Comments on: Apples & Oranges http://www.fhaloanpros.com/2008/07/apples-oranges/ The Unofficial Guide to FHA Loans & Mortgages Wed, 17 Mar 2010 05:05:20 +0000 http://wordpress.org/?v=2.6 By: Tom Lawler http://www.fhaloanpros.com/2008/07/apples-oranges/#comment-19162 Tom Lawler Thu, 03 Jul 2008 02:38:55 +0000 http://www.fhaloanpros.com/2008/07/apples-oranges/#comment-19162 A few points: 1. Why should the FHA "require" a 3% down payment, but then let the seller "pay" the down payment by hiking the home price by 3% -- effectively meaning that it is a no down payment, 100% LTV loan. If you think the FHA should have a no down payment loan program, then let Congress create legislation to allow it, rather than having a "fake" 3% down payment program that is really a no down payment program. The DPA program is designed to circumvent a 3% down payment requirment in a "sham" transaction. 2. In the case of the FHA DPA program, the FHA is taking on the credit risk of the loan. Yes, the FHA (and the lender) know about the DPA. And yes, the FHA has found that loans under the DPA program default at a massively higher rate than "regular" FHA loans. So yes, the "lender" and the "insurer" know about it, and the insurer wants to end the program because it is too risky. But for some reason it can't? That makes absolutely no sense. Sure, if a lender who takes on the credit risk of the mortgage knows about the DPA and still makes the mortgage ... well, that's fine. But in this case, the entity taking on the credit risk (FHA, representing taxpayers) DOESN'T WANT TO INSURE SUCH MORTGAGES. And it shouldn't. A few points:

1. Why should the FHA “require” a 3% down payment, but then let the seller “pay” the down payment by hiking the home price by 3% — effectively meaning that it is a no down payment, 100% LTV loan. If you think the FHA should have a no down payment loan program, then let Congress create legislation to allow it, rather than having a “fake” 3% down payment program that is really a no down payment program. The DPA program is designed to circumvent a 3% down payment requirment in a “sham” transaction.

2. In the case of the FHA DPA program, the FHA is taking on the credit risk of the loan. Yes, the FHA (and the lender) know about the DPA. And yes, the FHA has found that loans under the DPA program default at a massively higher rate than “regular” FHA loans. So yes, the “lender” and the “insurer” know about it, and the insurer wants to end the program because it is too risky. But for some reason it can’t? That makes absolutely no sense.

Sure, if a lender who takes on the credit risk of the mortgage knows about the DPA and still makes the mortgage … well, that’s fine. But in this case, the entity taking on the credit risk (FHA, representing taxpayers) DOESN’T WANT TO INSURE SUCH MORTGAGES. And it shouldn’t.

]]> By: sfvrealestate http://www.fhaloanpros.com/2008/07/apples-oranges/#comment-18964 sfvrealestate Wed, 02 Jul 2008 02:19:14 +0000 http://www.fhaloanpros.com/2008/07/apples-oranges/#comment-18964 In my opinion, DPAs aren't really charities. They're set up to launder money, essentially, for a relatively small fee. As a Realtor, I'm not against downpayment assistance. I'm just against phony charities. In my opinion, DPAs aren’t really charities. They’re set up to launder money, essentially, for a relatively small fee. As a Realtor, I’m not against downpayment assistance. I’m just against phony charities.

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