Dang. As far as I was concerned, the housing bailout bill passed by Congress this past summer really only had one good point–the elimination of down payment assistance programs. Now it sounds like these programs are likely to continue- thank you Barney Frank: [Hat tip to L!]
Chairman of the House Financial Services Committee, Barney Frank, has discussed publicly the fact that he has negotiated an agreement with HUD Secretary Steve Preston that will provide for the continuation of privately funded down-payment assistance.
The agreement allows HUD to impose risk-based pricing on downpayment assistance transactions which provides Secretary Preston the fiscal protection he seeks for the FHA insurance fund.
According to an Inman News article published Tuesday, Chairman 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."
Margaret Burns, Directorof HUD’s Office of Single Family Program Development Office of Housing apparently isn’t lending the programs her stamp of approval:
Our agency has been concerned with seller-funded downpayment assistance for some time now. While well intended, the programs have had a significant negative impact on FHA’s business for the last several years. Loans made to borrowers who rely on these types of seller-funded gifts perform very poorly. The foreclosure rates on these loans are more than twice those of all other home purchase loans insured by FHA. Moreover, FHA experiences higher loss rates from the sale of the properties associated with these particular foreclosures, a reflection of the overvaluation that occurs with these programs. The higher foreclosure rates represent a financial burden for FHA and taxpayers, but of greater concern, they hurt the families who lose their homes and the neighborhoods in which those homes are located.
The core problem with these programs is not that the borrowers they serve are riskier or less credit-worthy; it’s that the programs disrupt the natural negotiations between buyers and sellers in a way that results in inflated sales prices and thus higher mortgage amounts. Seller-funded downpayment assistance programs flourish in weak real estate markets. In weak markets, low buyer demand means that sellers are less likely to get full asking price for their homes and are therefore willing to participate in programs that will help them sell for a higher price. As such, the property overvaluation associated with seller-funded gift programs occurs in markets that are least able to adjust to and accommodate pricing variations.
Down payment programs: Helping millions enjoy the benefits of homeownership- until they are foreclosed on!
Barney Frank must like foreclosures.
It all depends on the lenders and NO lender will accept a DPAs regardless of Barney Housing Rubble.
Even when the DPA was a fad, not all lenders allowed them on their books. Zero downs inflate values of homes, raises monthly cost to buyer,(usually first time) the least likely to afford them, and most likely to default. If you can not save 3% why not rent?
And to add to the new investment trend, all lenders will require MORE of a buyers skin in the game.
On OCT 1, 2008, no lender will accept 3% down. New minimum will be 3.5%.Those are the facts.
I agree with Coffee. There is nothing wrong with 100% financing if the risk is warranted. But the one size fits all risk category at HUD is what killed DAP as nearly all that used it were deadbeats. Even with DAP it is likely that the lender seasoning requirements, and the risk based premiums will be so onerous for most of the borrowers that the effect will negate any advantage for all but the best borrowers.
Housing was, is, and will always be an unsustainable industry without the catalyst of massive population growth due the durable nature of the product.
The U.S. reached zenith for the premise of exponential population growth in 1970. Beyond that date, it became necessary for debt growth to substitute for job and wage growth.
We have now passed zenith for debt growth, i.e. Bear Stearns, Fannie and Freddie, Lehman, Citi, etc. etc.
No amount of tinkering with a loan program will change the outcome. The problem goes far beyond housing.
Sept. 11 (Bloomberg) — U.S. Senate Banking Committee members urged Fannie Mae and Freddie Mac, the mortgage lenders placed under federal control this week, to freeze foreclosures on loans in their portfolios for at least 90 days.
“This action would provide immediate relief to many homeowners” and let the companies “turn these non-performing loans into performing assets to minimize losses,” Democrats Charles Schumer, Robert Menendez and other panel members said today in a letter to the companies and the Federal Housing Finance Agency, which is overseeing them under the government conservatorship. The companies also should ease their policies on modifying mortgages, the senators wrote.
HO HUM. RIGHT TO HOUSING PROCEEDING, JUST AS I SAID IT WOULD IN MY BOOK.
BUT REMEMBER, THIS SORT OF THING MEANS THE ECONOMY IS OVER, OVER, OVER. CAN YOU IMAGINE AN ECONOMY IN WHICH NOTHING CAN BE REPOSSESSED BECAUSE OTHERWISE THE SOCIETY WILL FALL APART? GOOD LUCK INVESTING IN THAT!
WHAT THIS SHOWS YOU IS THAT, WHERE HOUSING CANNOT BE USED FOR LEVERAGE ANYMORE, IT ACTUALLY HAS VERY LITTLE VALUE. HOUSING VALUES WILL PLUMMET, NOT INCREASE, BECAUSE OF THIS. INCOMES WILL PROCEED TO COLLAPSE AS WELL.
I NEVER SAID THERE WOULDN’T BE A DOWNSIDE TO ENFORCING THE NEW BILL OF RIGHTS. THERE CERTAINLY WILL BE, BECAUSE WE ARE BACKING INTO IT IN WAYS LIKE THE ABOVE, NOT CONFRONTING IT DIRECTLY. WHY NOT CONFRONT IT DIRECTLY? BECAUSE AMERICANS ARE ALL GRIFTERS. HA HA!
jryskmpr, said, “BUT REMEMBER, THIS SORT OF THING MEANS THE ECONOMY IS OVER, OVER, OVER. CAN YOU IMAGINE AN ECONOMY IN WHICH NOTHING CAN BE REPOSSESSED BECAUSE OTHERWISE THE SOCIETY WILL FALL APART? GOOD LUCK INVESTING IN THAT!”
Excellent forward observation skills, a trait that is sorely lacking in our leadership.
As lenders are forced to reduce “the principal amount owed along with loan restructuring,” by government mandate, “investment” is not a word that comes to mind.
… it’s a pity nobody leaked Sen Schumer’s letter to Foofa warning that Freddie was in trouble
Coffee
“And to add to the new investment trend, all lenders will require MORE of a buyers skin in the game.”
I agree, money is going to get tighter.