Austin TX Real Estate - Hill Country Austin Lakeway Homes for Sale: Down Payment Assistance Programs are Gone, and That's GREAT!

Down Payment Assistance Programs are Gone, and That's GREAT!

For the past few weeks, many people have blogged and blogged about the Housing Recovery Act President Bush signed in July which would put an end to the Down Payment Assistance Programs.  Almost everything I read is about how we should save these programs.  Do people understand why it's a good thing they're going away??

I'm so happy these programs will be gone as of October 1, 2008.  There are many foreclosures across the country.  Foreclosures are happening for many reasons, but one of the main reasons is that people don't have money to pay their mortgages.  They are broke, and money doesn't grow on trees!  They're probably not paying their other bills either.

When you give someone money to buy a house because they have no money for their own down payment, once they move in, they're still going to have NO money!  If they have no money, how are they going to help maintain the house?  It's not like an apartment where you can call maintenance if there is a leak or the AC goes out.  If something goes wrong, the home owner needs to be able to pay real money to get things fixed.

The cycle of foreclosures and run down houses will continue if the programs continue.  With the programs going away, hopefully, we'll get better buyers who are responsible, and when they're ready to sell and move up into another house, the first house will be in decent condition.

How many foreclosures do you walk in where you wonder how someone lived there?  The carpet is covered in pet stains, the ceilings are falling down due to water leaks in the roof, which means the roof is bad, and the foundation is cracked from one end of the house to the other because they couldn't afford to water their yard and help maintain their slab (not an issue in all markets, but we have expansive, clay soils in North Texas).

If we continue to allow people to buy houses who don't deserve to own a house, we'll never get out of the foreclosure cycle.  Home ownership is a privilege, not a right.  Too many people were allowed to buy homes who thought it was a right to own the American Dream at everyone else's expense.   This means that they didn't care what happened to the house or to the lender who lent them the money when they stopped paying, or never started in the first place.  There are many foreclosures that happen within the first few months of closing because they never made the first payment at all.

If buyers really want to own a house to make their home, they need to show lenders they can make the payments and make them on time.  One of the ways to show this is the show on time payments with all other bills and credit lines, and to have money in the bank so you're not living paycheck to paycheck in case you get laid off.

Once we can stop people from buying houses who have no money, others will follow by example if they also want a part of the American Dream.

**stepping off soap box and sliding it back under the couch**

 

Comment balloon 35 commentsDonna Harris • August 19 2008 09:00AM

Comments

I know this is going to be unpopular, but I agree with you 100%. Statistically, the largest percentage of losses on FHA loans comes from people who had  downpayment assistance. If you have nothing into the deal, what do you care if you walk away? I guarantee you if folks had 10, 20 or 30k into the deal, they would find a way to hold onto that house, be it a 2nd job, watching the budget or borrowing from a family member of friend. I worked for a year as an underwriter for sub-prime auto loans and there are a few things that stand out. The bank liked payments people could afford ($250 per month) and cash down. Those were the deals that paid or could be collected. Good Post.

Posted by Patrick Randles (Nova Home Loans) over 10 years ago

Patrick, Yes, I know it's going to be unpopular since most people are saying to fight the decision, but that's why I felt the need to post my opinion.  I get calls all the time from people who ask for my help, and there's only so much help I can give if they're not willing to do their part. Thank you for agreeing with me!

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

Donna - I never like these type of programs and when there out all you hear from people is what about this housing relief that the President has. Give me a break, it might cover a couple of months and then it's back to the same old-same-old. And that would be not having enough money to make the payments. What people need to realize is the credit card companies and banks that have created this problem, watch the movie ( MAXED OUT). This movie is so sad and so true about people that have borrowed money through credit card, etc. to pay for mortgages, etc.

In the movie there are people young and old that commit suicide because they can't payed there bills. I even had a friend that killed himself because he was so far in dept, he couldn't see the light at the end of the tunnel.

Very nice post!

Posted by Robert Vegas Bob Swetz, Las Vegas Henderson Homes for Sale (Realty ONE Group) over 10 years ago

Robert, There is no real "housing relief". The relief is that lenders will refi you, but only if you can show you can make the payments.  If they're already not making the payments, it shows they can't make the payments.  It goes in circles, and what people think is going to happen is that they'll be able to take their $2000 payment and decrease it to like $1000, but they don't realize it will only decrease to something like $1800 probably, but FIXED instead of adjusted.  Many people don't see "relief" in numbers like that.  Most still want something for free and they think they're entitled to a new loan program even though they knew what they were getting into.  Circles and circles...

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

Well let's see. I spoke with a school teacher today who has a better than 800 credit score. But since school teachers barely make enough money to support their families she only has a few thousand in the bank. If she were still able to use the Nehemiah or Ameridream program she could buy a home and keep her limited funds in the bank for emergency. But since she can't she will have to use what little money she has for her 3% down. She'll get a home with no problem but will now have NO reserves. She deserves a home.

The problem isn't the DPA programs the problem is not making sure that the folks that use these have an adequate credit history.

Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 10 years ago

Bryant, Teachers make a lot more than we really think they make.  I have several friends who are teachers, and they make a good living.  I helped my best friend buy a house last year.  She's a teacher.  Her husband is a firefighter.  They qualified for $165k on her income alone.  They didn't need to touch his income because ratios were in line and the house they bought was only $154k.  I was actually shocked.  "They" say teachers and firefighters are some of the lowest paid people, and here I have friends who are both, and they have had plenty of money to save and have another baby on the way due next month.

Sorry, but the current starting salaries of teachers are higher than what my mom made at her job just 10 years, and she was the medical staff director at two hospitals.  Teachers are making good money, and I know I don't have the popular opinion, but I still say the DPAs need to go.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

I know this may not be popular but realize that in the bad market we are already in... there has just been a lot more buyers taken out of the market... and that is supposed to make things better???

On the issues of loan default rates being "statically" higher with down payment assistance (DPA) I don't doubt that stat... what I do doubt is the correlation for that stat... I bet I can show you that "statistically" it is a fact that more people miss their mortgage payments in December or January... does that mean we would not sell homes in those months???

I would bet if the data were REALLY studied you would find that the rate of default is actually correlated to the CREDIT SCORE of the borrower using DPA... NOT the simple fact of DPA.  I am sure there is a slightly higher rate of default for DPA loans if you match them score for score with non DPA but would guess it is not a significant figure...

You can "prove" almost anything with "stastics" that does not mean they have a corilation...

Posted by Mark Ryan, Broker, CRS, ABR, CDPE (Mark Ryan Group / Re/Max Victory) over 10 years ago

Mark, For the most part, I agree.  For the most part, people with lower credit scores don't have money to afford to pay their bills which is what brings their scores down.  For the most part, people with higher scores have money to pay their bills.  But to take that one step further, if they're paying their bills ontime and not able to save money, they're a paycheck to paycheck person, and shouldn't be able to buy a house because they won't have any reserves in case something happens like the AC going out, or a tree falling on the roof, or just a toilet overflowing, but now it's ruined the flooring and needs to be replaced...

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

I have to agree that most of the time when people need someone to give them the down payment (especially if it is the unbiased seller) to get into the home, there is a good chance your going to have a problem down the road with these.  Now I'm sure that some otherwise well qualified people may have to defer the purchase decision, but on the whole I think that this is a positive thing.

Posted by AJ Heidmann ~ CRS, YOUR Alexandria & Arlington, VA Real Estate Expert (McEnearney Associates, Inc.) over 10 years ago

AJ and Jodee, THank you, and yes, there are always exceptions to the rules, but making exceptions over and over is also one of the reasons we're in this foreclosure mess.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

Donna... I will have to disagree with most statements made in your post and in these comments.

If you look beyond the misleading stats of 1 out of every 3 FHA loans with DPA's go into foreclosure, then more people would understand and not knock this type of program. And before I get into some things that aren't mentioned in regards to those stats & figures, let's re-visit one known fact. It's hard for people to save, especially in today's economy. Bryant makes a great point with a great example. And then you come back with the fact that this is not true?  That teachers do make good money?  That's like saying that all loan officers make great money.  Or all lawyers make great money. That's a blanket statement in my opinion. Getting back to teachers....  it depends on what area they teach in and what school district. Not all teachers make good to great money. I know some actually make less than the average person... I know some that made more money than I did last year.

Let's get back to people saving money. I agree, they should have money set aside for issues that you mentioned. Do you know that I have 3 clients that I am closing in the next 30 days, that I had them use the DPA program, because they only had $3,500 or so saved and I didn't want them using any of that.   So, you know what, my 3 different clients will have reserves, because we were able to get everything paid for from the seller or the equity of the house.

On the same note of people that put no money into a transaction and are more likely to foreclose. Again, a blanket statement.  Do you know that I had 5 different people call me just this year, that were going into foreclosure, who all had put down 10% to 20% down on their homes, when they bought them? Yes, I will agree that it can be easier for people to walk away from their house if they have nothing put into it. I will agree with that. But your post and the comments make it sound like this happens a lot.

Something else to point out.... I have been using these DPA programs since 1997. Why is it that we are hearing about all the negatives now?  Did anyone think to mention that are economy is crap now?  That many things are more expensive and that income levels in many cases haven't increased on the same level of the higher costs for many people across the United States? Gas, food, dairy products?   What about raising a family?  School prices?  etc etc

Now, getting back to why I think that the DPA foreclosure stats are very, very misleading. And until someone can give a breakdown of what I am about to mention, I scares me that the real estate industry repeats these so -called stats so blindly.  Even loan officers....  I don't think common sense is being used in these debates. So... here is my list...

  • How many of these DPA's that have foreclosed upon, were underwritten poorly. That the borrower's debt to income ratio was higher than the guidelines in place?
  • How many of these, did people lose their job, lost their income, had a death in the family, went through or going through a bad divorce, etc, etc
  • How many lenders, loan officers, builders, and or appraisers committed fraud?  The main point, boosted appraisal values, to make this work.  Do you know that there was a build in NC, about 1 1/2 years ago, who sold 180 units or so... and that about 120 to 140 of them went to foreclosure. They found out that each one was over-appraised by like $10,000 to $20,000.  Why?  Because he wanted to re-coup the monies that he gave to the buyer. I guarantee you this, there were more than just one builder that did this. What about loan officer's begging their appraiser to up value, to make a deal work.

I know the main argument in most blogs, comments, and what congress has said, stating that values were inflated. Let me ask you this... if I was buying a house that someone was selling and it was $20,000 under value... and proven with very good comps... why can't I use some of that money to get me into the house?

Another thing... I agree, that the standards on this program should be raised some. I say, make it mandatory that you have at 3 months in reserves...maybe 4. Maybe a slightly cleaner credit history.

Here is one more thing that I need to point out....  and my phone rang and now I can't remember...  aaarrrgggghhhh....

Overall, it's easy to point the finger at a company, but is it one bad apple in the bunch that gave that company a bad name?  How about the same with what I mentioned above?  Were many of these foreclosures because of "bad apples"????  I know a few lenders that were making bad FHA loans. They were closed down.  How many of these could have been DPA loans?

Lastly.... Mark Ryan made some very good points.  And Donna... your post talks about being against DPA programs, period. But now you say some could be the reason because of lower credit scores? Even low credit scores don't always mean that you are a bad borrower. Credit scores could be low because of bad credit from 4 years ago.  High balances compared to your limit. Old collection accounts that have been re-opened, which will lower your credit scores. But your comment to Mark doesn't mention anything that he talked about, in regards to the stats being mentioned. Which is what I wanted to talk about.  Also, Mark is absolutely right...you are now are taking more buyers out of a market... is that good?  You think the market is bad now?

ANyhoo... these are just my opinions. But what frustrates me are stats that aren't dissected apart. To me, that's misleading.  And the gov't needs to let the market correct itself.

Question for you Donna.  As a realtor... would you not sell a home to a buyer using DPA loans?  What about those that needed a stated loan?  Would you only sell homes to people that did a 30 yr fixed rate? Just curious.... 

jeff belonger

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 10 years ago

Donna -

Your compassion and strong conviction to end the mortgage crisis is well noted but I think you have been brain washed by the media regarding what makes up a true "performing" loan. The 3% down payment does not make or break a loan that pays on time....  hell, the 3% can be recieved from many flexible sources. Don't fool yourself, you can still buy a house FHA with NO MONEY DOWN.

Are these loans that used DPA money the ones that have gone bad? Or could they be the 100% interest only My Community or Home opportunities 100%'ers that will default. And how about the 100% stated or even NO Doc loans Lehman and all the other big Alt A lenders handed out? And don't forget to discuss the option arms that didn't even go to 100%....

When the dust settles, it will be Fannie, Freddie, Lehman, Wachovia, Merrill etc. in the news. HUD will still be around writing mortgages. And doing it the right way with common sense underwriting not strictly score driven.

One thing I don't get...The only market that is luke warm right now is the purchase amrket - the purchase market with borrowers who are non contingent... the purchase makret of first time home buyers who need DPA.   Your a Realtor.......   I must be a little lost here...........

Posted by Lewis Poretz, Mortgage Loan Officer - Lending in 50 States (Bank of England Mortgage) over 10 years ago

PS.... Donna.... now I remember what I wanted to say, after reading Lewis's comment.  One thing to consider... by taking away the DPA programs, you are now opening it up to more potential loan fraud. Not me.. but some loan officers and or lenders will do what it takes to make a deal work. Falsified gifts come to mind now.  A lender giving the client money to buy?  I have seen it happen in the past.

Another issue, that Lewis brought up.....  yes, do you really think FHA's 3% cash out of pocket and soon to be 3.5%, is the answer?  I don't really call that sweat equity. Just things to think about.

Overall... again, my biggest pain and fear is that nobody has broken down the stat of 1 out of every 3 DPA loans go into foreclosure.  There is more behind that number. My biggest issue would have been... how much appraisal fraud was involved?  And how many lenders just made bad loans to begin with, and they happen to be with the DPA program. Yes, you make a valid point about people with no money. But as mentioned, we need to look at that statement a little closer.  As I mentioned, we are in a bad economy and can people really save?  Not even people with good credit....  also, if I have someone that has an excellent rental history for 2 years, you want to deny them a loan just because they have no money?  What about the American Dream?  What about the tax write-off now? There is so much behind those statements....   

jeff belonger

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 10 years ago

Marva

 

Posted by Tom Burris, Texas/Louisiana Mortgage Pro - 13 YRS Experience (NMLS# 335055) over 10 years ago

Donna....can't wait to hear your responses on this dialogue here.  I do agree with you that generally it's best for people to have "skin in the game."  The stats are clear that the more skin one has in the game, the less likely the home is to go into default......HAVING SAID THAT.

I'm not a fan of DPA companies.  I always thought that it'd be great to start my own DPA company and just sweep the money to make a few bucks, but alas...I digress.

DPAs, just like Jeff said, aren't the problem in an of themselves.  Are all used car salesmen jerks?  No, but those who are give the others bad names.  Same with realtors and same with lenders.  There are a lot of people who shouldn't be in a DPA loan, but for that matter a lender shouldn't approve them even if they were to receive a 3% downpayment gift from a 3rd party.  Any difference?  Not really. 

I do like Jeff's comments about people who saved money now use DPAs b/c of the ability to close on a home and have cash reserves you know?  I just finished my stint as the president of my local parochial school board.  Some teachers are working 3 jobs, YES 3 JOBS, outside of their primary teaching role.  A DPA would enable them to save that cash and keep that as reserves.

D...I'll give you props in this respect. ...we need to be more careful in who gets DPAs, but the fact that they're disappearing altogether (unless that new senate bill passes to resurrect DPAs), then our economy worsens all the more.  Less home sales.  Less first time homebuyers....etc.  Getting rid of DPAs altogether is not good.  Refining the process would be appropriate.  My 2 cents.

Posted by Larry Bettag, Vice-President of National Production (Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001) over 10 years ago

Most of the BPOs I do contain "C" and "A" in the tax records for type of financing.  C-Conventional and A-Adjustable.  I think in the hundreds upon hundreds of BPOs for non performing loans or trustees sales or short sales I have done this year I may have run into one or two "F"s for FHA.

I just got a DPA contract accepted tonight, a single lady, in her 50s, Physician's Assistant, buying her first home.  She has extremely great credit scores and $$ in the bank.  She (like BB's clients) just wants to keep a little cash on hand for emergencies and she wants the DPA because she can <for now>

I feel like too many hedged on an investment hence the 100% stated, piggyback, adjustable that is underperforming and started it's disappearance in early 2007.

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 10 years ago

Donna, my husband is a teacher, his second career job after being a Pastor for 18 years.So maybe in TX where I follow you and others you can get in a nice home on one salary. Up here, with average taxes being 6000.00 and a state income tax to boot, on a 200,000 house, this is not so. He makes 38K is that a good salary?

Second, we live in a college community, we have closed many homes this year for Residents at U of M.  and engineers at Toyota. They have all been well qualified, with money in the bank. They have used Ameridream and Nehimiah Programs. Why?

They had good credit, money in the bank, but they wanted cash reserves. How do you save much in medical school?

Not all DPA programs are bad, not all folks who use them foreclose. IMHO it is the Total Financial Health of the person buying that should be looked at. If they have good credit, cash reserves, why shouldn't they be able to use these programs.

The problem isn't the program but the finanacial health of the one buying and the lender that approves.

We have had ONE lady foreclose in 2 years, our preferred lenders said NO to financing her. She went and found a intenet lender who did it. She lost the house in less than a year. I have no problem with 3.5% being put down but I disagree with your opinion on these programs going away.

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) over 10 years ago

Donna:  Even though I don't agree with your opinion on Downpayment Assistance, I do agree that buying a home is a Privilege, not a right.   Thanks for posting an interesting topic.

www.kathytorline.com

 

Posted by Kathy Torline, Colorado Springs Real Estate Blog 719-287-1049 (ERA Herman Group Real Estate) over 10 years ago

Donna, I appreciate your tenacity but I believe your ire is focused too much on the wrong aspect of this program  Yes, there are unscrupulous loan officers who took advantage of this program.  They will be the same ones using "creative" ways to get the same people into homes they really shouldn't be in after DPA is gone.  That doesn't mean deserving people who would like to keep their reserves, shouldn't be able use a dpa style program to do just that.

 

BTW, my wife is a teacher, & she's doesn't make hand over fist money (just thought I'd throw that out there).

 

Jeff brought up some magnificent points. First, if the loans were not underwritten properly from the beginning, I guarantee you there would not be this mess.  Guidelines that were supposed to be followed were not & loan officers knew better (or should have known better) than to put people in loans where the DTI was off the charts.  Appraisals where the comps were non-existent is just as wrong as two left feet (as my wife would say).  Unethical people are what dragged this industry down, not DPA itself.

 

Does DPA need some reformation - YES.  Does it need to guillotine - absolutely not.  Your are punishing many potential first time buyers for the few (rats?) that chose to take advantage of others.

 

BTW, Jeff, glad to be on board with you!!

 

Posted by David Ellis (Infinity Home Mortgage Company, Inc.) over 10 years ago

Tom, AMEN!  Marva was a joke, and definitely one that didn't deserve a house. I won't be surprised if I see it on the foreclosure block in the next few months...

As for everyone else, I'm not going to address you each individually as I respectfully disagree with you.  For one of the examples, if there was $20k equity in a home in my area, the price range would be out of FHA range, so that wouldn't even be an issue.  The main issue IN MY AREA is inflating the price to allow these programs.  Yes, they're appraising.  Are they "true" appraisals?  The ones I deal with are.  Just because a house can appraise for a certain amount, that doesn't mean it can sell on the resale market for that amount.  There are three types of appraisals: one for the lender for the buyer, one for the seller who wants value, and one for a homeowner who wants to refinance.  Depending on the scenario you tell the appraiser, you're going to get a different value. 

Is that $150k really worth $154,500 plus the service fee?  Possibly.  But what if that buyer then gets relocated or has to sell for some other reason within the next 2 years.  Can the house resell for high enough to allow the buyer not to come to closing with money?  Probably not. And if the buyer has no money to come to closing with, there's more foreclosure.

I'm not talking about areas that have $300-400k average prices, as those aren't even in FHA range in my area.  Even the $100k house that needs to then appraise for $103k for the DPA to work.  It's called false appreciation, and it might not be that way in other markets, but since this is my blog and I blogged about how I'm glad this program is gone because this and that is happening in my market, I'm "allowed" to have a differing opinion than you.

The Dallas market is strong.  We don't have homes worth $150k that are selling for $130k to tap into $20k of equity unless it's a foreclosure.  We don't have $200k homes that sellers readily list and sell for $180k. If it's worth $200k, it'll sell for $200k or pretty darn close to it.  On average, homes in my area are selling at 97-98% of asking price. 

And also, in my area $38k is a good salary.  With average debt to income, that person could easily qualify for about $115k and there are thousands of homes to chose from, not just a handful.

I could go on, but it's not necessary.  You want to think DPAs are market specific, and maybe they are, but I don't think so.  100% programs only existed in the masses for about 3-4 years.  People before that were buying houses right and left still, so how did they buy houses if they didn't have money?  They didn't.  The concept of buying houses with no money is a new concept, and I'm glad we're going back to the way things were.

Thank you, all, for your opinions.  You have the right to them.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

Wow.

Well, Jeff Belonger emailed me and told me to make sure and read this Donna. He probably expects flames of fiery passion to jump from my fingertips but I'm on sinus meds today and feel rather docile :)

Here is a HUGE gap in the "no down payment" thought: The change issued by congress in HR 3221 does not end Down Payment Assistance - it only ends seller funded DPA. That being said let's look at what can still be done:

If I have an employee looking to buy their qualifying first home I can gift them the down payment. But wait, that's not all. Not only can I gift it to them - I can loan it to them. Yes and I can put a second lien on that property. And, folks, do you know what the maximum amount I can loan them on my second? There is no limit!!! I can actually loan them, oh say, $50,000 as a second against their $100,000 purchase. And the interest rate? I can just make it up!

So ... not that I would ever do this but somebody will ... a shell corporation could be established to offer "employment" to home buyers and in exchange for a fee lend them the down payment at ridiculous rates and slap a second on their home that will never be satisfied thus throwing them into ... foreclosure. Jeff B is right - this will make it much tougher on us on the firing line. But seriously, hardly anyone except us has any idea how much effort we have to put into fraud fighting and how much per file it costs us in real dollars and labor hours. I think most people think we just look at an application and go, "Yes!" or "No!" How far from reality that conception is.

Not only can employers lend the down payment but so can family members and, pay very close attention to how your government really wants to govern everything, the government can loan you the down payment. Hmmm, the government? And does the government make a little profit from this? No! They make a LOT of profit from this! So you see, Donna, this was partly just somebodies little panty-wad party who had no real conception of the "unintended consequences" (unintended my eye) of squeezing out companies like Nehemiah, Liberty Gold and Ameridream, just so their plan back home could be in effect. Oh, the truth will come out.

Plain and simple the elimination of seller funded down payment was probably the second most asinine provision of HR 3221 related to real estate. It will, not may but will, further damage the already wounded housing market. I know you tried to shoot holes in Bryant Tutas's example of a teacher but as a son of a teacher and a brother of two teachers and the uncle of four teachers I disagree with your retake on what he said. I'm not going to give you any examples but I have personally watched them until they get to Master's degree or higher eating Raman noodles, driving beaters and living in tiny apartments and each other's homes just to make their student loan payments for about 10 years.

Remember this: Most renters are not savers so making the switch from renting to owning is a stretch even when the house payment will be hundreds lower and the advantages of home ownership much greater and a benefit to society than renting.

You see, Donna, unlike a lot of folks I have been in the very center of this debacle from day one. I have spoken with the congressmen who supported and opposed this portion of the regulation. I have published letters to congress with actual facts and data compiled from my industry. I have personally spoken with the Deputy Director of FHA's Single Family Housing Product Development and heard his own voice say what a travesty to justice this portion of HR 3221 is and that if it is not overturned hundreds of thousands of deserving home owners will be denied the opportunity of home ownership.

Seller Funded Down Payment Assistance has not cause thousands of foreclosures and the real data supports that for the past few decades. But now the government has the upper hand - maybe you don't know that HR 3221 provides $4 billion (that's billion with a b) to local government to buy and rehab foreclosed homes and resell them to these same people who can't qualify to buy their own home using seller funded DPA unless it is the government. And that, my friend, is the elephant in this discussion. Bigger government competing with the small, independent investor and private enterprise.

Bad move. Stupid idea. It will probably be over-ruled in early 2009.

Hey - great discussion! Thanks!

Posted by Ken Cook, Content Marketer/Creator (Content, coding, marketing, host.) over 10 years ago

Donna, opinions/hairs on back of your neck/gut feelings are great unless they are not backed up by real data.  Why are you "happy" that these DPA programs are going away?  Happy that up to 15% of the buyer demand curve could be wiped out?  Happy that good people with good jobs are out of the market?  Happy that prices are going to come down even further because the overall demand is less?  "Happy" seems a little sick and twisted to me.

There is no verifiable data that exists that shows DPA loans have a higher level of default compared to other FHA loans.  About 16 months one case study in "one" county in Colorado with about 15 loans as a baseline group showed DPA loans had a higher level of default.  That is not a trustworthy sample.  I do believe that borrowers should be protected more and there should be tighter restrictions on debt-to-income ratios for all zero down loans, even reserves!  But to throw the baby out with the bathwater is a horrible move that will slow the housing recovery even further.

Just my 2 cents.

Posted by Richard Sweum (1st Security Bank) over 10 years ago

Donna,

I've been saying this for weeks, finally someone that sees it the way I do!!! I'm not sad to see them go either.

Posted by Cheri Smith, Realtor Prudential Gary Greene (Prudential Gary Greene, Cypress TX) over 10 years ago

Again, thank you, everyone, for your opinions.  You're entitled to them.  Rich, if you can't see why I'm "happy", read my blog and my comments that followed a little slower.  Being sarcastic doesn't make your argument any stronger.

Cheri, You might want to duck as the tomatoes get thrown! Do you also find it odd that many of the other blogs out there, in addition to the comments on this blog post are mostly by mortgage people defending the programs?  Whenever I hear people are happy to see the programs go, and some won't post publicly but have emailed me, they are Realtors.  The ones who want to continue them are mortgage people... makes you wonder, hmmm...

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

What does it make you wonder, Donna?

Posted by Ken Cook, Content Marketer/Creator (Content, coding, marketing, host.) over 10 years ago

Ken, it makes me wonder a lot of things, and those are blogs for other days.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

Donna...  again, misleading and false. There are realtors that are for the DPA programs. Some just don't want to come on here to get your so called tomatoes thrown at them. In one of your later comments, you make a valid point. But as the old saying goes, you just don't throw the baby out with the bath water, and that is what you are doing. '

You know what... I have been doing mortgages for 16 years. If you take the time to read  my comment thoroughly, because I have been doing DPA's since 1997. And I haven't had one of them foreclose. Besides, it would be nice and different if you did comment back to a few of us specifically, that left you very detailed comments, that gave great examples with common sense, and not just misleading stats.

On another note, something that irked me a little, was that your blog was very general... just saying good... bye bye.. to these DPA programs. But then you start to talk about your local market, etc etc. But never mentioned this in your post. Part of the argument is that this can be and is local. Just because it doesn't work in your area, still doesn't mean that it's a bad thing. Again, a very blind statement. And just for the fact, that these programs do work. And the comment about teachers pay that you made. Just makes many of us wonder overall, in regards to your opinion. What do you have to hang your hat on besides HUD's statement that 1 out of 3 loans with DPA foreclose??

One last thing.... no realtors commenting and just mortgage people?  Renne Burrows and Missy Caulk, two very respected realtors commented.  And if you read my Nehemiah/DPA blogs, there are many realtors that comment. Maybe just for the fact that not many found your blog?  I had many realtors comment that they were still for the DPA programs. There is a deeper problem at hand... and your post and the politicians aren't acknowledging them.  Again, just my .02. WHich after looking back at my comments, should be about .10 worth now.  ;o)

jeff belonger

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 10 years ago

Jeff, I didn't respond back to each person individually because everyone is entitled to their opinions, and that's fine.  What was I supposed to do?  Just over and over again say. "I agree with this, I don't agree with that."?  I didn't think it was necessary.  Instead I acknowledged the posts in my way of saying, "ok, I hear you".  Hearing you doesn't mean I have to agree with you.  I understand you've been doing this many years and you've seen many sides to many things.

To clarify a few things, I never said NO Realtors had commented.  I said "most" were mortgage people, and I also said, "many of the other blogs out there, in addition to the comments on this blog post are mostly by mortgage people."  I understand there are Realtors that like the programs and feel they should stick around.  In my opinion, from the responses I've read (on other blogs also) and have been sent to me, more Realtors are happy to see the DPAs go than there are Realtors rooting for them to stay.  That's not a stat, it's an observation.

Also, what I have to hang my hat on is my experience. I've been doing this 8 years.  It's not 16 years like you, but it's 8 years.  It's not just 2-3 years who have only seen 100% and DPA programs.  I started back when people had to have money and good credit to buy houses.  Every once in a while, people would do the 103% loan, but very few and far between.  I have seen over and over again, people who increased the value of their home to buy it, and then have to sell it, but since they financed their equity, they can't sell, so they rather just let it go to foreclosure.  Through experience, I see this all the time.  I don't know what happens in your market, but I know what happens in mine. 

Overall, we have had a steady appreciation of 3-5% each year. Take the number 3% for argument's sake.  After just 3 years, someone needs to sell their home as they're moving for any number of reasons.  The house that was worth $150k was bought at $154,500 with DPA and closing costs from the seller, and could now resell at $164k.  However, the averages also show that the average seller pays about $3500 for closing costs in this area, just like when they bought it.  So, the seller, at full price would net about $160,500.  On average, it's about 8.5% to close on a house which includes commissions, title policy, escrow, but does not include taxes.  From our $160,500, the seller's net after closing costs is $146,800.  If they had bought the house on their own originally, they would have paid $146,500.  They would have a profit of $300 after the sale and all closing costs, not including the amount they received each year as tax deductions, so they didn't actually make only $300 after three years.

But, since they actually financed $154,500 and the average person pays only the minimum payments, which decreased the principal balance next to nothing each month, they probably still owe something like $151k which shows they would need to bring $4500 to closing.  The "average" person doesn't have $4500 to be able to pay to sell their current home, not to mention that they were hoping their savings could then go towards a new home.

This is what I see everyday.  I go on listing appts where I have to tell the sellers that they have to pay to sell.  They get distraught.  "Why didn't anyone explain this to us when we were buying?"  I get the pleasure of shrugging.  Why wasn't it explained?  Whose job is it to explain the numbers in the above way?  Is it the mortgage person's responsibility?  You love the programs so much, but are you explaining what it does to them when they need to sell?  Is it the Realtor's responsibility?  As a Realtor, we're told over and over again to stay out of the buyers' financing and leave that up to the mortgage person.  We go in circles for responsibilities on that one.

So, when I have to go on appt after appt with sellers who cannot sell their homes because of the DPA programs they used, it irks me (yes, this happens with the 100% buyer also as usually the closing costs were added to the top instead of the down payment).  They get a bad taste in their mouth about the entire buying and selling process.  I'm just the messager, but now they're mad at me too.  Many ask me if it's ok to buy a new house first and then let this one foreclosure.  In very brief terms, I tell them that's not a good idea.  I have heard of many people doing this.  Too many people doing this.  I've had people call and ask me if I would help them do this.  I have had many agents tell me stories about appts they've gone on where people are in the same scenario above.

I have had many buyers happy when using these programs.  Good for them.  I explain to them at the beginning that they better plan on being in the house a minimum of 5 years to be able to get some of the equity in their pockets and not just use it for closing costs when selling.  I try my hardest to explain the programs, in addition to my trusted mortgage people, and not a single one of my clients has ever foreclosed.  Just because none of my clients have ever foreclosed doesn't mean I have to like the programs.  I've gone on listing appts with a few of my past clients who didn't necessarily believe me 2-3 years ago, and now say, "I guess we really are going to stay in this house longer than we thought." 

All this to say, Jeff, I understand the other side of the coin.  I understand why people like the programs and why they feel they help more people get into homes.  I don't have to like them just because other people like them. You're upset because I don't agree with you. Why am I not allowed to be upset because you don't agree with me?  I'm not upset, because I feel you're entitled to believe the programs are good.  I'm still happy to see them go so I can see a change in the market back to the good ol' days of 2000-2003.  Once 2004 hit is where all heck starting braking loose.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

Donna,

Your article really does not explain how the wrong people are being punished for the down turn in the real estate market.  Down Payment Assistance has done so much good that I feel it's a complete shame to see it go away.  Taking away funds from responsible homeowners to get into homes is not a"Great Thing".  Doing away with sub prime lending for irresponsible borrowers and lenders is a Great Thing.  The problem with HUD's argument from day one is that there is really no concrete evidence that shows DPA creates higher default rates.  This is why the DPA's won all their court cases from the past.  I have seen people who have put down 5-20% walk away from their homes in this down market.  Were these people anymore responsible of a borrower from a DPA Client who had no skin in the game?  Good Credit and Good Jobs are the 2 best way to tell if someone will default on a loan because it shows their true character.   

Posted by Gary Miljour, Mortgage Originator NMLS Licensed in AZ and NC (Lend Smart Mortgage NMLS#207208) over 10 years ago

Donna -

Once again, your commitment and dedication to your beliefs are very evident and are extremely commendable. But for the sake of arguement, please provide us with something of subtance that backs up your arguements. Show me some hard statistics. Show us some real proof in black and white where 100% --   ( NO MONEY DOWN   pardon me.. ) FHA loans using DPA's are the cause of this.

Again, your passion you exhibit is awesome but I cannot and will not buy your reasoning other than it is your opinion, which is cool. But if you are stating that FHA loans using down payment assistance are bad loans, do us all a favor and back it up with solid proof.....

Posted by Lewis Poretz, Mortgage Loan Officer - Lending in 50 States (Bank of England Mortgage) over 10 years ago

Donna....  Lewis made part of my point. Just as I stated in my comment. Show me the breakdown.

On another note... again, I do agree with part of your statement, about homes that would appraise, but are they really worth it in your local market. But then again, could this have been an argument from day one, when cavemen were buying caves? I am serious...  because none of this came to be a problem 3, 5, or 10 years ago. Why?  Because in the last 2 years, homes have dropped in value?  What about realtors comping out homes to sell higher... getting the buyer all worked up to buy that house... to pay more. Supply and demand. Don't we understand that houses are suppose to be a long term investment?  It's not a care as someone wrote about 2 weeks ago, comparing cars to homes.

In regards to sweat equity... seriously, you are glad that they are gone. But in regards to your statements, about having money into the deal... as question before... what does 3% do?  Seriously... and yes, 10% or 20%, when people are still walking away from the home. You make mention that people can't make the payments.... well, if I approved someone at 30% and 41% on the front and back ratios... and they lose their income or job... whose fault is that?  The lending world?  DPA programs?  What about the economy?  What about getting politicians to leave this mess alone, it will correct itself. It has in the past. It's more of a mess, because they let Wall Street get greedy and didn't crack down on the crooked loan officers or lenders. Do you know whY?  MONEY.... the gov't made money with more loan officers and lenders out there. It's called state licensing fees. Everyone had their hands in other peoples pockets... except for the good guys, which those are the people that it will hurt the most. 

Overall, you say that you want to go back to the way it was?  You don't need to agree with me. But most of us are looking for more than opinion. I love stats and true facts. Not false or misleading figures. The way it was?  These loans were being done over the last 12 years that I know of. So, I am a little confused by your statement. 2002?  2003?  2004? '05?  In any case, this will hurt the market...  maybe your market is strong enough that it would not hurt you?  What about the other good people out there?  And the other realtors that agree with you? <lol> some people just agree to agree and have no idea what they are talking about. And that is a fact.

jeff belonger

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 10 years ago

Ain't this place great?

Posted by Lewis Poretz, Mortgage Loan Officer - Lending in 50 States (Bank of England Mortgage) over 10 years ago

I said, "Foreclosures are happening for many reasons, but one of the main reasons is that people don't have money to pay their mortgages."  I also said, "When you give someone money to buy a house because they have no money for their own down payment, once they move in, they're still going to have NO money!"

I do not disagree that there are many other reasons foreclosures are happening.  A huge one is when people buy new homes and are only paying taxes on unimproved property instead of improved property, and when their lender needs to increase escrow to cover property taxes, many people can't make this payment. 

I never said DPA was the only thing causing foreclosure.  If I was going to do a break down of the different reasons foreclosures were happening, I would have introduced stats to show the break down.  I am very much a numbers person.  I do not feel my blog required stats because this was my opinion and my experience.  This was not a blog about "1 out of 3 loans with DPA foreclose" as that was your stat, not mine.

As for my comments about getting back to the way things were, yes DPAs were around, but hardly used.  They weren't used to nearly the extent they have been used in the recent years.  My very first closing was a DPA.  The listing agent had a house that comped at $120k listed for $125k saying in the description of the house that the seller wanted to participate in this program.  They didn't go over DPA in real estate school, so I had to educate myself very quickly on this.  I ran the listing agent through the ringer and explained in many ways how the buyer wouldn't pay over the value for this program, and in the end, we got it for $120k WITH the DPA program.  That's how they should work, but what the listing agent did is more common than not, raising the price to accomodate the "gift".  No, I don't have stats on how many listing agents do this, but it's many.

Nowadays, listing agents don't put this in the description, but they list the house, and when a buyer asks for one of the programs, they say "roll it into your price" and everyone knows what that means without the buyers' agent having to say, "huh?"

Also, back in the day, people had to have fairly decent credit scores, like 620.  When you went below 620, that required an exception... then 600, then 590, then 580, and by the end of this mess, lenders were excepting 560s and would do a 550 with a nicely written explanation letter from the borrower.  There's a big difference in credit worthiness for a person with a 620 verse a 560. HUGE difference. 

As I said above, "Home ownership is a privilege, not a right." Yet, as they went lower and lower in credit scores, they were showing people it was more of a right, and now those people are upset.

You can keep arguing your points, that's fine, but I'm done giving my opinion.  I have no need to "defend" my opinion.  You can believe what you want, and I'll believe what I want, and I'll continue to have 25-28 transactions a year even as I close up shop here and start a relocation to a different market.

And Lewis, yes, this place is great!  Because of this blog, I received a call from Re/Max International in Denver this morning, and spoke with someone there for about 30 minutes, and they're writing an article featuring both sides of this subject.  More comments should be interesting, to say the least.

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) over 10 years ago

Why is it that Jim Beavers, Deputy Director of FHA's Single Family Housing Program Development, who knows more about the affects of seller funded down payment assistance than all of us combined, is exremely dissappointed that this was included in HR 3221?

Once again - Down Payment Assistance is not gone. The only part of down payment assistance that is gone is seller funded down payment assistance - the most regulated form. The remaining forms? Unregulated, unpoliced.

Yeah, nice going again Congress. Opinion? Maybe, but fact based and not just some hairbrained idea. It's usually not the most experienced and most knowledgable called to comment - it's usually the most controversial. I should know - and that's an LOL.

Posted by Ken Cook, Content Marketer/Creator (Content, coding, marketing, host.) over 10 years ago

Donna-

First I want to start off saying yes you are right with this statement that you said "Foreclosures are happening for many reasons, but one of the main reasons is that people don't have money to pay their mortgages.  They are broke, and money doesn't grow on trees!  They're probably not paying their other bills either." Obviously this is why forclosures happen, because they are not paying their mortgages. But this has nothing to do with Down payment assistance programs. If lenders would do what you say and verify their credit history and make sure they have money in the bank and all the stuff that lenders are supposed to do then there is no reason why someone can not get help with their downpayment and be able to pay. It is the bad mortgages that is giving a bad name for the downpayment industry. Getting help with a downpayment is the same as getting help from a family member or friend to buy a house, just that not all people have people that can help them out.

Posted by Anonymous over 10 years ago

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