There has been much controversy over HUD granting a 6-month extension to Nehemiah only and to no other Down Payment Assistance Programs. A closed door meeting with the counsel for HUD, (the justice department), and counsel from Ameridream discussing the logic of the 6-month extension for everyone in the industry resulted initially in HUD's refusal to relent. The only option remaining for Ameridream was to file an injunction. Here is a timeline of what has happened:
· 10/1/07: HUD issued its Final Rule "Standards for Mortgagor's Investment in Mortgaged Property" eliminating seller-assisted down payment assistance programs.
· 10/1/07: Lawsuit is filed against HUD.
· 10/2/07: HUD clarifies funding dates: "Therefore, in order for the homebuyer to use a gift that was derived from the seller, the homebuyer must have entered into a contract of sale (including any amendments to purchase price) before that date [Oct 31, 2007]."
· 10/10/07: Motion for Preliminary Injunction and a Motion for Temporary Restraining Order are filed. These motions can stop the Rule from being implemented.
• Recently: The Department of Housing and Urban Development finally gave the green light to the request by AmeriDream Inc., Gaithersburg, Md., to prolong its ability to provide downpayment assistance until Feb. 29, 2008. The new deadline does not include other DPA providers, who are required under a HUD rule to stop their seller-funded DPA operations by Oct. 31.
Dr. Gary Lacefield, Director of Compliance for WR Starkey Mortgage gave further clarification by stating, "The DPA related issues will not effect conventional or any type of government where downpayment funds come from local, state or federal bond or grant programs. I believe that it is the intent of HUD to eliminate all DPA that is seller funded whether the seller contribution is direct or indirect. However, to remain competitive in the market place, we will participate in these types of programs but will be well positioned to change direction as the Feds require."
It would appear that down payment assistance programs are dying a slow death.
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The down payment assistance programs have not truly been a good deal for most buyers if they require the listing price to be inflated to cover the 4 to 6% required by many of these programs. In many cases it takes 4 to 5 years of mortgage payments to get the mortgage back down to the original purchase price. True 100% financing is a better way for the consumer especially in a flat or depreciating market. I am confident that we will be seeing new 100% risk based loans.