With a new administration at the helm, a Texas congressman aims to revive seller-funded housing down payment assistance, a campaign that, if successful, could jumpstart stalled sales and offer ailing home builders a glimmer of hope.

Rep. Al Green, D-Texas, is championing HR 600 to reinstate a controversial program that the government, concerned about default rates, halted in the fall.

"We didn't have to end it, we could have amended it and maintained it," Green said. "I am going to do what I can."

He faces an uphill battle: Previous attempts to rescue down payment assistance, or DPA, have failed. But as the housing market's pain worsens - prices continue to slide and buyers remain paralyzed on the sidelines - DPA supporters say a return is increasingly necessary.

It is a "cornerstone to strengthening a crumbling housing market and breathing life back into the economy," said Scott Syphax, president and chief executive of the Nehemiah Corporation of America, which had been the largest DPA provider.

Until Oct. 1, a third party, typically a nonprofit such as Nehemiah, could fund a buyer's down payment and be paid back by the seller. That let buyers take advantage of mortgages backed by the Federal Housing Administration, which previously required a 3% down payment. (It is now 3.5%, but still lower than the 20% some lenders require.)

The programs - which saw popularity jump after the loss of subprime mortgages - fed sales, particularly for home builders. At one point last year, one-third of the mortgages that industry titan Lennar Corp. (LEN) originated tapped the assistance. DPA accounted for about 31,000 of September's 96,473 FHA-insured loans, according to Nehemiah.

Critics, including the FHA, have long argued the programs contributed to the real estate bust by helping people buy homes with little or none of their own money, fueling defaults. That's why the federal housing law that started this summer banned seller-funded DPA on mortgages insured by the FHA, essentially halting the practice.

The FHA was not immediately available for comment Tuesday.

Before DPA's demise, some congressional members offered a compromise that would have limited participation to borrowers with higher credit scores, typically indicating more responsible bill payers.

But not everyone favors a return. While such programs eliminate the down payment hurdle, a key issue cited by many aspiring buyers, "I would still be skeptical of any of these programs that just end up allowing lower credit borrowers access to capital," said Rob Stevenson, a managing director who covers home builders for investment bank Fox-Pitt Kelton.

Even Centex Corp. (CTX), the nation's third-largest builder by annual closings and revenue, previously stated "a return to more normal qualification standards is a very good thing long term."

Specific details about this latest proposal, which Green said counts Reps. Barney Frank, D-Mass., and Maxine Waters, D-Calif., as supporters, were unavailable Tuesday. The next steps could include a hearing in committee or joining it with another piece of legislation.

"I absolutely believe that this program can be made to succeed," Green said. "We're willing to tweak it to make it work."

-By Dawn Wotapka, Dow Jones Newswires; 201-938-5248; dawn.wotapka@dowjones.com

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