HOMEOWNER DOWN PAYMENT ASSISTANCE PROGRAMS – The Fight Goes On!
HOMEOWNER DOWN PAYMENT ASSISTANCE PROGRAMS – The Fight Goes On!
TOTAL BAN ON SELLER CONTRIBUTIONS TO A BUYER DOWN PAYMENT WILL TAKE EFFECT OCTOBER 1ST UNLESS CONGRESS ACTS NOW!
Down Payment Assistance Programs have long been controversial. Such programs allow home sellers or builders to actually contribute all or a portion of a buyer’s down payment on their new home.
Since a direct buyer credit for down payment has long been prohibited on mortgage loans the sellers would make a "contribution" of an amount equal to the down payment amount to a "disinterested third party" That third party would then make a "hardship contribution" to the buyer minus their processing fee which the buyer can then bring to the closing table as full or partial money down.
The two largest companies handling such buyer Down Payment Assistance Ameridream and Nehemiah Corporations have long had their not-for-profit statuses as "disinterested intermediaries" removed but the practice has continued and can continue until the October 1st.
In October new U.S. Housing Relief Legislation passed several weeks ago will prohibit such contributions except by related individuals or bona-fide government entities. Unless of course Congress acts quickly to reverse or modify this prohibition.
A compromise program being discussed in Congress would allow some buyers with high FICO Credit Scores to use the DPA Programs. At the same time the U.S. Department of Housing and Urban Development (HUD) would be allowed to offer variable pricing for federally-insured loan programs based on risk. Those with blemished credit could be charged higher fees if that part of the proposal gets approved.
Those supporting the measure face a tough fight however. Congress seems more focused on the upcoming November Election and HUD continues to have "deep reservations about the legislation in its current form." Congressman Barney Frank (D-MA) Chairman of the House Financial Services Committee has indicated some receptivity to the idea.
Proponents of DPA contend they have filled an important void for lower-income buyers left without financing options as 100% or higher lending programs for home buyers have largely vanished over the past year. Opponents argue that those relying on Down Payment Assistance default on their loans at a rate two to three times higher than other borrowers. Others see some sellers simply inflating their sales price to cover their DPA contribution.
Home builders and low-income-housing advocates contend DPA makes home ownership possible for many who would not have been able to otherwise afford a home. According to Representative Frank "Our view was that yes there were abuses but you ought to be able to curtail those put in some safeguards and not wipe out the whole thing."
The compromise aims at easing concerns that the DPA-assisted borrowers loan defaults were causing the FHA to lose money. The new proposal provides that borrowers with FICO Scores above 680 would be able to use DPA while those with scores between 620 and 680 might face higher mortgage insurance premiums.
Potential home buyers with credit scores below 620 would not be eligible for DPA until mid-2009. At that time HUD would have the option of extending the program to borrowers less credit worthy.
Realtors and builders are concerned that ending DPA now in a weak housing market here in Chicago and in many other parts of the U.S. would add to housing market woes. They point to a new study by Alex Brill of the American Enterprise Institute that challenges HUD claims that home buyers with DPA assistance default on loans at a far higher rate.
According to Scott Syphax President and CEO of Nehemiah Corporation one of the largest Down Payment Assistance intermediaries "Are our people going to…perform as well as someone who’s wealthy enough to bring 20% down payment to the table? Our people are going to be more fragile."
Read more in Nick Timiraos’s story in the Wall Street Journal from last Thursday September 11th.
DEAN MOSS & DEAN’S TEAM CHICAGO
