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No one's claiming that eliminating DPA is going to save every foreclosure from happening. But it is a program that objective studies show is strongly correlated with a significantly higher level of default, so eliminating it is one more step towards helping stabilizing the housing market.
If the program isn't being used that much, why is anyone worried about it going away? It'll get rid of some loans that would have otherwise gone bad on the government's tab and save all taxpayers some money.
Your thought process is oversimplified: "A study says that DPA is associated with bad loans, so let's eliminate DPA and save taxpayer money!"
Here's why it's oversimplified:
Fault by association is a flawed argument. Salt and saturated fats are "associated" with heart disease; they're not the sole cause of it. Lifestyle, stress, genes...lots of other factors play into it. Eliminating salt and/or saturated fats from your diet is pointless if all you do is work a 15 hour day at work, go home, get no sleep and play video games.
Everyone keeps talking about what will save the tax payers money. Do you not realize that no matter what government programs are eliminated, we are not "Saving" anything? The money we pay in taxes is still due, it doesn't decrease, if anything it increases - resulting in more wasted spending of the same money. I'd rather my tax dollars go towards infusing the housing economy with worthy buyers than knowing that the government will buy a $13,000 toilet or outfit Air Force One with reclining chairs.
Said studies blatantly and totally ignored every other factor I listed above - do you know why? It's easier to blame a government program than to bring to light the fact that the banks just got greedy, period. DPA is an issue because it's largely unregulated and sellers have to put money out of pocket - essentially gambling on a buyer. Putting the onus on the buyer and increasing the restrictions on the program adds credibility to it instead of leaving it a spigot for any to exploit with "stated income".
I'm all for tightening the belts. Government grants via DPA should be just as difficult to qualify for as anything else, not just a given because you're applying for a house. The lax rules around that program are what need to be fixed. Banning it won't solve the problem; it will create a separate problem that we haven't even encountered yet: overstock.
No one's claiming that eliminating DPA is going to save every foreclosure from happening. But it is a program that objective studies show is strongly correlated with a significantly higher level of default, so eliminating it is one more step towards helping stabilizing the housing market.
If the program isn't being used that much, why is anyone worried about it going away? It'll get rid of some loans that would have otherwise gone bad on the government's tab and save all taxpayers some money.
Exactly, studies have shown that there is a high correlation between SELLER FUNDED DPA (which is the program being banned, not TRUE gift funds from non-profits) and foreclosure on FHA loans. No one is saying the DPA caused the problem, but it adds to the risk.
The problem is the program is being used heavily. It went from ~2% of FHA loans in 2000 (with 76% of loans having DP form borrowers) to ~40% in 2008 (with only 40% of loans having DP from borrowers). In 8 years the % of loans using DPA rose by 1750%.... now thats crazy.
It's legal money laundering, however you cut it. It's like the 80/20 loans were the circumvented PMI. Now mortgage companies are taking a bath on these loans that really at financed at 100% CLTV and are foreclosuing with no PMI backing them up.
The rules for down payment were that DP could come from the buyer, a gift from the buyers family, or a gift from a not for profit organization. DPA programs use the third option as a "loop hole". It was meant to be for a church or similiar organization to assist. It has be exploited for the benefit of these "not for profits" DPA programs
Said studies blatantly and totally ignored every other factor I listed above - do you know why? It's easier to blame a government program than to bring to light the fact that the banks just got greedy, period. DPA is an issue because it's largely unregulated and sellers have to put money out of pocket - essentially gambling on a buyer. Putting the onus on the buyer and increasing the restrictions on the program adds credibility to it instead of leaving it a spigot for any to exploit with "stated income".
That is NOT how the DPA programs in question worked! First, they are on FHA loans which NEVER allowed stated income. These are ALL full doc loans that looked at borrowers tax returns and assets.
Second, there was no "gambling on the buyer" there was a quid-pro-quo. At closing, the buyer got 3% DPA from this "non-profit" as a gift. Also on the closing documents, the seller had the SAME dollar amount deducted from their proceeds and "gifted" to the "non-profit" along with a $300-500 fee.
So if the sale fell through or the buyer went for another home, the seller LOST NOTHING. The entire "gift" was tied to the buyer closing on the purchase of the home. This is in blatant disregard for how the program is supposed to work... its not supposed to be a way for a seller to funnel money to a buyer so they can now qualify for a loan they would otherwise not have.
This seller-funded DPA is a quid-pro-quo arrangement between a seller and a buyer and uses a "non-profit" (which the IRS has ruled is not elligible for that status) to funnel the money and therefore comply with the rules. Would you still feel the same way if we eliminated the middle man and said that from now on, sellers could give a buyer 10-20% of the price of a home to a buyer so they could now qualify for a loan?? Do you see the problems this raises?
Whether DPAs are good thing, bad thing, or some of both has nothing to do with this. This was simply to close a loophole in what determined if it was an allowable DPA.
I do not think it is fair for the government to eliminate down payment Assistant.
If they are limiting Down Payment Assistant why not stop closing cost help.
It is the same thing getting assistant from a third party.
Let get this clear. Down Payment Assistant is not coming fromt the Government money it is coming from the Seller proceeds.
This is how Down Payment Assistant works:
A down Payment Assistant company gets the money that they will give to the buyer from the seller at closing plus they charge the seller $500-750 processing fee so really the money is coming from the seller not the Government/Down Payment Assistant company. They are a way for the seller to give the money to the buyer but no directly to the buyer that is their purpose.
DOwn payment Assistant can come out of the closing cost the seller is giving the buyer:
Example: Sales price $200,000
Loan amount $194,000
Down payment of 3% which is $6,000.
The Down payment Assistant company will give the buyer the $6,000 then they charge the seller $6,000 plus procesing fee of $500-$750.00 at closing
I do not know where people get that any of the money is government money. DOwn Payment Assistant programs are Non-profit.
Are you saying the seller has to pay for the buyers down payment...if so I would never sell it to this buyer, there are other buyers and these people IMo will lose out. Only if you are right.
It doesn't matter. Several representatives are working to reintroduce DPAs in the Fall session.
They're going to lose. Just like the reps that tried to overturn the butchering of bankruptcy law and the FFELP program.
Speaking of the FFELP program it's quite similar to this same deal. A government program designed to help students attend college by providing funding via third party private companies. However, you had certain companies doing unscrupulous things - I'm talking about direct inside deals with the school to increase their bottom line and create monopolies. Because of the selective few who abused the unregulated spectrum, all FFELP lenders suffered when the loans became unprofitable to make. After the fact, the government recognized what it did and tried to throw a bone by offering to buy the loans at a fair price to entice people back in the program. Again, a knee-jerk reaction without thinking it through.
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.
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.
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