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Old 07-27-2008, 01:02 PM
Location: Cary, NC
1,036 posts, read 3,627,489 times
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Originally Posted by revelated View Post
You guys are saying essentially the same thing I'm saying. Take the seller out of the equation. I've never agreed with that part of the process, because it's silly. But the law, as I read it, bans all sorts of DPA, period...which is a knee-jerk reaction. Regulate DPA properly, increase the restrictions on its usage, come down hard on the non-profits who charge the fees, and make it a buyer applied, buyer approved-for process similar to any other type of grant rather than an entitlement.
We are in complete agreement on that. My complaint is with how these "non-profits" used a loophole to funnel money from one party to another in a "legal" manner. DPA's that come from true non-profits, family memebers, state/city/federal government, employers or other legit sources should be allowed.

What the seller-funded DPA did was turn the 97% LTV FHA program into a 100% LTV program while still pretending that the buyer had 3% stake in it (be it from their funds, family memebers or a legit grant). In fact, the buyer had $0 invested because they financed the DPA into the loan.

Originally Posted by revelated View Post
All that's going to happen two years from now:

The government is going to be innundated with complaints from the private sector and the city governments about the inordinate number of foreclosures that aren't moving off the books due to a lack of ineligible borrowers. A few selective lenders are going to do the same thing Countrywide did before, and circumvent controls to get loans funded - either that, or city governments are going to create their own version of the FHA in order to move houses. Then the government is going to step in and try to reverse what it did now.

It's stupid.

Sad, but true. My thoughts were that the FHA should have just created a 0 or 1% down program. It would KILL the seller funded DPA and the "non-profits" that used them but still give the borrower the benefits. Make the DTI and credit guidelines tighter than for their 3% down program. Ask for 3 years of income history, greater emergency reserves and time since past credit problems. That way they lower the risk on that end to balance the increased risk with 0-1% down.

It would change from risks of inflated appraisals and people getting 100% while qualifying for 97% to a true system that judges the risks/merits posed by the buyer. FHA is all about compensating factors anyways, so just treat the lower DP as a - factor to be balanced by other +.

If anyone thinks this is too risky, the VA and USDA programs already do this! They just charge a 2-3.5% upfront premium financed into the loan and ZERO monthly MI. Raise the upfront premium on a 100% FHA loan (as they are already trying to do with risk-based pricing, but is eliminated by the new law) to 2.5% (instead of the typical 1.5%) or so and still charge the small monthly MI. That should help pay for the added risk as well.

At the same time they are busy winning votes by sounding tough, they should be looking at real solutions... but that is too much for a politican to grasp it seems. They would rather ban sub-prime programs that haven't existed for >1 year than to do the hard work required, because its easy, doesn't offend lobbyists and makes a better sound bite for the media.
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Old 08-08-2008, 10:29 AM
1 posts, read 1,361 times
Reputation: 10
Lightbulb DPA contributing to Foreclosures...

While I agree with the theory that DPA and the way it is mis-used alongside FHA loans may contribute to increased risk of foreclosure, there are a few points on here that I feel are mistaken. One, that completing an 80/20 loan was done so people who could not afford a home could buy one. Those 80/20 loans are used not for those who will not qualify for an FHA loan, but actually required higher standards (Higher FICO score, higher income, lower income-to-debt ratio, etc.) than FHA does and were traditionally used to avoid expensive PMI charges on TOP of the mortgages.

These foreclosures are simply due to poor stewardship. People walked into these homes, stretched to the limit, assuming their home would double in value and they could keep spending and charging away and absorb it into a HELOC (Home Equity Line of Credit) down the line. Most people I have known who have lost homes have been in interest-only or Neg-am (negative amortization - basically making a minimum payment on your mortgage as you would a credit card) loan situations that truly, were too close for comfort even before values started dropping and the economy began to tumble. Two of my siblings respectively bought condos shortly after college and just getting married, received DPA, and are in FHA loans and they are fine, their payments haven't changed, and they bought what they could afford. I know that sadly that is not the case with many who have purchased, but keeping in mind that many of the loans that caused the market to tank were not loans that were underwritten by Fannie May or Freddie Mac, but were loans that were later purchased as mortgage-backed securities by some of those larger banks, which is what caused the tumble. They review the files to ensure compliance, but when you are purchasing hundreds at once, you look for red flags, and unfortunately, some of those direct-lenders got very good at burying red-flags so they could sell those loans. Too many hands in a very large pot is the problem!
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Old 08-08-2008, 09:34 PM
1,851 posts, read 2,908,702 times
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Originally Posted by UpsonDowns View Post
It doesn't matter. Several representatives are working to reintroduce DPAs in the Fall session.
Agree. DPAs will never be "banned." The way they can be received may be tweaked, but there will always be some form of down payment assistance; there always has been.

I think a good compromise is to stipulate that buyers who use DPA be required to pay the money back at the time of selling or refinancing if money is pulled out. Also, if you use DPA, you lose x-amount of money for your purchase...i.e:

Buyers are approved for up to $400K but intend on using DPA, then that loan amount is decreased to say $300-$325K.

This should discourage those who really don't need DPA, but want to keep their cash, from using it, and would lower the payment amount for those who are using it; hopefully to insure they can make the monthly payments.
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