Lee’s notes: I have mixed feelings about DPA… While I think it is a good avenue for buyers to get into homes and living the American dream. Most of the time I see DPA as artificially inflating a homes price. Sellers raise the price to then pay DPA for a buyer to buy it.. I also think that if a buyer doesn’t have any skin(money) in the game, they have less to lose when times get tough, so are more prone to abandoning properties(foreclosure, etc). Which doesn’t help property values for others around them. I’m not saying I don’t think DPA is a viable option in some cases, I just have mixed feelings.. This article shamelessly stolen from here.
Dead or Alive?
Is it dead? Is it alive? They tried to kill it and it didn’t die. They tried again and killed it; but wait…is it breathing again?
What I am referring to is Down Payment Assistance, also known as DPA. DPA is a program that allows a third party charitable organization such as Ameridream or Nehemiah to pay a borrower’s down payment required by FHA, (usually 3% of the purchase price).
In 2007 HUD tried to eliminate the use of DPA. Organizations
such as Ameridream and Nehemiah with some congressional and grassroots help managed to stop HUD then. However
President Bush signed into law legislation (H.R. 3321) that contained a provision to eliminate charitable down payment assistance which becomes effective October 1, 2008.
One day later, following the President’s signing H.R. 3321, Congress introduced bipartisan legislation H.R.6694 which would reauthorize and reform charitable DPA. H.R. 6694 has until September 30th, 2008 to be signed or the ban on DPA becomes permanent.
According to an Inman News article published September 9th, 2008, Chairman Barney Frank is quoted as saying “The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing,” Frank said at Saturday’s hearing. “That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground — and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there — it has the approval now of the Secretary of HUD.”
What difference does DPA make? Approximately 40% of all FHA purchases use DPA. Since the 2007 court victory against HUD, 40,000 homebuyers became homeowners. That’s 40,000 more homes that sold since the end of 2007. In other words 40,000 fewer homes are sitting on the market waiting to be sold. According to Nehemiah Corporation of America, As a result of DPA being eliminated on October 1st 2008, “50,000 hard-working, credit-worthy families will be denied the American dream of homeownership in that month alone.”
Lee, I respect your feelings and opinion about down payment assistance. When I bought my home, I had no upfront skin in the game. My post home purchase skin in the game, however, has been my mortgage, tax, and insurance payments, and all the other financial obligations that are required of a responsible homeowner. For me and probably 99% of others like me, succumbing to foreclosure would be an absolute last resort triggered by some sort of catastrophic life event that makes it impossible to keep my home. Having to uproot my family and start all over again would be an extremely painful and difficult process…not to mention the financial/credit woes that comes along with having a foreclosure on ones record.
I understand angel.. I know that MOST if not all people out there are in the same boat as you… Good people trying to do the best they can..
I just have seen too many people recently that were desperate to sell, and have ZERO equity in their home, so the only options they consider are to show up to closing with 10-20k(which they never really consider), pray for a short sale(which rarely happens), or go to foreclosure. Most of the time, they would rather take the foreclosure than hit up savings to pay 10-20k.
As for Short sales, don’t get me started on how rare those are, 8000 short sale listings last year and only 300 sold…. A lot of the banks just don’t want to deal, and the loans are federally backed or insured, so a lot of times the banks can’t deal if they wanted to.
It’s a tough problem to solve.
You know, I am in the business, so I see the bad side a lot more than the good… hehe Hence my concerns…