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It's obvious you have no idea what you're talking about if you can say DPA is borderline fraud. HUD guidelines currently allows for DPA and has for as long as I can remember. If a broker somehow inserted DPA without the buyer, seller or HUD knowing it, then that would be fraud. Explain to me how it's fraud if it's allowed?
I'm amazed at all the negative comments from you and all the people on this blog. If HR 6694 isn't successful at reforming DPA, the effects that the elimination of DPA will have on our economy is going to be enormous. When the horrible ripple down effects start showing in our economy, in the next several months, who will you blame then? Congress will then be scrambling for another resolution.
HUD has been trying to eliminate DPA, on their own, for many years because of exactly what you're saying. However, as recently as March of this year a judge ruled that HUD hadn't proved DPA had caused the foreclosures that they were stating. The result, DPA survived once again remained in place. Then here we are with all of our wonderful and intelligent Congressmen rushing the bill HR 3221 through for the President's signature for DPA to be eliminated before they go on break. GIVE ME A BREAK!!
I would ask HUD to provide to Congress their foreclosure statistics that include DPA and their foreclosure statistics that don't have DPA. You can't find that information anywhere because they are including it all together in their statistics. I haven't been able to find these statistics separately anywhere. Please Mr. Renter provide me with accurate information.
Lee
No Gift Relative "Non-Profit, etc,
2002 3.53% 4.23% 12.17%
2003 2.26 3.04 9.37
2004 1.82 2.14 6.65
2005 1.03 0.98 3.46
While the credit performance of loans where relatives provided the down payment has only been a "scooch" worse than "regular" FHA loans, the credit performance of loans with 3rd-party down payment assistance -- where in essence the down payment came from the seller -- has been MASSIVELY worse.
You are quoting statistics as if you are a professional. However, it would greatly assist anyone reading your blog entry to provide the source with which you are so negatively quoting. I've been in the mortgage business for 20 years and have yet to be able to find the source, and I quote from you at the end of your entry "in essence the down payment came for the seller - - has been massively worse."
In short, don't quote statistics without your source. State your opinion, which is obvious, but not statistics. We're not impressed.
Lee
http://calculatedrisk.blogspot.com/2008/08/defa...
Having read it could he please define "success rate" ? It's really tiring when Certified Mortgage Planners aka mortgage brokers throw around nicely sounding statistic implying that only 6% of FHA mortgage applicants eventually default. Is this success rate over one month or 10 years and what vintage year we are talking about ? I bet that recent vintages (2006-2007) will have quite a bit less than 94% "success rate".
HUD site shows that cumulative default rate for FHA loans in double digits (17%). I'm willing to wager a bet that 2007 Seller funded DPA loans will have in excess of 40% cumulative default rate over next 5 year period. I'm not even mentioning "success rate" defined as FHA loan borrowers that remain homeowners and didn't return to renting w/o defaulting/foreclosing.
Further, how can price fixing of mortgage rates too-low, which was the source of the market collapse, also be the solution to it?
From an activist standpoint the most worrisome revelation of this article is that "family"-financed DPA is just as bad, and it will be allowed to stand.
Looks like housing "welfare" is just a bad idea in general. Which isn't a surprise, since there actually is no shortage of housing in general.
First off, Aaron, this isn't "welfare". The gov't isn't loaning money, private lenders are. Borrowers are buying insurance from the gov't to guarantee the loans. And let's get real, the u/w guidelines are pretty strict and maybe if we would have stuck with full doc loans, we as taxpayers wouldn't be having to continually bailout these private banks. THAT'S welfare! BTW, as I understand it, FHA actually makes money for the gov't, or at least it did when I was doing these in 2004.
I just think that their throwing out the baby with the bathwater on this one. I just think there are some cases where downpayment assistance is a good thing.
Hard to say but it does make it apparent that their "MAY" be some additional factors to consider for the increase in default rates whether they are supplemented through DPA or not.
Our country has a negative savings rate. If the mortgage professionals in this country took a proactive stance and educated their borrowers on the mortgage process and helped them understand the mortgage is a financial tool - not a monthly bill or debt and how to save money, we wouldn't be in the mess we are in now. Instead they took the used car salesman approach and said "Oh, you want that $500K home but can only afford $1500 a month - I've got just the program for you." They never expained the true reason the option arm and interest only loans were created.
Can a homeowner go to their banker and ask them to "let them slide" a few months because they have paid in an extra 10 months of payments? Can they go to the banker and say "hey, Mr. Banker, can you give me some of the equity I paid into my home because I've lost my job and really need the money to pay my credit cards, car payments etc?" Every time they pay extra money to the principal of their home to "Pay down their debt" they mights well say to the banker "Here you go Mr. Banker, don't bother paying me any interest on that $300 and by the way, if I need my money back, you can charge me whatever you want for fees and interest rate. Hopefully I'll have a job and be able to qualify."
DPA is nothing more then a borrower being able to finance in their closing costs and downpayment that a third party can then give back to them. If the mortgage professional isn't taking the time to seriously look at the borrowers credit and savings habits and realizes the borrower is a credit risk regardless of whether they are renting or owning, they should be ashamed of themselves. They are doing nothing more then getting someone in a home to make a buck. They aren't looking out for the best interests of the clients and helping them do the right things now so when they are ready to own a home, can do so without the worries of default because we have properly educated them and helped them start the right habits.
I am all for DPA and believe it's in the best interest of the mortgage community and the country. But we need to do the right things by our buyers and make sure they qualify and are truly capable of repaying the mortgage, not just qualifying them on a number.
We should listen to HUD. Erradicate DPAs like a tumor and let FHA live. We need to experience the pain of getting rid of this disease so we can begin to rehabilitate the mortgage industry.
As it is, 3%/3.5% down is not all that much given the projections of FURTHER price declines all across the U.S.
DPAs along with 100% LTV/seller paid closing costs contributed to massive pressure on appraisers to hit the numbers. Then appraisers and Realtors doing their CMAs used those closed sales as comps, further inflating prices just a little bit each time.
Death to DPAs. May you never return.
After gathering the needed data, here is what I have found. HUD uses 400 variables to report their findings, but will only make 12 of those points public. I checked with all my triued and true resources, they can get the whole thing either. Hmm, are they hiding something? Duh! Without the rest of their data, I can't check their work. My friend at FHA told me, "that's the idea". When I asked him if the data is bad, he said, "#1 remember this is a huge political issue and things aren't always what they seem. #2, they are starting out with the end game in mind and manipulating the data to justify it." He said he is so disgusted by the stuff they do behind the scenes that he is looking for work elswhere.
Two points to consider; 1) HUD frequently quotes default rates instead of foreclosure. Default rate just means they are over 45 days late on their payment. A small percentage of defaults end in foreclosure. 2) the skin in the game arguement is philosophical, not statistically signficant. The data show about a 1% difference between foreclosure of seller-assisted DPA and Gov't DPA and about another 1% difference in Family Assisted DPA. Does this mean that all downpayment gifting should be banned? If you think there should be skin in the game, you answer has to be yes. If HUD believed DPA's 8.7% foreclosure rate (if accurate?) was a danger to the FHA MIIF Fund, they would also think Gov't and Family gifts were a danger. You mean 8.7% of DPA will cripple the insurance, fund but Gov't 7.5% won't? My buddy is right; POLITICS!!!!
I can't believe I'm reading a blog from someone with actual intelligence. Here, here to you and your wife. I've been in the Mortgage and R.E. Industry for coming up on 20 years and they're just now outlawing DPA...."our heroes." HUD has fought DPA for years with the unjust figures that you speak about, but to no avail because their figures aren't accurate. I hope all the previous bloggers will read you closely and realize how wrong their negative statements really are.
To the Mtg. Planner above: I truly resent your statement that I wasn't looking out for the best interest of my client and that I was only in it for the buck. I don't know of one of my clients that I helped with their puchase or a refinance that is in foreclosure to date. Oh.....and I was working in California the whole time of my career. People like you are hopeless.
Me, on other hand is a Joe Taxpayer who is going to be stuck with the bill, so please spare me YOUR ANECDOTAL evidence and go directly to HUD site pull up national cumulative default statistic and claim rates and see for yourself. Obviously since you don't like direct evidence you are going to claim that the statistic is bogus and your ANECDOTAL EVIDENCE and ANONYMOUS NON-SUBSTANTIATED HEARSAY is substantially better reflects reality. Reminds me about flat earth society. Some friend of mine doing astrophysics research at Cal Tech told me that all of those pictures and earth being a ball are bogus and because there would be huge upheaval they perpetuate lie. Sounds familiar about "your friend in FHA" ? I thought so.
Put it another way - if the seller was giving the buyer a second mortgage for the remainder of the sales price, a lender would want to know about that (and would factor that into their assessment of the loan). Why should seller-funded downpayment assistance be any different?
I can't address them all.
The Lender DOES know about the DPA when it is used, it is IN the purchase contract....so if it is, how is this fraud? How does the seller carrying a 2nd the same even come up as a comparison in this case?
"Skin" in the game is nonsense by the way, the embarrasment of losing one's home is way more of a deterant than a few thousand down. The reason for most foreclosures is loss of job. Whether you put down 5% or 20% or 50%, if you lose your job and can't pay the payment and don't have the luxury of borrowing from mom and dad, what do you do?
Go read my blog on this topic....I am actually in favor of getting rid of DPA, with a huge caveat though....HUD could get rid of DPA and have it nver come back by doing one simple thing: 100% financing like VA.
http://blog.fhainfocenter.com/2008/07/fha-why-r...
There is a large segment of the population that does not have a gazillion dollars of "extra" income each month, making it easy for them to quickly save the thousands of dollars needed for a DP. Yes, I could have waited 5 years to save the additional funds above my emergency fund balance, but I would have missed out on over $10k in income tax savings. I would have also missed my the opportunity to realize a modest capital gain as I am now looking to move into a larger home and use the equity to pay off all of my current debt.
Anything done without moderation can turn into a 'bad thing'. I don't think that DPA is the sole culprit. Even with DPA, if I cannot afford to pay the monthly mortgage I should not be given the loan. If my credit history shows a failure to pay anyone ontime - I should not be given the loan. If I can barely pay the loan today at $1000, why would anyone ever think I will be able to handle $1500 in 2 or 3 yrs?
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