Down Payment Assistance Rears It’s Ugly Head Again


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.

DAP Revisited

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 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…

About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog,, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.


  1. If this were to go through, I don’t see it having the same effect as it did in years past. When buyers were using this program, they were also buying homes they couldn’t afford along with a mortgage that was only setting them up for disaster.

  2. The dpa programs are not the problem with our current economic crisis. I have yet to see a report which outlines dpa produced “3 times the foreclosure rate than norm”…this statement is not only FALSE but is the main reason why so many are against the program. The cause for the default on mortgages is due to the shady lending (adjustable rate mortgages) which created balloon payments for the homebuyer which they could not afford. The dpa programs are used with FHA loans which are fixed mortgages- the monthly payments are consistent. Nonetheless, the dpa programs did not create the problem.

    In addition, these programs help stimulate the economy. They help provide work for realtors, title companies, lenders and everyone associated with the real estate process. Currently, the housing market is down because there are no programs out there to help our citizens. Many of you are responding “if you can’t save your own money then you should not be able to buy a home”.
    Should we apply this way of thinking to higher education too? The interesting thing is our tax dollars are distributed to higher education, for those working Americans who can’t afford to pay for the children’s education. How many of you know of a program that helps thousands of families buy homes and costs the government zero dollars? My point is before you judge dpa programs, get the facts straight.
    – concerned citizen-

  3. “Easy money” programs ARE the cause of our housing bubble and subsequent bust…DPAs being one of them.

    You can read the actual HUD and GAO study here if you don’t believe that DPA borrowers default at 3 times the norm.

    Creating a “new bubble” regardless of who it “helps” in the short run, kills us all in the long run.

    Natural housing market equilibrium is the goal…and the sooner we hit it..the better for ALL Americans…not just home builders and real estate agents.

  4. Homebuilders are one of the biggest users of DPA’s, and from news articles I’ve read, quite a few foreclosures are in new developments. Years ago there were warnings that prices were being artificially inflated, that bubbles always burst, and that mortgage fraud was rampant and a danger to the economy. DPA’s were criticized by the IRS and HUD as well as others, called a money laundering scam and it was proven they led to more foreclosures and inflated values. The FBI said mortgage fraud was being done mostly by the industry itself; their plea for more resources to fight it were ignored by those in power.

    All these warnings were ignored by mainstream media, the govt, and of course the industry and any flippers who fancied themselves as savvy investors. When the whole thing predictably crashed, the industry made itself out to be a victim instead of the perpetrator, and demanded various bailouts…still is demanding. At least HUD and Congress had the sense to ban these DPA’s, one step in the right direction. Now the industry is again using it’s immense coffers and political connections to try and inflate the bubble again. None of this has a thing to do w/homeownership, but it has everything to do w/corporate profit. That our elected officials would even give them the time of day is obscene.

  5. Daniel Callison on

    DPA’s are an awesome tool in a high market area. My wife and i make well into the six figures but with outrageous rent in the washington metro area we had to turn to Ameridream to assist with the purchase of our first home. We didnt have a rich uncle or parents to give us the 20000 required for downpayment on our 350000 FHA insured mortage! Doing away with DPA is a HUGE loss to our economy and further troubling the houseing market. We CAN make out mortage payments, we have been paying ahead even. So to the author of this article, please take head in making generalizations. We both have college degrees and great jobs in the IT field, but could NOT have started building our families home without Ameridream! I truely hope this is still in the bill because at least 3 other couples i know are in our shoes and need this type of assistance to start the road to home ownership.

  6. People on multiple sites, blogs, and in the news have failed to address or mention the true “Root” of all of this mess. Every bit of this is directly due to the fact that there was not clear guidelines and rules established and “ENFORCED” when DPA was being used in the past. DPA is not an issue when the guidelines and rules that govern it are being fully used and enforced. The obvious main reason for so many lenders, sellers, builders in the past to abuse the program, was “GREED’. They wanted the money today, so they turned a blind eye, and allowed people to buy when they did not verify income, or true ability to pay. Point in case, if you wanted to buy a house today, lenders will figure your debt to income ratio, on just the debt that has to do with monthly bills for credit cards, cars, electric, water, etc. they don’t even mention or figure in living expenses for a person, persons, or family that when hard times come, they will buy and pay for (food, clothing, gas), and let the mortgage slip. They basically help people buy a home, and become house poor, right off the bat, and place them right on the edge, and hope they don’t sink, because they are greedy themselves, and want to close another loan.
    DPA is a good program that when placed in the hands of greedy untrustworthy people becomes perverted. There is a happy medium here, you don’t have to throw out the baby with the bath water. Set clear guidelines, attach jail sentences and fines (the jail sentence should be first) to those who cross over the line, period end of story. Once again America takes a soft line on something so important, and we wonder what went wrong, then the knee jerk reaction at the outcome, without getting to the root problem.

  7. People on multiple sites, blogs, and in the news have failed to address or mention the true “Root” of all of this mess. Every bit of this is directly due to the fact that there was not clear guidelines and rules established and “ENFORCED” when DPA was being used in the past. DPA is not an issue when the guidelines and rules that govern it are being fully used and enforced. The obvious main reason for so many lenders, sellers, builders in the past to abuse the program, was “GREED’.

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