Before 80/20 loans became popular many buyers used a down payment assitance program (DPA). These were went hand-in-hand with government loans, FHA and VA, that required 3% down. The rules said that a seller couldn’t pay for the down payment like they can with closing costs.
But inexplicably they approved the DPA’s where the seller gave a 3% donation to a company such as Ameridream or Nehemiah, plus $500 – $1,000, and then that company gave the 3% to the buyer. All they did was add a middle man. This was government approved money laundering and everyone knew it. So instead of letting the seller pay 3%, they let this extra layer get added costing more money to the transaction.
Some will say that they should allow the DPA’s to stay. I disagree because of the cost and waste of the steps. We need to have a strong housing market with less people going into foreclosure. 80/20 conventional loans are gone because of the risk. Why should the government essentially underwrite 100% loans that no one else wants? This is part of the reason they have ended it.
If it is deemed worth the risk they should change the rule about the seller paying for the downpayment, without adding DPA’s who are add nothing to the transaction. And families can still give gifts, the government just closes a loop hole that was beyond blatant.
UPDATE: From Seth Harris at Northwest Metro Mortgage,
Guys,
Looks like all the investors (lenders) are getting skittish and looking to pull the Down Payment Assistance program early (it’s scheduled to go away Oct. 1st). I just got this from the underwriter…I’ll keep you updated:
Due to the Housing and Economic Recovery Act of 2008, seller-funded down payment assistance programs as an eligible source of funds for loans funded on or before 9/30/08 due to our investor requirements they have requested we fund no later than 9/10/08.
Metrocities will be sending out MPP advising everyone of this DPA Requirement
This makes sense. Last year some rules changes caused many programs to go away in April of last year and people rushed to get in under the deadline. The banks probably don’t want a rush of these loans because they know the word will get out and it could easily be riskier people. There was a report that said that 2007 loans were defaulting faster than 2006 or 2005 loans.
Also I was just told that some lenders stopped doing loans with DPA’s on the 15th of August.
8 thoughts on “Down Payment Assistance Programs To End October 1st”
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As a parent, husband, and homeowner I strongly disagree with the things that have been stated in this article. So many people are trying to blame DPA programs for the foreclosures and other housing market issues we face today, but if the critics were to really investage their claim they would find that in order to receive gift funds from DPA programs the homebuyer has to be preapproved for a home loan. So if homebuyers are not being able to afford to keep their homes, this has nothing to do with DPA programs that are trying to giving people like me, and others a chance to be able to purchase homes, the blame to be the different loan companies that are approving these buyers. Stopping DPA programs from helping the housing market stay a float will have a dramatic toll on the housing market as a whole.
My main point about DPA’s was this,
“If it is deemed worth the risk they should change the rule about the seller paying for the downpayment, without adding DPA’s who are add nothing to the transaction. And families can still give gifts, the government just closes a loop hole that was beyond blatant.”
Instead of keeping the DPA’s they should have a second tier of qualifications to allow gift funds from people besides family members.
The pendulum swung way to far with loose lending standards. Now it is swinging the other way and it will ease once the banks can get investors back.
Hey, to all those that want to support the DPA program, here’s a link to log on and speak out. http://www.DPAgroundswell.org
I’m a single father of two trying to get in before the dead line.Without this program its going to be almost impossible for me to put that much money away so i guess my kids will never have a home of there own? Maybe these banks and or lenders handing out arm loans to people who don’t understand the consequences of not refinancing in time or pushing people into homes that they cant afford are to blame.The people that make these decisions are rarely in touch with the reality of the average hardworking American…
@Chris
If it will be impossible for you to put that much money away you probably shouldn’t be buying a house. Homeownership costs more than renting. If you can’t get invested for 3% in the house you won’t be able to handle emergencies.
Broken pipes, falling roof, that stuff costs money. The reason we are in problems is too many people not invested in their home purchases. I think we should go back to 20% down and we should stop being at the bottom of savings percentage per person in the developed country.
If people can’t come up with 3%, how are they suppossed to come up with 20%? And the result of that?, having all these empty homes is really gonna help the housing market? People looking to purchase now are serious and have seen the consequences of irresponsible home loan offers. Secondly, people now are trying to get a home while they are somewhat more afforable, that does not leave time to save up your proposed 20%. As for home emergencies, people may have that money, and i don’t think we’d like to use our home improvement budget or emergency money for the downpayment and be left with nothing.
The reason why we are in this crisis is due to predatory lending. A good majority of mortgage professionals (and I use that term loosely) motivated by greed took advantage of people who simply didn’t understand what they we’re signing and got them approved for loans they could not afford. The solution is not to end DPA but to educate the 1st time homebuyer and regulate against predatory lending.