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.
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.
HUD continues to use higher default rates associated with loans using DPA as their rationale for killing off the non-profit down payment assistance programs. However, you can’t use HUD’s raw statistics to say DPA causes a higher foreclosure rate, only to show that DPA is associated with a higher foreclosure rate. The reason is that these raw figures aren’t adjusted to account for other factors such as credit, debt ratio, time on the job, local economic conditions etc.
