House Passes H.R. 6694, Saving Down Payment Assistance!
Amidst all the talk of bailouts and the major housing market problems we read about daily in the news, an important bill has quietly made its way through the House of Representatives and is now awaiting Senate approval. This bill is H.R. 6694 - a relatively short (6 pages) bill that seeks to reinstate seller-funded Down Payment Assistance Programs, or DPAs. HUD despises these DPA programs, alleging that they have a default rate between 2-3 times that of an FHA loan where the buyer brings in his or her own down payment.
Unfortunately, HUD took the path of least resistance and sought to abolish DPAs altogether instead of studying the defaulted loans for patterns that contributed to the defaults. This has effectively removed countless thousands of potential homeowners from the market, at a time when we need them most. I can’t help but wonder what wisdom there is in wholesale eliminating these types of loans at a time when our housing market is so desperately in need of buyers?
I should also note that one other hastily-instituted provision of the Housing & Economic Stimulus Act was that of risk-based pricing. Previously, the FHA had only one Up-Front Mortgage Insurance Premium (UFMIP) of 1.5% and one monthly Mortgage Insurance premium (MI) of .55%. The Act introduced several different levels of UFMIP and MI based on a combination of credit scores and loan-to-value (LTV) ratios. Congress has already moved to eliminate this confusing and poorly thought-out provision of the Act after only a few months of being in place, so why not also reinstate access to the use of DPAs at the same time?
I am a big fan of DPAs. I believe that under the right circumstances, they can be a beautiful solution to homeownership. If HUD is concerned about the level of default, then perhaps it needs to better assess how to make them safer. This can be done at the underwriting level, perhaps by increasing the reserve requirement for loans that include DPA or maybe even reducing the percentage the client is allowed to accept based on that particular client’s credit profile.
I welcome all comments. If you’re also interested in seeing DPAs stick around to live another day, now is the time to contact your U.S. Senator and ask them to expediently pass H.R. 6694. Here is a page you can use to locate your Senator. If you wish to read the full text of H.R. 6694, it is available here.
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Chuck Webb said:
Greg, Thanks so much for this news. Although we have been waiting anxiously for the House to approve it, we are down to the wire on this one. I work for Futures Home Assistance in NC and have been urging everyone in the housing industry to contact their Congressional leaders to tell them to vote for this bill. Let’s hope that it will get a swift approval in the Senate where DPA has had a rough history thus far. Please forward the site from which you got the news from the House.
Best Regards,
Chuck Webb
Futures Home Assistance
http://www.fhap.org
Ken Cook said:
Chuck is right. I have been very active in lobbying and we’re not home safe yet. You still need to contact your SENATORS and get behind this. It has not yet been heard in the Senate and that’s where the really big challenge is right now since they have been convinced by HUD and The National Multi Housing Council and National Apartment Association that this is what caused the need for the bail-out. You and I know this is NOT the case and that 20% to 40% of the homes that may be sold over the next 24 months will not be sold if seller funded DPA is not re-instated. Most people falsely believe that ALL DPA is gone when the only one that is gone (by this law from HR 3652) is the most highly regulated form — seller funded. Thanks for the article and keep up the good fight for the people in Washington who need caring, intelligent lenders like you.