Two weeks, ago , I wrote the following article on my blog Wexzilla.com asking the question i
In the midst of the mortgage crisis, rising interest rates and tighter lending and the disappearance of 100% financing, one lending option remains for credit worthy borrowers who lack the money for a down-payment.
have offered Phoenix area home buyers....an opportunity to obtain mortgage loans with the help of non-profit organizations and charity assistance groups that contribute the down-payment for buyers to obtain FHA loans.
Are down payment-assistance programs cash-back fraud?
As, Federal regulators are closely examining lending practices there is increasing scrutiny of these programs as questions arise if the down-payment is actually a contribution or kick-back from the seller. Here's why.
The buyer is including an extra amount (usually 3%-5%) in the price of the loan which is insured by FHA which insures all loans involving down-payment assistance. The money then is a credit funneled from the seller to the non-profit organization to the buyer as a down-payment.
This practice, which has been described as a ‘loophole' in FHA guidelines that allows down -payments from charities.
Now that sub-prime loans require much higher down-payments, this has become a very popular strategy to get risky loans approved with little money down that are still insured by FHA. Thus, Wall Street buyers of loans can more comfortably buy the debt as any default would be insured by the FHA.
The current housing-reform bill calls for eliminating this practice while other proposals call for allowing such down-payment assistance with more restrictions.
As Craig Anderson, of the Arizona Republic pointed out this has been a "lifeline" for Phoenix area borrowers which has allowed many credit-worthy home buyers to buy homes and aid support to a struggling market.
If you are interested in working with some experts in FHA programs that support down-payment assistance programs before legislation may change the rules, ...
call many of the experts who are on Active Rain . before October 1st, .....because, ...
the Federal Housing Packaged outlawed Down payment assistance programs (DPA)
*as of October 1st (2 months) of 2008.
Copyright © James Wexler, *Are down payment-assistance programs cash-back fraud?*
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