In the past, non-profit organizations such as Nehemiah Corp. of America and AmeriDream Inc. were a common source of down payment assistance for low-income home buyers. In 2008, the FHA banned aid from nonprofits funded by home sellers such as builders, after the assistance accounted for more than 20 percent of its loans in the previous three years, according to a regulatory report. Loans tied to the aid soured faster than others. FHA, Fannie Mae and Freddie Mac still allow gifts from parties that don’t stand to benefit from inflated prices.

Even if the product wins government approval, it probably will stay within the jumbo community in large metropolitan areas, said Steven Delaney, an analyst in Atlanta at JMP Securities LLC.

Smaller Stake

“You wouldn’t need it for lower-priced homes where you can get in for a less than a 20 to 25 percent down payment,” Delaney said. “I don’t see this being used on $200,000 to $300,000 homes.”

Debt known as shared-appreciation mortgages were available in the U.S. starting in the 1970s, according to a 2007 paper for the Fannie Mae Foundation by researchers including New York University professor Andrew Caplin. Such loans can cause problems for investors because evidence suggests “the incentive to use these mortgages is highest among those expecting no price appreciation and those intent on holding the loans for as long as possible.” The programs are also available in other countries, such as the U.K. and Australia.

Homeowners can get a maximum of half of their down payment from FirstRex, though they also may choose to give up less of an ownership stake, and have the option to buy equity back before selling in up to 30 years. It also shares in any losses.

Thousand Transactions

FirstRex, founded by Thomas Sponholtz in 2004, previously offered a way for existing homeowners to tap their equity without taking on new debt by selling a stake in their homes. After property values collapsed in 2008, the firm shut the program down.

Sponholtz, who worked at Barclays Global Investors before it was acquired by BlackRock Inc., including as co-head of active fixed income, declined to specify how much FirstRex has to invest.

“We have committed fund capital sufficient to invest in excess of a thousand transactions, and a substantial pipeline beyond,” he said.