DPA going away

By
Mortgage and Lending with First Federal Mortgage

I know most of you already know about DPA programs and that they are no longer going to be available, as some of the companies out there have stopped allowing the use of them already this week.  I just wanted to post an email that was sent to me last week.  If you have any thoughs or ideas please post them.

 

This week the President signed H.R. 3221, Housing and Economic Recovery Act of 2008, into law. The bill contains a provision (SEC. 2113) which forbids FHA from insuring mortgages in which the borrower's downpayment comes from a private downpayment assistance provider, beginning October 1, 2008. As of this date, the minimum downpayment will be increased from 3% to 3.5%.

The consequences will be devastating! By FHA's own estimates, DPA comprises nearly 40% of FHA's volume. This means more than 300,000 working class families will be locked out of homeownership in the next year alone. Communities across America will take the brunt of the $50 billion in lost real estate sales, not to mention the indirect impact on the real estate, mortgage and building sectors that will be forced to shed tens of thousands of jobs due to this dangerous legislation.

In order to save downpayment Assistance, we need to come together NOW to convince Congress to introduce and pass a bill that allows downpayment assistance to continue indefinitely.

Two Ways To Take Immediate Action...

Write Your Elected Officials

Please take a minute to submit your comment regarding the urgent need for legislation that allows for downpayment assistance to continue indefinitely.

Submit your comments through our Legislative Alerts and Updates page.

Call Your Elected Officials

A phone call to your U.S. Senators and House Representatives will make a huge impact to save private downpayment assistance programs.

Locate your elected officials
  1. Go to Elected Officials
  2. Enter Your Zip Code and click "Go".
  3. Click on the link of the Representative you would like to call and then click on the Contact tab to find their Washington D.C. and District office phone number.

Comments (16)

Stefan Geyer
SOA Realty - Aurora, CO

I agree and thanks for posting this call to action!

Aug 14, 2008 09:26 AM
Peggy McDaniel
First Federal Mortgage - Mobile, AL

You are very welcome!  I appreciate you taking the time to read my blog.

Aug 14, 2008 09:29 AM
Ron Brown NMLS #270845
NMLS ID: 40831 - Federal Way, WA

Peggy,

Welcome to Active Rain! Congratulations on your first blog.  You'll find this is a great site for sharing ideas, networking, and growing your business.  If you ever have a question about VA loans, or FHA loans I'd be happy to help!

Ron Brown

VA Loan & FHA Loan Specialist

First Mortgage Company of Washington

Puyallup, WA

Aug 14, 2008 02:13 PM
Paul Howard
Paul Howard, Broker, Paul Howard Realty 856-488-8444 - Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

 

Welcome to activerain and congratulations on your first post. You may want to be sure you post to groups that are active in the area you are interested in too.

 

Good luck.

 

The DPA that is going away is a legal shell game that existes to help so called 'non profits' make money.  They make a LOT of money for those who control them.

 

There are better alternatives than inflating the sales price and 'giving' the buyer back their own money after taking a few hundred dollars of it.

 

Paul Howard

Aug 15, 2008 01:39 AM
Peggy McDaniel
First Federal Mortgage - Mobile, AL

Paul,

Do you mind sharing some of your ideas of better alternatives.  For I am fairly new to the Mortgage side of the industry and any knowledge is valued to me.

 

Thanks

Aug 15, 2008 03:47 AM
Anonymous
Anonymous

Alternatives to the profitable 'non profits' include grants and no interest loans from many counties and towns.

Some employers will provide assistance.

FHA already allows a seller to contribut up to 6% toward closing costs and the FHA program itself is changing to allow lower down payments.

Remember, when you use the 'non profits' for down payment assistance it comes from the seller who add it to the sales price.  But the 'nonprofit' takes a cut first. 

Down payment assistance is still available - it just can't be funded by the seller.

Also remember, those programs were only available to FHA buyers.

http://www.bankrate.com/brm/news/mortgages/20071011_down_payment_assistance_a1.asp

http://www.hud.gov/offices/hsg/sfh/np/sfhdap01.cfm

 

 

Aug 15, 2008 04:15 AM
#6
Anonymous
Jovan

Peggy,

Thanks for providing a plaform to discuss the DPA situation here in America.  After reading some of the comments I am concerned of the lack of knowledge that your responders have regarding DPA's and what they do.

95% of industry professionals assume they know all and see all.  Unfortunately the facts are the facts.  40% of all FHA (full doc) loans in process today are funded with DPA.  This equates to $50Billion dollars in revenue in the first 30days of closing DPAs that will be lost.  It will cost the country an additional $10B in revenue each month thereafter.  Then lets mention the 10K professionals in our industry that will be displaced.  If you really think this is good for the economy, raise your hand...

HUD has been feeding the public alot of bad figures.  OF the 29% of defaults in America right now, 6% are DPA related loans.  A 94% success rate is an A in my book!  The cause of the defaults were the subprime 80/20 SISA loans that every lender, broker, agent, etc. pushed on to their clients when they couldnt qualify with their income.  If you are one of those brokers or agents, raise your hand again...

In the last 5 years, FHA and DPA was not used that much.  They werent used because of the loans stated above.

Now lets look at the Realtors who had their clients increase the purchase price to offset the gift.  I see a fiduciary conflict with that.  If the appraiser was able to get the value then the agent did not list the house properly.  They underestimated the value.  This is not in the best interest of their client.

For those of you that are very much against DPA, please let your clients know that you would rather have them continue to rent, or drain their savings and checking and 401K accounts to buy the house leaving them with no reserves.  That is what you are saying in essence.  Is that your fiduciary duty?  Your duty is to HELP them.  By not offering DPA, then you are in violation of your duties.

We can place blame and point fingers, but that doesnt help the situation.  Just dont blame DPA's that have helped over 750,000 deserving homeowners and have gifted over $1Billion in grants.  Nehemiah being the largest and most respected has followed the line of the law.  The amount that they make on each transaction is miniscule compared to what the alternative is.  Ask your seller this one question...  Would they rather keep their house on the market and continue to reduce the price every few weeks, and still have zero offers, or would they rather pay $599 and give a gift of the down payment and sell the home in a reasonable period of time.  Which do you think they would choose?

Your market may be slightly different, but the economy as a whole is the same.  Think about all of the professionals in the industry and not just yourself.  We have to come together as a community to make this work for the better.  Team work is needed, not individual non-sense about how it doesnt affect you.  Watch it go away and trust me that the ripple effect will cathch up to those markets that think they are immune...

Thanks again for this opportunity

Aug 15, 2008 09:35 AM
#7
Anonymous
Jovan

Paul: Non-profits have to offset the expense of the gifts, and they still have donated millions (Nehemiah = $60,000,000) to the local communities.  How much did you donate last year?  Not sure what you meant about the buyer receiving "their"money? Please explain...

FHA is not changing to lower the down, but is increasing it to 3.5% and adding an additional 1.5% MIP fee.  Now, who is ripping off whom?

Aug 15, 2008 09:40 AM
#8
Peggy McDaniel
First Federal Mortgage - Mobile, AL

Jovan,

I am so glad that you had the words for this.  It is so true.  I wish you would post this in a blog for all others out there to read.

 

Thank You!

Aug 15, 2008 09:41 AM
Anonymous
Anonymous

Jovan,

"40% of all FHA (full doc) loans in process today are funded with DPA. " Where did you get this number from?

I won't believe it till it comes from a reliable source.

=====

Get real. Can you really pretend that it is not the buyer's money the seller (via the non profit)  is "giving".  If the program intended for seller's to be able to give down payment money to buyers it would be set up that way.  As it is the do it anyway but funnel it through a 'non profit' - heck they even have to sign a document saying it isn't the same money that comes from the seller. But it is and that is the problem with it - it does inflate the sales prices (the same as any other seller concession).

If they wanted to permit the seller contribution they could do it directily without some so called non profit taking a cut.

 

Paul Howard

 

Aug 15, 2008 09:53 AM
#10
Ron Brown NMLS #270845
NMLS ID: 40831 - Federal Way, WA

Paul,

I am sorry you do not believe in Down Payment Assistance, and I have some things for you to consider. 

First, you're "correct" in that the non profit does take a "cut" for the use of their charitable organization status.  However, there are costs associated with the service that they provide.  As a charitable organization, they have a LOT of paper work to fill out for each and every donation that comes, and goes through their doors, and this requires employees who don't work for free, and an infrastructure that was not given to them for free.  They also have to work with various banks, and escrow companies, etc. who charge fees for their roles (just try to go to your bank as a valued customer, and see if they are willing to wire funds for free!).  The amount of the fees charged by the Down Payment assistance organizations depends on the organization, and the one I use charges only $295 which is more than fair in consideration of what others involved in a typical transaction charge for similar amounts of work.

Second, your concern about inflated prices is unfounded, unless the appraiser is committing fraud.  In today's lending environment, I would find that very hard to believe given the prevalence of appraisal review, and the fact that appraiser's tend to like what they do, and wish to continue in their chosen profession.

Third, you're correct that FHA allows 6% seller concessions, but the 3% that is gifted by the seller counts towards that 6%, so what else would you be using it for? Are you finding clients that want to spend that kind of money to buy down the rate, or are the closing costs being grossly exaggerated?

Fourth, where are you getting your information that changes are being made to FHA to allow for lower down payments?  Jovan is right.  The fact is that the bill signed into law last month was for an increase to the Down Payment requirement changing it from 3% to 3.5%.  This was despite the fact that the original bill proposed by the Senate would have changed the maximum loan amount from 97% to 99% specifically because they knew if they eliminated DPA it would be an increased burden to our already struggling industry.

Finally, I have never seen anyone have to sign something saying it is not the same money that comes from the seller.  There is however, a document that the seller must sign that says they cannot write their donation off as a gift because they will get a material benefit resulting from the gift (the sale of their home).

I can respect your opinion that you do not support these programs, but for those potential homeowners out there that are not fortunate enough to have a wealthy relative to give them such a gift, or work for a benevolent employer willing to do likewise (and do you really think that those employer's are not benefiting from a tax break on these programs?), this is a great way to buy a home.  The fact is that the elimination of these programs is going to hurt the housing industry in a non-productive way.  The foreclosures that are the result of these types of loans are not the ones that are strangling our financial institutions.  The loans that are doing that are the easy Sub Prime 80/20 loans that were refi'd into something that was realistically well over 100% LTV, and the owners spent the money that they can't repay, which is much more prevalent outside of FHA.

Ron Brown

VA & FHA Loan Specialist

First Mortgage Company of Washington

Aug 18, 2008 05:19 AM
Peggy McDaniel
First Federal Mortgage - Mobile, AL

Ron,

Thanks for replying to my blog. 

I do have a question though when you say that the 3% counts toward the 6% I am not understanding this.  When I use the Ameridream Program to help my borrowers the 6% is outside of the 3%.  I never over inflate my closing cost so most of the time if the home is 100000 or more we don't use the whole 6%.  In our area insurance is very costly with all of the hurricanes that we are prone to so it usually runs the pre-paids up that is the only time we use all of the 6%.

 

Peggy

Aug 18, 2008 05:42 AM
Anonymous
Anonymous

 

Ron,

Will you agree that if FHA rules allowed the seller to contribute to the buyer the 6% and it could be used  toward ANY purchase costs, including the downpayment, then these programs would serve no purpose?

If FHA allowed that, I think it would be great. At least it would be honest. As it is, these programs only exist to circumvent the FHA rule against a seller directly providing downpayment money to a buyer.  If there wasn't such a rule what would be the point of requiring a downpayment in the first place.

Your comment that if the money coming from the seller inflates the sales price and so if it appraises the appraiser commited fraud is very naive.

Finally, your comment that the DPA from a "NonProfit" goes toward the 6% is simply incorrect.

 

Paul Howard

 

 

 

Aug 18, 2008 06:14 AM
#13
Anonymous
Jovan

Paul,

What is the difference of a gift of down payment, or a gift of closing costs?  It still comes from the seller.  It really doesnt matter if it is 3 or 6%.  Even when the gift is from the seller for closing costs, the price is inflated to offset the gift.  And I tend to agree with Ron regarding the appraiser position on this.  This is a moral issue with Realtors and should be looked at as such.  You dont blame the gun for murder, you blame the person who pulled the trigger.   

The 40% figure I provided you earlier came directly from FHA themselves...Maybe you should do some research before you make suggestions and comments that are inaccurate at best.  Kind of like what HUD should have done before they started this campaign against DPA.

You have to realize that they have to blame someone for their mess.  They cannot blame themselves, because if they did they would no longer be a viable entity.

To respond to the rest of your statement:  The seller is not paying a processing fee using the buyers money.  It is the seller's money that is used to pay for the processing fee.  The way the program works is that the gift is sent to escrow prior to close.  After the close the seller compensates the DPA for the gift amount plus the processing fee.  In rarely does the fee come out of the buyer's pocket.  I hear a few statements about how you and others charachterized the DPA's as a money making scheme, or a funnel for funds.  As I said earlier, Nehemiah give back to the community.  They have been the only DPA that has had to defend themselves from HUD over and over again.  HUD has lost each time.  Each lawsuit costs millions of dollars to defend, and miilions to initiate.  They use their fees to help defend the industry.  Nono of the other DPA's come close.  They all wait for Nehemiah to plow the path for them to follow.  Do you know how much HUD has spent of taxpayer dollars to keep suing Nehemiah.  You would be shocked to say the least.  Millions of our taxpayer dollars have been used to tie up Nehemiah in courts over the last 10 years.  Even after the courts have ruled against them each time.  But they keep spending for the same cause.  HUD has wasted your hard earned money and you are only concerned with a small processing fee that the DPAs make.  Penny wise, pound foolish is the old saying...

Ron makes some good points.  But the DPA is always seperate from the 6% credit that the seller can provide for closing costs.  Not only can a seller offer the 6% DPA, but also an additional 6% towards closing.

Some of the alternatives that you mentioned above are incapable of handling more than a few buyers at one time.  Their pools of cash are minor.  Plus, most towns and citys are underbudgeted and are scrapping those programs to pay for fire and police emergency services instead. 

So the question remains...who is going to help the families that need assistance if DPA is no longer available?

 

My personal belief is that a seller of a property can provide any benefit that they would like to provide to any buyer of their property.  Why is the government even involved?  It is not their house, and not their business.  Our big brother would like to tell you how and when to live.

Aug 21, 2008 10:29 AM
#14
Paul Howard
Paul Howard, Broker, Paul Howard Realty 856-488-8444 - Cherry Hill, NJ
Paul Howard Realty, 856-488-8444

I'm curious about who Jovan is. Why no profile?  This is all more 'non-profit' industry lobbying as far as I can see.  Those companies exist solely to exploit a loophole left open for legit non profits to gift funds. Not to funnel funds from seller's to buyers.   I think Jovan's personal belief is  what is going to happen to that industry now that the goose that has been laying the golden eggs has been locked away.  Of couse they are hoping that all the webinairs etc they have going on to lobby congress will have an effect.

I wonder what Jovan's tie to the nonprofit industry is.

Paul Howard

Aug 21, 2008 01:55 PM
Starstate Realty
Starstate Realty - Austin, TX

Hi Peggy  - Happy New Year.  Welcome to ActiveRain. I look forward to reading your future post. Have a great day!!!

Jan 09, 2009 04:06 PM