The easy numbers might sound like a return to the type of subprime financing that damaged the housing and Wall Street markets, but Continental is maximizing a controversial rule under the Federal Housing Administration -- a loophole that allows sellers to funnel down payments to FHA-qualified buyers through nonprofits, leading to FHA fears that these buyers wouldn't qualify otherwise.

This leaves us hopping mad. This is NOT what FHA was intended for. Companies like this one are just turning FHA into another subprime lender. Your tax dollars at work. The article has more on the fight over this loophole (which is just about as egregious as the one that lets you "rent" your credit score):

The FHA has for decades allowed nonprofits to give buyers down payment gifts, but didn't intend such agencies to be the conduits for sellers to help buyers get around the minimum down payment requirement. Many lenders avoided FHA loans because of all the paperwork, and it was only after the subprime problems that federally backed loans and programs became hugely popular again.

Last year, FHA tried to close the loophole on the circuitous seller help. Studies found inflated prices and other problems in "seller-funded" assistance. "Loans made to borrowers who rely on seller-funded gifts are almost 21/2 times more likely to fail than all other home purchase loans insured by FHA," said FHA spokesman Steven O'Halloran.

Three months ago, Nehemiah and other nonprofits sued the FHA over the issue. A federal judge ordered the FHA to allow seller-funded down payment assistance to continue until the case is settled, as early as next month.

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