Here's some great news that would get home purchase cranking in a hurry! Everybody talks about 4.5% rates & great deals on home prices, but if a borrower hasn't saved up the necessary 3.5% down payment they can't buy a house whether rates are 4.5% or 8.5%!

Last October all seller funded down payment assistance was banned by FHA. At that time a large percentage of purchase transactions were using that program in order to help buyers that were qualified for financing, but hadn't saved the necessary 3% down payment, get into a home.

HUD's contention when trying to eliminate the program was that a much larger percentage of borrowers that used down payment assistance defaulted on their loans vs. those that did not.

The actual fact is this: FHA's guidelines were MUCH more lax at the time these programs were being used: Loans with 500 credit scores, high debt-to-income ratios, & minimal assets were being approved. There was a tendency for these buyers to use down payment assistance & naturally there was a higher default rate - Not strictly because they used DPA, but because they were a higher risk borrower in the first place. In the past 6-9 months FHA guidelines have tightened to where they should be: 580 minimum score, reasonable DTI's, etc. Just these steps have eliminated many of the loans that used DPA & defaulted.

I argue that the default rate would be similar between loans that fit today's guidelines using DPA vs those that had a borrower paid down payment. 

There's my support of the program - Now the good news!

A bill to reinstate down payment assistance will be introduced as early as tomorrow. The bill is expected to be introduced by Congressman Al Green (TX) with support from both sides of the aisle.

The bill will have the same language as unanimously passed last year by the House Financial Services Committee. 

Let's all put our support behind this bill - Believe me, if re-instated this bill would help the housing market much more than any other stimulus being discussed right now.