My guess is you will either have to gift him the cash to do the deal himself or front him the short term hard money loan.

The banks see a clear difference between a 'gift' of money vs. a 'loan' from friends or family.

Well, those would be gifts, not loans.

His down payment was a gift and at this point is irrelevant as to source of funds, but there is no skin.

I would also try some kind incentive as @Jenifer Kynor mentioned, if the tenants that have been there are good, chances are the ones they refer will be as well. even if it's a hundred dollar gift card to a supermarket.

Heck, in that case I wouldn't even have to gift them a house, but I could sell them a house, and they could build their credit, with a mortgage that costs them nothing out of pocket.This forum is great and I am eating the podcasts during my commutes to and from Washington, DC.

Sometimes organization is a gift.

Could she gift it to me?

With an FHA loan, the down payment can be gifted by family or use retirement accounts to fund the deal. 

Further focusing on what is in writing, I'm going to guess your friend signed a letter saying that the down payment was a gift, with zero expectation of repayment, since that would have been something the mortgage underwriter required prior to closing.