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Although there is a chance that legislation will bring seller assisted down payment gift programs back before the end of the year, the non profit DPA programs are officially dead as of October 1, 2008.
Mortgage applications have dropped precipitously over the last few weeks for other reasons, so it will be interesting to watch how the ban will affect home sales if it lasts very long. Although we do need to let the air out of this real estate/credit bubble, watching people hurt financially due to all this uncertainty in the mortgage market is painful for everyone.
Word on the street is that the near collapse of the capital markets on Wednesday, and the proposals put forth today in order to bail out Wall Street have quickly shifted HR 6694, the bill reinstating the use of seller paid down payment assistance programs with FHA mortgages, onto a very cold back burner! It now appears very unlikely that the bill will have any chance of being passed soon. What a roller coaster.
H. R. 6694 was passed out of the Financial Services Committee yesterday with strong support from both parties. The bill will probably be voted on by the entire House of Representatives soon. However, this is just the very first step in a long journey before the Bill is finally passed and there is not much time left before the October deadline when H. R. 3221 takes effect and seller assisted down payment programs are banned.
According to the good folks at the Nehemiah Corporation, Rep. Barney Frank’s committee will be meeting on September 16th to push H. R. 6694, the bill which will return seller assisted down payment programs to the market provided the Senate can pass it as well, out to the entire House of Representatives.
It appears that a deal has been made to save FHA down payment assistance programs with seller participation. I have always said we should fight not to throw out the baby with the bath water when it comes to these programs. All we need to do in order to lower the foreclosure claim rates on loans with seller participating down payment assistance is to enforce the rest of the FHA underwriting guidelines.
There’s a huge debate going on right now about seller assisted down payment programs on FHA insured loans. Most of the program’s detractors are those who are on the outside looking in. The objections of those opposed to seller assisted down payment programs are not completely without merit. There have been some problems in the implementation of the program which have led to a higher than necessary foreclosure rate among those borrowers using the program. And yet foreclosure rates
There is a great conversation going on about a Friday, August 21, 2008 post over on the Blown Mortgage blog regarding seller funded down payment assistance programs. I encourage everyone to go and take a look at it before reading the rest of this column. The conversation is centered around a guest post by Josh Lewis entitled “RIP FHA Down Payment Assistance Programs, Not So Fast“.
As most know, the “Housing and Economic Recovery Act of 2008” which has been passed and signed into law to take effect in October, bans seller assisted down payment programs such as the Nehemiah, Ameridream, Futures Home Assistance. In my opinion, this drastic overreaction is the result of political pressure and some doubtful statistics. I have written about it several times elsewhere on this site. Scott Syphax, President and CEO of Nehemiah Corporation of North America pointed out the most significant of the problems with these statistics in an editorial reply in the Sacramento Bee on Sunday. In it, Mr. Syphax pointed out:
“Research would have shown that data used by FHA and the Government Accountability Office comes from a data warehouse that the U.S. Department of Housing and Urban Development’s own inspector general cited as unreliable. In short, FHA undercounts the number of DPA loans by up to three times and divides that number into the number of claims it pays.”
