DPA Killer
The Storm
is Coming.
Hud
is
trying to
deliver another knockout punch to the housing industry. Round
2 at eliminating Down Payment Assistance. The proposed rule
has just been published and has a 60 day comment period ending on
August 15, 2008.
HUD's
topline
motive is that
loans carrying down-payment assistance have
a higher default rate. I don't think there is any way to
logically argue against that fact; a borrower with no money involved is
likely to walk away. HUD manages this higher default rate the
same way they manage all defaults. A default is considered
any loan that is 60 days or more delinquent, and still considered a
default for a two-year period, even if the customer becomes current
during that time. If a mortgagee exceeds a 200% default rate
of other mortgages in the same field office area, then their
origination approval rate can be terminated. An example would
be a FHA lender (Lender A) that has originated 300 FHA loans in 2
years, and had 30 loans default (60 days or more delinquent) would hae
a 10% default rate. Now if the other FHA lenders in the area
average 300 FHA loans in the 2 years period as well but only have 15
loans in default, a 5% default rate. Then Lender A would use
their ability to do FHA loans. This is significant because it
doesn't matter if they are the only lender doing purchases in the
market, or if all their loans carry down payment assistance or not, or
all their loans came from an employor that is now defunct.
So, while Down payment assistance loans may default more
often, HUD by their own policy is elminating the Lenders that close
these loans.
HUD's
secondary
motive is that
the seller benefits. That is a
shock as well isn't it? The seller got their house sold.
But didn't the borrower get into a house, that they could
afford, but didn't have the means to put 3% into the downpayment.
The seller while they got their house sold did just
contribute 3.75% to a charitable organization. While every
party benefits, I do not feel that down payment assistance allows the
seller to sale their house at more favorable terms. What we
have seen in our market is that sales typically happen at 97% of list
price, but with down payment assitance it is closer to 98-99%.
Not a real measurable benefit to the seller there.
Most
FHA programs require that a borrower put a 3%
investment in the property. The 2nd round publushed regulation would
prohibit the borrower from receiving seller-funded downpayment
assistance to meet the 3% requirement. The regulation would
not aloow downpayment assistance that comes from the following parties,
"before, during, or after closing of the property sale: (1)
the seller, or any other person or entity that financially benefits
from the transactions; or (2) any third party or entity that is
reimbursed directly or indirectly by the seller, or any other person or
entity that financially benefits from the transaction." The
only difference in this re-published regulation and the original
published last year, is that HUD is now offering evidence to address
concerns raised in the District Courts. Specifically HUD's
rationale for the regulations, see Topline Motive and Secondary Motive
above.
T
This
2nd
round regulation does not eliminate all privately-funded
downpayment assistance, just like the original. A borrower
may receive downpayment
assistance from: family, employer, state, local, or
tribal government, or charitable organizations that do not have
a financial
interest in the sell of the property.
I
think HUD
needs to offer an alternative, a little
higher
upfront mortgage insurance premium. Higher monthy mortgage
insurance premium and 100% financing.
I'll
show you how to have
your voice heard in 4 easy
steps.
Step 1:
Go
to: http://www.regulations.gov/search/index.jsp
Type
in USMS 102, then click Go.
Step 2:
You
may need to go to the 2nd page or back further. You are
looking for: FR-5087-N-04:
Standards for Mortgagors Investment in Mortgaged Property: Additional
Public Comment Period
Once
you find that, click on the Send a Comment or Submission.
Step 3:
You
will need to fill out a little information about yourself..
Here is where you type up your comment. I also
recommend having your comment in a Word document format to upload as
well. Enter your comments, and upload your word document,
then click next Step.
Some
key points to consider when writing out your comments:
- Significant impanct on minority homebuyers, low-income
homebuyers, and first time homebuyers. The very people HUD is
charged with increasing homeownership for.
- Significant impact on the already impaired mortgage
industry. There are 2 primary products availble presently:
Convention and FHA. This would elminate a large
portion of those FHA purchases.
- Alternatives: 100% Financing, higher upfront
mortgage insurance, and higher monthly mortgage insurance to offset the
increased risk.
- Alternatives: Set allowable levels of loans
carrying down payment assistance by FHA lender.
Step 4:
Finally
to the easy Step, click Submit.
Just
like I said, as easy as 1, 2, 3, 4. Make your voice
heard.
;)
;)
Jeremiah!
Great info, flagging you for a star! What great information you have provided to us.
I would really like permission to print this out as I would like to reference this article for my customers.
Please let me know if that is ok with you.
Karen