The real estate industry has always had a bad reputation when it comes to honesty and ethics (see historical annual Gallup Poll rankings on honesty and ethics in professions surveys).

A program where buyers are told they are getting a gift and then have to pay for that gift in the form of a higher price and inflated mortgage balance is simply not honest.

Now I often see how some argue that prices are raised when sellers pay for recurring and non-recurring closing costs and that those are built into the price of the home also; so what’s the difference? The difference is that there is no certification of a gift with those concessions. There is no representation to the home buyer that he/she will be given the closing cost assistance free and without charge. That’s not the same as the “gift” programs. They are certified to be free.

Also, you see the “nonprofits” argue that the “appraisal comes in” so that makes it okay. What they don’t tell you is that appraisals are not exact by their very nature. Appraisals are opinions of market value defined as “estimates” in HUD handbooks.

Existing anti-flipping regulations and more recently, a 2008 FHA Mortgagee Letter state that under certain circumstances, such as the quick resale of a home at an increased price, the underwriting of an FHA loan requires that a second appraisal be obtained to verify the property value. As long as the second appraisal is not more than 5% below the first appraisal, the first appraisal is acceptable. Effectively, HUD has declared that the permissible tolerance between two appraisals is 5%.

The “gift” programs distort sales prices by the 3% down payment requirement plus the “gift” fee charged by the “charity.” Now you can see that the sales price inflation can live like a virus within the acceptable range between two appraisals. Like a computer virus, just because it can find a place to hide in the system, doesn’t make it legal.

The problem is not with the appraisers. How can HUD discipline an appraiser for an “error” of less than 5% when HUD itself has committed to 5% as an acceptable tolerance? So when the “charities” send you after a red herring that “the appraisal comes in” so all is well - think twice. The problem is that there are two different prices on the home. The appraisal issue is a distraction designed to get you off the subject of price inflation.

Let me suggest a mental exercise to see if you think making someone pay for their gift is honorable or ethical. Let’s say it’s your birthday party, and some character shows up that you have never met before. Strangely, this character has brought with him a $4,000 gift (big screen, vacation package, fill in the blank of what $4,000 gift you would like for your birthday) and makes a “big todoo” about it. Kind of odd since not even your parents or other family members, people who actually know you, gave such a gift. After all the fanfare, and the OMG thank you so muchs, the stranger leaves … and leaves you wondering who was that man who gave me so much and why would he give me – a stranger – so much?

A little time goes by and one day, after work, you go home get the mail and are stunned to see that that nice man had charged that “gift” to your credit card. But it doesn’t end there, he also charged you a $750 fee for getting you the gift! Now what do you think of him? Now you know why he crashes every birthday party in town with his “gift.” Welcome to Nehemiah.

I have to stop typing now because I ran out of quotation marks.

Simple as that. Underwriting guidelines may need to stiffen but DPA is not the issue.

Lowing less is a good thing, the pricing premium on the loan is for not having money.

There’s more costs to owning a home than just the mortgage payment. If you can’t come up with 5-10% for a downpayment what are you going to do when you are hit with the cost of a new furnace or septic system? Default, that’s what.

Home ownership is great, and a great thing for people to strive for. So much so that they should be willing to sacrifice for it.

But for some strange reason, that transaction is “ok” under the FHA’s down payment assistance program when “non-profits” get a “contribution” from the seller which they pass on to the home buyer who uses it to make a “down payment” on a FHA loan (and usually the “contribution” includes funds for closing costs as well, and where the seller “recoups” the “contribution” by selling the home for a price higher than the seller otherwise could sell the home. The data suggest that such loans, not surprisingly, performing poorly that “traditional” FHA loans, and it is fully understandable why FHA/HUD wants to eliminate such programs.

Nehemiah’s marketing literature to home builders, e.g., notes that if builders use the program, they can sell homes without using “incentives” (that is, effective price reductions to market levels) — meaning that the use of its program enables the builder to sell the home for an “above market” price.

If Congress wants the FHA to provide no down paymnent loans to certain borrowers — enact legislation that is clear and explicit about such loans, rather than keep in place the “sham DAP” programs.