What else is going to happen to prolong the housing slowdown and create additional road blocks to home ownership, especially for the First Time Home Buyer?
First, it was the end of Sub-Prime mortgages then, tougher underwriting standards at all levels of the mortgage industry, a housing market which continues to get pummeled and then HUD publishes their Final Rule concerning using private down payment assistant programs to fund the 3% minimum borrower investment on HUD insured properties.
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On October 1, 2007, The Department of Housing and Urban Development published in the Federal Register a new ruling concerning the Standards for Mortgagor’s Investment in Mortgaged Property: Final Rule which basically eliminates the use of privately funded down payment assistance programs that “in whole or in part, is funded by the seller or any other person or entity that financially benefits from the transaction or any third party or entity that is reimbursed, directly or indirectly, by the seller or any other party that financial benefits from the transaction”.
But Wait! Is there hope that this ruling could be over turned? Both the Nehemiah Corporations of America (Sacremento, CA), and Ameridream (Gaithersburg, MD) have filed separate law suits to challenge this directive. In addition the politician’s are beginning to make a lot of noise over this issue. An article published in the National Mortgage News on this subject says that the Nehemiah Corporation of America has a six month reprieve from this ruling because of a law suit from 1998.
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The Federal Register report revealed that there is a “2 to 3 time greater risk of default and claim with purchase loans that receive down payment assistance from the seller or other persons or entities that financially benefit from the sale of a home to the borrower than from all other loans with down payment assistance from all other sources”.
It also mentioned that in May of 2007, the IRS ruled that “companies that funnel down payment assistance from seller to buyers through “self-servicing, circular-financing arrangements” are inconsistent with operations as a section 501 (c) (3) charitable organization”. The down payment assistance companies sprung up all across the US during the 90’s and organized their companies as "Charities” to circumvent the HUD/FHA rules. Now their existence is in jeopardy.
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So where do we go from here?
HUD has been working on a 100% financing program by restructuring their mortgage insurance system to a tiered system, but it seems we are still a long way off from this happening. There are also public funded down payment assistance program like the Georgia Dream Program which is part of the Georgia Department of Community Affairs. They help create home ownership opportunities for first time home buyers through the use of state bond money.
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As dedicated mortgage professionals our consultation becomes even more important and the coordination between the real estate agents and lenders should strengthen as additional road blocks to home ownership are created. We are more than just mortgage or real estate sales people; we are consultants and counselor’s, we are educators and it is our responsibility to do the right thing and help create successful long term wealth through proper mortgage strategies.
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