From NPR:
"Brian Demer, who used the FHA down-payment assistance program to buy a new condominium in Aldie, Va., says he wouldn't have been able to buy it without the program.
"Bottom line, I didn't have to put 3 percent down, which was a big deal," he says.
Demer got his down payment from the nonprofit organization Genesis on a recommendation from Holly Davis, a loan officer at SunTrust Bank in Reston, Va. Davis calls the FHA down-payment assistance program the "hot program," especially because private lenders are pulling their no down payment, 100 percent financing deals.
. . .
Data show that buyers who receive down payments through nonprofits are two to three times more likely to default than FHA homebuyers who provide their own down payment.
The FHA projects the high defaults will require it to ask for a $1.4 billion subsidy from Congress next year — the first one in its 74-year history.
Because of high default rates and conflict of interest issues, the FHA is trying to shut down the nonprofit down-payment program, even though it now accounts for more than a third of all FHA loans. That's up from 5 percent in 2001".
8 comments:
"The seller makes a contribution of a designated amount in the real estate contract to the nonprofit," Davis says. "There's also a fee, typically ranging between $300 and $400. So what happens is the seller is making a donation to the charity and in return the charity is giving that money to the buyer."
Money laundering
"Bottom line, I didn't have to put 3 percent down, which was a big deal," he says.
Clue: If you don't have money for 3% down on a condo in Aldie, you probably aren't ready to buy.
hog
How true! I can't imagine there are any condos in Aldie for more than $300,000. So this guy couldn't come up with a $9K down payment and he was LOOKING TO BUY??
I agree as well... if you can't save up a few thousand dollars you shouldn't be looking to buy. How hard is it to pay for a few percent of something you can supposedly afford?
What is this guy going to do if something major breaks in his house?
the FHA's insolvent, the GSEs are insolvent, the FHLBs?? my guess: insolvent.
are there any sustainable lending practices out there?
It may prompt some to wonder why he didn't have 3% - but my guess is he had the money but didn't want to put it down.
I know a lot of people who are maxing out on 401K contributions and other investments, stocks, that they would be crazy to draw down in this market. His checking account may be light for this reason.
I'll bet this buyer would rather avoid tapping those assets. But lenders may still see these buyers as good risks if they have a pile of cash in other investments.
I really doubt a lender would back a loan if this fellow was living paycheck to paycheck.
Novahog, you may be on to something there. I deduct the contribution I make to the charity and in return I get my down payment. A probably illegal way to make your down payment tax deductible.
Kob, I agree that it doesn't make sense for a lender to lend to someone living paycheck to paycheck, and it may be the case that this particular guy is doing something like what you describe... but taken directly from the article:
"Data show that buyers who receive down payments through nonprofits are two to three times more likely to default than FHA homebuyers who provide their own down payment.
The FHA projects the high defaults will require it to ask for a $1.4 billion subsidy from Congress next year — the first one in its 74-year history. "
People who can't/won't provide at least a small down payment are major risks. If FHA is losing large amounts of money on these loans it should be no surprise that private lenders wouldn't offer them either.
During the bubble all sorts of nutty lending practices were embraced(one of lance's "new paradigms") but now that lenders are having to deal with the mess they made sanity is returning.
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