Will buyers go away without seller assistance loan programs?

Last night, Congress introduced bipartisan legislation, H.R. 6694 that would reauthorize and reform charitable downpayment assistance. This bill would remedy a harmful provision in the new housing law which limits homeownership opportunities for low and middle-income Americans. The legislation, sponsored by U.S. Reps. Al Green (D-TX), Gary Miller (R-CA), Maxine Waters (D-CA), and Christopher Shays (R-CT) reauthorizes and reforms charitable downpayment assistance funded in part by sellers, which has helped over one million families and individuals become homeowners since 1999. The program was eliminated by legislation signed by President Bush on July 30, 2008.

 

The Green-Miller-Waters-Shays plan would re-authorize and reform non-profit downpayment assistance and secure it as an allowable source for FHA borrowers. The bill seeks to ensure that providers of the downpayment assistance operate in a transparent manner to guard against conflicts of interest. The bill also includes language to ensure that FHA maintains its financial stability by permanently authorizing the Secretary to assess higher premiums to higher risk borrowers.

 

There are those who feel that we should go back to the days where you have to save money to afford the downpayment for a home purchase and there’s some truth in that theory.  In today’s “instant gratification” philosophy, fewer and fewer borrowers are saving towards a home purchase and are asking seller’s to contribute up to 3% towards their downpayment. This hurts the seller’s bottom line.  If a buyer can’t save money towards a downpayment today, will they be able to save money from each check to make their monthly mortgage payment along with their other bills?

 

Lenders are worried that the elimination of Seller Assistance programs like Ameridream will severely impact the number of loans they write and subsequently the amount of money they make.  Many Realtors feel the same way.  Elimination of these programs is going to dramatically decrease the number of buyers who can qualify for a home purchase.  With a glut of homes on the market, this will negatively impact sellers as well.

 

What do you think?

 

 

 

 

Comments

  1. Amy, I find myself torn between wanting this new legislation to pass through and thinking that perhaps we need to force folks to save up a bit in order to buy their homes. It’s a tough issue, as I do know many families who have honestly benefited from DPAs and are still on track with their finances. It would be a shame to see these folks miss out.

  2. Kevin, I agree. I have represented many hard-working people who have utilized the Ameridream in purchasing a home. I guess I can see both sides of the issue. Maybe a compromise could be made wherein a seller credits the buyer with the downpayment with the program allowing the buyer to pay it back to the seller over a specified period of time? Just a thought here~

  3. George King says:

    Amy,
    I agree with Kevin, “it’s a tough issue”. I do read however that the introduction of the new bill includes some regulations such as requiring the buyer to have a credit score of 620 or higher. This means the buyer has proven they can make those payments or has at least cleaned up their credit rating to get to 620. This may help relieve some concerns. Then again maybe it doesn’t go far enough to protect the banks which ultimately affects all consumers. I would think there should be some LTV provision as well. I continue to support DPA and have found a site with lots of information on the regulation. Visit http://www.dpagroundswell.org. I think this is a sponsored grassroots effort but it is still worth a visit.

  4. George,
    Thanks for sharing the DPA website.

    FHA Buyers in the Phoenix area are scrambling to secure a home. I’ve heard some lenders are actually sending out the notice that they will write no more FHA loans requiring seller assistance after 9/1/2008 due to the fear of a backlog of loans and the risk of these loans not closing by the 10/1 deadline.

    I’ve also heard many conventional loan buyers are actually waiting until after 10/1 because they feel many homes priced under $300,000 have been priced to include the anticipated seller contributions. They’re hoping the prices will fall after 10/1. I personally don’t think this is going to happen…but time will tell.