In the midst of the mortgage crisis, rising interest rates and tighter lending and the disappearance of 100% financing, the last lending option has been taken away for credit worthy borrowers who lack the money for a down-payment
Down-payment assistance programs like 
have offered Phoenix area home buyers....an opportunity to obtain mortgage loans with the help of non-profit organizations and charity assistance groups that contribute the down-payment for buyers to obtain FHA loans.
However,
Federal Regulators believed that these lending practices and programs is actually a contribution or kick-back from the seller. Here's why.
The buyer is including an extra amount (usually 3%-5%) in the price of the loan which is insured by FHA which insures all loans involving down-payment assistance. The money then is a credit funneled from the seller to the non-profit organization to the buyer as a down-payment.
This practice, which has been described as a ‘loophole' in FHA guidelines that allows down -payments from charities has been banned.
Now that sub-prime loans require much higher down-payments, this has become a very popular strategy to get risky loans approved with little money down that are still insured by FHA. Thus, Wall Street buyers of loans can more comfortably buy the debt as any default would be insured by the FHA.
The housing-reform bill eliminatd this practice.
What do you think?? should this be reversed ??
Would Down Payment Assistance Programs Help or Hurt the Credit Markets?
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wexler -
FHA and DPA programs are an awesome way to help lower income and asset borrowers experience the dream of homeownership.
As long as all parties are in agreeance with the contract what's to lose? In this market, and "outside the box" ways to help get rid of this inventory is a blessing.
James - I agree, lower asset borrowers do not mean you are not qualified. Though, that is what the new lending guidelines seem to tell us.
If you have the credit score, and employment income, you may very well be able to afford a home
James ,
I think we need this back to stimulate the entry level housing market. Yes, the guidelines need to be more strict to prevent fraud, however, if entry level housing cannot get going, those people cannot sell their homes and move, up and so on and so forth
jason - excellent point.
If entry level homes cannot sell then it trickles all the way up as many people use the proceeds for the purchase of the next home.
We need to see this ban on DPA reversed. In AZ there are a lot of dual income families with no debt.
However, they have not been able to save long enough to have 20% , even on a $200K home, which there are not a lot of , thats $40K not including closing costs.
The morgtgae would be less then rent , yet they cannot buy a home.
Barbara - thank you very much for pointing out how restrictive the so-called easing of credit has been. Excellent example.
Yes, there is more money to lend, but only to the absolute best borrowers with signficant down payments.
I am a hispanic American who earns about $60K/year. My wife also earns about $60K year. We have been saving money but kids are expensive and do not have money for a down payment on a $150,000 home. How do we buy? my friends used ameridream and are happy. what do I do
Mr. Cortez - this is a sad situation that many americans like yourself now face since the broad ban on all down payment assistance
someone like you and your wife would be the same or less for your mortgage then rent and additonally realize the american dream, build equity, have a place to raise a family and contribute to the economy and real estate market.
However, as the law stands, DPA is illegal. I am hoping that there will be be some change and DPA will be allowed back in some situations. I hope its soon.
As a FHA direct endorsed lender, I can tell you that DPA's were a blessing to many buyers. Our housing market is going to be hurt even further because these funds are no longer available. The problem? We don't have anyone in leadership roles that knows what helps. NAR, NAHB and even NAMB backed HR 3221 that banned seller funded DPA's. I could not believe that these organizations would possibly do this to their members.
We need to reverse DPA bans, and get this housing market turned back on.
Russ- thanks for the comment.
In many areas, Phoenix is one of them, the ban on DPA has further hurt housing. I know it is easy for us to spend the banks money.
However, an outright ban of DPA , which is aimed at lower-income borrowers may very well be a form of redlining
DPAs are a necessary part of the programs available to first time home buyers. In today's economy, it's hard to make ends meet, let alone save money for a downpayment! Getting DPA does not make a borrower less qualified. Lenders just need to be more diligent on the borrowers ability to pay a debt. Steady employment, history of paying bills - these are the criteria indicating the ability to pay future debt. Where your downpayment comes from is not. FHA allows downpayments to be gifted. Why should it matter if the gift if from AmeriDream, Nehemiah or some other grant program or a family member? DPA programs are one way to move all this inventory that sits on the market. And until the inventory moves, values will continue to decline.
Roz - thanks for the detailed and well thought out comment.
I am going to re-iterate what you said because it is critical
I'm a potential first-time homebuyer. I didn't buy during the boom because I knew I could not possibly afford the rising home prices. I make $55K a year, have good credit and have faithfully paid my rent for 20 years - on time. I've raised my daughter on my own and do not have money for a downpayment because I have been paying my daughter's college tuition and helping to support her until she graduates.
I cannot buy - I don't have the funds for a downpayment at this time. I'm a potential creditworthy buyer who will not be able to purchase. I'm sure there are many others like me out there. I think it's a shame that the DPA programs are gone. Why not change a few simple things - such as DPA assistance only to those that are creditworthy and have income? How many received DPA with bad credit and no job verification? Now it's ruined for everyone and this market needs first-time homebuyers.