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Fact or Fiction? -- HUD/FHA programs dropping or expanding .......

cry babies

SAY IT ISN'T SO... please, don't.... Well, you better have a back up plan for your clients.

I have heard and read a few perceptions of what is going on in regards to a few HUD - FHA programs from some AR members and others just passing in the streets. What is being mentioned?

HUD is looking to stop down-payment assistance programs. These would be such programs as Nehemiah, AmeriDream, and a few others.
HUD is looking to lift the 3% funds requirement from home buyers. Which would mean that they would allow 100% financing.

Now, I have a problem with a few of these so-called rumors ...or are they rumors? My problem? There are people who are writing about them just from e-mails that they are getting or from others just talking about it on the fly. But nobody does any research or follow up to verify the validity. Not giving any specific information to what is actually being talked about and why.

the other side is better

What I am finding is that people are screaming that it's not fair, because it will hurt some sectors or areas that focus on this type of financing because of low-income housing. Reality? The grass is not greener on the other side. The reality and concern of it is because of the foreclosure rates on these types of programs. Yes, it goes to say that a few bad apples always ruin it for the rest.

Statistics from the NAMB state that the foreclosure rate for these non-profit assistance programs was 6.4% in 2004 versus an overall FHA foreclosure rate of 3%. Just in 2006 alone, HUD reports that 33% of all FHA borrowers used these down-payment gifts from these non-profit organizations. The true meaning behind this is that most of these borrowers are not using any of their own funds to purchase a home.

Sure, there can be arguments made that certain types of people abused this type of financing. Here is a great
story about a particular builder in Charlotte, North Carolina who used the Nehemiah program on the homes that he built. A quarter of the 147 homes built in a specific sub-division went into foreclosure under the Nehemiah program.

The argument that stems from this is that these buyers have no 'skin' in the transaction. They are using none of their own money. It's easier for them to walk away from the deal afterwards. Another issue was that the builder was jacking up the price of the home to compensate for his out of pocket reimbursement to the buyer as a gift. To see how this program works, please read the links below.

Summary: Part of the debate is that many say get rid of these assistance programs because HUD is playing with the idea of 100% financing. My question would be, does it really matter what we call the program? Common sense tells me that it's still zero down, no matter how you look at it. And they still would be able to get 6% seller concession.

Overall, it originally looked positive in regards to HUD's movement for such bills to be passed in regards to new
FHA programs. House introduces FHA reform bill This was being talked about around the end of March 2007. Now HUD looks to ban the non-profit assistance program as of 5/14/07. What se thee?

Information on Nehemiah and creative financing.

Posted by Jeff Belonger -- The FHA Expert.com -- FHA Loans -- FHA mortgages - USDA loans on 05/17/2007 10:15 PM

Comments (15)

nehemiah, ameridream, 100 financing, hud, fha

15 Comments on Fact or Fiction? -- HUD/FHA programs dropping or expanding .......

MAY

2007

Thanks for bringing this up. I agree that people shouldn't talk about stuff until they have done some research. I personally haven't heard anyhting on the subject yet.

The attempt to remove non profit down payment assistance is real. But it seems to happen annually. The real issue is the default rate. I haven't heard the default rate for FHA lately. Any one know?

Confirmed this with an Inman article and and our head DE underwriter - but they weren't worried about this. They believe they will balk because of the loss of other programs to help.

Christy.... thanks. Well, I don't so much have a problem people posting stuff.... but when they say, well, I got this in an e-mail and they said, beware. And that is it, they don't elaborate. Well, how do you know if the source is even correct, no matter what the source is. Or at least give us some input.

Ethan... you make some good points. One thing that is not mentioned is that Congress would need to vote on this in order for it to happen. There are too many behind the scenes issues that aren't talked about or mentioned. Thanks for your feedback.

Ok...this could be racist in some cities....but the truth be told it was started and intended for low income...back when you had to have 10 to 20% down. But now with zero down, that has truely taken race out of it, and everyone is equal...progress is wonderful...

Chuck... you are right, HUD was created back in 1937 for low income housing. It has taken on another meaning and shape, but just to keep up with the Jone's per se. Why? Because it's a business that makes money also.

Here is HUD's mission. Thanks for your input....

Great comprehensive post Jeff. Keep your eye on this issue and let us know what happens.

MAY

2007

So I have a stupid question - if FHA is for low income why did they raise their limit from $198,000 to over $300,000 or do I have inaccurate information. thanks for the post this has a lot of meaning

I am seeing a lot of 100% financing here but not many of the down payment assistance. Our prices are so high that if you qualify for them you can not afford to buy here in most cases.

Jeff,

The issue of seller-funded DPA has been on and off for several years. It is on/up again! Below is a link to the Federal Register subject matter dated May, 11, 2007.

http://hudclips.org/sub_nonhud/cgi/pdf/9067.pdf

I heard about 100% financing and thought it was good.Did not know about other points you mention.Will read the link.

Let's see....

100% financing qith 6% seller concessions. So the borrower gets into the home for $0.00

I have actually set up some of these deals(not FHA, I don't like the DPA programs)

Borrowers have actually called during the process..... "Are you sure we will skip a payment after we close?" "We have moving expenses and cannot afford the house pmt"

Seems to me, that the problem with foreclosures is the system that approves the borrower. $0.00 down, and $0.00 in reserves is as much to blame for people getting themselves into trouble. And a lot of these folks with $0.00 reserves are experiencing payment shock. Where is the sanity in that?!?!?!?

I would rather see FHA go to 100% and do away with DPA. It would be better for the client..... and makes more sense than the current status quo

Dale.... I am keeping my eye on this and thanks for that very nice compliment.

Thesa.... think about it.... they had to keep up with the medium priced homes.... and think about this part, it's become a business, making money. They want a piece of the action also.

Randy.... that is why HUD as raised their limits, but waiting for Congress to approve this. Otherwise, it makes home ownership tougher on those that have little more or credit issues from a few years ago.... obviously we don't live in a perfect world. ;o) thanks for your feedback.

Ron.... yes, I agree.... and it only becomes news when they want to take it away. There is some merit to why they need to curb it per se. But it goes back to those that have abused it, that have hurt the cause behind it. Thanks for sharing that link.

Gita.... well, it can be good... but it gets back to the borrower not having any 'sweat equity' into the transaction.

Tom..... Yes, when borrowers talk about wanting a house.. but will struggle with the cost of moving, it makes you wonder. It's like a glorified renter in a way. Can't come up with that security deposit, but they want a bigger place. Thinking everything is based on credit.,

Now... I am semi confused though... and I haven't seen anyone really answer this. You are against the DPA programs, but for 100% financing. Isn't the end result the same? No money from the borrower. On the 100% programs, you can still get seller help. So, just curious, how is it better at 100% than the DPA... at least with the DPA programs, they are still using some of that money for their down payment of at least 2.25%. That is 2% more into the property than the 100% loan.

The only argument that could be made is that they will hike up the purchase price to cover the DPA. But in reality, wouldn't the seller want to do that if they were to give seller assistance? Just food for thought. Besides, if the true value is there and the appraiser can 110% justify the real value and not inflate it, then it should be okay... right? Thanks for your input and feedback.

I used to see lots of the DPA's until 100% financing become so easy then they all but disappeared. I suspect they will make their way back now that 100% financing is so hard to get. I also do not believe they will go away. But hey that's just my opinion.

It seems to mee that the biggest impact will be the insurance premiums that will be part of the new program, the premiums being tied to the credit scores. (the more likely you are to default, the more your mortgage insurance will cost.)

Removing the 3% out of pocket requirement, and the DPAs wont make much a difference overall, in my opinion. A much greater difference will be in the raising of the loan limits in high cost areas. This means that FHA will be a viable option again in areas like Westchester, PA, where the average value of a middle-class home value is over $380,000. First time home buyers might be able to enter that market, again.

MAY

2007

The only problem that I see with trading off 100% FHA financing for the loss of DAP's is that many DAP's are forgivable. I believe the answer is to do 100% CLTV's w/ DAP's and factor into the qualifying guidelines a payment shock or reserve criteria.

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