Mortgage Industry Bemoans HUD First-Time Homebuyer Tax Credit Ruling

Johnster at 03:59 2009-06-04 said:

"For reference, the whining is because third party groups won't be able to convey the tax credit to buyers for the required 3.5% FHA downpayment -- FHA still wants buyers to put "skin in the game". Apparently this is still frowned upon by the industry. Go figure."

I, for one, am whining not because they want buyers to put "skin in the game", but because they told us that the buyers would have access to that $8,000 tax credit to put towards their 3.5%, only to change their minds a couple of days later. "the original written announcement about the plan, known as a "mortgagee letter," had been removed from the federal agency's Web site because it was a draft copy that had been posted inadvertently."

In fairness to us whiners (and, around here, that label is one of my defining characteristics ;) ), that "inadvertently" is what is frowned upon in the industry. Some of us called all of our customers because of that "inadvertent" mortgagee letter. Some of us called real estate agents to teach them about this new program. (Heck, some of us even called our own mother's shouting a celebratory "Look, Ma! No hands!") And, then HUD lowered the boom on us, what?, seventy-two hours later. C'mon. That's just not cool.

Regarding DPA, I still stand on my premise: if DPA is unacceptable, then gift funds should ALSO be unacceptable. Choosing your parents wisely should not be the qualifying criterion that gets you into a government-subsidized mortgage...Into a good college, or getting a good job, perhaps. But, not an FHA mortgage. Permalink

adog at 05:21 2009-06-04 said:

Johnster, what an awesome post! It's bad enough to look like an A** on your own but when I am doing the happy dance with realtors only to come back 3 days later and say OOPS, is simply unacceptable. Seems to be par for the course with this current government administration. I think if you made a ZERO down FHA loan avalable to borrowers say........with a credit score of over 680 AND a documentable rent history, I think you would minimize your risk and get some folks houses where there house payment is cheaper than their rent payment. Makes sense to me. Permalink

FHABob at 07:04 2009-06-04 said:

And I take offense at the comments made by MI Implode's editor.

First, I agree with Johnster that the main issue is the 'oops' factor of ML2009-15. We originators rely on these ML's to be totall accurate. I had egg on my face when this ML was mysteriously pulled from the HUD website.

Second, why in the heck does HUD announce a program that no one will ever use? Seller's contribuite to Buyer's closing costs, up to the 6% limit, all the time. Why do we need to borrow money to pay closing costs or buy down the rate when Sellers or Premium Pricing the loan can already accomplish this task?

Third, I have yet to see real statistics from FHA or HUD as to the difference between defaults on DPA loans vs. borrower funded minimum down payment loans. Give me a link to an official document and I'll send you a gift certificate for a huge steak dinner. Such a document does not exist. Only third party stories of higher default rates on DPA's are ever provided. This is Washington propaganda.

Finally, the thing that really bugs me is the ridiculous manner in which Donovan prematurely released the first version of ML 15, then covered up his mistake, then pretended he never made a mistake, then released the revised version of ML15 without any explanation of the changes between the draft and final versions. They talk alot about transperancy and the most ethical administation ever these days in DC. I say "meet the new boss, same as the old boss'. Permalink

Johnster at 09:13 2009-06-04 said:

Actually, Bob, I found this: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1330132

(Bob, please, take your family out to dinner this weekend with my steak dinner, and let them know that it was from The Johnster.) :D

Regarding the default rates, this study states that the default rate among borrowers who utilized DPA (called "DAP" for the purpose of this study) was 15-20% versus roughly 7-10% for borrowers who received gift funds, versus 3-7% for borrowers who used all their own funds for downpayment.

If you look at nothing but these numbers, then, yes, clearly there are valid reasons to consider the elimination of DPA. (Disclosure, my FHA mortgage lead generation company stands to sell many more leads if DPA were reinstated.)

There are also valid reasons to consider the elimination of gift funds, as well. And, for that matter, there are sound, valid fiscal reasons to eliminate FHA from the government dole. These are all reasonable debates to be had.

FHA was brought about to increase home ownership for the country. It is expected with ALL mortgages, including FHA and traditional, that there will be a certain level of foreclosures. We need to determine more than if the foreclosure level of FHA is acceptable. We need to decide what value of government investment we are willing to spend in order to increase home ownership, and whether allowing applicants born into wealthy enough families to provide them with "gift funds" is more appropriate than allowing DPA for families who are not as fortunate. Permalink

mmiskiel at 01:20 2009-06-05 said:

Johnster, I agree that gift funds should not be allowed. How is that really having any skin in the game when mommy or daddy give you the money you need.

HUD needs to be rebuilt from the ground up. All they are doing is looking foolish in a time when real leadership is needed. Permalink

Johnster at 11:05 2009-06-05 said:

I've posted on here, before, that MO has been a trailblazer on offering loans against the tax credit to its citizens, and that they allow those loans to be applied to the 3.5% minimum down payment required by FHA.

More news: there are ten states (CO, DE, ID, KY, MO, NJ, NM, OH, PA and TN) whose housing agencies offer loans against the First Time Home Buyers tax credit which may be used as the 3.5% down payment required for FHA.

Links to all ten different programs collected on the National Council of State Housing Agencies web page here: http://www.ncsha.org/section.cfm/3/34/2920

That's a lot of states, already... Permalink

Johnster at 11:23 2009-06-05 said:

One more thought before I head off to bed: all branches, branch managers, banks, and brokers licensed in any of those states should become familiar with the programs in their own state(s) right after their morning cup of coffee. By knowing what is allowed in your state(s) you will qualify more of your customers who want to buy their first house.

With these ten programs, 100% financing is back until December 1, 2009. Permalink