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Are Downpayment Assistance Programs Bad?
So were (are?) Downpayment Assistance Programs bad? I don't think DAPs are bad in and of themselves. But coupled with additional items from the lender's bags-of-tricks, they likely contributed to a number of defaulted mortgages, including some that will continue to default as adjustment dates and balloons come due.
(Click Here to read How a Downpayment Assistance Program Works)
Here's why: In many cases, those who got this "help" from down payment assistance programs, unfortunately also bought more home than they should have. They went for the big new home instead of the more traditional "starter" home.
In order to buy the bigger home, some took ridiculous ARMs or Interest Only loans with short term fixed periods and/or short term balloons. These loans were also often packaged with a "bonus" pre-payment penalty. The borrower does share in the blame, but somebody (the agents? the loan originator? the underwriter?) should have tried to talk some sense into counsel with the buyers. I don't know what to say about the buyers who were buying for the second or third time around... I guess it just gets back to wanting everything now. I'm all for credit. I'm even for easy credit to a degree.
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