I was browsing through our local newspaper online and ran across the following article that I think we all need to take a look at. I normally Hyper-link articles, but I know that many of you will not click on the hyper link so I pasted it. Not trying to cover that up. This is a big deal folks. I've closed many deals with the seller contributing a portion of the sales price to the down payments and pre-paids. I understand why HUD can see a problem in some cases, but this is a deal breaker for lots of first time buyers. Be sure to read the article below this could affect us all.
HUD seeks end of down payment support schemes
By Mike Drummond - McClatchy Newspapers
The U.S. Department of Housing and Urban Development wants to kill down payment assistance programs for home loans that it says are linked to high foreclosure rates.
HUD said default rates related to down payment assistance programs are about two times the rate of those handled without such programs.
"The default rate on those loans was so bad that if they continued, starting this fiscal year, we'd finally start to pay out more than we'd take in," said Bill Glavin, special assistant to the Federal Housing Administration commissioner.
FHA is under HUD. The new rule is to take effect Oct. 31.
FHA loans using down payment assistance programs accounted for about a third of the 313,998 loans the FHA processed last year, according to records.
The FHA requires borrowers to make a 3 percent down payment. This shows borrowers have savings. It also gives them a stake in the house.
Although lenders are prohibited from paying down payments for buyers, some have gotten around the law by giving the money to specialized nonprofits that in turn give the money to buyers for a fee. Glavin called these deals "pretty shady arrangements that shouldn't be going on."
Buyers could still get gift down payments from parents or others, Glavin said, "but you couldn't have it arranged where the seller was involved."
But industry and political opposition cloud the fate of the rule, even as the number of national foreclosures hit 223,538 in September, a jump of almost 100 percent compared with the same month last year, according to foreclosure marketplace firm RealtyTrac Inc.
Two nonprofit organizations with core businesses tied to down payment assistance programs have filed complaints in federal courts to derail HUD's new rule. A House bill would keep the program, while a competing Senate bill still being debated would scuttle it.
The House bill, passed in September, also authorizes zero and lower down payment loans for borrowers who can afford the monthly payments.
"If you put more restrictions on this, people are not going to be able to qualify for FHA," said Ann Ashburn, president of AmeriDream Inc., a Gaithersburg, Md., nonprofit that handles down payment assistance. "They'll stay renters or, worse, go to subprime."
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