And it should NEVER come from the seller, realtor, lender, or anyone who profits from the sale.

Fannie Mae is a government-sponsored enterprise but it’s also a private corporation. So what might be good for borrowers is probably not so good for stockholders. FHA is government-administered so it can be more lined up with its borrowers’ interests. The downside is that FHA “stockholders” are taxpayers. So we all pay one way or another. Mortgage borrowers really owe it to themselves to look after their own interests. No one else will do it as well.