Support for the FHA's efforts to ban seller-funded downpayment assistance (DAP) in connection with FHA-insured loans is gaining steam. The front page of today's The Wall Street Journal had a lengthy article on the subject that showed how certain homebuilders are using DAP to make "100% financing" pitches designed to move unsold inventory.
"I just smell a massive taxpayer burden coming," says Sen. Christopher Bond (R., Mo.), who calls the programs "too good to be true."
No kidding, Chris! Of course, the halls of Congress always smell like something crawled into the ventilation system and died. Upon investigation, it's usually discovered to be the dreams of the American taxpayer, so there's no telling what you're actually smelling.
We've made ourselves clear ad nauseum about our dislike of DAP. Inasmuch as misery loves company, we're happy to report that we're not alone.
"The inescapable fact is that seller-funded down-payment assistance is particularly susceptible to losses," says Howard Glaser, a mortgage-industry consultant and former official at the Department of Housing and Urban Development. "Too often today's seller-funded loan is tomorrow's foreclosure."
Paul Jackson at Housing Wire gathers the observations of other nay-sayers.
"If the only buyers the builders can bring in right now are those that require down payment assistance, and they have to get 'creative' with marketing to make it happen, you have to wonder if those are the borrowers we should be putting into homes in this sort of market," he said, under condition of anonymity.
"It’s an odd world where the FHA is the riskiest lender, but the truth is that we’d never lend under that sort of criteria."
[...]
"[T]he DAP programs simply keep contract sales prices inflated, channel fees into the pockets of ‘nonprofits’ who provide no other service than laundering money, and result in lower insurance premiums than FHA should be getting for loans with riskier profiles," said well-known blogger Tanta on the Calculated Risk blog, herself a long-time industry participant.
"These schemes also have the effect of artificially inflating nominal house prices, since the sale price is not the same as the amount netted, at the end of the day, by the seller," notes Felix Salmon in his highly-read economics blog at Portfolio.com. "I’m sure that a lot of politicians and realtors reckon that house prices need all the artificial inflation they can get at the moment, but my feeling is that over the medium to long term, no good can come of [DAP programs]."
As both the WSJ and Housing Wire point out, however, DAP has its defenders, particularly among the ranks of homebuilders and non-profit agencies that financially benefit from the program, as well as from a few politicians in Washington, D.C. who cater to those special interests, including Barney Frank and Maxine Waters. Even Frank, however, admits that DAP won't be left "untouched" by housing legislation currently being considered by both the House and the Senate.
I hope that it's not only "touched," I fervently desire that it be "molested" and left scarred for the rest of its short, miserable life, no matter how politically incorrect that desire might be.
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