Down Payment Assistance Rescue
Down Payment Assistance Rescue
By now, everyone, or almost everyone, is aware that the Housing and Economic Recovery Act of2008 was signed into law by President Bush on July 30th, 2008. The bill was strongly supported by the NATIONAL ASSOCIATION OF REALTORS® (NAR). What many don't know is that NAR did not oppose SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWNPAYMENT, a component of this bill that ripped away Down Payment Assistance Programs and increased the minimum down payment requirement of FHA buyers. I have searched everywhere to try and find an answer to why NAR would not take a stand on this very important issue but with little or no success. Now... here's a bit of trivia for you. It has been suggested that it was President Bush 1 who made DPA available to FHA buyers in 1999. And while it is true that it was his son, President Bush 2 who embezzled DPA from the FHA buyers on July 30th 2008, in an attempt to place blame for the current mortgage crisis on DPA type loans, DPA actually got it's birth in 1996 when... reportedly... Nehemiah's founder, Don Harris, who is also a real estate lawyer, found a mechanism within the statutes, that let charitable organizations make such gifts.
Section 2113 was inserted into H.R. 3221 at the eleventh hour, by the "Good O'l Boy's network on Capital Hill" just days before the President was to sign the bill into law; a typical underhanded trick perpetrated by many Washington "me first... you last" politicians.
To their credit, a group of honorable men and women, in the House of Representatives, launched an attack on Section 2113 of H.R. 3221. Less than 24 hours after President Bush signed H.R. 3221 into law and barely allowing the ink to dry, Al Green, U.S. Congressman for the 9th District of Texas along with Gary G. Miller, U.S. Congressman for the42nd District of California, MaxineWaters, U.S. Congresswoman for the 35th District of California and Christopher Shays, U.S. Congressman forthe 4th District of Connecticut sponsored H.R. 6694. H.R. 6694 is a bill intended to revise the requirements for seller-financed down payment assistance for mortgages for single-family housing insured by the Secretary of Housing and Urban Development. The bill does not address the increased down payment requirement but the bill does take an enormous step toward overturning the Down Payment Assistance regulation set forth in H.R. 3221.
H.R. 6694, FHA borrowers would need to meet a set of criteria that would help lay to rest the concerns expressed by the HUD over loans being granted to borrowers who have not demonstrated the necessary credit skills to maintain a mortgage payment. For example, the borrower would have to have a FICO credit score of not less than 680. However there are provisions where the buyer/borrower could have a FICO score as low as 620. You can read more about H.R. 6694 by CLICKING HERE.
There has been a lot of dispute leveled at the DPA programs, alleging that FHA DPA loans have a higher rate of foreclosure than those FHA loans that did not contain a DPA component. These allegations are simply not true. In fact a GAO (U.S.Government Accounting Office) study found that 91% DPA homebuyers were successful homeowners and were not in default on their mortgage! Contrast the DPA statistic with the current Fannie/Freddie crisis. Since late 2006 over 282 major lenders have gone bankrupt due to failed conventional Freddie/Fannie hybrid loans using either 80/20, 80/15/5, 80/10/10 and/or 100% LTV mortgages. Now... you tell me... which program has a better track record-the goofy NINJA (No Income, No Job, No Asset) loans of yesteryear or the FHA DPA loans? It really isn't rocket science!
When Brian D. Montgomery, the F.H.A. commissioner made the claim that FHA had to withdraw $4.6 Billion from it's $21 Billion capital reserve fund in May to cover the costs of losses, claiming that those losses were primarily due to the agency’s seller-financed down payment assistance mortgage program, he would not and could not assign any figures to sustain his claim. One can only conclude that Mr. Montgomery was simply pandering to the fears of Congress and to the National Press Club he spoke to in June 2008.
There have been allegations that DPA loan programs placed an unrealistic and over-burdensome strain on our economy. In fact, this is far from the truth. DPA programs helped to add over $24 billion to the economy from 2000 through 2005. Additionally, DPA composes over 40% of FHA business and uses NO tax-payer dollars to fund their programs. In reality, tax revenues generated to State and local governments by new home construction bought with DPA: 150,000 x $82,269 (amount in tax revenue generated from an average single family unit) was in excess of $12.3 Billion (that's BILLION with a "B") between 2000 and 2005. Now... contrast that track record with the multi-trillion dollar bailout of Freddie Mac and Fannie Mae, that will use your/our tax dollars. Where is the logic to strike at the very heart of the buyer pool who has demonstrated the most stable and responsible component of our mortgage economy? Over 1 million home owners have been created through the use of DPA FHA loans since its inception.
Between January 1st 2008 and August 31st 2008, the real estate industry saw record sales, depleting the swollen reservoirs of unsold inventory. According to ARMLS (Arizona Regional Multiple Listing System) over 80% of the closed transactions, in this time period, occurred in the price range under $346,250. Lenders who processed FHA loans reported that over 80% of their pipe line was DPA type FHA loans. If this is any kind of bell weather for the rest of the nation then the end of DPA can only spell a resurgence of unsold inventory and a depletion of the buyer pool. It has been projected, by AmeriDream, that the real estate market could lose 25,000 buyers per month from the national real estate landscape.
In 2008, two different federal courts took the rare step of striking down the HUD regulation which would have banned seller-funded down payment assistance (DPA). The courts’ decisions were NOT made on technical grounds, but for undamental substantive reasons—the courts ruled that the HUD regulation violated the most basic principles of the dministrative Procedures Act (APA), that is, that an agency which issues a regulation must present at least some “reasoned decision-making” in support of its position.
The APA sets a very low threshold for an agency to meet for a regulation to be valid if it is challenged in court. An agency does not need to convince a court that a regulation is correct. An agency merely needs to present a plausible rationale and minimal evidence supporting the regulation. Yet the courts held that HUD failed to articulate any plausible policy rationale or provide verifiable data in support of its position.
The courts ruled in the Civil Action No. 07-1282 (PLF), AMERIDREAM, INC., Plaintiff, v. ALPHONSO JACKSON, Secretary, United States Department of Housing and Urban Development, Defendant. that;
“HUD’s reliance on such flimsy anecdotal evidence ‘is not sufficient to enable [the Court] to conclude that the [Final Rule] was the product of reasoned decision-making.’ Motor Vehicle Mfrs.Ass’n v. State Farm Mut. Auto. Ins. Co.,
After HUD had it's head handed to them by the courts, HUD again proposed a rule to ban charitable DPA, but this time sought legislation which would impose a ban without HUD having to present any rationale or data supporting that policy.
The choice is clear. We all must rally to the aid of the DPA programs. The data, presented by HUD and all pundents who are proponents of stealing DPA from FHA buyers, is flawed... and twisted to strike fear in the hearts of the American tax payers and congress.
Please help put DPA back on-line for worthy and qualified FHA home buyers. CLICK HERE to locate your state representative and tell him or her that you want them to support and vote for H.R. 6694 before September 26th 2008... before Congress adjourns for the rest of the year.
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Lori & G-II are REALTORS® with Coldwell Banker Residential Brokerage in Phoenix, Arizona.