It appears that industry and government efforts may succeed in bringing back FHA approved seller funded downpayment assistance. Inman News has published information that negotiations are underway to pass HR 6694 before the October 1 deadline. HR 6694 would reinstate seller funded down payment programs, with additional underwriting guidelines.

Loans closed with a seller funded downpayment use funds from an IRS approved non profit grant to pay the buyer's funds for closing. The seller then reimburses the grant program from their sale proceeds at closing. This transaction is considered by many detractors to be no more that laundering. The real issue over seller funded downpayment assistance programs is the documented higher delinquency rate with these programs.

Supporters of these programs focus on the significant numbers of qualified home buyers who have been helped with seller funded down payment. Supporters believe that delinquency rates can be controlled with tighter approval guidelines.

These down payment programs were banned by the recent housing law, effective October 1. HR 6694 was submitted as soon as the new law was signed.

Negotiations between the House finance committee, chaired by Rep Barney Frank, the Senate, and HUD have focused on HUD's desire to implement credit tiered mortgage insurance premiums, which many oppose, and the desire of many in Congress to keep down payment assistance, which HUD opposes.

When the housing law passed, one of the provisions was to place a moratorium on FHA tiered mortage insurance. HUD responded by increasing mortgage insurance premiums for everyone.

HR 6694 is the compromise between these two goals. It allows tiered mortgage insurance premiums, which actually will help mortgage affordability. The higher premiums are not excessive, and will help restore losses. Better credit customers receive deserved pricing breaks.

Additionally the bill would reinstate down payment assistance, with underwriting guidelines designed to address delinquency issues.

There has been much support from many groups - mortgage industry, real estate industry, consumer groups, Congressional members, and others. This program is seen as necessary to provide home ownership options to many moderate and low income, qualified buyers.

Given the current real estate market, this program is an important boost for the housing recovery.

Brian Brady has posted some helpful updated information of these developments. He will discuss details in his radio program this coming Monday.

The ground swell movement to support downpayment assistance has involved many fronts. There is Wednesday a march on Washington for support. Jeff Belonger an originator member of Active Rain announced that he is one of the speakers at the march. Thousands of letters have been written. Congressional members have been contacted.

According to Inman News, these efforts may have produced a positive result.

The reported new credit requirements for down payment assistance are 1)over 680 no restrictions, 2) 620 to 680 allowed subjected to higher mortgage insurance, 3) under 620 not allowed. It is possible that new guidelines could be published later in 2009 after the new guidelines have been tested.

Here is a link to HR 6694.

And it is still not too late to write in support of down payment assistance. 

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

The local and national impacts of the new Housing Bill are significant and long term. The provisions of the bill will take some time to sort through. The bill was approved by the House earlier last week and by the Senate yesterday, after the President indicated on Thursday that he would sign the bill.

The circumstances of recent mortgage and financial market crisis events forced quick passage of some response, and this bill was already in place.

The Housing Bill brings many changes to the national and local real estate markets. The headline changes focus on foreclosure relief, Fannie Mae and Freddie Mac support and regulatory changes for both agencies.

This bill has several lesser publicized features. Many of which I probably have not been able to find amid all the news reports.

Some of the lesser known provisions include these changes to FHA lending:

Banning seller funded downpayment assistance (DPA). These are transactions in which the buyer uses grant funds from an IRS approved charitable foundation. The seller then reimburses the charitable foundation and pays the foundation a processing fee.

Problems with this program are mainly from higher loan delinquency with loans that include such downpayment plans. Additionally, it is perceived that the programs generally inflated the price of the homes and amounted to money laudering, according to many critics. I actually like the programs, myself.

Loans using DPA made up around 30% of FHA's total loan volume. These loans had 10% delinquency compared to 6% delinquency for non DPA loans.

This will have a significant impact on qualified buyers.

Increasing FHA minimum downpayment to 3.5%. I am not sure of the reason for increasing the minimum investment by.5% ? Now without the availability of DPA, home buyers will need to save another $500 for every $100,000 purchase amount.

This is still a relatively low down payment, but many people will struggle with this. I expect it to be a major impediment to home ownership.

This may be viewed as ensuring home buyers are more qualified. My opinion is that it will mean fewer home buyers at a time when home sales are already dropping.

FHA risked based premiums are held off for 1 year. These new premiums went into effect on July 14. I guess the risked based premiums will be in effect until October 1, when the newly enacted provisions of the Housing Bill are scheduled to go into effect.

There are many other provisions of the Housing Bill that will have significant and long term impact. As is stands now, there are probably more questions than answers as to what the impact will be. It will be iinteresting to see how the downpayment assistance companies respond.

FHA Reverse Mortgage (HECM) loan limits to be increased to the conventional loan limit for a single family residence.

More to come.

If any of these points are incorrect, please post a comment. This is how I understand these FHA changes, as described in several sources.

Some more specific provisions of the bill are outlined here from Reuters News.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation,
FHA Renovation, Mortgage Modification and Loss Mitigation

Mortgage lending offices located in Chattanooga, TN
rsmith@aamonline.com

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