First let's set the record straight and say that HR 3221 did not end Down Payment Assistance. What it ended is what is called seller funded or interested party down payment assistance. DPA is still available in a much less regulated way than the type of DPA which was just "outlawed".
I know there are many people who do not care either way about DPA and there are people who care passionately about DPA. What I also have come to realize is that any who oppose it do not fully understand it. They have relied on numbers that are textbook examples of red herrings and even members of the government have been misled. See the following video for an example:
Did you understand what Gary Miller was addressing? Maxine Waters hits it on the head. Even Jim Beavers from FHA admits it. And AL Green - I normally detest regulation but if it is regulation over elimination of something that HELPS our economy, home buyers, home builders (and the thousands of trades that touches), and real estate agents - then I will take a regulated program over no program at all.
Twenty-eight percent of all FHA homes purchased using DPA end in default? NOT TRUE - this is an absolute fabrication and what was started by HUD and is now leading to more of those "unintended consequences" that are carried on the backs of working Americans. Even to comprehend the misuse of this data the hearer or reader must understand that default does not mean foreclosure and foreclosure does not mean foreclosed. Numbers are easily manipulated and used like an onion skin over a basket full of lies.
What blows me away is that there is even one so-called "real estate professional" who thinks DPA is a bad thing. In fact it flabbergasts me. One even recently insinuated that people who use DPA cannot afford the home. One commenter made the statement, "only mortgage people support this" which is absolutely false and a very short sighted statement. Even if that were true that should tell you something because who knows home finance better than educated, seasoned and experience home finance consultants? (Chances are the person who made that statement has no idea how many hundreds of hours of training loan officers, not to mention mortgage finance directors, recieve every year - most without your prized CE credits - we do it because we have to know, not because we get a gold star.)
DPA is BAD --> FALSE!
Firstly, just because you are using DPA does NOT mean you have no reserves. In fact, more often than not, it means you are smart enough to keep all of your reserves instead of sinking them into your home. Then what some people do not consider is renters coming from paying $1300 or more rent going into house payments under $1000 per month PLUS getting the homebuyer's tax credit PLUS getting the home owner's depreciation. Don't tell me it doesn't matter to a lot of people because they don't take deductions because that is their own fault - it is available and if they go to a tax preparer it doesn't cost but a few dollars more to do it right!
Secondly this is for FIRST TIME HOME BUYERS - not savvy home owners who have learned the important things in life. In fact if you think DPA is the problem you are way out of touch with reality and have fallen hook, line and sinker for the opposition's propoganda. The elimination of this specific type of down payment assistance will cripple the entry market for home owners. It has been the primary form of first time homebuyer loans for the last several years.
This will cripple not only buyers but builders, sellers and agents.
UPDATED: I would like to thank Michael4DPA from the Mortgage Grapevine for all of his efforts in gathering this data for us from HUD. Michael supplied the week's worth of research and I took the 5 minutes to put it into a spread sheet.
Thank you Micheal4DPA! Source: US Department of HUD - Percentage of Fallout with Down Payment Assistance - Seller Funder vs. Government, Family or Buyer's Own Funds
See you at the polls in November. I dare you to vote for inexperience in a time like this.
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender
Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
14 Comments on Opposition of Down Payment Assistance
AUG
26
2008
Hi Ken, More Power to You. You are preaching to the choir, there are so many people that just listen to the Media Headlines without understanding the facts or wanting to research and get the facts. Great post.
Endre - some are in the choir, some in the choir are dissenters. And there are thousands who drift in here who are not in the industry. I also like to direct my representatives to blogs like this to read comments like yours. Thank you for you comment - another superior one from another Coldwell Banker rep!
Lenn - Amen! That is another point that is not addressed often enough. Of course the naysayer(s) think the DPA takes the value of the house OVER the real value - uhm, not true. In fact never one time have I had a file where DPA took the value even to 100% of the real value. My wife and I have been on the phone with congressmen and women and other politicos for weeks but not like today. All day today one phone call after another. I'll add your point on the next phone calls.
Ken - Great insight. Last month my daughter-in-law closed escrow on a great starter home using the Nehemiah Program DPA. She and her fiance are both well employed and good wage earners and paying rent higher than their mortgage is now. This month they would not be able to buy a home and that would be a shame. My daughter has just put an offer in and I am her DPA so that still flies - however, because she's a hairdresser and, like most of us self-employed, writes off everything she can, she needs a stated income loan. Those have all but disappeared too. I agree we need more oversight and regulation but it's being applied directly against some of the people who need it most and abuse it least. We're busy taking homes away from older buyers and at the same time making it prohibitive for first time buyers to enter the market at a time when housing is the most affordable it's been in years. Tough spot for us all.
Gene - we can always count on you to bring something from the firing line. I don't know what fantasy world the opponents of DPA, especially the one(s) who may even be real estate agents, are living in. It certainly is not the world of reality where homes are bought and sold.
I think you make a better argument in favor of DPA than most I've seen. First, I absolutely support DPA if it will enable a homeowner to purchase a home with a payment that is lower than what they are paying in rent. In my area of the country this is not the case, as I've found that rents generally are equal to mortgage payments only after putting 20% down, but if it works in other areas ok.
As far as people using DPA being smart enough to use the funds instead of their own reserves, this may be true as well but it kind of raises the point as to whether or not the "assistance"is really necesssary.
Regarding the tax deduction aspect of homeownership, your statement that the deduction is available if you go to a tax professional is a bit misleading. The fact of the matter is that professional or not, some people simply do not have enough deductions above the standard deduction to be able to itemize. Granted this is not a blog about taxes but just to give you an example, the standard deduction for someone who is married and filing jointly was $10,700 for 2007. This means that in order to deduct mortgage interest you'd have to have itemized deductions above this amount. Now assuming a person buys an inexpensive home, and lives in a state with no income taxes and low property taxes (like DE) they may not be able to deduct the interest.
I'd be interested if you would be able to provide a link as to the "true" number of foreclosures linked to DPA's, since you dismiss HUD's numbers as propaganda. They very well be, but I always see figures quoted on both sides of the argument, yet no one ever names the source.
You make a great argument for DPA, though I am still against it in most cases. They do carry higher default rates, though some exaggerate them.
I am a money guy and love getting people to use OPM (other people's money) to make their own financial situation better, so one would think I would love DPA. The problem I have is that many people have not developed fiscal discipline up to the point of buying their first home. In the past, we used to see people work hard to save their down payments and that has gone by the wayside in many cases.
To me, which is just the way I work, I like to see a disciplined borrower even if they are getting 100% financing or using DPA. If I see demonstarted ability, I can then feel confident they will implement a mortgage plan and stick to it.
Are these programs BAD? No, not at all. It is just that, for me at least, I want to see that my clients can truly handle the mortgage they are about to take on, even when less than current rent.
As for tax deductions, Michelle makes a good point in that not all homeowners can take advantage of the tax deductibility. I would just add that many who could, do not. That is because they prefer the "EZ" way or simply do not realize the numerous tax deductions that go beyond owning a home.
Michelle - Thank you for your comments! In the Atlanta area rents are easily compared to ownership even at high LTV's. Just for fun I did a quick search here in Atlanta and a 3 bedroom apartment averages $1642 for an average of 1151 square feet (source ApartmentGuide.com). For $1642 per month at 6% interest (the rate for FHA today) a home OWNER can have a home for $1498.88 per month for a $230,000 home. What does a $230,000 home in Georgia look like? One-half acre, 4 bedrooms, 3 bathrooms, attached 2 car garage, with approximately 1600 square feet - not including the garage. Taxes and insurance would put them slightly above the apartment average. I gave you the "true" number of "defaults" (not foreclosures - seems nobody keeps an accurate number of actual foreclosures) and the source is HUD. As far as the tax benefit *most* people who qualify for an FHA loan can take advantage of the FTHB Tax Credit. Since it is a Federal tax credit (loan actually) it has little to do with whether or not the state has income tax.
Robert - thanks for chiming in. As far as fiscal discipline I agree 100% - and that is not what DPA is about. FHA is beautiful about verifying responsibility - we do not do lates, charge offs, judgments or collections. Preferring the EZ is exactly what I was talking about and why I suggested those who prefer the EZ going to a tax professional - I did not insinuate that is the only way to take advantage of the tax credit. Your third paragraph sums it up in a nutshell and is exactly how everyone should operate. Many people do not know is that foreclosures do come back to bite the lender and we do pass it along to the broker who originated the loan. Broker's who have foreclosures - even one - can lose their ability to submit loans to the wholesale lender.
Everyone - I believe what would satisfy the issue across the board is responsible lending which also requires responsible buyers and responsible agents. If you have ever sat in my chair and heard some of the snotty, rude comments we get from agents for excercising responsible lending you would probably either laugh or be aghast.
Ken... I didn't get a chance to read all of the comments... but damn, hit so many excellent things on the head. I am also tired of those that spit out stats without the actual stat on paper. Overall, I want to add some of your post into this post. : http://activerain.com/blogsview/677079/The-March-to-Washington thanks, jeff
I think what HUD officials despise is the violation of the "spirit" of the gift fund being provided. It's akin to an escort service claiming that they charge for "companionship".
100% HUD financing, with risk-based pricing and strict adherence to credit and income requirements, is a much more honest approach. The default rates for zero-down loans can be reduced to manageable levels through strict adherence to those guidelines.
Why are we lining the pockets of the "charitable organizations" when we can lower the costs to the consumer, by offering a common-sense loan program, through HUD?
Jeff - hope I didn't stir up too many sparks on your blog posting - thanks for the heads up. I don't think the majority of your commenters have as much experience as you nor the depth of personal knowledge.
Brian Brady! - long time no see around here my friend. I agree - HUD doesn't like the assuaged rule usage which begs the "why" question. We need look no farther than FHA's own Brian Montgomery and Meg Burns who have made it no secret they wanted 100% financing products - AND EVEN EXPECTED THEM UP TO THE CLOSE OF 3221. But that doesn't stop the rookies from commenting as though they know something you and I don't - but I maintain a perpetual state of digression. Great to see your comment.
We are fighting similar battles here in WA state. I just spent a couple of days meeting with legislators last week on DPA and homeowner education programs. I know we are in a deficit, but the housing market makes up for appx 24% of total employment in WA state alone, and over 20% of state income. If they don't help up do our jobs and get this market stimulated again, the economy cannot recover. Great post!! Hope you are successful!! ~A:)
Alisha get behind HR600 - go to http://www.dpagroundswell.org and get rolling. This is VERY important! And don't let people with false numbers about the default ratio shut you down - they are WRONG.
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Hi Ken, More Power to You. You are preaching to the choir, there are so many people that just listen to the Media Headlines without understanding the facts or wanting to research and get the facts. Great post.