In a recent email conversation with my Realtor this morning, we were discussing a mortgage lender that was advertising using a local county program that would front the buyer the $8k tax credit so they could use as a down payment.

He asked me to post my reply on AR, and would like some feedback and your opinions.

Here is my response:

I wouldn’t really say it’s a moral issue per say- just more of being conservative to avoid any disruptions in future mortgage availability. This was one of the main reasons DPA’s got outlawed, but this is a little different because the individual is using HIS/HER money back from the IRS to use as a down payment. Even though the TDHCA is fronting it to them, it just adds a reason to discontinue something good like FHA, and if FHA goes away, the market will crumble almost immediately.

There are already rumors that minimum credit scores for FHA may be increased to 660-680, which would limit even MORE potential buyers, and it’s things like this that propel these guidelines changes because there are more defaults. Like I said, I’m COMPLETELY on board for closing more deals, but I also believe in “you have to taste the sour to appreciate the sweet.”

I can kind of see why our company has been in business for so long and is in a great financial position, as opposed to other lenders out there that are struggling. They limit their risk and have a little more conservative approach when it comes to lending.

What essentially happens in the market depends on the status of the mortgage company (if they are a BROKER or a BANKER). If they are a broker, and do things like this, the LENDER that they send (broker) the loan to then assumes responsibility/risk for the loan that funds. If that loan defaults, Fannie/Freddie/FHA/VA calls that lender and requests a buyback, which makes the lender lose TONS of money. When that lender loses money, they risk going out of business, which means "less options" to a consumer.

The loan officer makes their commission and moves onto the next. They don’t really care.

A banker that funds a loan with DPA’s goes through the same thing for the most part- if loan goes bad and has to be bought back, they lose money as well. If it happens too much, warehouse lines get cut off, which essentially limits the options to the average home buyer as well.

What is the effect? Where’s the cost get passed on and to who?

Higher rates for consumer, higher lender fees, less product availability.

Less product supply = more consumer demand = a monopoly (of some sorts) on this type of program

Ex. Out of 4,000 lenders, 15 mortgage companies offer this. Those 15 can charge up-the-butt fees, higher rates, etc to the consumer because of less/no competition. Consumer may THINK he’s getting a deal, but they may be getting hurt more than helped, and the probability of default is higher due to higher mortgage payments/higher rate. It's just something that I believe can do more harm than good.

I’m going out on a limb here because I don’t know the full story, but I’m assuming this is why this specific relationship got temporarily discontinued with our company.

As for you closing more deals, I would not be offended if you wanted to send those people w/ no down payment to this girl so that they could utilize this program, but also know that they buyer can amend their previous returns themselves, get the money, and put the money down themselves.

The psychology behind the latter is better in my opinion.

By having bills on auto-pay, you don’t really “FEEL” that $500 credit card payment, but when you go to bank, pull it out, and send it in the mail, you feel it a little bit more. I believe that someone who FEELS they are buying a home, as opposed to “breezing on in” would take their payments more seriously.

Anyways, sorry to for writing a book, but once I start, it’s hard to stop.

Tommy