Let's look at Seller Funded DPA for a moment. The main reason folks in charge gave for not liking this program was that it "Increase" the purchase price, ultimately driving up home prices.
However, any assistance ultimately drives up prices. If a seller pays closing costs, it drives up the price, if a REALTOR receives a commission, it drives up the price, ifGovernment lets us write off the interest, it drives up the price and if we finance the property, it drives up the price. All incentives ultimately drives prices up.
The second argument is that 100% financing got us into this mess. Let me be clear. While it is better to have skin in the game ie a down payment, what really caused the problem with 100% financing was stated income! Why we, loan originators, them, lenders, those, rating companies and others, the buyer of tranches thought it was a good idea to let some one with a bad credit score anddocumentalble income state the income is the question. Who is surprised that if we let them lie about their salary income, there would come a time that it would bite us! (And boy did it_
With that being said, Full Doc 100% financing is more risky, which is why a borrower should pay an higher insurance premium, just like car insurance, for that type of loan. If FHA is used for it's original purpose, to spread risk among many loans, they could cover future lossesthru higher rates. (See FHA Secure) and MIP.
The government's solution is to provide TAX PAYER FUNDED Down Payment Assistance instead. Wouldn't this create the same risk as SF DPA?
I am all for a GRADUAL phasing in of down payments over the next five years. But when we are trying to stabilize the housing market and theecomedy, Congress is not making much sense right now.
As always, I appreciate all comments and look forward to a stimulating dialog - David Rider
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