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Home Loans Brokered by Nonprofits Helped Fuel the Housing Crisis

• Huffington Post Investigative
 

Before the housing boom got underway in the late 1990s, a California nonprofit group hatched an idea to help families who qualified for government-backed mortgages but still couldn’t raise the down payment. 

A home builder would agree to make a donation to the nonprofit in an amount equal to the down payment. The nonprofit would give the cash to the buyer, often earning a generous fee for its role as middleman. In less than a decade, nonprofits had arranged more than a million no-money-down house sales around the country. By 2008, they represented more than a third of all loans backed by the Federal Housing Administration. 

Now many of those loans have gone bad. Defaulting at up to three times the rate of other FHA loans, they are one reason the housing agency’s insurance fund is about to drop below its required capital level for the first time since it was created during the Great Depression. 

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