A countdown clock on a Web site operated by Nehemiah Corp. of America is ticking off the days, hours, minutes and seconds until a new government ban will terminate virtually all seller-funded down payment assistance programs in the United States. But the clock may be stopped, now that a bill that would reverse the ban has been introduced in Congress.The clock will tick off its last second Oct. 1, the last day when homebuyers will be able to use seller-funded down payment assistance with any mortgage backed by the Federal Housing Administration, or FHA, a division of the U.S. Department of Housing and Urban Development, known as HUD.The ban is part of the Housing and Economic Recovery Act of 2008, which President Bush signed into law July 30. The act states that a borrower's down payment for any loan backed by the FHA can't be provided before, during or after the sale by: the seller; any third party or entity that is reimbursed, directly or indirectly, by the seller or any other person or entity that financially benefits from the transaction. An "entity that is reimbursed ... by the seller" clearly refers to seller-funded down payment assistance programs, which collect "donations" from home sellers and then "gift" those donations to buyers, who use the funds to purchase the seller's home. The seller also pays a fee, typically of several hundred dollars, to the organization.More than 1 million buyers and sellers have utilized these programs, according to industry figures. The two largest organizations, Nehemiah in Sacramento, Calif., and AmeriDream in Gaithersburg, Md., have processed more than 300,000 and 250,000 transactions, respectively, according to company statements.Homebuyers will have very few, if any, opportunities to buy a home without a down payment after the ban on seller-financed down payments becomes effective.An FHA-backed loan with a seller-funded down payment was "the last of the 100 percent loans available," says Peter Thompson, a senior loan officer with Professional Mortgage Partners in Downers Grove, Ill. "The conventional homebuyer programs have pretty much all done away with doing this. This is something that has been specific to FHA loans for quite some time."Indeed, seller-funded down payments have become so closely associated with FHA-backed mortgages that more than 33 percent of loans backed by the agency last year included such assistance, according to FHA data. The agency is still working out the details of how the ban will be implemented, says HUD spokesman Lemar Wooley.Buyers who want to use a seller-funded down payment may decide to "move up their time frame to (buy a home) a little quicker," so they can take advantage of such assistance, Thompson says.Thompson believes the ban will push some well-qualified buyers who only lack a down payment out of the housing market, though he also thinks it would make sense to take a closer look at these programs to make sure people aren't abusing them.Seller-funded down payment assistance "is one of the things that is getting more people into the housing market when this is what we really need to get the economy going," he says. "It doesn't seem like the timing (of the ban) makes sense."The housing recovery act also makes two other important changes to FHA loan programs. As of Oct. 1, the same day when seller-funded down payment assistance will be ended, the minimum down payment required for an FHA-guaranteed loan will be increased from 3 percent to 3.5 percent, and a brand-new risk-based pricing structure for FHA mortgage insurance will be discontinued.The FHA had pushed hard for its plan to charge riskier borrowers higher mortgage insurance premiums. HUD Secretary Steve Preston said in a statement that without such flexibility, the FHA will have to increases prices for all borrowers or eliminate its refinancing program for subprime borrowers.Homebuyers may want to monitor H.R. 6694, a bill introduced by Rep. Al Green, D-Texas, which would require the FHA to accept seller-financed down payments and authorize the agency to apply a risk-based pricing structure for FHA mortgage insurance on loans that utilized such down payments. The pricing would be adjusted on the basis of the borrower's FICO credit score. The bill has two co-sponsors, Reps. Gary Miller, R-Calif., and Maxine Waters, D-Calif., and has been referred to the House Financial Services committee.X...X...XMortgage rates fell modestly across the board this week. The average 30-year fixed-rate mortgage fell 8 basis points, to 6.66 percent. A basis point is one-hundredth of a percentage point.The average 15-year fixed -- a popular option for refinancing -- fell 8 basis points, to 6.18 percent. The average jumbo 30-year fixed slipped 6 basis points, to 7.62 percent.The one-year adjustable-rate mortgage ticked down 1 basis point, to 6.24 percent.(Distributed by Scripps Howard News Service www.scrippsnews.com)
Wrong Medicine at the Wrong Time
The decision to totally ban downpayment assistance in this housing economy is absolutely ludicrous. Have there been some abuses with the use of downpayment assistance? Absolutely. Is the solution to correcting these abuses to totally ban these programs? Absolutely NOT!
Wrong medicine; wrong time. Rather than banning these programs meaningful regulations should be introduced that address what’s broken.
I have seen many blog posts on this subject and all seem to agree that somewhere between 30-40% of all FHA mortgages are presently associated with downpayment assistance. Why is no one doing the math? What is going to happen to home prices if that many qualified homebuyers, who have no other place to turn, exit the market? I have seen estimates of 10-20% home price declines. This does not have to happen.
The solution is simple, reinstate a reformed version of downpayment assistance that still serves qualified homebuyers and eliminates the abuses. The good news is that a bill has been introduced to do just that, but it will take a real grass roots effort to get this passed. I visited a website yesterday that is an excellent resource on this issue. (www.dpagroundswell.com)
Jack
You're wrong Jack
Instead of worrying about falling home prices (which is good for all home purchasers - the people you are trying to "help") we should worry about the real effects of DAPs. Those that utilize DAPs had a free call option on homes - no skin in the game. They default 3x more than others that utilize FHA loans. That means you and me - taxpayers - have to foot the bill because prices are now falling. This entire bubble was created because we allowed exotic financing to put people in homes they can't afford. If someone can't save up 3.5%, then they have no business owning a home. Jack, what you're saying is like arguing that lower prices on big screen TVs hurt big screen TV buyers. That is such a load of crap. If prices fall, maybe the average American can save up the 3.5% or even 20% to put a down payment on a home. You're working for the DAPs and the REIC, not the little guy... You're full of it Jack.
"You're wrong Jack" is right!
In my direct experience with DPA assistance companies, I have disbursed to them approximately $600 per transaction (makes me wish I had thought of starting this type of organization a few years back!). The new regulations will obviously push buyers out of the market. This is not a bad result! If property inventories increase and prices consequently decrease, more buyers can enter the market.
Quite simply, if a buyer cannot come up with 3 - 3.5%, that buyer should probably be excluded from the homebuying process entirely.
"You're wrong Jack" is right! is right!
Nothing smells more like for-profit than non-profit or other SFDPA program providers.
Excerpt from the Whistleblower blog story on the Genesis Program:
"To recap, Genesis Housing Development Corp is not an actual corporation, but an assumed name of Freedom Home Baptist Church which is a subordinate organization of The Baptist General Convention of Texas, and their 501(c)3 exemption is through the parent organization. However, the Baptist General Convention of Texas states that Freedom Home Baptist Church is no longer affiliated with their organization and is not covered by their 501(c)3 exemption.
CityVision, who also claims 501(c)3 exempt status, was involuntarily dissolved in January of 2008 by the State of Texas and as such, is not a bona fide tax exempt entity. The CityVision program is administered by a paid director of Alliance Credit Counseling, which is a 501(c)3 exempt non-profit. Also, the CityVision website is registered to Macnifisense which is a for-profit business of Kevin Porter, President and founder of Alliance Credit Corp.
The LULAC MiCasa website states it was founded by LULAC which is a bona fide 501(c)3 organization. However, LULAC's Executive Director, Brent Wilkes, states that the MiCasa program is an unacceptable for-profit venture and Michael Gonzales is not authorized to use the organization's 501(c)3 exemption for activities related to the Genesis program.
While Alliance Housing Foundation and American Home Grants cite 501(c)3 tax exempt status on their websites, there is no evidence that can be found to support that their organizations are bona fide tax exempt entities because the information provided on their website is for the Genesis program.
Hence, there are 5 organizations using the tax exempt status of an organization whose tax exempt status is questionable."
http://whistleblower.ml-implode.com/?p=184
How much revenue has been generated from the Genesis program? A good estimate is somewhere between $9,000,000 and $21,000,000.
The Penobscot Grant America Program was the brain child of Ameridream founders, Christopher Russell and Ryan Hill and is also a subject on the Whistleblower blog:
http://whistleblower.ml-implode.com/?p=142
I recommend that individuals take the time to read all information regarding seller funded down payment assistance programs and not just the propaganda that the providers are floating on the internet. Also, look closely at the individuals and companies behind the programs.
I can't understand how
I can't understand how anyone would argue for keeping seller funded DPA programs. FHA loans having seller funded DPA are widely agreed to exhibit far poorer credit performance than other traditional FHA loans with non seller funded down payments. The FHA recorded a loss this year, which means they'll need to obtain money through the approriations process, which means that taxpayers are covering their shortfall. What a disgrace to taxpayers to try to resuscitate this practice. Good riddance seller funded DPA programs, this taxpayer won't miss you one bit. This practice borders on fraud vs the government. Worse the housing bill prevents the FHA or places a moratorium on the FHA's ability to apply risk based pricing to these loans. Effectively, this will raise borrowing costs for all FHA borrowers, as better quality credits will have to subsidize lower quality credits. Smells like socialism. Regardless, limiting the ability of the FHA to use risk based pricing is a joke. Why wouldn't anyone want the FHA to protect taxpayer money and lend prudently.
DPA is a joke
The scary part of this argument is who does DPA help? 3.5% Down Payment requirement is an absolute joke. Then throw in the fact that these crappy borrowers can't figure out how to save 3.5%, makes the arguement for keeping it even worse. If you can't save a 3.5% down payment, maybe you can't afford a home. If you can't be diciplined enough to actually save, why should you buy a home. You can't afford to make repairs to fix it or routine maintenance. Just because you can afford a mortgage payment doesn't mean you can afford a home. Removing buyers in a terrible housing market isn't a good move, though keeping down payment assistance will not help the situation either
Seller DPA- "pretend this is a charitable gift" NOT
What did we learn from the past with 100% LTV non agency & agency loans? People with no blood, sweat and equity into a property have a higher liklihood of default. Seller funded DPA is a loop hole in the mortgage business that needs to be eliminated to force borrowers to work at their down payment, borrower from a respected relative or have a much appreciated true gift that makes one want to protect their prized asset... their home! Let's get back to doing loans...the right way!!!! Clean up the biz and stand proud of our ability to provide the american dream and not "ameridream", created to circumvent an already liberal program designed to help the majority, FHA. This isn't the time to look for the next best risky thing, it's time to go retro and educate borrowers to save, budget and appreciate the american dream of home ownership. Let's respect the ability of have a program such as FHA at this time in our troubled business and not act destructively as the business did in the past for the sake of a dollar. Doing the right thing will pay 10 times over in the long run.
Downpayment Assistance
Seller funded downpayment assistance helps homebuyers of modest means with good credit and the means to make mortgage payments to become homeowners. The concerns expressed about these people being higher credit risks reveal a lack of understanding of gift downpayment assistance. There is no necessary correlation between a low credit score and lack of a down payment. Home buyers using gift DPA do indeed have skin in the game. They have instant equity in their new homes. Further, the comment that mortgages using gift DPA have a significant default rate implies a higher foreclosure rate. However, these two terms are not synonomous. Default means a home owner misses a payment; foreclosure means the payment is not made up and the lender takes back the home. In fact, the foreclosure rate on FHA loans using gift DPA is lower than those using conventional down payments. How does getting the money from Mom and Dad mean that a home buyer is a better credit risk? The key is to regulate gift DPA to make sure that all home purchases are backed by legitimate appraisals, that sensible debt-to-income ratios are required and that no "creative" lending products are used.
Concerned by Lack of Empathy
I must say that after reading through the comments I have seen in response to this article I am greatly concerned about the complete and utter lack of empathy that has been shown by those individuals who oppose down payment assistance. I believe that there are some individuals in our country who are challenged on a monthly basis to consistently pay their bills, care for their children and save for some type of retirement. These individuals are often excluded from the American dream of home ownership not due to a lack of credit worthiness because they simply are unable to save a significant amount of money above and beyond their current expenses. By removing the obstacle of amassing a lump sum of money, the government was effectively opening up the door to home ownership to a huge population of individuals who would otherwise have no access to this opportunity, a majority of whom would not be homeowners today had it not been for these programs.
By removing down payment assistance from FHA backed loans, not only are buyers harmed but also the owners of the properties in areas where FHA loans are primarily made. These neighborhoods are usually in areas where lower priced housing is available and where a larger number of foreclosures have already hurt the local economy. By removing down payment assistance the government is effectively "shooting itself in the foot" by hampering the current recovery that is taking place in some areas. I struggle to understand how a short term "mortgage recovery bill" can be passed that contains this item which could effectively harm the real estate market in a greater amount than the bill can assist in recovery. I am beginning to believe that maybe the government WANTS to slow the recovery of the Housing market for some reason. I can draw no other conclusion. Now the recovery, which could have happened over the next 2 years, will now take from 4 to 5 years. This administration is doing a great job of crushing the hopes of the lower and middle class in favor of the upper middle to upper class individuals who post to this site!
Down payment assistance
DGCLA was correct... some of the previous comments on this site were ignorant. I work full time, I have decent credit, I contribute a small amount to my 401k and buy savings bonds when I can. I pay rent, and other bills on time each month. My income has not gone up, but gas ,groceries, and utilities have.
Tell me when am I supposed to be able to save enough to purchase a home?Whenever I have had money saved, life happens and I have to go into my savings to take care of things.
Please do not tell me that I should not be afforded the opportunity to purchase a home because I can not save 3.5%? The government is doing what they always do, placing a bandage on a gaping hole. Eliminating DPA programs is not the answer. Unless their goal is to eliminate middle America from purchasing homes. Which in America means single-family,minority headed homes. And who says bad credit means you can not afford the home? There are plenty of people with bad credit,who make a decent living. Has anyone ever heard of educating the prospective home-buyer?
DGCLA was incorrect
Owning a home is not like renting. When something goes wrong with a house, it generally takes money to repair. Since you've already said that you are unable to manage your finances so as to avoid 'life happens' from draining your savings, what makes you think you can manage the expenses and commitment of home ownership?
Renting is cheaper than ownership in most areas, and does not carry the same financial responsibility as ownership. Since everything keeps going up but your income (which you claim is preventing you from saving a down payment) perhaps you should recognize that stopping dumb money from driving up prices might actually create the inflation relief you need to save a down payment.
Sane taxpayers and responsible buyers are tired of bogus lending schemes driving up prices for everyone while creating massive foreclosures. Looking the other way on down payment scams is not the solution.
BTW- if you are patient, you'll probably be able to pick up a HUD home with $100 down in the near future at the rate FHA is going. If you go this route, you don't need a third party to 'launder' the down payment and you won't have to add the down payment to sales price. You'll probably even get a good price. Combine it a 203 k loan program, and you'll money to fix up the property too.
Good ridance to a bad program
Buyers whom lack the fiscal discipline to save for a house likely lack the fiscal discipline to make their month payments on time.
Why should I, as a home seller, consider 'gifting' my money to someone unable to scrape up a few thousand dollars for a home?
Maybe the dregs should get a job and not stand around looking for handouts.
This whole thing started
This whole thing started with the people who think they can afford a $300,000 home earning a honest salery of $50,000. Now that the market has turned sour (Which this counrty does periodicly) the people in those homes are getting forced out. I bet you most of those people were using sum kind of grant paid by yours truley, the government.
Concerned by lack of empathy?
Seller DPA homes foreclose at 3 times the rate of regular homes. Isn't it non-empathetic to punish these people by allowing them to take out loans they aren't going to be able to pay back? I mean, if you can't come up with 6% of the price of the house you want, how are you going to come up with a house payment?
Fallout
It's ridiculous to claim that programs like Nehemiah were responsible for the current mortgage crisis. If you look back at the loans being processed that are now collapsing, it was the sub-prime ARM loans that are the culprit, not the 30 year fixed with downpayment assistance. Now, when those programs are needed most, the Ban signed by the Bush administration are only serving to keep qualified buyers out of the market. I am a prime example. I am a first year attorney and my wife is a third year teacher. We make $105,000 this year. We are over-paying student loans to try to pay off our debt, and finance one car for $400 a month. We attempted to buy a foreclosed home in our local market. We can easily afford the $1500 a month payment, but coming up with $36,000 for a 20% down payment just isn't feasable for us right now. At first, we were set with Nehemiah providing 3% to help us into the home. Then we were told the Nehemiah ban went into effect and we'd have to secure secondary fiancing for the down payment. Low and Behold, today we find out that the secondary financing has dried up. We are effectively being held out of the market. When we could be occupying, fixing up and living our lives in a home, now that home will stand vacant and be just another reminder of the failed policies that lead us to this mess.
Post new comment