Down payment assistance programs or DAPs are the pet project of every Realtor and home builder lobbyists ever since they came into existence. However, HUD got courageous a few months ago and outlawed them only to them get resurrected by the NAR (National Association of Realtors) in a House bill and now by the home builder lobby, the National Association of Home Builders (NAHB), in the form of a provision attached to Obama’s stimulus bill.
Taking a walk down memory lane, we see DAPs as a method to get the seller to fund the down payment of buyer through a “non-profit” go-between company to make it all legit. Needless to say this encourages real estate agents and home builders to dig up every cash-strapped joker with a job and convince him to buy a house…which they did unabated for years…until HUD figured out the awful truth…
What was that awful truth?
1. Sellers simply jacked up the price of the house to cover the “down payment assistance”, immediately putting the buyer upside down or “underwater” on value.
2. Home buyers that used DAP defaulted on their mortgages at a rate 3 times the norm.
No big surprise there really. But the surprise comes in the middle of a financial crisis, DAP still has proponents that are NOT hung from the highest tree…namely NAR and NAHB. Talk about arrogant and self-serving. This persistence in pursuit of a dangerous financial structure which is as toxic as any subprime mortgage, borders on criminal.
Can you image what would happen if the President of the National Association of Mortgage Brokers sponsored legislation or tried to attach provisions demanding subprime mortgages get reinstated?
This just goes to demonstrate how much political clout Realtors and home builders enjoy that mortgage brokers don’t.
What Is Old Becomes New Again
Included in the stimulus bill just passed by the House, is a provision sponsored by NAHB requesting a tax credit of $10,000 to $20,000 for buyers of any personal residence. But their outrageous proposal allows the home buyer to get his credit now…to “monetize” the credit at closing.
This is just another dressed up DPA. The home builder lobby wants the taxpayers to fund down payments so others can buy a house with no money down.
But that’s not all…they also want Uncle Sam to pay for an interest rate reduction too.
The Housingwire.com reports it as,
The housing stimulus NAHB is advocating involves a temporary program that would be effective for any home — new, existing, or foreclosure-sale — purchased in 2009 as a primary residence. The buyer would not be required to repay the credit, which would range from $10,000 to $22,000 depending on the local mortgage limits regulated by Fannie Mae and Freddie Mac . The credit could be “monetized,” or moved up from the buyer’s tax return to the date of closing, to be used as the down payment for the home. It would act in concert with a federal mortgage rate buy-down, which would vary depending on which part of 2009 the buyer closed the purchase in.
Can you believe this?
After all we’ve been through in this financial crisis which was clearly caused by 2 million home buyers who were enticed by greedy commission chasers into becoming home buyers prematurely due to an abundance of “easy money”…could we still have NOT learned our lesson.
Is that possible?
I guess it is…
If this provision passes the only thing in the housing industry that will get stimulated is Round 2 of unqualified, unprepared home buyers being lured back into the housing market only to default a few years later.
This Round 2 housing crisis will further elongate a home price slump and our current recession.
Well, at least, the Realtors and home builders get what they wanted…