Gerry, your statement "The only reason we have these SFDPA's is because FHA won't come out with a 100% program themselves" is not factual.  FHA supported both H.R. 3577 and H.R. 3043 which would have authorized FHA to implement a zero down payment, 100% pilot program for first time homebuyers.  

If you do a little research, you'll find that both Ameridream and Nehemiah hired lobbyists to derail zero down legislation as well as government sponsored down payment grants.  Don't believe me?  Check out this Lobbyist Disclosure Report filed by Patton Boggs LLP for Midyear 2004 naming Nehemiah Corp of California as the Client.  Page 2 of the report lists "Funding for down payment assistance, change in FHA loan limitations to eliminate requirement of cash down payment" under item 16: Specific Lobbying Issues.  

http://soprweb.senate.gov/index.cfm?event=getFilingDetails&filingID=30A1A712-97DC-40BF-A140-2568586CC344

Here is a lobbying disclosure for Ameridream in 2006 that lists "American Dream Downpayment Act, Subprime Lending, Government Sponsored Downpayment Gift Programs, 103% loans" as specific lobbying issues (#16)

http://soprweb.senate.gov/index.cfm?event=getFilingDetails&filingID=60425E64-0E31-43D4-BB5F-4E9444A686F9

Jeff and Gerry, the fact still remains that both Ameridream and Nehemiah lobbied against the Bills and their impact on the legislation is unknown.  You may say its their right to preserve their business model, however, these are nonprofit organizations and not for-profit businesses we are talking about here. They are supposed to serve the good of the public- not sacrifice the good of the public to serve their own interests. 

Jeff, I disagree with your statement that "I should know better than to throw reports into the mix".  I provided links to lobbyist reports that are required under the Lobbying Disclosure Act of 1995 and a matter of public record.  These reports are easily obtained on OpenSecrets.org and are simple reports consisting of a few pages. The information in the reports is pretty straight forward and not subject to interpretation or distortion such as reports and studies that contain a variety of statistics. It is perfectly acceptable to look at an organizations lobbying history and the facts are germane to the topic.  

If it is going to be said that SFDPA is needed because FHA doesn't have a 100% program, it is appropriate to point out that the SFDPA providers lobbied against 100% FHA financing.  

While I may not have spent millions of dollars and devoted 5 days a week to the topic, I can say that I am well informed of this topic. My opinion is based on extensive research and not propaganda or compensation. You can read some of my posts on my blog that is hosted on ML Implode.  And yes, ML has taken an official stance against SFDPA.  

Gerry, I am surprised you would think it would be easier to get the Senate to accept down payment laundering than a bona fide 100% pilot program. The Senate terminated SFDPA via HERA.  Knowing the Senates distaste for SFDPA, wouldn't it behoove the industry to spend their time dusting off the Zero Down Payment Pilot program than to try to convince the Senate that SFDPA isn't down payment laundering?  

Jeff Belonger wrote:

In any case, getting off subject. Disagreeing is okay...  but maybe you need to understand non-profit organizations and understand Nehemiah. Here is the definition of non-profit. Now, this might be rude, but I need to laugh a little. Talk about the pot calling the kettle black. You said this... "You may say its their right to preserve their business model, however, these are nonprofit organizations and not for-profit businesses we are talking about here. They are supposed to serve the good of the public- not sacrifice the good of the public to serve their own interests."

Please review the definition shown on the link you provided:  

A nonprofit organization (abbreviated NPO, also not-for-profit) is any organization that does not aim to make a profit, and which is not a public body. Whereas for-profit corporations exist to earn and distribute taxable business earnings to shareholders, the nonprofit corporation exists solely to provide programs and services that are of public benefit. Often these programs and services are not otherwise provided by local, state, or federal entities. 

Of course, you might also want to peruse the IRS definition of the IRS definition of exempt purposes:  

http://www.irs.gov/charities/charitable/article/0,,id=175418,00.html

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

As well as limits on lobbying activities for exempt organizations:  

http://www.irs.gov/charities/article/0,,id=163392,00.html

In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying).  A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax- exempt status.

Legislation includes action by Congress, any state legislature, any local council, or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure.  It does not include actions by executive, judicial, or administrative bodies.

An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.

Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying.  For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status. 

As a citizen and member of the industry I have every right and responsibility of “nonprofit” organizations that put their own best interests above the good of the public by attempting to circumvent beneficial legislation via lobbying.  To lobby against 100% financing and then push two bills to reinstate SFDPA because 100% financing is not available is bogus.  Influencing legislation to create public need to protect their business model is contrary to the very spirit of charitable organizations.

In regard to the “good” that “nonprofit” organizations do, I remind of you scandals involving the founders of two major SFDPA providers who were accused of receiving excess benefits and misappropriation of public funds.  In reviewing the 990s of many exempt organizations, funds are typically funneled into exempt and nonexempt organizations through loans and transfers.  Since donations to other charitable organizations (other than affiliate organizations) are typically minimal, it is difficult to trace the actual good done by the organizations.   

In researching smaller SFDPA organizations and programs, I’ve uncovered several “for-profit” organizations engaged in brokering grants.  The Genesis Program in Texas (who sued HUD) is an example of program abuse.  There are several entities using the same tax ID number for their SFDPA program, yet the parent organization states the subordinate organization (whose Tax ID is being used) is no longer covered by their exemption and hasn’t been covered for years.  Because the organizations in question are religious organizations, there aren’t even 990’s filed for a modicum of transparency.  

While FHA proposed stricter underwriting guidelines, appropriate premiums, mandatory counseling, monitoring, and reporting, loans involving SFDPA never had appropriate underwriting and were treated the same as all other FHA loans. The current proposal of basing mortgage insurance premiums on credit scores does not manage risks and would likely result in higher premiums and tougher underwriting for all borrowers.   

As to the various reports from the OIG, GAO, FHA, and those commissioned from the nonprofit agencies, there is simply too much to go into on these posts.  However, I will point out that the recent reports commissioned by the SFDPA providers state that the SFDPA report findings are inaccurate.  One thing that everyone agrees upon (including the SFDPA orgs) is that loans involving SFDPA assistance have a higher default rate and represent higher risk to the FHA insurance fund.  Hence, the proposal for risk-based premiums.  

Gerry wrote:

  As such, I realize SFDPA came to existence with a profit motive and those profiting from it would obviously fight hard to protect their livelihoods. 

I encourage you to read the above information on tax exempt purposes and limits on lobbying for tax exempt organizations.  However, I am glad to see that you recognize that many of these organizations are profit motivated and are fighting to preserve their own livelihoods.  

Sorry for resorting to such forceful words (no I'm not but I'm being empathetic) but as I said, if you try to spin your agenda here, that's what you are going to get. This post was never about lobbying efforts and you tried to make it so. This post was about what we could do to best serve our borrowing public. If you are in the industry you should understand that should be our highest priority. 

No apologies necessary. I appreciate and encourage spirited debate on the topic and appreciate you giving me the opportunity to state my piece.  

My agenda is simple: stop FHA from being turned into subprime and stop SFDPA abuse.  I too, want solutions for buyers- but not at the expense of other borrowers or the FHA program.  Rather than increase prices to cover the down payment, pay a third party to “launder” the down payment, or place FICO restrictions on the program is not something that benefits borrowers or the industry.  Instead of down payment shell games, I support a 100% pilot program for FHA.  

While this post was never about the lobbying efforts of the SFDPA providers, it became so when you stated that FHA failed to provide to provide a 100% program.  To me, that is spin.  Therefore, I felt obligated to provide facts (not spin) that the FHA had indeed, supported 100% financing and that the SFDPA providers lobbied against it.  Again, its germane to the subject.  

Thank you again for allowing me the opportunity to post my opinion, and I encourage you to post yours on the ML forum as well.  

I apologize for forgetting to include my name on the prior post.  I don't see where I could edit the comment and assumed it was obvious who posted it.  I also know my IP address is included in the comment notification you receive.

I am disappointed. I was hoping for less sarcasm and more factual discussion.  

Jeff, increasing the monthly housing expense and financial obligations of consumers that can't save money with less of a financial burden is your idea of how to save the economy?  In a declining real estate market with increasing unemployment and ever rising foreclosures?  To borrowers with no skin in the game?  You want put someone in a house, that is going down in value, with no investment or sufficient financial resources?  

Have you looked at the current FHA delinquency rate lately?  The delinquency rate is just over 19% and the delinquency/default rate is just over 20%. That is 1 in every 5 borrowers that is delinquent or in default on their FHA loan.  Last year, it was only 1 in 6.  The FHA delinquency rate has risen dramatically since 1998 and has increased in tandem with SFDPA.  You can skew numbers and distort OIG and GAO reports all day long and twice on Sunday, but the escalating delinquency rate cannot be denied.  While FHA claims (which most reports evaluate) have been low for years due to the bubble, there is a huge backlog of claims building.  You can review delinquency rates and compare claims to defaults on HUD's NW site.  

FHA, the OIG, and GAO are not blowing smoke when they say there is a problem.  They are not lying and they are not being arbitrary.  SFDPA was eliminated for a reason.  

As to 100% FHA, I hope that Congress will authorize FHA to implement a pilot program for first time homebuyers that require higher premiums (regardless of credit scores), limits DTI to 36% (or other standard), require a minimum residual income test, 2 months liquid reserves, mandatory completion of home buyer education and budget/credit counseling, implement predatory lending protections, and is recourse for the full claim amount in the event of default.

I wish you guys a good day.    

Jeff, since you obviously cannot follow along, this will be my last comment as well.   If you were to actually read and understand my comments you would see that I am in favor of a bona fide 100% pilot program for FIRST TIME homebuyers that is properly underwritten and managed by HUD- not doled out indiscriminately by the SFDPA agencies whose primary criteria is that the seller is willing to reimburse the down payment.  The fact that you don't see the difference from even a moral standpoint is amazing.  

If you read the text of H.R. 600 (and H.R. 6694), you would see that Bill does not provide adequate restraints and focuses only on credit score limitations rather than material risk factors. It even exempts borrowers with credit scores at and over 680 from paying risk based premiums. There are no proposed constraints on DTI, RESERVES, residual income test, limits on increase to housing, etc remotely similar to what I have suggested.  There isn't even mandatory counseling.  

If you would have read my comments, you would have seen that I favor a minimum of 2 months cash reserves AND recourse to the borrower for the full claim amount in the event of default.  This is completely different from SFDPA where the borrower is not required to even have reserves and generally has no recourse.  

SFDPA is "laundering" the down payment from the seller whereby a FHA pilot program would be a bona fide program controlled by FHA.  It shouldn't take a rocket scientist to figure out the difference- especially after the IRS referred to SFDPA as both schemes and scams.  Again, the fact that you don't know the difference is an outright shame.  

As to the reports, I put a lot more stock in reports completed by government agencies that commissioned reports completed by lobbyists.  I apologize if discussing facts germane to the topic has "taken away from the post".  Since you are obviously not able to be a good sport and debate this rationally and intelligentsly, I will take my marbles and go home.  

P.S. You are once again incorrect as to the reason for the increased FHA delinquency rate.  The delinquency rate has been rising steadily since the late 90's and has been in the double digits since 2001.  The delinquency rates disconnected with both VA and USDA delinquency rates, and rose in tandem with increased use of SFDPA.  Because of the real estate bubble that was caused by unregulated 100% (included SFDPA). stated income, and other loan products, default severity was concealed.  While you say SFDPA were not a big deal until the bubble popped, you are wrong again.  Look at your history. FHA, the OIG, and GAO all saw problems with SFPDA and have been trying to eliminate the program since 2001.