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The End of Down Payment Assistance? Bush Signs Housing Bill

I guess President Bush isn't taking my calls anymore!

Last week on this blog the Hemet Home Loan Guy issued a call to action to save downpayment assistance programs. Well the President signed the housing bill this morning (for the actual language of the bill, scroll to the bottom).

What does this mean? It means that community down payment assistance programs like HART and Nehemiah will no longer be allowed with FHA mortgages beginning October 10th.

Is the government making the right move? That depends on your point of view.

I tend to think that passing this legislation now is like having someone come in to the Emergency Room with severe bleeding and offering them a diet and exercise plan. In this case, the patient is the Real Estate Market - especially in Hemet, Riverside County and the Inland Empire, where we have seen radical depreciation and the strictest mortgage guideline changes. Sure, having people come in with their own money will reduce their likelihood of default and is a good plan in the long run to reduce foreclosures...

But in the short term this will reduce the amount of buyers who can qualify to buy the foreclosures that are already on the market. Or it will reduce the amount of reserves that blue collar normal Joes have. They'll have to spend it all to buy the home instead of having a safety net in their savings account.

Keeping buyers buying should keep housing prices from declining as hard and as fast as they have. Will some default? Sure. But if home prices don't stabilize and banks keep foreclosing we'll see home prices still fall. That means a longer recovery in the economy...and more people with less than zero equity.

The other view is that allowing these Community DPAP programs is a part of the problem. That today's no down payment home buyers are tomorrow's foreclosures.

In this view, allowing programs like HART and Nehemiah in this economy is like having the bleeding patients come in...and handing them a band-aid. depreciation (This is my friend Matt's view...but he thus far hasn't posted his own comments and leaves me to do it. Thanks, Matt!)

I expect that home sellers, assett managers and Realtors will become VERY wary of any home buyers that are using the DPAP programs, and fast.

I also expect that the large mortgage investors will change their guidleines in advance of October 10th so that you won't be able to get an FHA loan with down payment assistance.

But, for my community's sake, I hope that other people will join me in contacting the President and our other government leaders to create new legislation that extends community down payment assistance.

Care to join me?

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Joey Aszterbaum is the Hemet Home Loan Guy and a member of the Active Rain social network of real estate professionals. To buy or refinance your home in Hemet, Riverside County, or California visit www.HemetHomeLoans.com or call 951.571.5751.

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SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.

Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:

(i) such lien shall be subordinate to the mortgage; and

(ii) the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed 100 percent of the appraised value of the property plus any initial service charges, appraisal, inspection, and other fees in connection with the mortgage

(i) The seller or any other person or entity that financially benefits from the transaction.

described in clause (i). This subparagraph shall apply only to mortgages for which the mortgagee has
issued credit approval for the borrower on or after October 1, 2008.''

(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties

(9) CASH INVESTMENT REQUIREMENT-

(A) IN GENERAL - mortgage insured under this section shall be executed by a mortgagor who shall have
paid, in cash or its equivalent, on account of the property an amount equal to not less than 3.5 percent of
the appraised value of the property or such larger amount as the Secretary may determine.

(B) FAMILY MEMBERS - For purposes of this paragraph, the Secretary shall consider as cash or its equivalent
any amounts borrowed from a family member (as such term is defined in section 201), subject only to the
requirements that, in any case in which the repayment of such borrowed amounts is secured by a lien against
the property, that -

(C) PROHIBITED SOURCES.-In no case shall the funds required by subparagraph (A) consist, in whole or in
part, of funds provided by any of the following parties before, during, or after closing of the property sale:

Posted by Hemet Home Loan Guy, Joey Aszterbaum on 07/30/2008 01:49 PM

Comments (24)

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Originally posted at: Hemet Mortgage & Real Estate Blog: The End of Down Payment Assistance? Bush Signs Housing Bill

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24 Comments on The End of Down Payment Assistance? Bush Signs Housing Bill

JUL

2008

Joel,

I am so sorry to hear this news. Although I can not understand it very well.

I'd just sold my house in Fremont for I have no knowledge of how to do mortgage properly.

Joel, do the right things and the good results will come.

Keep me in post and I will be back to you at the end of Sept which is my time finish with all tests.

I"ll prey for you, your family and your biz. A lot of people still need you for purchasing or sselling houses in future.

Warmly,

jialing

Well Joey has called me out. I suppose one way to get me to comment is to suggest that I think that these programs lead to a higher potential of defaults. I haven't seen any data or have any experience to support the idea that these programs create more defaults. I wonder if HART or Nehemiah would care to share their data in regards to this. If they did then we could determine this.

From my own experience, easy money is not treated the same as money saved. Money saved is better spent. If I were a lender, I would be much more comfortable lending money to a borrow if they showed that they could legitimately save money for a down payment. It shows that they might be more responsible with their money. It is also possible that they are more capable to save for a rainy day. How many homeowners are one paycheck or broken down car from mailing in the keys to the bank? With all of the trouble with our financial institutions and how the government is responding. It's looking like the taxpayers are becoming the real lenders. So I do have some interest in the requirements for FHA loans.

Another issue I have with DAP is that these programs have the potential to inflate home prices and hence contaminate comps. Is this a good thing for other buyers that don't take advantage of DAP programs?

The one thing I don't see highlighted in this post is that in the new bill the FHA downpayment requirements has been raised from 3 percent to 3.5 percent. This will reduce the amount of buyers too.

Last, why arn't we talking about how the new bill raised the national debt ceiling by $800 billion or that all credit card transactions will now be reported to the IRS. These are the issues we should be calling our representatives about. Both of these will cost us more in the long run than any DAP will save us.

I'm probably very unpopular with people that expect the government should hand them a mortgage. That's asinine. I saved for two years (even while I was attending CSU San Bernardino) and scrimped and saved so that my wife and I could put the down payment on our first house. I got a great deal because the idiot that previously owned my house got a sub-prime loan and couldn't afford his mortgage. He only owned the house for a year and a half! Stupid. He cost his mortgage lender over $135,000. The house had been mortgaged for $265,000. I purchased for $127,000.

People like that have ruined the economy. The Iraq war pales in comparison to the fiscal damage these morons inflicted on EVERYONE. Continuing handouts for people that can't afford to own a house makes the problems worse for everyone. They are the true reason we are on the brink of a recession.

I commend President Bush (one of the few things I do agree with him on even though I am a Republican) for discontinuing social support of homeowners who have no business owning a home. That's what a SAVINGS ACCOUNT is for, hmm?

Colin

Is that Colin Powell above me commenting? Anyway, I also agree with the President's signing of this bill. We need to have someone in government that recognizes finally that the inmates are running the asylum. If a seller wants to contribute to helping the buyer buy his home, it is called a seller concession to closing costs...End of Story...God Bless...Jason

I am sorry our government isn't doing more to protect citizens rather than Haliburton or some other corporate interest. When Joey sent out that email I sent in my message to the powers that be to preserve this loan program but I guess there are other more powerful voices (with bigger check books perhaps?) who carry more sway.

Joey- I think it's the FIRST TIME I've seen "outside" people respond so much to a post! WOW! This is a huge blow - and I totally agree with you!

like it isn't hard enough getting first time homebuyers qualified as it is...

Joey, our market has gone to he** in a handbasket. This is craziness. Unless the sellers are all willing to contribute 3%, and the buyer can qualify for such a loan, not many will be able to purchase a home. In "my" day, we were all required to come up with 20%.....seriously! Amazing, huh? ;-)

That stinks

What is our country doing that they decide to ignore the people.

Interesting stuff and comment thread thus far. I'll come back when I have more time.

And Joey, you're so darn talented when it comes to articulating this kind of stuff. Agree or not, that's a fact in the pages I turn.

hey everyone - the DPA's are just a piece of this bill that just got signed by Bush. In my opinion this should not be the major issue everyone is talking about. The provisions that allow homeowners behind on their mortgage to contact their existing lender and have their situation evaluated and potentially give their existing lenders another sales opportunity... wll this is just driving me nuts.. It will be as successful as FHA secure.

What is Bush doing to help homeowners in trouble???? How about loosening credit guidelines and allowing brokers to help these citizens who are drowning, thus keeping small business afloat in these tough times. or does any politician really even care about small business? What a scam!

by the way - Teri Ellis - what a cool signiture!

Colin O...sorry to call you out bud, but you have no freaking clue what your talking about! And you don't understand what DPA really is do you. DPA is not much different then the seller covering closing costs. The borrower still pays for it in the long run, they are not getting a free ride. The only thing that it's going to do is help the banks alleviate their losses. But the long term effect is going to that of diminished returns. I guarantee with this loan that you will see a reversal in congress within the next 12-24 months. Minorities and low income borrowers will be hurt the most with this legislation, and it's also going to hurt Jack and Jill home seller as well. 3.5% is not easy to save up in every situation. We all don't live in Kansas where the average home can be purchased still under 150k, even in Utah the average FHA loan in Salt Lake County is well above 220k. Which means your home buyer is going to have to bring some serious cash to the closing.

Finally, Colin O...you obvioulsy don't understand this new bill that Bush signed. It actually is the reverse of what true Republican principals are and he admits it himself. It actually creates a bigger government, bigger taxes, welfare for banks and welfare for home owners in default. Maybe you should read the material before shooting off your indignation of those whom are not as lucky as you when it comes to buying their home.

Joey, I thought the president signing the bill was a good thing. According to NAR president:

"The National Association of Realtors® and its 1.2 million members commend President George W. Bush for his quick action in signing the housing stimulus bill today. This legislation will go a long way to help stabilize the housing market and make the dream of homeownership more attainable for many Americans. In addition, more families will be able to refinance into safer, more affordable mortgages, in many cases helping those families avoid a devastating foreclosure.

Your post shows a different side to the story. Now I have even more questions.

Hi Joey: I have put in my 2 cents but I don't think the President is taking my calls either. Shoot I was having trouble with Senator Cornyn taking my email but I finally got it to go. I have found the Nehemiah a little hard to get to fly as it is hard to get that much help with closing cost on top of the price in our market. I can see where it would work great in a depressed market though.

I do not believe that the government has the obligation to help citizens with the downpayment when they buy their property, but on the other hand it is nice to see low income people adquiring their own home. It is everybody's dream to live in their own home and sometimes because of life circumstances this is impossible. I just pray that God give wisdom to our representatives and the President to do what is the best for our country and citizens, we need to cut down many programs and utilize the money to help those that are sick, disabled, and children.

JUL

2008

JiaLing: Thank you for visiting my blog. And for your kind words and prayers.

Matt: Thanks for making an appearance. You are one of the brightest people I know and have your finger on the pulse of the economic situation way more than I do. I'd like to see you guest blog sometime. And in regards to the higher rate of default - I doubt HART or Nehemiah publish anything on that (not the best advertising) but HUD certainly has stated that is their reason for the changes. Sorry...no link.

Colin: Tell us how you really feel. Seriously, this isn't about people expecting a hand out from the government. While the government may insure FHA loans, they're not the investor. The mortgage companies are. And if you think that insurance is a government hand-out, then you might as well withdraw all your money from the bank because that's insured, too. FHA loans have provided needed liquidity in the market...in other words, it makes money move. And money in motion does something for everyone in our economy, not just the homebuyer.

Jason R: Have you read the bill? One thing Matt brings up is how much there is in there. It seems that every thing that sounds like a good thing is practically useless, while the other items will actually cause damage. Politicians love to change things up...but sometimes the cure is worse than the disease. Thanks for sharing.

Belinda: Spoken like my true radical friend! Thanks for making an appearance...come back soon.

Eleanor: You sure know how to make a man's day...tell him you agree with him! :) It is nice to have some outside voices. Sometimes the real estate blogs can be a bit claustrophobic. (See how I agreed with you there?)

Naoma: Well, for fear of sounding like it's a "pity the mortgage people" party, that part of it sucks eggs, too. The economy and tighter guidelines have gotten rid of enough of the bad eggs...can the good mortgage lenders get a break already?! I have a family of six to feed! :)

Teri: It has definitely been a challenge. There are good sides to that, but it seems that the bad stuff has momentum, doesn't it?

Anonymous: Chris, is that you? Thanks for visiting, my friend!

Jason: Is that a hint that you disagree? The suspense....bring it!

Lewis: I am SO glad you brought that up. People were in AWE of what a great idea the FHA secure was...but it's so convoluted that nobody (including me) can get 'em funded. The 'good' parts of this bill are the same as that one...ear-tickling and useless.

Karl: I have a friend who said "There are no poor libertarians." Thanks for pointing out the inconsistencies in this legislation.

Susan: I don't know what to say to that. I must be missing something...check out Lewis and Karl's comments right above yours. I would love to hear an account from the NAR why this legislation will really make a positive difference...and how they can laud legislation that is taking away your buyers and keeping your listings on the market longer. Ugh.

Marchel: Is your neck of the woods still hanging in there with a stable real estate market? I keep forgetting that there are places in the world like that! By the way...this type of liquidity SHOULDN'T be for places with increasing home values. It leads to runaway inflation. Our politicians have got it backwards, in my mind. Thanks for visiting!

Azucena: Thank you so much for visiting! Your compassion is inspiring.

Joey - No, I don't disagree ... totally. DPA's are a wonderful tool for homebuyers with little in the way of a down payment or money for closing costs. That said, I also am firm believer in having some money to buy a home (if nothing else, at least reserves). That's a hard thing to accomplish in an economy of ridiculously high gas prices, health care, rising costs of pretty much everything and income that rarely follows suit. Yet, my question is (since I haven't utilized them myself) was homeowner education required in conjunction with these DPA's, even now? 100% Financing & DPA's have a place, but I believe mandatory homeowner education should go right along with them. Without it, those products can turn into a disaster ... in my opinion.

AUG

2008

AUG

2008

Hi Everyone: I just got back from vacation with my wife and am ready to tackle the changing world of home loans once again! I got a response from Mary Bono and thought I'd post it here...

August 8, 2008

Dear Mr. Aszterbaum:

Thank you for contacting me with your concerns regarding Down Payment Assistance programs for new homebuyers. I appreciate the opportunity to hear from you on this matter.

As you may know, Congress recently passed, and the President signed into law the Foreclosure Prevention Act of 2008, H.R. 3221. This law seeks to modernize the Federal Housing Administration (FHA), among many other purposes. Within the FHA modernization section, are provisions prohibiting Down Payment Assistance made by the seller or any other person or entity that financially benefits from the transaction; or any third party or entity that is reimbursed, directly or indirectly, by certain parties described within the bill.

This new law is expected to be implemented on October 1st, 2008, after all involved Federal agencies have had an opportunity to interpret its many provisions.

Thank you for sharing your views with me on Down Payment Assistance programs. Congress is continuing to work to address issues surrounding Down Payment Assistance legislation. Should a new bill come before me concerning this issue, I will be sure to keep your thoughts in mind. For your convenience, you can sign up to receive regular email updates from me on issues important to the 45th District at www.bono.house.gov. Again, please feel free to contact me in the future.

Sincerely,

MARY BONO
Member of Congress

AUG

2008

ANOTHER UPDATE:

This one I may need to discuss in a new post. The best letter from my reps was from Feinstein. Of particular interest is a new bill being introduced to allow these programs for the credit-worthy. Check it out:

........

Dear Mr. Aszterbaum:

I am writing in response to your letter regarding down payment assistance programs. Thank you for taking the time to write, and I welcome this opportunity to respond to your concerns.

On July 30, 2008, President Bush signed into law the Housing and Economic Recovery Act. This legislation, which provides critical relief for American homeowners facing foreclosure, also contains a provision prohibiting Federal Housing Administration (FHA) program participants from using down payment assistance programs in which the seller financially benefits from the transaction.

The U.S. Department of Housing and Urban Development (HUD) Inspector General, the Government Accountability Office, and the Internal Revenue Service have cited serious problems with some seller-funded down payment assistance programs that have lead to substantial losses for FHA. The agency had $4.6 billion in unanticipated long-term losses in its annual re-estimate this year, primarily as a result of the increased amount of seller-funded loans in its portfolio. Foreclosure rates for seller-funded down payment assistance loans have been found to be three times higher than other FHA loans.

You may be interested to know that on July 31, 2008, Representative Al Green (D-TX) introduced the "FHA Seller-Financed Down Payment Reform and Risk-Based Pricing Authorization Act of 2008" (H.R. 6694). The bill would reinstate FHA seller-funded down payment assistance for individuals with certain credit scores. Currently, H.R. 6694 is pending consideration in the House Committee on Financial Services and a Senate companion bill has not been introduced. Given the major concerns of the Senate Banking, Housing, and Urban Affairs Committee with seller-funded down payment assistance programs, it is uncertain if similar legislation will be considered in the Senate. Please know that I will keep your views in mind should the Senate consider this legislation.

Again, thank you for your letter. If I can be of further assistance, please contact my Washington, DC office at (202) 224-3841. Best regards.

Sincerely yours,

Dianne Feinstein
United States Senator

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