MN Mortgage Broker Interprets Pending "Housing Rescue" Legislation As Killing Off The First Time Home Buyer And Extending The Housing Crisis

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Mortgage industry veteran shares her knowledge as it applies to Section 113 of the "Housing Rescue" Legislation eliminating down payment assistance (DPA) that is pending before congress this week. Our fragile real estate and mortgage markets will be impacted extremely negatively if this bill passes and is signed into law. FHA loans are now providing up to 40% of new loan originations and up to 30% of those loans are using DPA programs. It is estimated that between 300,000-500,000 families will be unable to purchase a home next year if this change becomes law. First time buyers will remain renters and homes will stagnate on the market unless we maintain the use of down payment assistance with existing FHA mortgage programs. Working class families and minorities are projected to be the groups most affected.

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the House will yield to the Senate on the termination of seller participation in down payment assistance programs.

Mortgage Broker-Venture Development shares salient points and opinions regarding the government proposed solution to the housing crisis. In an article today in the Washington Post, Chairman Barney Frank of the House Financial Services Committe is quoted as saying that "the House will yield to the Senate on the termination of seller participation in down payment assistance programs." Down Payment Assistance will end as we know it if this is signed into law by the president. Down payment assistance under the current guidlines allows the private sector to provide the solution. The Bill as proposed presents no government alternative or any alternative suggestion on how to keep the program intact.

The progression of home sales within the housing market is dependent on first time home buyers starting the domino affect. Their home purchases are the catalysts that allow people to sell their existing home and then move into a new property such as a larger home, condo or townhouse. In order to keep the housing market moving forward, we need to encourage home ownership at the beginning of the cycle. Mortgage programs that are underwritten with greater flexibility regarding credit, income and down payment will create more homeowners. We need mortgage loan programs that allow you to buy a home with as little money down as possible. This law will make buying a home more difficult with the elimination of a loan financing option.

As recently as March of 2008, there were conventional loans that allowed for 100% financing such as the Home Possible, My Community, and 80/20 combination first and second mortgage programs. Declining property values coupled with high mortgage delinquencies in all real estate markets have all but eliminated investors for these types of high LTV loans. In addition, due to large losses by private mortgage insurance companies (PMI) there is an unwillingness of mortgage insurers to insure these loans. Hence these loan programs have either been eliminated or now require a down payment. With Fannie Mae and Freddie Mac's current financial problems and the overall state of the mortgage markets, don't expect that they will be creating any new high loan to value zero down mortgage products anytime soon. The Housing Crisis will get worse-not better-by eliminating mortgage programs that work. We are bearing witness to that today.

Herein lies the problem. Most first time home buyers lack sufficient resources for the down payment and closing costs. They often have good credit and the ability to make a payment. Until they save enough money, they are left out the housing market. FHA loans currently allow buyers to obtain down payment assistance (DPA) from a relative or from a qualified down payment assistance provider. This means that buyers without enough current resources may be able to obtain enough funds to buy a home today. There are a number of approved down payment assistance providers-some of the largest names are Nehemiah, Genesis, and Ameridream. In a nutshell, these non-profit organizations issue down payment assistance to a prospective home buyer and then collect funds from the seller of a home who has agreed to participate in this program at the time of closing. The non-profit charities charge an administrative fee of between $300 and $500 to facilitate with the assistance of this funding. FHA sometimes refers to this arrangement as seller funded down payment-which they don't allow. Although the funding is coming from a non-profit, the FHA perception is that it is actually from the seller, albeit indirectly. The problem stems from losses. According to FHA, they have experienced larger losses on portfolios of loans that were funded with DPA funds. Further studies are needed. HUD has provided statistics that are open to interpretation.

In fact, FHA hopes to eliminate these programs altogether through the fast tracked housing bill going through congress now. Time is of the essence as the Senate and House are fast-tracking this bill.! The senate version-which is the supported version-will eliminate DPA. What would this mean? Let me make this clear-if this bill passes fewer houses will be sold. More qualified homeowners will remain as renters. More homes will stay on the market and the real estate and mortgage crisis will get worse. DPA funding offers a solution to our crisis by making homeownership possible.

Mortgage foreclosures can be addressed with better underwriting rather than through legislation. If there are problems with the way things are being done within the current DPA program then let's work on modifying them. Let's identify solutions-such as raising the minimum required credit score on DPA funded loans. This would probably lower the defaults and match the underwriting to the risk. Elimination or outright banning of DPA programs that are currently helping our ailing housing market is foolish. As a Minnesota FHA mortgage broker who works in the market on a daily basis, I can tell you about clients who are good people who want to become homeowners. Their shot at owning a home depends on these programs. Get involved and learn more. The consequences of making the wrong decision about the fate of DPA's will affect our entire economy.

Many mortgage brokers and banks are not offering FHA financing. Twin Cities mortgage broker Venture Development provides FHA mortgages and works with buyers that wish to utilize down payment assistance. We encourage all borrowers-not just first time buyers- to consider FHA financing and compare it to conventional or veteran financing options. The interpretations and opinions expressed herein are those of the Principals of MN mortgage broker Venture Development.


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Patti Mazzara MMS

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