August 17th, 2008 Categories: FHA
Eliminating the Down Payment Assistance Programs Including AmeridreamHUD has claimed that those loans that have a Seller Contributed Down Payment Assistance have a disproportionally higher foreclosure level. According to an article on FHA Mortgage Guide, Scott Syphax, the president and CEO of Nehemiah Corporation of America, says that HUD’s “own inspector general cited as unreliable. In short, FHA undercounts the number of DPA loans by up to three times and divides that number into the number of claims it pays.”
We hear things like three times as many. We never hear actual numbers. I would like to know what the number is and how does it really compare to other loans. I have a feeling the problem is not in the DPA program but in more in the area of fraud. The reason I say that FHA is a fully documented loan. There is no stating your income. You have to prove income, rent… I think that the price is increased to compensate the cost which in turn puts pressure on the appraisers.
So let’s look at how many HUD homes (a HUD home is foreclosed FHA loan) are out there right now. Currently in the Wasatch Front MLS which covers 29 Counties less than 1/10th of a percent of the active listings are HUD homes.
So in hindsight we are going to punish those that can actually afford to make payments while tons of people made fortunes committing loan fraud. The fraud was not at this level but somehow the government seems to think this is a good idea.
I recommend that the program be modified to allow only a three percent contribution. Then the buyer and the lender have to use premium pricing to cover the loan closing cost. I believe that when the loan officer and the buyer have to pay the closing cost that the cost will be monitored and scrutinized little better.
This helps on a couple of levels, in the end the buyer owes less. Yes they may have a little higher interest rate, but that’s the price for not having a down payment. It is better to owe less at a slightly higher rate than to owe more with a little lower rate. I know the lower rate makes sense in the long haul, a borrower can always do a stream line re-fi or come up with a down payment. Besides the life expectancy of the loan is about five years. Plus prices won’t be falsely inflated to cover the down payment and the closing cost.