Home : Blogs : Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans : Mortgage Knowledge at its BEST!!!! (Jeff Belonger)

Should we run our COUNTRY like a business or like a soup kitchen? - Food for thought....

Disclosure : Let's keep politics & political views/parties out of the comments. This post is my opinion and the figures used below are solely for example and not fact.

Running a business

As many of us know, the 2009 Stimulus packageis about to be approved. Let's clear the air on this issue though. The new bill has not been approved as of yet, only that there is tentative agreement in the Senate. I am reading too many blogs stating that this stimulus package has been approved. It still needs the Senate's final vote for approval, likely reconciliation with the House Bill, and the President's signature.

handing money out

We all know that the stimulus bill is supposed to stimulate the economy, by spending money and providing spending money through tax cuts, which it will create more jobs.

What about the fact that many have acknowledged that this new bill is loaded with fluff? Will this stimulus bill hurt us more than help us? Listen to this video : Yahoo Finance - Are we just handing money out left and right, keeping our fingers crossed, hoping? Do we have too many politicians that actually don't understand money, finances, and how an economy works? Just like we couldn't drill our way out of the energy crisis, we can't spend our way out of the economic crisis, especially without bankrupting our future.

My Proposal for the housing part of this stimulus bill : Make sure that the seller-funded down payment assistance programis allowed back by congress, the very same people that discontinued this program. Do you know why they stopped this program? Because of HUD's study stating that 1 out of every 3 homes that used a DPA program went into foreclosure. But wait, that was a government study. Since then, there have been a few independent studies that have said otherwise. For some of these studies, please read the Economic Impacts of the DPA's.

Here is my fear.... I have not heard anything about the seller-funded DPA program being mentioned in the new Stimulus Bill. Yet we keep hearing so much talk about raising the new tax credit or the tax incentive from $7,500 to $15,000. Let me ask you a question. Even with the new proposed $15,000 tax credit, how would you expect borrowers to buy these homes when one of the main problems is that the average person can't save that much money. Yes, I am well aware that this higher incentive will entice borrowers to find the means to save extra money or to borrow the money in order to buy a new home. But let's be realistic here, did this happen as much with the $7,500 tax credit? Do you know that the average American doesn't have more than $1,300 in their savings account? All I have read this weekend is how awesome this new tax credit of $15,000 will be and how it will help stimulate our housing market. Do you know that there are only two ways to obtain this new money? You either can reduce your federal tax withholdings or you have to buy the home first, and then file your taxes in order to receive this money.

Drew Sygit gives us some great reasons to why this new $15,000 tax credit will be hard to use. please read : The $15k tax credit - How many homebuyers will qualify

So how can we make this all work? Please read my plan below.

relief program for foreclosures

Why can't we write a bill or add a program such as mentioned above, to include the downpayment assistance program with the tax credit incentive, all rolled into one. Having certain provisions to include :

In order to use the DPA programs, you must have credit scores above 600
If you buy a foreclosure, you get the full $15,000 tax credit & you don't have to repay it back, if not, you get $7,500 as a tax credit and you have to pay it back

Keep in mind, if buyers qualify properly with credit and income, as a full doc loan, but lack the proper assets, we can still make this work. It's worked in the past. And Matt Freemanmade an excellent comment below that I have stated in many of my blogs about DPA's. By utilizing these DPA's, it allows the buyer to keep their funds, using them for emergencies, having reserves. Read Matt's full comment :

Why not force the issue about these foreclosures. If you read these independent studies and as mentioned above, the seller-funded downpayment assistance programs do not cost the tax payers money. And many of us know that buying homes helps stimulate the economy in many ways. It not only puts more money back into the building sector and supplies, but that it can create more jobs. Nehemiah Corporation, which started in 1994, is the leader when it comes to these seller-funded DPA's. What I don't want to hear is that without the buyer having sweat equity into their purchase, that this is the main reason for foreclosures. How about the high rate of job losses? How about for the fact that there are many that put 10% down or 20% down, and even those people went into foreclosure. How about those stated income programs and the no doc programs that either allowed you to change your income or not show income. That many of these programs created foreclosures.

Do you know that the Nehemiah Corporation, because of their efforts, not only helped create more jobs, but that they even put back some of their own money into housing communities, that they develop, support, and sponsor other faith-based communities and ministries. Read who and how they help : Transforming Communities by way of Nehemiah helping.

saving the housing sector

Conclusion : Why can't we think these things through first and not just throw money out the window? How can we save the housing sector without costing the tax payers millions of dollars? How come nobody has truly explained how the new stimulus bill will stimulate the economy except by stating that this bill will stimulate the economy? They throw words out such as infrastructure and tax cuts. But I have not heard specific details. If this bill is for short term growth, but not sustained, it will create more problems in the near future. Is this just another band aide that the government is so good at applying, yet it sticks or helps down the road?

And let's take this one step further. If those foreclosures need work and are as-is, you can also use the FHA 203-k loan. I meant to say this, but forgot to put that in here. Ron Wither's made this comment below. Not only can we fix these houses up, but we can make them Energy Efficient with the EEM program, which is the Energy Efficient Mortgage program. Please read : Energy Efficient Mortgages & 203-k loans

What do you say? How can we get behind an idea such as the one I mentioned above? How can we get the government to look at this? Let's not be couch potatoes that will hope and pray, let's be doers.

For an opposite opinion of this topic, please read this by my AR friend John MacArthur : DPA... nice, but not the answer to this mess - fyi, I never did say that my way was the answer to this mess, but we do need to try and be creative and not just one way. John and I had a very good conversation about this after reading both posts and we see eye to a lot of the same issues and concerns. Enjoy..

** All pictures in this blog post & in the presentation are from www.istockphoto.com **

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- Mortgages -

Experience & Knowledge at its BEST !!!

________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2008-2009 Tax Credit for First Time Homebuyers : 2008 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

_____________________________________________________________________________________________________________________________

FOLLOW ME ON FACEBOOK

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

Experience & Knowledge at its BEST !!!

Follow me on:

______________________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

Posted by Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans on 02/09/2009 02:45 PM

Comments (88)

Shopping for Mortgages in the Mortgage / Finance Channel

foreclosures, 2009 stimulus bill, stimulus bill, down payment assistance programs, 15000 tax credit, nehemiah, nehemiah programs, fha loans

Originally posted at: FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware: Should we run our COUNTRY like a business or like a soup kitchen? - Food for thought....

Generate short URL

This post has been included in New Jersey Real Estate News Atlantic County, NJ Real Estate News Egg Harbor Township, NJ Real Estate News
Post is included in group: All About Mortgages/Mortgage Networking
Post is included in group: Bloggers Choice Selections
Post is included in group: Mortgages
Post is included in group: Realtors®
Post is included in group: Realtors Needing the services of the Lending Powers

88 Comments on Should we run our COUNTRY like a business or like a soup kitchen? - Food for thought....

FEB

2009

I am not for the seller funded dpa.

Let HUD make an FHA100% program and price it according to risk.

Putting people doing 100% in th same category as 3.5% down borrowers is not the answer

Jeff,

You bring up a really good point about DPA.

I was always an advocate for this and I thought there would be more talk about bringing this back - but instead we are talking about home buying tax credits?

The one thing that surprised me, is that from an existing home sales perspective, it didn't appear that the DPA program going away this year had much of a negative impact on home sales.

TOM.....that is one reason why HUD was pushing for the stoppage of the seller-funded DPA programs. They wanted to introduce 100% financing, which passed the House over 2 years ago, but never passed the Senate. I respect your opinion, but what is the answer then? I would rather have someone buy a foreclosure for $150,000 that is worth $200,000 and get seller help of $15,000 than someone putting Zero down on $150,000. But in all honesty, does one really differ than the other? That borrower pays a higher rate and MI because they put zero down? I would think the payment comes out the same then.

MARK..... thanks... I like to try and view things from a different angle. But curious, you said, "it didn't appear that the DPA program going away this year had much of a negative impact on home sales."

You didn't see home sales drop off a lot after they discontinued the DPA programs? There were stats showing this in many areas. Yes, they have picked up some, but it could be a combination of the $7,500 tax credit, some people getting their year end bonuses, raises, and a few other things.

Overall, I agree, more talk about the $15,000 tax credit.... but I think we are missing a huge factor, money that you would need prior to buying a home. thanks

I hear ya loud and clear, Jeff! I know from personal experience that the loss of seller-assisted DPA hurt a LOT of buyers. In fact, I had 3 buyers that it took completely out of the market. As you said, they have great credit, good income, good ratios - but not enough cash for DP. I've been a HUGE advocate of DPA for years, and in spite of some scattered abuses, I still whole-heartedly support it. 3.5% is NOT going to make or break our housing situation, but it can make or break the ability of thousands of folks being able to buy a home. And in my books, we need all the help we can muster up right now! Nice post.

Randy Hooker - Dreamcatcher Realty - Arizona Real Estate

Jeff,

This is to good to disregard your request to leave the politics out, so I'll post them elsewhere.

One thought! Why not take out FHA's smoke and mirrors? Just finance 100%! DPA is just a game! If they must keep up the pretense of equity, why not require the house to appraise at least 103/103.5% of the purchase price?

Ether way opening up financing for cash strapped buyers will stimulate allot more than tons of pork!

Bill

Hi Jeff,

Personally I think a Down Payment Assistance Program would be worth its weight in gold. Since the DPA programs went away the affordability aspect became an issue. The tax credit is a great "concept" but I haven't seen that many buyers overwhelmingly excited about the program.

Great job on thinking outside the box!

Jeff,

instead of the smokescreen a DPA implies, why not just go for a 0% down FHA program?

Drwe

RANDY..... I also know it hurt a lot of buyers, from talking to realtors. I even had 2 buyers that could have used this and several others that have called about it recently. And as sad as it is to say, yes, even saving 3.5% is not easy for so many, that once in the home, would hold onto it. Thanks and thanks for the compliment.

WILLIAM aka Bill...... I would love to hear not only your political views and so many others...but I didn't want this to be debate on politics, our political views, and what will hurt us or not... but I do think that this should be another blog all by itself... and possibly linking this post to that other one. Please let me know if you do one or read one somewhere else.

I think you make a great point there, making sure that the house appraises for 103% of the purchase price... but how will this affect the other houses on the market then? How many appraisers would push this value? I think that was part of the problem to what hurt some DPA loans before, making it work, and not just using the real value of the home. Thanks for your input.

TRACY..... I know the issue about the seller-funded DPA's is a huge debate from both sides... but it did work in many cases. To blame part of the foreclosure mess just on this type of program is ludicrous in my opinion. I think it starts with the lack of jobs or jobs lost, a major death in the family of someone that was the bread winner in that family, and so many other reasons.

Overall I agree, I have not found as many excited about this tax credit as you would think. Too many are still scared or just don't have the money. Thanks for your kind words...

DREW....that is a good point that many will make. But in my opinion, it takes away from the equity position. Let's say the seller will reduce their price, making more room in regards to equity, and will accept a DPA offer and not raise the price. Well, you still use part of that seller-funded DPA as your 3.5% down payment.. creating even more equity. Will this happen much, probably not. And as I stated, the Senate shot the HUD 100% program down also.

On another note, you raise the risk for HUD on 100% financing... they probably would have higher MI factored into this and higher pricing hits on the rates. If you did a DPA, this would not happen as much, and you still would have 3.5% down, into the property. Yes, there is a fine line by all of this, and that one would think 100% financing could be the answer. But think of this... as I mentioned above, companies such as Nehemiah and AmeriDream also put money back into the communities. Not only does none of this money come from us, the tax payers, but they help rebuild and educate these communities that 100% financing would not do. Just my .02 and thanks for the question.

Jeff, while the House has agreed on one version and the Senate a very different one, it will all have to be hashed out next week in the Conference Committee - where both houses sit down together and work it out.

The District of Columbia has had a $5000 federal tax credit for people moving into DC since the mid 90's, when Marian Barry was Mayor and things were sort of falling apart. People were scurrying to the suburbs and prices tanked.

Because the $5000 was an actual tax credit, there were a couple of local lenders who figured out a way to make it count toward the down payment. Because there was an income cap on the credit, it had the biggest impact on the condo market, followed by a strong trickle up effect.

It'll be interesting to see how they actaully put all of this together!

Jeff,

"how will this affect the other houses on the market" "How many appraisers would push this value?"

What would change? The seller could accept or reject the offer presented with out an addtional cconcession and fee to the DPA company.

I posted my prefered answer at: Please Open Your Hymnal To Page 2009

Bill

Jeff-

Love the post and agree on many parts. The thing that just continually frustrates me is the fact that everyone is talking about tax credits, low or no down payment, realistic interest rates, etc. but NONE OF THAT MATTERS IF PEOPLE AREN'T WORKING!!! We need to stop sending jobs overseas, giving them to illegal immigrants and watching our businesses close. We have lost hundreds of jobs and as a result, people are unable to pay their bills. Bankruptcy and foreclosure are sure to follow. The tightening of lending is just making it harder for people who can afford a home to get the loan they need.

Jeff,

I for whatever reason have a feeling that Politicians are trying to have this bill singed and money start spending NOW.

I think that if soemhow they would ot be able to do it in the next 6 months, the economy would start improving without it and it would not even be needed.

Why they are trying to outrun the normal course of getting out of recession, and we are at the end of it, and waste so many of our children and grandchildren money is beyond my understanding.

The motto is "something has to be done now". What if not? This is a gamble with nearly a trillion dollar price tag

Insanely accurate point of view. Margaret Thatcher said that Socialism is the way to spend other people's money while bankrupting them all. I can't stand the fact that the food kitchen mentality exists. Let's be honest here.....certain people need to be taken care of. But God doesn't make trash and 95% of the people who are recepients of the soup don't need it. The problem is that they haven't been taught how to take care of themselves or they haven't accepted the challenge. All of us are challenged, but it seems that fewer and fewer accept the challenge of personal responsibility. I'll be the first to admit that my life is full of struggles. I think that some of them are greater than anyone elses.....however....aren't all challenges relative? I believe they are. We need to take it up a notch and not save those who don't need it...because if we do....we'll bankrupt America.

PATRICIA..... I know that both sides still have to sit down to hash it out, but President Obama is pushing this to be done now... it will be the end of the U.S. if it's not done now. Which I think is a scare tactic. I actually see some things getting better. But I want to keep the political views out of this and talk about what we can do now. And for the most part, knowing what we are doing and why... and not because we are in economic troubles. I just think that real estate is the backbone of this country right now, and we are skating around a few issues, and voting things in, just as favors down the road. Let's get back to the problem on hand. What can we do now, with this bill, that would make the most sense, common sense, and not free spending sense that will doom us all.

In regards to the tax credits, I didn't know that about the D.C. area... those local lenders that found a way to make it work, are they still doing them? It comes down to the investor or lender that they sell these loans to, who will except them. Not unless they service these loans themselves. But yes, it will be interesting to see how they put this all together. I just hope it doesn't scare me to my "death".

WILLIAM..... . I agree Bill. And in regards to the fee, that can be paid by the seller, the buyer, and or the lender. I will check out your post later tonight... thanks for coming back.

KATHY.... . I agree 110%... and if you listen to that video that I included above... Yahoo Finance damn, I think they nailed this one on the head... As I mentioned, I didn't really want to get into the specific details of what we should do or not do, but I did want to give some insight to what we can do about some of these foreclosures. thanks and thanks for the compliment.

JON.... . BINGO... I kind of was saying the same to Pat, above. I heard the President several times say, NOW, it must be NOW, not weeks from now. Wow, talk about forcing something down your throat and as a scare tactic. I am sure if we do this in a month, our economy will be the same, and as Kathy said, maybe even better. Are we getting worse because of the previous stimulus package? Just throwing money out there?

I agree with your whole comment 110%. I love what you said... "Why they are trying to outrun the normal course of getting out of recession, and we are at the end of it, and waste so many of our children and grandchildren money is beyond my understanding." thanks for your input...

LARRY..... . wow, Larry, your comment could be a mini blog in itself. Well said my friend. I don't know what else to say, because it's right on.

Do I mind helping others? No... but so many just lay back and ask for help. You make an excellent point that I have been arguing about for so long. And you wonder if those in gov't are just the same, even though they have jobs. Think about it... thanks for your input.

Jeff Well said and I agree with much of it.

DPA should have a credit score requirement. 600 is more aggressive than I thought. I was at 620. My opinion is without it borrowers scrounge up all their funds for DP and the seleer pays closing. After the close you have someone with no reserves. DPA allows them to keep the funds, on a 200K purchase is 7K, in their bank. That is over 4.5 months payment in the event something happens. As Larry stated we all have struggles and life events that are unavoidable.

Real Life case is one of my clients Husband lost their job 3 months after they moved in. With DPA they would have had a cushion to absorb that. Foreclosures have been caused by more than DPA, bad loans etc, although it is the bulk of it. Job loss has had a major impact and no Stimulus bill will change that immediately.

You spoke of a baid aide. I used to say all the time that we cannot put a Band Aide on a gaping bullet wound. We have to stitch it up. The stitching begins with programs that allow the purchase not credits after the fact. I thought we were trying to sell homes to stimulate the economy. Down Payment whether one has it or not is hard to come by and then when the funds are depleted to get a home the safety net is gone is an economy that is a severe recession? Not sure that this stimulus bill has been well thought out.

FEB

2009

Jeff

We absolutely need to run our country like a business.....completely agree.....

We need to work on alternative solutions to correcting the housing mess.....the attached paragraph is on the right path.....

In order to use the DPA programs, you must have credit scores above 600
If you buy a foreclosure, you get the full $15,000 tax credit & you don't have to repay it back, if not, you get $7,500 as a tax credit and you have to pay it back

My opinion is that downpayment assistance should be offered on a graduated scale...the higher the score, the more down payment assistance one should be entitled to.

The second paragraph touching on incentives and tax credits sounds like a great incentive if we got the word out.

My opinions are based on years of experience in the industry, as well as some extensive research I've done into FICO scoring, behavioral models, and many of the consequences (intended or unintended) that have resulted from unnecessary government intervention.

Last but certainly not least, the following sentence absolutely terrifies me..........

Do you know that the average American doesn't have more than $1,300 in their savings account?

By virtue of this comment, is homeownership a privilege, or a right?

I simply feel that owning a home should take some planning and effort......it gravely concerns me that a low credit score (using 600 as the guideline, based on poor payment history) with seller funded assistance is more often than not, a recipe for disaster. There will always be exceptions to the rule....

Jeff- I think that you have a great plan here that makes sense. But you see that is the problem- it makes sense. Since when does the House or Congress ever do anything that makes sense? Katerina

Jeff

Do you realize if the government gave every American 1 million dollars that it would cost a fraction of the $900 Billion they are spending on the Stimulus package.

Consumerism would surge- pouring billions into the economy. And ironically the companies they are targeting to help would be helped by consumers buying durable goods.

A simple concept that would work.

Jeff,

Cannot resist adding my 50 cents worth. Firstly, I am generally against the spending bill. I do not believe we can spend our way out of the mess we have generated. I believe there will be a lot of pain and hardship to endure with or with out the spending bill but a whole lot more with it.

Secondly, I tend to agree with Tom Burris. I don't think that anyone will argue that the housing and automotive industries did not drive our economy. We must rebuild our manufacturing base! If we are to have a spending bill crammed down our throats then it should be heavily weighted to stimulate these sectors and in such a way that trust and confidence gets restored. As long as we have fear and uncertainty to exacerbate things, little progress will be made.

To expand on Tom Burris's view and blend a little of yours into it regarding DPA. I would suggest the following. There are State, City and County Bond/SHIP programs that should be enhanced and even somewhat relaxed to funnel money into. This assistance is interest free and has no payment. Most often this assistance is recoverable should the property be sold within a specified time frame which perpetuate the flow of available funds. Congress should approve FHA 100% funding along Tom's thoughts. Additionally, Congress, HUD and the state and local housing agencies must embrace the 203K purchase and rehab concept so that communities can rebuild their neighborhoods that have been ravaged by poverty and foreclosures. Right now it is impossible to do a FHA 203K streamline purchase/rehab and use State and local DPA funds. I believe some jobs could be greated with a national 203K concept.

I cannot stop without stating that common sense must be restored to all aspects of lending, consumer, mortgage, credit cards, etc. Our banking system must be overhauled and control returned to the people. The banking system can no longer be trusted to command their own governance. Usury laws must be reinstated to stop the credit card industry's rampant financial abuse perpetrated on the American consumer.

i agree - when are we going to say if a business fails it just fails - no one is bailing us out!

murrells inlet

I agree great post - in our current situation we are just digging a deeper hole

Myrtle beach condos

Jeff,

FYI, I just re-blogged this post with the following lead-in. I hope you find favor with it!

Jeff Belonger just made the below post which is most worthy of widespread dissemination and discussion of how any economic stimulus/spending bill should address or support the housing sector. I have also pasted my initial comment to his post. I stongly encourage widespread input/discussion to his original post.

MATT...... I know studies have come out and have said 620 and I know when Nehemiah met with the House & Senate back in 9/08, that 620 and higher was on the table. But I also know that I have put many families in homes with 580 and higher credit scores. And several of those that had lower scores were because of credit issues over 2 to 3 years ago and some of them were isolated. I would think if it was more of a make sense type of deal, that this would also help.

In any case, you and I are definitely on the same page when it comes to utilizing a program such as the DPA program, so that even those with money, will have reserves. Excellent point. When I have written about my arguments depending the DPA's in the past, I always had that as a key focal point, but I forgot to put that in this post, so thanks for the reminder.

As you have had examples, I can remember helping at least 3 families last year with DPA's that had money and in all 3 cases, we got them into the property with no money out of pocket. That helped 1 family save their $15,000 and the other family save their $9,000 or so. As you stated, that can be a huge advantage as in reserves and for any type of emergencies. If those same people had to use every dime and something came up, rut row, then what. thanks for your excellent feedback.

BILL...... I know that we can get into the political aspect of things, saying that we need to run our country as a business, and I guess many of these politicians think they do it this way, but I don't know of too many companies that utilize free spending as out gov't does. And those companies that did, such as the Big 3 and some of these banks, look at them, we are bailing them out. hhhhmmm

You touched another excellent point. Your observations are from years of experience in the industry and from years of research in regards to credit. I just had this same conversation with my dad over the weekend. WHy not bring in industry experts to help with some plans, thoughts, and opinions.... and not just those economists and other politicians that think they know. How about those of us that are dug deep in the trenches.

In regards to your one comment, that should owning a home be a privilege or a right, just like driving is a privilege. That's a good question and up for debate in another blog. And yes, buying home takes planning... but that is also where we as mortgage and real estate professionals need to educate and not just give them what they want. Thanks for the detailed comment, it was spot on.

KATERINA..... . oh yea, make sense and common sense. I always said that I know of some extremely smart and intelligent people, but they lacked common sense. I guess this is a prime example here and makes you wonder what the stimulus bill is all about. Did you listen to this video that I mentioned above? It's scary... please listen.... Yahoo Finance And thanks for that polite comment.

ALLISON..... wow, I never ever thought about it that way. How dumb of me.... lol Sure, if you gave those that million that were over the age of 18, it would be much less than 330 million. And I am sure that we would dump a lot of that money back into the private and public sectors. I love the idea, but maybe that makes sense also, which would not take place. And then the gov't could take about 300 million for infrastructure, health care, and business tax cuts... and bingo, it would cost about 500 million instead of 800 million. Wow, saving 300 million... thanks for sharing...

RON..... I also agree, that we can't spend our way out of this mess, which to me becomes more of a political issue.... but worth mentioning.

In regards to Tom Burris's idea, sure, HUD could approve 100% financing, but they tried that. Congress shot it down over 2 years ago. And yes, we can utilize the city and state DPA's, but those come from funding. Part of the tax payer's monies go to many of these state and local grants. I am not opposed to it, but my plan was to try and cut as much spending as possible.

And as you stated at the end, yes, we are back at the common sense aspect of things. But I guess when it comes to this kind of spending, common sense goes right out the window. As I mentioned, I wanted to stay out of the political side of things... but you got me know. lol What about all of the favors that the President must try and meet now, hence why so many wasteful ideas are thrown into this bill. Maybe not so much wasteful, but they can be included into other bills, but not the stimulus bill. thanks for your thought out comment and ideas.

JASON.... . here is what you said....

i agree - when are we going to say if a business fails it just fails - no one is bailing us out!

02/09/2009 06:22 AM

by jason

Delete Report as Spam

I agree great post - in our current situation we are just digging a deeper hole

02/09/2009 06:24 AM

by jason

Delete Report as Spam

Jason.... I thank you for your comments.... but I had to delete them, because you added to links to condos and to the Myrtle beach area. But I do agree and thank you for the polite comment.

RON..... I have no problem with you reblogging this or anyone else. Sure, I like a nice introduction to any reblogged post, but just having it reblogged says a lot... thanks and thanks for the kind words.

Hi Jeff: I'm assuming your great ideas aren't being adopted due to Congress's own agenda. That's what it gets down to. I do believe every borrower should bring something to the table. That would reduce the risk of defaults because they have skin in the game. I agree with you about DPA's. I think it's a cool way for people to buy a home. Perhaps DPA could be reinstated with borrowers putting 1% down so they have some stake in it. We shall see what happens! Take care.

Jeff,

Below is the text of an email that I received from the agency that administers Florida Housing's Mortgage Revenue Bond (MRB) program. I have permission to share it. I thought that it would be nice to interject some outside perspectives for the purposes of any continuing discussion/comments.

---------

On Saturday night the Senate cut out the Neighborhood Stabilization funds - different plans in different areas were offered by local government for use of these funds but in many areas it was going to be used ( 1) to buy homes, rehab and sell the foreclosed and vacant properties or (2) for down payment assistance. FL was a big winner because allocations were based on the number of foreclosed and vacant properties available.

I am totally opposed to what they left in - because the $7,500 tax credit didn't work they increased the credit to $15,000-$20,000 and made it apply to non-first-time buyers. It's still a credit and provides not one red cent of down payment and closing cost assistance funds. When is someone in DC going to get that tax credits won't work. In Florida in particular, we have proof. Florida Housing and three local HFA's attempted to use the Mortgage Credit Certificate program (an alternative to the bond program). Over $75 million was offered, in three years only 24 loans were originated in the four programs offered AND the allocation was lost and could not be converted back to bond program loans. The Mortgage Credit Certificate (MCC) program used the same rules as the bond so they didn't have to be first time buyers in disaster areas. The MCC has underwriting value - FHA allows the projected MCC value to be applied to PITI. The $15,000 + credit does not.

I do know that some agencies are rethinking the use of MCC programs - enhancing them with down payment assistance and training Realtors and lenders alike to understand the underwriting value of the MCC to help qualify the borrowers. Ron, it's still very difficult trying to provide a bond program with a decent rate.

I agree - the people have to have input. I'm using www.whitehouse.gov and clicking on "Contact Us". I am going to send my input and what I know locally to the White House and to my local congressional rep and to both Senators Nelson and Martinez. That way no one can say that they didn't know.

Jeff,

Thanks for the information. You do make some valid points.

Jeff.............maybe I missed something in your presentation. You are extolling the virtues of "seller funded down payment assistance programs". You are linking this with the foreclosure problem.

Hmmmm.......so you think that banks that have lost money and now have a no-performing asset will set aside additional funds to help people buy the homes. You are talking about people that already are up against more walls than any room should have. You believe that in addition to the 6% that is allowed in some cases..........they will fund borrowers that are by definition "without sufficient funds".

If they pass such a law, it will have no impact on the short sales. The seller in those cases can not even pay the mortgage. You think people in a short sale position will have funds available to put into a seller assisted down payment program?

What seller, involved in this upside down, negative equity market has the funds to partake in the program. I have represented buyers that have used Nehimiah and I have represented sellers that have participated. The buyers really could not afford a toaster, but they went to the class and could use the program. The sellers were all in a positive equity situation and were glad to take a small hit to sell the home.

It is a bitter pill to swallow.

You mention the $7,500 or $15,000 dollar tax credit. You say that it would take the average person a long time to save up the money necessary for a down payment. You also mention the much ballyhooed average savings balance of $1,300 dollars. That is quite a general number that does not focus on potential home buyers. The bigger problem with the tax credit is that it only covers homes purchased in 2009. For most, saving up is not an option unless the amount saved can cover the 3% needed by FHA approved loans.

My experience with foreclosures and short sales has been that banks will approve buyer credit to cover closing costs. Banks will usually list through an agent and not attempt to violate tort laws by reducing commissions. They sell property "as-is, where-is" and will not make any repairs or warranties. On the short sale side, there is no consistency. Prices listed are just a best guess as to what might be accepted. Banks are still using agents to do BPO's and they are as accurate as the agent can make them. Here again there is no standard procedure and determinations are as varied as the agents presenting them. Mortgage companies also have this strange believe that they can violate tort laws and alter compensation. Some where an attorney general will enter this fray and point out that there is a significant difference between actually being a party to a contract and approving an offer.

The only real solution to our housing crisis will be found in resolving the negative equity problems that exist. This problem will have to ferret out those that have a first trust, a second trust and a HELOC. The first and second will have to be dealt with. The HELOC will have to moved to an unsecured debt that will remain with the homeowner and probably should be removed from bankruptcy protection.

As for the first and second trusts, I will readily admit, I don't know the solution. I do know, it will not be solved with smoke and mirrors.

As for the TARP, to this point funds have only been used to keep the system afloat. There is little if any accounting for what has been spent and little if any of the outstanding debt has been resolved.

PAUL.... I will not argue that fact, that borrowers should bring something to the table. But I also believe that it can work and has worked, having people come to the table with no money. I would put some of the blame on the lender, forcing a bad or semi bad borrower into the DPA program then, with no compensating factors. But as I have mentioned, there are many that have foreclosed that put 10% down and 20% down. I have been privy to such figures, those loans being held by the banks. So, are we going to get tacky about what has happened in the past? Or try and find a solution in the middle? Just questions..

Overall, as you mentioned, maybe the borrower would need 1% into the transaction. That could be a good idea. But that's the whole point, I don't see our government coming up with solutions that meet in the middle. I see a spending bill with a lot of fluff in it, just to help those other politicians pass what they want and need. That scares me... thanks for your input.

RON..... very interesting.. Thanks for sharing this, because it does shed some light and even on how the gov't ignores this. thanks

TERRY..... I didn't say that this should be the way... lol Just out-of-the-box thinking. Thanks for the comment and for stopping by.

JOHN M. .... . I will write a comment to you separately... very soon. I need to be on a conference call at 1:30 pm...back at 2:30 pm. thanks

JOHN M. ..... not really linking it, depending on how you define link. But I am trying to bring a few things together to create a solution. I didn't get into details in my blog, because it would have been too long, not that it already wasn't.... let me shed some light.

Let's say we have a specific clause to to add to this, in order to combine some of the things that I mentioned... let's say you can get DPA help and use the tax credit, if you were to buy the foreclosures. Or you get to use the $15,000 if you buy a foreclosure... if not, you get the $7,500, but you have to pay it back. Just some things like this.

In regards to the banks holding the house, that do I think they would accept less now? I will say this... real estate is local. Some banks are so desperate, that they want to get rid of the property. So to answer your question.... Can it hurt to ask? I have a client right now that had offered $190,000. It was suppose to close, but the lender screwed up... a month went by.... they went back to the back and said that they are only qualified for $160,000... the bank excepted the new offer. I had one client buying a house for $230,000.... the house was really worth $267,000.... the buyers needed an extra $15,000, so they bought it for $245,000. This happened back in August.

So, overall.... it can work. Will it work with everyone? No, no way. Will it work with enough, to get these foreclosures off the market? Yes and in my opinion, it's better than nothing at all. And I didn't inflate the price... it was worth $267,000.

You said this...."What seller, involved in this upside down, negative equity market has the funds to partake in the program."

Again, real estate is local.... each bank is different and each house is different. Not every house is upside down and not every house that is a foreclosure is upside down. There are many that went into foreclosure because they lost their job or some income. I know some that just walked away from their house because they were upside down. I know some that did this, even after they put 10% and or 20% down. I know because I have spoken to them. I also know some that are struggling, upside down, loss of income, who are fighting for their house... getting 2 to 3 jobs to make it work. I have a neighbor down the street that this happened to, who found me online.

In regards to the tax credit... $7,500 or $15,000.... yes, it many cases, it would take the buyer many years to save. What about gifts? With FHA, you can get a 100% gift to buy and have no money. I guess we should kill that loan also? I have had kids in the past that received $10,000 to $20,000.... jobs are key in any purchase...

In regards to the date, the $7,500 covered homes bought from July 2008 to June 30th, 2009. If the $15,000 is approved, it will go up until Dec. 31st, 2009. But it's not definite....

Overall, I think you are now seeing changes on what banks will approve and accept and what they won't approve. They are covering more than just closing costs. Let's not forget that you can do a 203-k loan and still only need 3 1/2 percent out of pocket. In regards to the tort laws and such, I am not an expert on them. That is why you have realtors and lawyers. I help with mortgages.

In regards to the "as-is" properties, I just mentioned that above. And I also talked about this in my post. Keep in mind, with a 203-k, you can finance up to 110% of the approved after value. This is huge and if more people knew about it, they would buy more foreclosures. To me, it comes down to education, educating all buyers and even some realtors, to what can be done, when you get creative.

In regards to the tarp issue that you brought up... that to me is for another discussion. Just trying to keep this on point and with the basics of my post. ... and to keep politics out of it and the poor descions.

Overall, John, thank you very much for the comment, for your honest feedback and input... and for making this very thought provoking..

I don't believe DPA is as much as a problem as they say. Hell, I bought my first house in 1990 with gifted DPA. If it were that much of an issue then employer assisted DPA and gifted DPA and state bond and grant programs would be taken away.

Great post! You bring up lots of excellent points.

Great point. Something has got to give

Hi Jeff !!

Wow ! What a passionate post !!

I love the Jeff's Relief Diagram, and have to admit, it does seem to have a lot of merit.

I do, however disagree with the $15,000 tax incentive comments.

As far as I understand it, this is being proposed as a VERY DIFFERENT type of incentive from the $7,500 "LOAN" from last year ! If indeed this is a clear credit with no payback schedule, then I disagree with you - I think it WOULD stimulate increased buying. NOT for the people who have $1,300 in their bank account, but for the thousands of buyers who have $20,000, $30,000, $50,000 or more that they are sitting on as downpayments - and who are the 'on the fence' buyers right now.

... I have 3 of these buyers I am working with right now

I KNOW that if these buyers had a limited time to buy a house to get $15,000 free money - then I guarantee they would buy within that timeframe - heck I may even buy another home myself if I was getting $15K for free !

NOW...if it turns out to be a $15K "LOAN"...then I'm OUT ! I really didnt see a huge benefit to that with the $7,500K loan myself, and I'm not surprised it wasnt a huge success.

But, if you also couple the possible rate buy down to in the 4s on a 30 yr fixed, my feeling is that consumers would see that as too good to miss and the activity would increase dramatically.

Of course $2 and my opinion will only get you one token for the subway, but that's my opinion and I'm stickin' "POSITIVELY" to it

... I am intrigued to see if there is any reference to the DPA program though ? I dont know much about plans for any reintroduction ?

Nice in-depth post as always Jeff ! and always good to get differing opinions to keep a healthy debate :o)

Cheers !

Sheldon

Aloha Jeff,

Thanks for the the thought provoking post! Unfortunately, a very small number of the congressional members have any education in finance and their tendency is vote along party lines instead of whats logical or reasonable. A classic case of the blind leading the blind. How much further into the ditch can we fall?

Peace,

Jeff, fantastic well thought out and put together post! I agree that reinstating a DPA would help in many ways to reinvigorate housing sales! Unfortunately I fear this may all be wasted breath since it appears to me that the last thing congress and the senate care about is listening to us! I've contacted my representatives, but they are in the minority and are in the process of being steamrolled...

Brian.

Jeff - This is a fantastic post, my friend. I have watched as new guidelines have slowly whittled away at the previously qualified homebuyer base. I would estimate that removing subprime, zero down programs, and punishing the self-employed have made it impossible for about 40% of willing buyers to purchase homes now. It doesn't matter which incentives are in place under these circumstances.

Jeff, I agree with a lot of your points. I have buyers that can't afford the downpayment, but make a pretty good salary. I guess if you can't afford the downpayment you shouldn't be buying a house?

I hope that the stimulus plan includes the $15,000, but you have a good point- if they can't buy the house it doesn't matter. I guess we all have to wait and see.

I've got it!

We take their firstborn infants, allow to marinate, slowly cook in the soup vats, and serve them at the soup kitchens!

Crap I think someone already Modestly Proposed that a few hundred years ago.

Still, it could work.

that was CRAZY SHARK DUDE by the way, for all of you mere mortals who can't ready my invisible name above

Hi Jeff -- Wow, you are really up on this. A simple question I keep coming back to, regardless of what gets implemented regarding stemming the flow of foreclosures and trying to stabilize the housing market is:

If people don't have decent paying, stable, predictable jobs where they will feel secure enough for a longer period of time, I think there are so many forces at play right now on a global scale, that any solution will be marginal at best.

I just wanted to comment on the title, my responce to that is business. The current path is only going to get us in deeper I think, at some point money has to be paid back.

Yes exactly, at some point the ledger has to balance. How about you stimulate the people by making them more productive. Provide them with incentives to achieve rather than taking things the other way.

No Soup for you! Come back one year! -The Soup Nazi (Seinfeld)

Jeff- I am singing your song, but you are much more detailed than I on the mortgage end....you are the FHA expert.

I have had a few people ask me over the weekend about this credit but like you know, I know that the general populous will not be helped by this tax credit....it's crazy.

I am just going to bookmark your post so if anyone wants any information beyond my simple explanation, I will defer them to your post via email link. Thank you.

Jeff = Very interesting read which has sparked a good discussion. This past year we saw clearly how difficult it is to solve the issues facing mankind.

All the leads we have spoken to today are waiting to see if this passes. They don't understand it but they think they are getting 15K to buy a house.

Will this help ?

I don't know...

But, the DPA programs were rocking in Michigan before they got rid of them.

I would rather the sellers have the right to contribute than not.

Thanks for the insight and great info. I am constantly trying to keep up with what is going on in the mortgage world but it seems to change daily and I'm so happy when experts like you write in a concise way that I actually understand. Thanks for sharing!

The $7500 tax credit does not put money into the pockets of home buyers - and neither will the $15,000 tax credit. The home buyers need the help NOW, not next year!

So what do potential first-time homebuyers do? Continue renting. What do all those homes for sale continue to do? Stay up for sale.

The solution is simple. Roll out a 100% FHA financing program (as the VA and USDA have, which, by the way, are GOVERNMENT programs just like FHA), charge more for the risk (like say 2.5% UFMIP), or bring back the seller-assisted down payment program.

I'm concerned about the fact that regular home owners may be losing out on the tax break. Home owners that are not in foreclosure and are having to "short sale" to avoid foreclosure, don't have a chance. These homes would end up in foreclosure.

If the average American only has $1300 in savings then I would say that our country is in sorry shape. Someone with so little in reserve really doesn't need to be buying a home. What are they going to do when the furnace breaks down or the roof leaks?

I think that the $15,000 tax credit along with some money down work well together. People can stretch themselves with the downpayment and then the $15,000 will be there as their reserve fund.

Jeff, I agree with Kathy's comments: NONE of this matter is we don't get a grip on our work force. Keep sending our crap to China and Mexico. Keep PAYING illegal aliens. You know what REALLY ticks me off? I went on a listing appointment with a man from London. OUR government would NOT renew his Visa...guess what? He's losing his house because HE is following the rules. He got kicked out of our fine country and his house is going to foreclosure...There you have it. He was here legally and they won't let him stay....we have illegals running amuck and who gives a crap. Makes NO sense to me. Okay, I'm off the subject. Sorry.

Jeff-

02/08/2009 06:25 PM

by Kathy Jackson REALTOR Henderson Kentucky Homes for Sale (RE/MAX Superior, REALTORS)

Jeff - Wow ! Great post ... pretty intense. I think you should run for office : ) Seriously though, you make some great points. I think the tax credit will help though for the non first time homebuyer market and spice up that market a little bit. For the lower priced homes, the DPAs certainly help a lot of folks become homeowners. I hope these programs can come back as well... is interesting to watch the whole process... the main part of the bill is mostly pork. I am glad that some of the "Fix Housing First" ideas is making into the plan.

Jeff,

I like your thoughts. Great post!

Good ideas, send them up to congress. Forgive me if I am old fashioned, as wonderful as PDA programs have been, we have to get back to the days when buyers were personally invested in their home. We have to stop treating home ownership like rentals with only their monthly payment invested.

Unfortunately, some program is needed to jump start things, but we could be only borrowing against future problems.

Thanks for the thought starters, overall I like your plan.

We have got to get back to people standing on their own two feet and stop living at the government trough. The first house I bought required 3% down, my last home I was fortunate enough or worked hard enough to put down 20%. Some folks are just not responsible enough to own a home.

I don't know if a seller funded DPA will stimulate the housing market, but I do know that if there is a tax credit of X for foreclosures and 1/2x for non-foreclosures then it will devalue all non-foreclosed properties in ther market. They are already hit hard...

Jeff, you're crtainly thinking out of the box. I'm not understanding how a DPA program works or for that matter what it is. How will the end result be so very different at the end of the day than 100% financing a home if we're still in a declining market? Wouldn't we be perpetuating our problems but just in another way?

man, we need to do something and I am not seeing any changes in the market place to combat the rising foreclosures. you have made some excellent points!

I could be wrong, but I think your graphic should have shown 33% in default and 66% as successful. Still, in the meanwhile reducing the number of vacant foreclosures.

It would also be nice if some of the TARP funds would be used as an incentive for current lenders to renegotiate (modify) interest rates with current owners facing foreclosure in areas where the homes will not appraise for enough to refinance at the lower rates, i.e. Arizona, Michigan, etc.

Thanks for generating discussion! More of us should run for Congress, huh?

Jeff: It would be so nice to find a common solution that would benefit everyone.. do you think this really exist ?

Jeff - Personally, I would like to have lots of tools in the box to help buyers buy and sellers sell including DPA. But apparently the housing crisis doesn't have their full attention. So we get token solutions and good will gestures to pacify us until they get around to addressing the housing crisis.

Thank you for the opening statement! And as far as I'm concerned, anything the government wants to do "for" us, is bull crap. They need to pull their heads out of their butts. Or maybe we do, since we keep electing them.

FEB

2009

When you said, "Why can't we think these things through first and not just throw money out the window?", I said YES! This is what I am praying that our leaders do... be sure and take the time to make the right decisions and not rash ones that only put a band aid on our issues.

RENEE.... . I agree for the most part. In all honesty, I could actually find an argument for each side, it's just how I look at things. And I knew this topic would bring out those that think that sweat equity is a must. But some of these same people think this was a major part of the problems that we face now. I don't think that. What about for the reason that we allowed homes to rise in value so quickly... Greed? Stupidity? so many answers, so few solutions now. I just wanted to kick jump start something. thanks

MIKE..... . thanks for the polite compliment. Let's hope others on the Hill read this and try other ideas and combinations.

CORRY..... yea, my back... lol Seriously, you would think that something would have to give. Just hope we don't substitute the word break for give. Thanks for the compliment.

SHELDON...... you make an excellent point in regards to getting people off the fence that have 20k to 30 k and could look at it as being reimbursed. But I will disagree that people shouldn't do this if it's a loan. Question, who is paying for this if they don't have to pay it back. Forget the fact that we would even pay for most of this, even if it was a loan, because it would be interest free. Again, we need to remember that real estate is local and in some areas, some people have more money. It could be because of better jobs.

So, let's take a look at Michigan, definitely the Detriot area.... they won't have money in most cases.... if they could pay their rent, why can't they pay a mortgage? Especially if there isn't much of a change in payment...

You go onto making this statement... "But, if you also couple the possible rate buy down to in the 4s on a 30 yr fixed, my feeling is that consumers would see that as too good to miss and the activity would increase dramatically."

Now, in regards to lower rates? I totally disagree with that statement. That formula will bankrupt us. Please listen to this video clip... Yahoo Finance

I also wrote about this... please read : I need my quick fix !!! Please pass me that 4.5% rate over here NOW !!! and Government Intervention - When is enough enough !!!!!

In any case, we live in a society, if we can get more for the same price, then we will stick with the higher payment. If I could qualify for a $250,000 mortgage at 5%, but then rates dropped to 4.0%, I can now get a $350,000.... people will do this and their payment will be the same. Sure, we can argue so many other scenarios... for people refinancing, they would save money... some people wouldn't over spend.. But we need to take everything into account and overall, I honestly think that lower rates will bankrupt us, if something else doesn't before hand.

Overall, Sheldon.... not only thanking you for the kind and polite words, but for a detailed comment that was thought out... and for your input....thanks

KIMO...... I just had this same chat with my dad and neighbor over the weekend. I am sure many of us think the same, about the gov't and their true understanding of finance and money.. those in congress. It just makes you wonder if they just love to spend, spend, spend.... thanks for the compliment about the thought provoking post.

BRIAN & MARIE...... I truly think that DPA's can help.... not in every case... but they can help. We need to stop relying on false information and stats... and what the media says about DPA's and the gov't. PS.... I haven't seen them do a better job, have you? I would love to see some of these ideas get some attention. hey, thanks for that enthusiastic compliment... thanks

JASON C. ...... . not sure what that true number would be. Considering that I am a numbers guy, it would be interesting to find out if someone had the stats on this. So much has changed... maybe it was that so many relied on the Stated and no docs loans. But it also comes down to a good loan officer taking that client to the next level.

I was referred a client 2 years ago, that had been talking to another loan officer that was going to take him stated. I said, did he look at your tax returns... he said, yes & no, but that I would need a stated. I ask him for his returns and you know what, I was able to pull out the right income to qualify him as a full doc. Not only did I save him about $2,000 in closing costs, but I lowered his rate by about 1/2%... and thanks for that compliment.

KRISTI..... that is still up for debate, if you can't save the money, that you can't afford the house. But how come HUD allows 100% gift monies for FHA loans? How I see it, there are some avenues for the same type of mortgage, yet others are shut out, but with the same basic qualifications.

In regards to the $15,000 tax credit, if they allow it, I hope that it has a provision to pay it back... I just think we are throwing way to much money out the window. Besides, it's an interest free loan. You could get the money now, invest half and make money... use the rest to pay it back slowly... so many different ways.

CRAZY SHARK DUDE...... that is crazy.... lol but thanks for the laugh, in such a heated topic with so many opinions... thanks

CHRIS>..... . well, not that I am really up on this, but that I think about this stuff daily, thinking of new avenues... but thanks.

In regards to your question... here is a question first... What job is secure? You stated if people don't have a secure job for a long period... but how do we know and for how long.... ?? And yes, just to many factors, many unknown factors... but we need to do something, but I see a lot of crap unfolding within the White House. I think too many promises were made and favors can't be called in now. If they do, heads would roll, if they allowed half of this crap into the Bill.... just my .02. Time will tell in a week.

UNKNOWN..... . I agree, hence why I used that title and put business in there. Remember Ross Perot? I loved his ideas and plans, but nobody took him seriously. But he went right for the jugular, yet know body liked cutting so much in taxes and now look at us.

SHARON..... . yes, we need to make it balance out at some point. And make more people productive? Sorry, but that is a laugh.(and not at you).. but I have been in the workforce since I was around 10, being taxed and doing income taxes at 13, maybe earlier... some people would rather live in poverty, just to receive handouts so they don't have to work. We need to motivate ourselves, but with the help of our leaders to make sound decisions, and not what they think people would want to hear. That's my .02.

SCOTT........ lol... loved Seinfeld and I loved that episode. Thanks for the laugh. There is another episode that I loved, but that wasn't 100% rated g.... lol Ask me sometime. thanks

Jeff, I hope your model / suggestion to fix what is ailing the housing industry is one that will be looked at by the people that need to see it.

In my area though it will take much more than what you've outlined. People here don't feel secure about their jobs. It won't do them any good to purchase a home unless they feel that their employment will exist next week, next month...tomorrow.

I have never been a supporter of the $7500 Tax Credit LOAN, it helps few people who need the help, unlike other TAX CREDITS one spends the money before the TAX CREDIT is refunded to them. ie: Child Care, and its a LOAN to folks on the edge of financial spending, so 2 years down the road the repayment begins, just how many will remember that? And the IRS is not very forgiving of memory loss. I can't for the life of me figure out how a larger TAX CREDIT (loan) will help any more than the current one. Bring back the DPA, I had buyers who used it and they had money to paint or recarpet because their savings wasn't depleted on a down payment.

This is a great post. I am sending it on to my buyer clients and one or two selllers that I hope to sell to again soon. Thank you. Well thought out and right on!!!!

I will not get in to politics here because this is not the place but, I will say I have been in this business for a long time and have seen many things. I am not a lender. I am a 17 year realtor. I have mainly worked with first time buyers. I try to stay current on all of the different programs that are available for financing for this group. In my expierence the DPA programs are no more likely to lead to foreclosure than any of the 100 % financing deals. The problem we had is that buyers were buying more house payment than they can ever hope of paying.

I think the DPA programs should be brought back. I think they shoudl have a requirement that the buyer have some "skin in the game" maybe 1000 dollars of their own money. I think qualifying ratios should be looked at very carefully and maybe even tightened.

I am fortunate to work in an area where we still have affordable home prices and this would be possible.

I have never been a fan of seller funded DPA and here in Michigan never used it once. I'm not saying it didn't have its place, but I specialize in first time homebuyer programs and use a lot of different grants that are funded elsewhere- i.e.- HOP funds (Federal Home Loan Bank), IDAs (Individual Development Account matched savings program through federal, state and leveraged funds), MSHDA DPA, City of GR Homebuyer Assistance Fund, etc. I truly believe and this is non-scientific that if a person puts their own hard earned money into a transaction that they will fight harder to keep the home when times get tough- concrete example- we own a rental that we hate; we don't like being landlords, but we borrowed $20,000 from an equity loan attached to our primary residence. We used this money for our down payment. Because we have all this money into it and would have to keep paying it if we walked away from the rental, we keep tredging along despite the misery. Had we done a true zero down, it sure would have been easy to walk away.

In some places 100% financing or DPA might work. For instance, if you are paying $1200 to rent a home you could own for $950 per month it would be a no-brainer. However, in my market, where $400,000 starter homes are the norm, highly-leveraged mortgages are radioactive quicksand.

One of my niches is short sales. I come in and attmpt to clean up the mess before it goes to REO. In New York, all you need to originate loans is a clean criminal record-no licensing. I cannot tell you how many times I have seen people victimized by loan officers who took advantage of them. Some of this stuff is impossible to regulate, so all we can do is not allow certain types of loan in order to prevent them.

Zero-down loans create short term revenue and do long term damage in my experience.

Good Morning Jeff

You are so passionate about your work it's great !

Just a quick note to say thanks for taking time to reply to my comment, and as we talked about yesterday, I think you make some very good points, but the absolute bottom line is that none of us know how this really can or will play out !

... but I really do enjoy a healthy debate with people who can promote their views in a fair manner.

Whichever way this all pans out, let's hope it's positive for you and me and the American peeps !!!

Cheers !

Sheldon

Jeff,

I agree wholeheartedly with so much of your note and the following comments. My point is that it is certainly possible that any or all of us will need a helping hand at some point in our lives. What scares me is that so many of us expect the government to provide free money, free housing, and free food for the duration of our lives. The comment about socialism was exactly correct. Continual re-inforcing of government subsidy will eventually bankrupt us all.

I have not had but one client that will qualify for the $7,500. interest free loan (as that is what it really is and not a tax credit). I would like for it for this one person to not have to be paid back, currently it would have to be paid back. She did however just get in under the wire with DPA which allowed her to get into her new home (which was a foreclosure). I agree that the plan on the table isn't going to help much. Frankly if you have down payment saved to buy the "tax credit" may make some updating and repairs next year after you file your return, but I agree it's not really going to make a difference the way it's currently written. And Jeff I'm going to be contacting my state reps and senators with your plan via email today. I, being in this business and also with one of my State Senators (Johnny Isakson) formally being a brokerage owner I hope will get him to consider this idea. One of his former agents (has been in the business for 40 years) worked for him and now works for me. I'm going to get her to email him about this idea as well.

Thanks for your thought on the matter. And while I'm still going to be praying about it and for our leaders to make better decisions I also think they need input from those of us in this industry.

Seems to be that one of the major complaints to DPA is that the borrower does not have skin in the game. Commonly I hear they are less likely to walk away. One this only addresses those that choose to walk away for one reason or another. This does not address the foreclosures that are do to job loss or other unfortseen circumstances such as illness. Please remember there was a foreclosure rate prior to this severe recession that housing market aside would have increased based on job loss alone. Second one can have the downnpayment gifted to them from family on an FHA loan. The argument is they would fight to not let the family member down. Yes they might but the inevitable is the inevitable. If you are in a position where you are going to lose your house for whatever reason it does not matter who gifted it to you seller or family. You are losing your house and there is little you can do about it or you would have done it. I think the focus is on those that walk away when in fact many foreclosures are for other reasons. Bad loans, inability to refi, job loss, illness, NO RESERVE because they put it all in the home. The lesson has to be EXIT strategy. We at so focused on how to enter into the home we forget people should have a plan to get out if they have too or adequate reserves to sustain a life bump. iE DPA keeps the reserves available for the "uh oh I did not expect my transmission to drop." lastly I think people assume that seller funded DPA was most utilized by those with bad credit. I had many 700 plus with money that utilized the ablility to leverage this tool to keep thereselves finacially secure moving forward or to pay off a car note with their money to decrease there overall monthly debt to remain even with what they paid in rent. They already proved they good pay that much and save.

DPA is a good thing. It works. The ends do justify the means. There is a direct impact from when DPA ended to the severe drop in home sales. 100% FHA would be great but congress won't pull the trigger now. They are gun shy from all of the foreclosures.

It is sad that we would rather give away billions of taxpayer dollars than to use DPA.

It's too bad (at least it appears) that the people in charge of creating solutions haven't put as much thought into this as you have. I do not see a positive impact coming from the proposed package. Too little, too late, and in the wrong direction.

Jeff,

Great points you raised! Another super post.

REBECCA..... To me, this is not about me being the FHA Expert or an expert in any matter. But knowing your industry well, as an expert, but one that can think outside the box, is what we need on Capital Hill. They talk about cutting spending, and DPA's don't cost the tax payer money. Sure, if a house goes into foreclosure, but DPA's aren't the main reason for our current economic mess.

The tax credit? It's hard to say, because it's not finalized. It will be interesting though. Me personally, it should be paid back in some manor and some people will hate me for that. But seriously, do we all want handouts now? It's getting pathetic and the American public is expecting it now. Work for it... save it... make it work. Take some pride. just my .02

JENNIFER..... I always love a good discussion and debate also. There are many good opinions from both sides of the fence. But we need common sense to prevail and I don't see that on Capital Hill. It's what can you do for me now, since I helped you get in. And those on the other side of the fence, they need to dissect this and not just look at misleading facts blindly. Look at who actually did the studies and such... don't judge the book by the cover per se. thanks

MISSY...... The seller-funded DPA's have been very good for so many in so many different markets. I still haven't lost a loan to a DPA, since I have been doing them in 1996. If we approve them based on a good loan, but just lacking the funds, it can work. People keep forgetting about the rapid job loss out there... those toxic loans, and the stated loans. How come nobody talks about these, but just how bad the DPA's were???

In regards to your leads that are sitting on the fence, waiting to see if there will be a tax credit? They aren't serious buyers then, just as the ones waiting for rates to come down. I know it makes a difference, but maybe they shouldn't be buying a home then either. Gee, we can debate this back and forth until we're blue in the face. I just wonder sometimes.. thanks

JENN...... . changing? I think that is an understatement.... lol But yes, it is, more than ever before. Thank you very much for those kind words & the compliment.

LEWIS....... I agree with you.... not sure I would go as far to say that the solution is simple though. We need a lot of thought behind this and it seems that the President is forcing all of this down our throat. Last week, he said if we don't do this now, by next week, it will be a catastrophe. Huh? We will end by next week? Just as Nancy Polosi stated that 500 million Americans will lose their jobs... shit, we only have 330 million in the US... that means we are doomed in 2 weeks or so.

Yes, it's bad out there, but in some areas, it's getting better. We just need some action taken in some areas, and not this great spending bill. thanks

KAY...... which tax break are they missing? I don't think I follow. Are you talking about those that are going into foreclosure, would miss out on the $15,000 tax credit? The $7,500 credit, you had to be a first time homebuyer, not have bought in the last 3 years. Not sure what the new credit will be about, but time will tell. thanks

TIM.... I would say that it is and has been for some time. Just because the gov't decides to announce last quarter that we are now in a recession, doesn't mean that it kind of has been there for the last 2 to 3 years. I have always said this...

You talk about people having little reserves. And so if I had a guy with 10k, but it cost him 10k to buy the house, he now has 0k, right? If I could use the DPA and it covers 10k, now he still has 10k left, hence he now has reserves, in case he gets in trouble. And if he qualifies with income and credit, what is the problem. I just think to many people are screaming sweat equity because it's the easiest excuse to use right now. But I heard nobody really screaming this 4 yrs ago..... 10 yrs ago.. 12 yrs ago.... sure, some of those wacky 100% programs bit us in the but.... but those borrowers were being approved with 50% front end ratios with no reserves. We got to greedy with our guidelines. If people have to stretch, how many are we talking about? thanks for your input.

KATHY..... wait, what happened here? lol I think I can figure it out, by the question being asked by Elizabeth. Yes, a main problem is that people aren't working.. or, many salaries were cut... or overtime taken off the self. And let's not forget about the lazy people that don't want to work, sucking up our money/

ELIZABETH.... . yes, I also agree with Kathy's comment. You bring up a great point about those working overseas and the immigrants. Shit, I want to be an immigrant, not paying taxes. Well, not really, but that hurts us. thanks for your input

CHRISTOPHER & STEPHANIE...... thanks, but no thanks. First off, I don't have the money to run... lol I am paying taxes on it.. lol But yes, I think there is a combination that could work. But we need to put more tools on the table and cut and paste them together per se. At least that is my thought. And yes, there is a lot of pork in that bill. Did you see pork prices go down? lol <teasing>

CINDY.... . thanks for those kind words and for stopping by.

MIKE...... I agree on both sides of the fence and here is my take on that. I agree that we need to get back to basics, but FHA has been around since 1934. Still with 3% out of pocket until 2009. Seller-funded DPA's have been around since 1994. The part that I was glad to see get back to itself was the fixed rates. So many of us became so dependent on the stated loans and the no doc loans. Shit, some loan officers put clients in these instead of full doc loans because it was easier for the loan officer, but not good for the borrower. I gave an example of this in a comment above.

Overall, yes, we need to get back to some basics. But at the same time, we need to be creative and watch our spending.. we need to mix and match and stop believing some of the misleading information, or the misinformation. thanks

Jeff, while it sure would be nice to help everyone who wants help, it's just not a prudent financial practice.

Join my new AR group and post your blog at http://activerain.com/groups/virtualoffice

Regina P. Brown

What's next? Social Security, 5 trillion dollar bailout. Wait let's make it 10 trillion, who's counting.

Jeff- Great post. I work allot with 1st time home buyers and the motivation to buy is there. They do not need anymore incentives. However the hold up is understanding what is real and what isnt. Understanding what a $15,000 tax credit means to them and if it is concrete.

-Matt

Jeff, I have always been a bigger fan of a 100% FHA charge MIP accordingly, kind of like the VA. I don't really have anything against the DPA's except that they were one more step in the lending process of purchasing a home. After all, DPAs, to me are the same as 100% financing. The part about employing people by creating jobs is a plus for the DPAs.

As long as credit is good and there is MIP, I think the congress should include DPAs in the bill. I have a couple of buyers right now that have great jobs and great credit that would love to purchase a home if I could do a 100% financing. Have you sent this to your congressman or senator. I would like to send it to mine. I will re-blog it at best, my congressman is about as useless as tits on a bull but well we are not supposed to talk politics so I wont.

I think Jon Zolsky is right that we are just in a recession and it just needs to run it's course to correction. They always before and they will again, that is why it is called a "market".

Just another example of wanting instant gratification with everything. We should look back on the Japanese economy they tried to do the same thing, by fixing their recession and guess what, they made it worse by funding. You know what fixed it? Good old work, saving money and not spending money like nouveau rock stars.

The $15,000 is an "up to" credit, not a $15,000 carte blanche allowance on each and every home purchase. Your diagram is good, and your suggestions even better. DPA's might make a seller increase their list price, in order to provide the assistance the buyer would need to qualify for the FHA or other loan program. So basically, the buyer is financing their own home, which is to their advantage. They can use even MORE write-offs with the interest from the 1099 they'll be getting. Home ownership, when done correctly, is "THE" stablizing package.

CHARLES...... Yes, I agree, that some need to stand on their own two feet. Question, when you bought your second home, you said you saved. Did you also use some of the money from the sale of your home? Overall, I think we have a certain opinion in the back of our head, that could be influenced by HUD, misinformation about DPA's, and so many other things... also, thanks to the media. I just think that there are other solutions than what is being presented and the gov't seems to ignore other avenues. Let's put together a solid plan... not safe, because nothing is ever safe. thanks

LANE...... this was a thought and I would bet that part of what I laid out would work. DPA's have worked before. We are forgetting the mere fact that many have had hardships, no matter how much you did put down. And that irks me. I have plenty of real stats showing so much more. Why can't the gov't look at this? And I am trying to fully understand your second sentence, unless I am just tired. But I don't think this would devalue foreclosures 100%. just my .02. thanks for your input.

LORA..... . thanks, I try, thinking outside the box. I do the same when dealing with clients, which has helped me become successful in other areas of mortgages.

Here are a few links to help understand more about the seller-funded DPA's...

Round 2 - Seller-Financed Downpayment Assistance Programs - Nehemiah & AmeriDream alive?

The March to Washington D.C. - Taking back Down Payment Assistance Programs - This one gives some good details about why DPA's can be good....

And thanks for those kind words...

JENNIFER W. ..... . yes, we do need something. Any suggestions? ;o) And thanks for the polite compliment.

BENJAMIN..... . thanks, in regards to the stats, but I try to be more polite with my stats and figures, so it doesn't look like I am trying to push my thoughts, theories, or comparisons. Just as I stated in a comment the other day, that I think 50% of the loan officers are liars and not good. Many of us think that number is higher, but I wanted to be polite about that figure.

In regards to the TARP funds... sure, it would be great if they just didn't give it to the banks and used it for the actual foreclosures and other issues...

Overall, thanks for the kind words and for also jumping into this discussion... thanks

ROLAND.... . in regards to your question... to find a common ground, could it be possible? Is common sense for free? DO birds fly? Sure, it could happen, if the politicians put their differences aside, and that we were one, unified. Not to go off on a tangent, but it's gotten worse over the years, so what do you think? The President proved this to me last Thursday night and I was shocked.

FEB

2009

My understanding is the tax credit is 10% of the price up to $15,000. If there are no income cap restrictions then most buyers in NY would be eligible for the $15,000 tax credit because most homes cost much more than $150,000. There are many buyers with money but are stretched with closing costs and large down payment requirements. The conforming loan amount needs to go back up to the 2008 $729,000 from the current $625,000. I think the tax incentive might push some qualified fence sitters that otherwise will rent. Many are nervous about losing their jobs. If they stretch with the upfront costs to buy they will get back a little cushion.

I think the DPA can help and is a good idea but I also think getting people jobs and having them save for a down payment is important. Not having skin in the game is what got a lot of people in trouble in the first place. Housing is an important part of the economy but I don't believe it is an entitlement. If a seller wants to assist a buyer I think that is perfectly fine. Perhaps a tax break should be given to short sellers. Instead of a cap gain tax a cap loss deduction. I think only $3,000 a year is allowed.

Someone mentioned giving every American a million dollars and it would cost less than $900 million. Nice thought. I'm not sure how they did the math. But if there are 200 million Americans x $1,000,000 = 200 trillion ($200,000,000,000,000)

Jeff, I just realized I'm 2 days late to this post. Better late than never. lol. FYI: I linked to it from face book, so I guess there is something to all these social networks. Activerain is so BIG now I miss a lot.

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?

Jeff_belonger_dc_another_same_with_background_10-10-09_hd_active_rain_pic

Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Cherry Hill, NJ

More about me…

Social Media - Infinity Home Mortgage Company, Inc

Address: Cherry Hill New Jersey 08034 08002 08003, Haddon Heights New Jersey 08035, Haddonfield, NJ, 08033

Cell Phone: (609) 440-5133

Email Me

Subscribe to Mortgage Knowledge at its BEST!!!! (Jeff Belonger)

I just want to educate people about mortgages and the process. In regards to lending, I am very creative, intuitive, honest, and one who communicates information, may it be good or bad. I am a loan officer that looks out for your best interest.

The FHA Expert - About Mortgages on Facebook

Listings

Links

Archives

Find NJ real estate agents and Cherry Hill real estate on ActiveRain.

Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.