STATEMENT OF JAMES A. HEIST
ASSISTANT INSPECTOR GENERAL FOR AUDIT
DEPARTMENT OF HOUSING AND
SUBCOMMITTEE ON HOUSING AND
COMMITTEE ON FINANCIAL SERVICES
UNITED STATES HOUSE OF REPRESENATIVES
JUNE 22, 2007
Statement of James A. Heist, Assistant Inspector General for Audit
Department of Housing and Urban Development
Before the House Committee on Financial Services, Subcommittee on Housing and
Chairwoman Waters, Ranking Member Miller, and members of the Subcommittee, thank
you for inviting me to testify today. I am Jim Heist, Assistant Inspector General for
Audit at the Department of Housing and Urban Development, Office of Inspector
General (HUD OIG).
The Department’s Federal Housing Administration (FHA), is one of the largest mortgage
insurers in the world, providing coverage to over 34 million home mortgages since 1934.
FHA insurance protects HUD-approved lenders against losses should a homeowner
default on their mortgage loans. FHA insured loans also offer borrowers the financing
advantages of low downpayments and underwriting guidelines that recognize the future
earning potential and credit challenges of many first-time homebuyers.
On April 7, 1998, HUD’s Office of General Counsel issued a legal opinion on seller
funded ‘gifts’ or downpayment assistance provided through nonprofit organizations.
That decision, which confirmed that the Nehemiah Homeownership Program was not in
conflict with FHA’s guidelines for downpayment assistance, has materially impacted the
FHA portfolio. Nehemiah and similar nonprofit programs provide the 3 percent
‘downpayment’ required by law of FHA borrowers at closing. The seller makes a
charitable contribution to the nonprofit equal to the downpayment plus a processing fee.
In reality, the ‘donation’ is not a true gift because it is typically a condition placed on the
seller in order to complete the sale. To fund the ‘gift,’ the se