FHA Reform To Ban Downpayment Assistance

by Peter G. Miller
July 23rd, 2008

If all goes according to plan, FHA reform will be taken up and passed by the House this week.

In the midst of the cheers for the many advances contained in the bill, one sure outcome will be a second look at downpayment assistance plans (DPAs).

It now seems entirely likely that DPAs will be dropped under the reform measure, something HUD has been trying to accomplish for years and without success. Why? No court has bought their logic or their numbers.

The issue with downpayment assistant plans is very simple: They are a mechanism which allows those without dollars to buy a home. Owner Smith wants to sell his property. Instead of taking a price reduction, he pays 3 percent to a third-party non-profit plus a small fee, say $500. The non-profit provides a grant to buyer Jones and the deal is done.

There are other ways to accomplish the same result. For instance, an owner could provide a 3-percent “seller contribution” but such money cannot be used for a downpayment. Or, Mom and Dad could provide a gift.

The restriction on seller contributions makes no sense. Money is money. The reason DPAs popped up was because HUD does not allow seller contributions for downpayments. But if Mom and Dad are rich, then parental assistance is just fine.

FHA reform will pass with a DPA restriction. This is the price to be paid to get the measure through Congress with a veto-proof majority — remember the President wants to veto the whole package. But you can bet that within days after the bill becomes law that new and targeted legislation to allow DPAs will be introduced — and that DPAs will be back before November.

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6 Responses to “FHA Reform To Ban Downpayment Assistance”

  1. Tom Lawler Says:

    Taxpayers should be ecstatic that the seller-finance DPA prgrams are gone! Programs where sellers essentially hiked the sales price, but then “contributed” the down paymnent (and closing costs), ran counter to the intention of the program — to have a minimum down payment. Defaults on seller financed FHA loans have been massively higher than “regular” FHA loans, and ending the program will save taxpayers tens of billions of dollars. Data showing performance can be found at http://www.hud.gov/offices/hsg/comp/rpts/actr/2007sec4.pdf

  2. April Says:

    I am a tax payer and I am not happy. I will not save tens of billions of dollars. If anything thats tens of billions of dollars that the government will find something else to use it for. Its not like they are going to lower taxes now that this program no longer exists.

    I am in the process of trying to puchase a house and do not have rich parents. I think people are forgetting the purpose of the program, which is to help those that need help with a downpayment to purchase a house.

    Instead of doing away with the program, how about you do something about the problem? If you know people are taking advantage of it, why not go after them. Make an example out of them.

    I am not going to pretend like I know what the solution is but I know that taking away the program is only going to hurt the ones it was meant to help.

  3. carl matos Says:

    I need DP to buy my home

  4. Mark Says:

    I am not so happy with this. I am looking at an FHA loan with a requirement for 3.5% down. Now I don’t have the best of credit, and my wife is pregnant. Any money we have has gone to pre-paying for the delivery, which our OB wants and the hospital did’t require, but we though it best to get as much of that out of the way. I am currently paying $752 a month in rent, and the loan I am looking at will be about $300 a month. So how does this really help me? Not at all. How does it help other taxpayers, not at all. If I cant get approved for this, then I really wont be paying any interest on this loan, so the pot cant profit. Not counting the fact that I still pay my taxes. I just don’t see how this helps. I would agree to income restrictions on this.

  5. Don Says:

    we need DPA

  6. Sonja Says:

    Government idiocy. The DPA’s (at least the legitimate ones) were disigned to help the LOW income and disabled people be able to attain affordable housing, without losing their normal benefits. The government thusly stopping these, has the gall to essentially say that Low income and disabled, have to SAVE 3.5% down payment which on most cases is well above $3000, and SSI programs, limit your savings to $2000 or else all your benefits get taken away. This is another way for GOVERNMENT to SCREW the LITTLE people, and give to the RICH.. What is wrong with the picture.. THe Rich use the programs to screw the little people.. What the Government needs to do is crack down on the Rich jerks that make life miserable for the LOW INCOME people.. Forcing everything that is good to be taken away, because They-the rich, take it from the rest of the people that could HONESTLY use it.

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