DPA….nice, but not the answer

An associate of mine wrote a blog about seller funded down payment assistance programs. It is his belief that they may hold the key to jump starting the market and resolving the mortgage crisis.

I don’t happen to think so. Down payment assistance programs require money from the seller. Today, the sellers with a problem don’t have the cash available to put into the transaction. I thought I should share my reply.

Jeff………….maybe I missed something in your presentation. You are extolling the virtues of “seller funded down payment assistance programs”. You are linking this with the foreclosure problem.

Hmmmm…….so you think that banks that have lost money and now have a non-performing asset will set aside additional funds to help people buy the homes? You are talking about people/companies that already are up against more walls than any room should have. You believe that in addition to the 6% that is allowed in some cases……….they will fund borrowers that are by definition “without sufficient funds”.

I don’t think so. I would hope we have learned the folly of selling property to people that don’t have dime invested in the deal.

If they pass such a law, it will have no impact on the short sales. The seller in those cases can not even pay the mortgage. You think people in a short sale position will have funds available to put into a seller assisted down payment program?

What seller, involved in this upside down, negative equity market has the funds to partake in the program? I have represented buyers that have used Nehimiah and I have represented sellers that have participated. The buyers really could not afford a toaster, but they went to the class and could use the program. The sellers were all in a positive equity situation and were glad to take a small hit to sell the home.

It is a bitter pill to swallow.

You mention the $7,500 or $15,000 dollar tax credit. You say that it would take the average person a long time to save up the money necessary for a down payment. You also mention the much ballyhooed average savings balance of $1,300 dollars. That is quite a general number that does not focus on potential home buyers. The bigger problem with the tax credit is that it only covers homes purchased in 2009. For most, saving up is not an option unless the amount saved can cover the 3% needed by FHA approved loans. Of course, this is an apple and we were discussing the DPA orange. Let’s not confuse the two.

My experience with foreclosures and short sales has been that banks will approve buyer credit to cover closing costs. Banks will usually list through an agent and not attempt to violate tort laws by reducing commissions. They sell property “as-is, where-is” and will not make any repairs or warranties.

On the short sale side, there is no consistency. Prices listed are just a best guess as to what might be accepted. Banks are still using agents to do BPO’s and they are as accurate as the agent can make them. Here again there is no standard procedure and determinations are as varied as the agents presenting them. Mortgage companies also have this strange belief that they can violate tort laws and alter compensation. Some where an attorney general will enter this fray and point out that there is a significant difference between actually being a party to a contract and approving an offer.

The only real solution to our housing crisis will be found in resolving the negative equity problems that exists. This problem will have to ferret out those that have a first trust, a second trust and a HELOC (Home Equity Line of Credit). The first and second will have to be dealt with. The HELOC will have to moved to an unsecured debt that will remain with the homeowner and probably should be removed from bankruptcy protection.

As for the first and second trusts, I will readily admit, I don’t know the solution. I do know, it will not be solved with smoke and mirrors.

As for the TARP, to this point funds have only been used to keep the system afloat. There is little if any accounting for what has been spent and little if any of the outstanding debt has been resolved.


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