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HUD Ends Most Down Payment Assistance Programs!!

Down Payment Assistance Programs. You know, where the seller makes a donation to a 'charity'.... and that charity turns around and 'gifts' those monies to the buyer to satisfy the 3% Down Payment requirement on FHA loans. Well, effective October 31st, 2007(see exception below) these programs will be GONE!!

Monday October 1, 2007 HUD has ruled on what I considered the most ridiculous loophole affecting their programs.

The final rule establishes that a prohibited source of Down Payment Assistance(DPA) is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:

            1. The seller
            2. Any other person or entity that financially benefits from the transaction
            3. Any third party or entity that is reimbursed directly or indirectly by the seller

The above exclusions seem to describe exactly what is happening when these Faux Charities are allowed to circumvent the underwriting rules using the charity loophole.

While I have been mostly neutral about the DPA, I have learned to understand its impact:
FHA, for example, allows for 6% of the contracted sales price to be rebated back to the buyer in the form of closing cost assistance. This is usually facilitated by offering more for the home in price negotiations and accepting your discount in the seller rebate. The DPA programs effectively made that 6% turn into 9% overnight. Uh, can you say ‘Over Inflated Prices'?!?!

President Bush is pushing for 100% financing on the FHA loan. So, maybe this setback for borrowers will be short lived. At least we will have a little more truth in real estate prices in the future if this is passed by legislation.

Don't have the 3% Down Payment required? You can still get a gift from a family member or charity(a real charity) or even a State, County or Local Down Payment Assistance Program from the government.

You can read the Department of Housing and Urban Development's full ruling here=> HUD Ends Most Down Payment Assistance Programs

Exception: It appears that Nehemia program is grandfathered in until March 31, 2008 as the result of an earlier lawsuit with HUD settled in April 1998.

Tom Burris
DallasLoanGuy.com
Dallas, TX

"A Home Loan For Every Texan"

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Posted by Tom Burris | Texas Mortgage Dallas Mortgage FHA on 10/01/2007 11:38 AM

Comments (45)

texas home loans, dallas, tx, tom burris, fha

Originally posted at: Texas Home Loan Blog: HUD Ends Most Down Payment Assistance Programs!!

45 Comments on HUD Ends Most Down Payment Assistance Programs!!

OCT

2007

So this should have a pretty big impact on first time buyers and such? Certainly not what the market needs right now...

Very good post..Thanks for sharing it.

Keep'em coming!

Unless there is a FHA program that is going to allow 100% financing this will slow the market.

http://www.google.com/search?sourceid=navclient&ie=UTF-8&rls=SUNA,SUNA:2006-31,SUNA:en&q=%22HUD+Ends+Most+Down+Payment+Assistance+Programs%21%21%22

Wow!! 30 minutes.....

I know we all want to see the market 'recover' (though I don't see it that way at all). Why not award people for their financial prowess and ability to manage their own money and lives? The fact that someone has worked hard to save a down payment of 3%, or boosted their FICO to get a great rate, is reason enough to justify why THEY should be buying a house. I am certain there is a driect correlation with lack of financial stability and foreclosure rates. Why award folks with any DAP program etc? If they want to own a home, hard work and financial planning could be the solution our government is overlooking?

Yes or no?

Thanks for this great 411 Tom! You are a wealth of info!

GO BIG RED!

Kaushik: Yes, FTHBs tend to use this wuite a bit.

Armando: Thanks!!

James: I hope it is around the corner. I still do way more conventional

Michael: This may have been a stumbling block to raising the Govt exposure. Maybe this going away will help those limits get up.

Michael: I always wondered why this loophole didn't get closed long ago.

Renee: HI! Boomer Sooner!!

Tom, what do you think the impact of this ruling will be? I have had a few people who used this program in the last few years and it made it possible for them to buy a home. I'm not sure that the people I am talking about would have had anyone to provide a gift for them to get in a home but they are THRILLED to own their own home.

I respectfully disagree with your position.

These programs have provided downpayment gifts to hundreds of thousands of homebuyers over the past nine years. 80% of these downpayment gifts have been to low- to moderate-income individuals and families who can meet all of the requirements of a FHA-insured loan, such as employment history, income, and credit, yet cannot afford to set aside the minimum downpayment of 3% of the contract sales price of the home. These programs are designed to work with FHA and their population of homebuyers to help them safely overcome the downpayment barrier to homeownership, while also giving homebuyers positive equity in their home from day one.

These programs were developed with the full knowledge of HUD's Office of General Counsel. Significantly, in 1998, HUD's Office of General Counsel reviewed the downpayment assistance process and found it was in compliance with HUD's guidelines. There are numerous HUD Mortgagee Letters, that spell out ongoing policy decisions, address the legitimacy of these programs. As a matter of fact, HUD has not only made favorable statements about DPA programs in the past; HUD actually has utilized DPA programs itself when selling some of its own inventory of properties.

There is very little basis in fact for the criticisms crafted by Secretary Jackson of HUD for his justification for the elimination of these vital programs that currently comprise over 40% of FHA production. Line for line, each statistic he cites can be refuted with actual industry data.

Clearly, the economic impact of the loss of these programs would be catastrophic to future homeowners, as well as to the FHA, whose only alternative is a zero down product with premium pricing that leaves homebuyers in a negative equity position right out of the gate. Anyone with a brain can see the subprime mess replaying itself all over again should that come to pass.

Lawsuits have already been filed filed to stop this action by HUD. In addition, many of our Congressional leaders have come out in support of these privately funded programs, and there is strong support from many housing industry leaders. For the sake of homeownership, Ihope DPA's will prevail; HUD's actions will be overturned; and homebuyers can continue to have a safe, economically sound alternative when seeking downpayment assistance.

Tom, I am still reading the final rule. I understand everything except the reference to Nehemiah and the March 31, 2008 Date. Do you have any insite???

I also assume you have read the FHA Risked Based MIP Proposed Rule. I see where that has a slot built in for 100% FHA Financing. My only concern for that proposal is the Credit Score rules that would disqualify people from FHA Financing. If you like I can post a link to that post.

I don't know but it looks like the gov is going after anything that will "help" a buyer get in a house, which will defiinely slow the market and it is slow enough now.

Marchel: It sounds like HUD finally said ENOUGH. They said 3%, and now they mean it. Again, I find it strange that is was allowed to go on so long. Maybe the 100% is not far off.

cparker: Uh, disagree with me? On which part? The part where I said that the whole Faux Charity DPA program inflates home prices? Then get out your calculator. IT DOES!!! Other than that, I do believe that if you re-read the article you will find that I clearly stated that I was pretty neutral on the whole loophole.
I think we will see more from HUD in the coming months. They may be putting this issue to bed before rolling out the good news.

Tim: Nehemia looks to be grandfathered in until March 31st of next year(2008). At least that is how I read it. As a result of an earlier agreement with HUD in a lawsuit settlement. Post the link here. I have seen it but haven't digested it yet. It is relevant.

Rosemary: I truly believe that FHA will be 100% soon.

Back to Conventional 100% programs... I've always hated the DPAs, but they have helped the last couple of months. Back to my theory that if people don't have money to buy the house, they shouldn't be "allowed" to buy the house.

Tom,

Here is the link to the Nehemiah site that does confirm your and my belief that they have been given 6 months. There is also a note that Nehemiah has filed suit to block the Final Rule. http://www.nehemiahcorp.org/pr/pr_100107.cfm

Here is the post I made on the proposed MIP changes. Proposed change to FHA MIP scheduled for change Jan 1, 2008. As I say on that post, it appears they have left an option open for 100% finacing. If that 100% option is added to the proposed rule then this move makes sense. I do have concerns regarding the Credit Score rules.

I have no idea what Nehemiah said or did that allows them an advantage over the other grant programs. I hope the Govenment monitors their fees if they become the only one that can offer the Down Payment Assistance.

I honestly don't know what to say. I'm still on the fence as to wether people that can't save any money should be able to buy a home in the first place. I'm a big Dave Ramsey fan and since I know what he says about it.....I just don't know which way I lean yet on this issue.

Donna: This will end up costing borrowers more in both interest rate and PMI with the current competing product (My Community).

Tim: Thanks. I will read your blog tonight. Nehemia is grandfathered in as a result of an old lawsuit. Probably what is going on is that the new ruling couldn't overturn that settlement agreement. At least, that is how I see it.

Cheri: There are many arguements on this issue. I do not take sides. If the borrower wants a home, then I will bend over backwards to get them into on if it can be done both 100% legally and ethically. It just looks like we lost 1 tool. For now.

Tom.... Nehemiah is taking HUD to court and that is why they can still do this until March 2008.

In regards to 100% financing, from my inside sources, this won't happen for now. But both sides have gotten it down to 1 1/2 to 1 % down, not 2.25% downpayment. But with the lower down payment, there will be different levels of MI... this is what they are discussing now.

Overall, my opinion... even with this, it will still be better than the my community program. Because the total rate will still be cheaper...

jeff belonger

OCT

2007

Tom: At least the Nehemiah program is still around. When I have used DPA programs, that is the one that I have usually made use of. I think it is silly. As long as the seller contributions are within the 6% guidelines, what is the difference. Bad Move.

Tom, at first this ruling seems like a punch in the gut to borrowers who really need the down payment assistance, but I believe in the long run this is a good move. I have done many FHA loans with DPA programs and the sellers were okay with it as long as the purchase price was adjusted--that never seemed right to me.

Increasing the purchase price does not help the borrower--that helps the seller, realtor and loan officer. HUD is proposing to release a 98.5% LTV program, which means for a $100,000 home, the down payment would be $1,500. That is very reasonable for a borrower. Instead of paying hundreds or thousands of dollars in interest on the increased increment used to "gift" the down payment, the borrower will be able to save that money or use it how they wish.

This ruling makes my job a bit harder in the interim, but I truly believe it is a good move.

Karen, I hear what you are saying, however you and I both know that the "Quote" Charities only were doing what they were doing because of the Fee they recieved. Merely because the Charities found a looop hole does not make what they were doing correct. I hope congress passes the Homeownership act of 2007 as quickly as possible, and that it does include the 100% option.

Jeff: The way it reads is that Nehemia was grandfathered in because of a previous settlement from a 1999 lawsuit.

Karen: With DPA, you get 6% seller concessions + 3% DPA for a total of 9%. Hello over-inflated values.

Mario: Dead on. If you don't have the 3% then you are a big risk(and don't have any business buying a home). With no skin in the game, they can just walk.

Tim: I expect that this move was just a preclude to more realistic loan guidelines. Or, in other words, 'Truth in Lending'

LOL

Thanks for this enlightening post....

Thanks Loreena

Let me know if you have any questions regarding...

Hey.... are you still bedridden? I have an event coming later this month. Rob Ellis is my Branch Manager, and we are having a grand opening.

OCT

2007

Tom: I still cannot agree with taking that program away. Many buyers just cannot put together their down payment money, but can afford the payments. Even myself, 34 years ago, to buy my first home. We did 100% financing the old fashioned way.

My father-in-law gave us the 20% down payment required, and over five years, we repaid him every cent. The month of the last payment back to him, we sold our first one, got about $14,000 equity out of our home, and bought our second home... which would NEVER have been possible if we weren't able to "buy" the first one... financing it 100%.

Karen,

Do you like some of the proposed alternatives? 1.5% down? And possibly 100% for FHA ?

I do....

These are better options than the inflation of property values with the sham charity deal.

I understand your side.... and am sympathetic to it. But there are other 100% programs. I just feel that if you cannot put together 3% then you are a bigger risk. And should pay higher rates to offset that risk. That is prudent. This is not about being all touchy feely about helping poor people get into a home. This is about protecting the good programs from abuse so they will be there for the long term.

Tom, Any opinion on the "Homeownership Act of 2007" ( http://www.govtrack.us/congress/bill.xpd?bill=h110-1852) I know it was passed by the House on Sept 18th. And now is in committee with the Senate. If I read the bill propertly, this bill is necessary to:

Allow Risked Based FHA MIP
Increase the FHA Loan Limits
Allow 100% FHA Financing

I know I willl be watching this bill and encouraging its passage. Any Idea on who would oppose this bill?

Tim, I usually don't get too excited about legislation until it is closer to the final product.

I like the 'risk based' look and feel to it though!!!

Remember, folks!!!

HUD didn't take away DPA......

They only took away the loophole that allowed borrowers to get their down payment from the seller..... which turned it into 9% seller concessions and overinflated property values.

Loans with Faux Charity DPA foreclosed at a minimum.... 2X more often.

Numbers don't lie.

If you don't have the cash..... then you don't have the reserves to weather a financial crisis.

HUD must protect their programs.... otherwise, the premiums(mortgage insurance) would RISE for EVERYONE.

The borrower who cannot come up with 3% down LEGITIMATELY does not deserve the FHA rates and lower mortgage insurance. They deserve the higher rates and higher mortgage insurance in the My Community products.

And don't get on me about 'deserving'

If you don't have it now, and can save it up. You are deserving. If you don't have it now and CANNOT save it up, you are NOT deserving.

OCT

2007

I've been hearing the buzz about this for months now. Thanks for the clarification!

OCT

2007

Elizabeth, you are welcome.

OCT

2007

Earned Income DPA's are still alive and functioning and in fact are specifically approved in the new HUD Ruling. Here is the comment from the report.

Comment: Real estate agents should be permitted to use their commission to fund the downpayment where the real estate agent is the buyer/mortgagor, because the commission is earned, and not a seller contribution or gift.
HUD response: The circumstance described by this comment are not affected by this rule, because a borrower's earned income, such as a real estate agent's commission, is a permissible source of downpayment.

http://www.buyersaccount.com/

When you can't use the gifting DPA's the earned income programs can help!

The above comment by David Hayes is SPAM.

I do not believe that this will fly with HUD.

buyers account is simply laundering money from seller to buyer and that has been SPECIFICALLY addressed by HUD regarding Down Payment Assistance.

Buyer beware!!!

Tom, Not sure of how to take David's Post. Is he promoting that buyers become Realtors in order to take advantage of the funds to purchase a home?

I have used a Realtors Commission Income as the Source of Funds on their Purchase of a Home. It is not easy to do in that their broker has to authorize the closing agent to apply the individual Realtors commission to be given at close. I am sure my underwriters would have a problem if the commission was not the normal and customary seen on contracts.

Clearly, the DP is coming from the seller. No matter how you launder the cash.

HUD will address, I am sure. That is, if they can ever fund one of these.

Some Mortgage Broker will promise this to a client and tick off a WHOLE lot of people!!!!

Before you cast your opinion on it you should review the program because it is legal, working and closing loans. It does not over inflate prices, qualify people for more house than they can afford or provide a mortgage on a house not worth the value. Everything is legal and RESPA compliant.

Just because you have never heard of it or don't understand how it works does not mean it is wrong or illegal. It will take some of your time to understand what we are doing but there are multiple companies doing it right now and more are forming as I write. One company has closed over 1,300 deals.

Some people will never be able to understand its complexity but those that can are closing deals. Here are a couple of the companies I know of.

www.buyersaccount.com

www.dpfunder.com

www.dpnow.com

David Hayes

I understand EXACTLY how it works. The seller is paying the down payment, no matter how you launder it.

And the sales price goes up to compensate for it.

Both facts are undeniable.... no matter how you spin it.

It is the exact same thing as before except it isnt a charity, it is a company.

If this is closing today.... I expect HUD to address it, because it violates the spirit of their most recent ruling that the seller cannot pay the down payment. And the down payment cannot come from a company who makes a profit on the deal. This just skirts the rules.... doesn't make it right. And I would HARDLY call this 'earned income' when the buyer didn't do anything to earn it.

Now, stop putting your spam links in my comments. It is rude.

I am all for helping borrowers... but I hardly see how this does anything but falsely put borrowers with no down payment in the same loan pools as those who dont have domn payments. AND THIS HURTS EVERYONE IN THE INDUSTRY.

Calm down Tom.......

We always get the most hostle responses from people who don't understand what we do and your comments make it clear you haven't reviewed and understood how earned income programs work no matter what tone you take. Just because you heard of something like this and it was bad you are grouping us with them unfairly.

I suggest you relax for a bit and then give it another look. If you can find the illegal part please tell me but understand that statements like "AND THIS HURTS EVERYONE IN THE INDUSTRY" are only inflamitory and meaningless.

I will answer and logical questions you pose but will ignore your rants......

Good luck!!

David,

I have to agree with Tom here. The program you are using looks like it is trying to make something legal just like the other Down Payment Assistance programs did with the use of their Charitable Status. There are good Charities but most of the Down Payment Assistance programs were designed only to collect the processing fee. From what I read on your site, you have a $500.00 fee to sign up or become an agent (what ever you wish to call it). I suspect experienced underwriters will see your program for what it is and disallow the program. I also see issues with State Licensing of Agents.

As a lender, I choose the buyers and Realtors that I deal with and I would not participate in your program. I have lost deals in the past by refusing to work with borrowers or Realtors that are trying to exploit the system, but I sleep well every night. Merely because you find a LOOPHOLE (that might work) does not make it right.

I hope buyers, sellers and Realtors see why you are promoting this program. As my Father says, "FOLLOW THE MONEY". (the $500.00 Fee)

OCT

2007

Tom: I apologize if I came on a little strong at the beginning of this conversation. The title of the thread was about HUD closing some down payment assistance companies and being that I work in the DPA industry I felt it would be fine to share my information as others have before me. It came off as advertising and for that I'm sorry. Your energy at how we should be avoided seemed a bit strong and is familiar from people who don't understand exactly what we do and how we do it.

Tim: I understand that the program has a bad smell about it but that is only because it is associated with the recent mortgage meltdown and associated equity problems leading to record foreclosures blah, blah, blah... we all know the bad news in real estate right now.)

This program should not be associated with those things and should be viewed for what it does and does not do.

It discloses all information to all parties.
(We are listed on the 1003 and HUD)
Values never go above the fair market value as defined by the appraisal.
(Appraisals set the price more fairly than realtor negotiated numbers)
Mortgages never go above 90% LTV.
(Mortgage LTV's are determined by the sellers willingness to take less money from the sale starting at 90% LTV)
It keeps local property values from being negatively lowered in times of panic or disassociation.
(People who sell for under the appraised value artificially lower their neighbors home values)
It helps people in foreclosure to sell their home.
(People who can't make their payment but have at least 10% equity can find someone who will buy their house. The more equity there is the easier it will be to sell)
It helps stimulate the market in times of stagnation.
("We just can't find any Buyers" is the common voice in Florida's real estate market.... But when people can buy houses with some equity inside them then they are worth looking at. If a seller can't make his payment and has too little equity to get a line of credit this program allows him to use the equity in his house to get it sold. Is that really so bad?)

If a house is really worth $200,000 but a motivated seller will take $150,000 "this week" should the house sell for $150K or $200K? If it sells for $150K it will negatively lowers the values of the homes around it for no fair reason. If it sells for $200K it holds its fair market value and has no negative effect on the local values. In fact, the only person "hurt" is the person willing to be hurt (the seller) because he is willing to accept less than the house is worth. Is that fair to the people around the house that sold for $150K to have their property values hurt?

You called this a loophole and in laymen's terms that might be correct but it is also a simple answer to a very complex problem and corresponding solution. Questions of equity, ethics, law, mortgage, title, social and even religion come up in a worthwhile conversation.

The men that created this business model are exercising their rights in this capitalist economy. They found a "Need" in our society and created a legal enterprise to fulfill that need. It seems to have gained a strong social stench in some people's minds but I believe that is unfounded. How many people hated Nehemiah and Ameridream for the last 10 years?

We are just doing what they did and they helped hundreds of thousands of people get homes. We think that's pretty cool. And if you work hard and get into the business early you can make some money (which I find funny that you criticize me for... Do you really work for free? We infact refund every penny that comes to us if the sale of our membership does not go through. Do you do anything like that?)

Well our story at Buyers Account is that we want to help people enjoy the benefits of home ownership and if there is a legal way to do it that is new and novel and we might make money doing it as first adopters then we want to try. Most people want to sit on their butts doing the same ole thing the same ole way... That's not us.

Sorry if I offended you or Tom it was not my intention. I only want people to know that there is another Legal alternative. I understand we will face governmental scrutiny but we follow the letter of the law and therefore don't worry about the gloom some people want to predict.

David Hayes

OCT

2007

Tom:

I am currently on the listing end of one of these programs called Partners in Charity. Due to the sellers desire to move the property sooner vs later the property was undervalued and thus we did not have a problem with the appraisal. I heard the same information stated in your post, but then I also heard that not all gift programs are being eliminated. Who am I suppose to believe?

Hi Jill,

If it closes by months end, you will be fine. If not, then the DPA must come from Nehemia(who was grandfathered in due to a previous settlement agreement with HUD). One other DPA 'charity' sued HUD to extend their program past the October cutoff. I can't remember off the top of my head who that was.

Call the lender.... certainly, they should have a plan.

Let me know If I can help.

I will forward to you some communications I have from work on Monday.

OCT

2007

DPFunder & Buyer's Account are on the Maverick Mortgage "PROHIBITED PARTIES" list......

I guess that sums it up

1 mortgage company out of thousands sums it up for you? I fear you still have too simplistic of a view of our programs and how we help people. Would one unhappy client of yours mean you should stop doing mortgages?

We exist to help qualified people buy houses they can afford where the seller is motivated to sell. Doesn't a mortgage broker have a fiduciary responsibility to their clients to explore every legal avenue to help them buy their home? If we are legal, as we put forth aren't you doing you clients a disservice by not exploring this avenue?

I will happily address any specific issues you want to bring up regarding the legality or ethics of our programs. Like you we are trying to help people buy homes and make a living doing that. Please state for me the exact problem you have with our businesses and I will try to address it to your satisfaction.

We are NOT trying to fraud anyone or do anything illegal.

SPAMMER:

I am not a Mortgage Broker.

I am a Mortgage Banker, who sells to many large investors.

I put my clients into loans that close. I network with many broker/bankers who have never heard of one of these deals closing.

Specific issues?!?!? How about a list of investors who endorse this program. Your company loosely explains how this programs 'fits' some guidelines but fail to address the fact that the down payment comes from the SELLER. PERIOD!!!!! And that the 'facilitator' EARNS A FEE. Both violate the HUD ruling.

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