DPA Ban may be adding to Financial Crisis

Sorry for the long post; but this is something near and dear to me and my business. The largest company participating in "DPA", or Down-payment assistance, was Nehemiah. How it worked: FHA requires a 3% downpayment. The seller was able to, at closing, "donate" 3% of their sale proceeds to the non-profit (i.e., Nehemiah). Upon signing an agreement, the non-profit would gift the 3% downpayment to the buyer. The seller then had agreed to donate that same amount, plus a fee, to the entity at the time of closing. Because the seller has to take less for the house to be able to do it, and the listing price of the property is not to be raised to cover it; it was a way for sellers to accommodate a buyer and sell a property that may have otherwise taken longer to sell.

DPA Ban May Be Adding to Crisis

By Amilda Dymi, National Mortgage News

WASHINGTON-A bigger financial crisis has overshadowed the underlying risk and long-term implications of thinning affordable housing options due to limited credit and higher downpayment requirements.

Meanwhile, a controversial ban on seller-funded downpayment assistance took effect on Oct. 1, adding to the overall crisis.

It may seem fair Congress did not spare time to review the FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008 (H.R. 6694), which would restore DPA indefinitely.

The ban is based on HUD claims that DPA programs contribute to higher default rates and could potentially result in having to offset the risk by tapping into its reserves, a claim long disputed by DPA providers and industry members. Not only six hours after the ban took effect, the Congressional Budget Office issued a report that says seller-financed DPA loans insured by the FHA generate homeownership at no cost to the U.S. government for at least the next five years thanks to its self-funding mechanism.

"All of this substantive opposition to DPA has been taken off the table," said Scott Syphax, president and CEO of Nehemiah Corp. of America, the country's largest DPA provider.

Bipartisan bill H.R. 6694 introduced by Reps. Al Green, D-Texas, Gary Miller, D-Calif., Christopher Shays, R-Conn., and Maxine Waters, D-Calif., in July was based on DPA industry data and independent report findings.

As the ban took effect on Oct. 1, Rep. Green stressed that as DPA is eliminated to comply with the Housing and Economic Recovery Act of 2008, Congress needs to recognize it helped transform lives without spending a single taxpayer dollar.

In addition, "the Congressional Budget Office estimates that seller-financed DPA will generate $65 million over the next five years and save taxpayers $13 million next year." H.R. 6694 will create a new DPA "under new standards that will effectively balance the risk of potential foreclosures with the goal of increasing homeownership," he said.

Moreover, the bailout bill (H.R. 3997, the Emergency Economic Stabilization Act of 2008) designed to aid Wall Street avert a serious recession does not offer a direct solution to a potentially more severe crisis within the affordable housing market.

Commenting on H.R. 3997, Mr. Syphax said a provision within the bailout to reinstate DPA "could help ensure continued liquidity in the stagnating housing market by providing aid to an estimated 600,000 working-class people for home purchases next year, generating $150 billion in home sales."