H.R. 600: The Laundered Down Payment Saga Continues …
January 28, 2009 – 1:37 pmNot to be dissuaded by the fact the IRS referred to seller-funded down payment grants as scams, Representatives Al Green (D-TX), Maxine Waters (D-CA) and Gary Miller (R-CA) continue to champion the cause of "laundered" down payments via H.R. 600. 
On January 16, 2008, Rep. Al Green along with co-sponsors Waters and Miller introduced H.R. 600 to restore seller-funded down payment assistance. The proposed bill is similar to H.R. 6694, which was also sponsored by Representatives Green, Waters, and Miller. Although H.R. 6694 had gained support in the House due to the lobbying efforts of the assistance providers, it was cleared from the books after the 110th session of Congress came to an end. H.R. 600 is virtually identical to H.R. 6694 in regard to Sections 1 and 2. The difference between the two bills is that H.R. 6694's Section 3 Limitations on Risk-Based Pricing is excluded from H.R. 600. Most notably, refund of mortgage premiums as payment incentives has been removed from the legislation. Click here to view text of H.R. 600.
The purpose of H.R. 600 is to resuscitate seller-funded down payment assistance (SFDPA) that was recently prohibited under the Housing and Economic Recovery Act of 2008 (H.R. 3221). The prohibition against SFDPA contained in H.R. 3221 (HERA) was in response to HUD's repeated attempts to terminate seller funding of down payments due to excessive risks associated with the practice. HUD asserts that loans involving seller-funded down payment assistance have substantially higher delinquency and default rates than loans without SFDPA. HUD also cites studies from the OIG and GAO as support, and has published no less than 3 proposed rules to eliminate SFDPA since 1999. As a result of their attempts to eliminate SFDPA, HUD has been subjected to litigation from assistance providers who have been generating millions annually in processing fees. While proponents and providers of SFDPA state that HUD and government reports are exaggerated, they do acknowledge that SFDPA programs represent increased risk to FHA. In fact, both H.R. 6694 and H.R. 600 were designed to address the excess risk to FHA involved with SFDPA.
Despite the credit score protections proposed by H.R. 600, the bill specifically exempts borrowers with credit scores above 680 from paying higher risk-based premiums. The proposed legislation also limits credit scores to 620 for loans with SFDPA unless HUD is able determine a premium structure for these loans that would offset the risk to FHA. This is interesting because SFDPA providers cite that they assist minority and low-income borrowers. Yet, according to statistics taken from the "Brill Report" posted on the Ameridream website, 48% of borrowers using SFDPA included in the data set would have been displaced by H.R. 600 for having credit scores below 620. While it is not clear whether limiting credit scores would impact low income or minority borrowers, the opening statements of Maxine Waters at the Financial Services Oversight Hearing on "Credit-Based Insurance Scores" October 2007 is cause for alarm:
But much more is going on here, clearly. The recent FTC report on the use of credit-based insurance scores in the automobile insurance industry concluded that: There is a strong correlation between credit-based insurance scores and race and ethnicity. More precisely, Blacks and Hispanics are over-represented in the low score percentiles and underrepresented in the higher credit percentiles—for example, 26 percent of blacks had scores in the lowest 10 percent, and 50 percent of blacks had scores in the bottom 23 percent. (Click here to view entire statement)
After reflecting on Waters' statements, I am at a loss to understand why she would support a bill that provides preferential treatment to borrowers with higher credit scores while burdening or displacing borrowers with lower scores. The question has been raised repeatedly without resolution whether credit scores are less favorable toward minority and socioeconomically disadvantaged groups. Based on research concluding that scores for minorities and low income groups are substantially lower, it would seem that credit scoring would not be the preferred criteria for establishing eligibility to assist low income and minorities buyers. Click here to read the report completed by the State of Missouri Department of Insurance titled: Insurance-Based Credit Scores: Impact on Minority and Low Income Populations in Missouri. Click here to read the FTC prepared statement "Credit Based Insurance Scores: Are They Fair" before the Subcommittee on Oversight and Investigations House Committee 2007. Click here to read the FTC prepared statement “The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance” before the Subcommittee on Oversight and Investigations in May 2008.
Aside from the issue of whether credit scores do or do not favor minorities, there is the issue of whether credit scores are reliable predictors of risk. In an article written by Yuliya Demyanyk, economist at the Federal Reserve Bank of St. Louis, Demyanyk questions credit scores as being an effective predictor of risk. According to Demyanyk:
"For borrowers with the highest credit scores (FICO scores above 700), the serious delinquency rate in 2007 was almost four times as large as in 2005—an increase of nearly 300 percent. In addition, the serious delinquency rate in 2007 for the best-FICO group was almost the same as the rate in 2005 for the worst-FICO group. "
Demyanyk concludes in the article:
'The evidence presented above seems to suggest that the credit score has not acted as a predictor of either true risk of default of subprime mortgage loans or of the subprime mortgage crisis. The subprime mortgage crisis is still a black box, and it requires more analysis to fully understand how the developments in the subprime mortgage market and a subsequent crisis have “subprimed” so many issues that used to be considered fundamental, like credit scoring. '
(The article references a research paper titled: 'Understanding the Subprime Mortgage Crisis' written in 2008 by Demyanyk and Otto Van Hemert that can be downloaded by clicking here).
This leads us to the question of whether it is reasonable to resort to a failed business practice (credit score based risk assessment) to justify engaging in another failed practice (Seller-Funded Down Payment Assistance)- especially when the failed practice is inherently dishonest. While the banking industry is fond of relying on credit scores to determine mortgage risk, credit scores are just a part of risk-assessment. Prior to the current mortgage debacle, risk evaluation which was based on the 5 "C's of credit. Clearly, basing risk on "credit scoring" rather than the 5 "C"s of credit is the type of practice that led to the massive failures in the mortgage industry. Debt to income ratios, balance left over for family support, savings history, reserves, increase to housing expense, and whether the borrower is a minimal or excessive user of credit are also important variables. Ironically, according to the FHA Mortgage Credit Analysis Handbook: 4155.1 Rev 1, Chapter 2, a hierarchy of credit evaluation exists that clearly cannot be ascertained solely through credit scores. According to Chapter 2, Section 1, 2-3, Paragraph 6:
'The basic hierarchy of credit evaluation is the manner of payments made on previous housing expenses, including utilities, followed by the payment history of installment debts, and then revolving accounts. Generally, an individual with no late housing or installment debt payments should be considered as having an acceptable credit history, unless there is major derogatory credit on his or her revolving accounts.'
Since most landlord and utility companies do not report to the credit bureaus, the most important information required for FHA credit evaluation isn't factored into the credit score. Surprisingly, credit scores are based only in part on payment history. Clearly, man cannot live by credit score alone. To do so is to invite financial bedlam as I am 'sure the banking system can tell you.
Regardless of how you spin it, at the end of the day SFDPA is still the glorified laundering of down payments for a fee. And by laundering, I mean using an intermediary (non profit) to disguise that the down payment is coming from an unacceptable source (seller). This raises the question of why members of the House of Representatives would support legislation that is outright deceptive.
Perhaps its possible to garner a clue from Ameridream and Nehemiah. According to the OpenSecrets website, both spent in excess of $300,000 each during the first 3 quarters of 2008 on lobbyist firms to preserve seller-funded down payment assistance; click here to and here to view reports. There is also the email alert that was sent by Ameridream on January 14, 2008 announcing the soon to be proposed legislation. Click here to view Ameridream E-mail alert. H.R. 6694 was announced in a similar manner with both bills being published on the Ameridream website concurrently with being introduced to the House. Additionally, both Nehemiah and Ameridream are heavily involved with grassroots campaigns and maintain a pro-DPA legislation website.
If members of the House of Representatives were truly concerned with expanding housing opportunities, they would work with HUD and strive to create a program that does not involve dishonesty, unnecessary third party fees, funding from prohibited sources, increased sales prices, or exclusion of borrowers from the FHA program based solely on credit scores. Furthermore, to protect the interests of borrowers, taxpayers, and FHA, any program they presented with a reduced or no cash investment would carry a higher mortgage insurance premium without exception, limit total debt to income ratios to a maximum of 36% or other reasonable level, limit housing payment increase to 20%, require mandatory pre-purchase counseling, mandatory completion of budget/credit counseling, and a minimum of 2 months post-closing reserves in addition to predatory lending protections. But that is a topic for another article.
Instead of working on a palatable solution to bridge the housing gap, some members of the House of Representatives are promoting down payment shell games on the taxpayers dime.
31 Responses to “H.R. 600: The Laundered Down Payment Saga Continues …”
So much hulllabalooo about down payment assistance……
Let’s face it—the reason HUD doesn’t want Seller funded DPA is because they don’t want inflated values. How about this: FHA 100% financing, FHA appraisal, tiered one-time and monthly MIP for score and call it a day.
The predominent users of this program are the “bottom buyers” or “starter buyers”. If they can buy, then move there would be move up buyers, and so on and so on. Just do it!!!
By Jesse on Jan 28, 2009
I’d like to see the stat’s on how the Access loan worked for buyer’s in the late 90’s. This was a 103% program that was fully qualifiying and used an FHA 1st and a small 2nd to help people get into homes. The rates were higher on this program and when borrower’s looked at the zero down or 3% down it was amzing how many times they could save the moeny.
If we just look at the last few years, I think any of the numbers would be high!
I’ve seen poeple more then able to make their payments just walk away, what we have here is a social issue!
By Jason on Jan 29, 2009
This down payment assistance makes my blood boil! What can we do to stop it?
By Miami Condo Forum on Jan 29, 2009
If Green, Waters and Miller really want to eliminate the down payment hurdle to homeownership, why don’t they just introduce a bill requiring HUD/FHA to increase it’s maximum LTV on Owner Occupied purchases to 100%. Wait, scratch that, these three are obviously on the take from the FOR PROFIT, Private Jet Flying Scammers that run the down payment laundering industry as 100% LTV financing would completely eliminate down payments for homebuyers but it wouldn’t make any money for the down payment laundering industry.
By SteveP on Jan 29, 2009
Since wholesle lenders have recently been increasing their restrictions for credit score, etc. beyond HUD guidelines, this issue might be more of a moot point than we think. How many originating lenders who keep their servicing do you think will be left who will find the increased default risk for these loans acceptable? Not to mention their nervous boards…
By LoriW on Jan 29, 2009
Jesse, Jason, and SteveP, I agree that it would be much more productive of our Representatives to explore 100% housing options with HUD. However, the mortgage insurance premiums must be the same for all borrowers. Credit score is just one element of credit risk, and credit is just one element of overall underwriting risk. There are 5 “C”s, not 1.
Studies by the FTC and others have shown that minorities and low income borrowers are disadvantaged by credit scores. Because the FTC is unable to offer a solution to credit scoring that would prevent minorities from paying higher costs than non minorities, implementation of credit score-based mortgage insurance premiums should be prohibited on government insured loans until the FTC and HUD Secretary have conducted a thorough study. Consider this excerpt from the Prepared Statement of The Federal Trade Commission on “The Impact of Credit-Based Scoring on the Availability and Affordability of Insurance” Before the Subcommittee on Financial Services (linked as reference on article):
Based on the massive failure of mortgages with high credit scores along with the fact that credit score model predictions have already been breached beyond reasonable tolerance levels, credit scores need to be closely examined.
Jesse, you bring up Access loans from the 90’s which is a good idea. However, I encourage you to look at VA and USDA loans as well. These loans are still allowable. Both 100% USDA and VA loans outperform FHA 3% down. The way to keep the programs from creating housing inflation is to enforce strict qualifying criteria including limiting DTIs and tie loan limits to incomes instead of home prices. It might also be a good time to dust off the old FHA non owner occupied program. But that is another topic altogether.
Miami Condo Forum, the best way to stop the SFDPAs from exerting excess ‘influence’ on legislation is through a grassroots and media response. More bloggers and journalists need to expose this issue to the public and media. Legitimate groups need to encourage their members to contact their Representatives along with the Bill’s sponsors and demand that they work on solutions that does not include or endorse dishonest practices.
By Do the math on Jan 29, 2009
LoriW, minorities and low income applicants are disadvantaged by credit scores because as a group, they don’t pay there bills as prudently as their higher income and non minority counterparts. Data also confirms that minority home buyers that manage to secure a mortgage default more than their non minority counterparts. Minorities need to stop asking for everyone to cut them extra slack. Instead, minorities need to figure out why their respective cultures place a higher value on saggy pants, bling, gangsta attitude, and 22 inch rims than the value they place on hard work, prudent saving, and honoring your obligations.
Minorities are also more disadvantaged by DUI laws, please don’t tell me that you advocate repeal of DUI laws just because minorities have a harder time complying with them.
By SteveP on Jan 29, 2009
I ran across this website after reading an article in the Sacramento Bee entitled, “New study touts housing role played by Nehemiah.”
http://www.sacbee.com/business/story/1582042.html
I was struck by the inherent economic nonsense of “seller-financed down payments.” Yet the article had nothing about anything or anyone who might have challenged the concept instead just writing about a new study that promoted it. So I did some Google search and I gave the reporter some reputable website addresses but he wrote me back saying he already had them. I then sent him this web address. Maybe someone here can submit an op-ed that takes the paper to task for their journalism, or lack of it.
I find it remarkable after the massive failure to pay attention to those who were concerned about the imprudent lending and housing price inflation it would cause, that many newspapers haven’t question their journalistic failures at all.
By Jeff on Jan 29, 2009
SteveP, the credit score issue isn’t about cutting minorities “extra slack” its about shifting costs in a manner that creates a cost burden to low income and minority borrowers while creating a benefit to higher-income, non-minority groups. It becomes an issue of the weakest group subsidizing the strongest group.
Consider that credit scores are not just based on payment history. Scores include a variety of data which may or may not be relevant to assessing mortgage risk. According to Fair Isaac, only 35% of the score is based on credit history, 30% is based on amounts owed, 15% is based on length of history, 10% is new credit, and 10% is types of credit used. Because scoring formulas are secret and unregulated, there is no way for a lender to check individual scores for accuracy. This creates a mechanism whereby credit bureaus are able to influence the national mortgage market.
Most industry professional have seen borrowers with recent bankruptcies and/or other severe derogatory with credit scores over 700. Most of us in the industry have also seen borrowers with little to no history other than authorized user accounts with credit scores in the 700’s as well. What about the over-extended borrower with the 700 credit score who was clearly insolvent but was able to stay afloat via serial refinancing. You know, the consumer with 15 revolving accounts, a couple of installment accounts, and a mortgage history reflecting several cash out refinance transactions.
When you think about it, resorting to credit to finance purchases that otherwise could not be afforded is a form of financial irresponsibility in and of itself. Yet credit scoring rewards the behavior of subsidizing lifestyle via credit and the gradual building of debt. Why is it that scores don’t adjust for habitual refinances and consistently accruing debt?
On the flip side, It is not uncommon for consumers with good pay histories to have mediocre scores due to limited credit use, account types, new accounts, medical collections or zombie debt.
I would rather deal with a borrower with a 600 score based on minimal debt or isolated medical collections, with excellent rental and utility ratings and a solid history of saving, job stability and low debt to income than a 700+ credit score borrower who has a negative net worth, little or no savings, high debt to income ratio and excessive debt.
While I acknowledge that low income and minority borrowers have higher delinquency and default rates than non minorities, borrowers with lower scores pay higher costs and receive less favorable terms as a group. A weak score should only trigger counseling and pre-purchase education when the credit is otherwise acceptable.
All borrowers receiving the benefit of any government sponsored low or no down payment program should pay for it. There should only be breaks for down payment/LTV, loan type, and amortization.
By Do the math on Jan 30, 2009
Jeff, thanks for the link. That is a prime example of how the SFDPA organizations use the media to spread incomplete information to public. I’ve read the Fountain-Waste report which contains information and data this is not publicly available. Aside from the fact that any no down payment program would have the same economic effects stated in the report, the increased SFDPA does correlate with FHA’s increasing delinquency rate.
What the Fountain-Waste Report reflects is how much the industry has profited from the program and exposes the motives behind pro DPA campaign. I encourage you to review my report on the Genesis Program and the Grant America Program.
By Do the math on Jan 30, 2009
Whistleblower Warning: This poster’s I.P. Address belongs to Nehemiah Corporation of America. Readers are advised to take posters comments with a grain of salt.
I used a downpayment program to buy my home and I am not a minority. I still live there too if that surprises anyone. I heard that FHA loans in combination with downpayment assistance have a 94% success rate. Why throw out all the sucess stories just because of a small percentage of defaults? That’s like banning surgery for risk of infection. Sounds like this thread is on a witch hunt to me. Has anyone actually met or spoke to someone who lost their home because they used a downpayment program? I have yet to encounter a single testimony.
By Psue on Jan 30, 2009
Homebuilders are a big user of down payment assistance programs and have lobbied to reinstate their use, too. I agree w/the IRS assessment; “scam.” The housing industry has had a big hand in taking out the economy, and the bailout talk is disgusting. Many of these people should be investigated and probably jailed. If any of us “little people” did the same thing we’d be in jail, not asking for a govt bailout. These down payment programs seem designed to get around the law, and it sure shows who likes to do things the crooked way when we see who pushes them.
Whistleblower went to posters website and signed petition: http://www.hadd.com/
By CS on Jan 30, 2009
Whistleblower Warning: This poster’s I.P. Address belongs to Nehemiah Corporation of America. Readers are advised to take posters comments with a grain of salt.
I am completely shocked of the comments I am reading today. Many of you should be questioning the lenders who approved loans that were 100% financed with adjustable rates. The market crashed because of these loans NOT FHA with dpa. It is troubling for me to read these comments because I believe there is a need to help those first time buyers. I hope this program is saved. I would like to mention that I was a recipient of dpa and I have never been late on my payments. Also, like many Americans, I received subsidized student loans which helped me complete my B.S. in 2000. If it wasn’t for educational programs and homeownership programs I don’t know where I would be. Thank goodness the future of our country is in capable hands and I hope this program is saved!!! Thanks for your time and god bless you.
By Alexis May on Jan 30, 2009
Psue, I am glad that you were able to become a successful homeowner. You may not be aware that there is no prohibition against bona fide down payment assistance. The only prohibition is against seller-funded down payments.
While I’ve heard the seller-funded assistance providers cite a 94% success rate, I have not seen reliable evidence that default and claim rates can be contained to only 6% (which incidentally, is substantial). The reality is that the FHA delinquency and default rate is rising substantially. According to the FHA Neighborhood Watch Website, 1 out of every 5 borrowers is either delinquent or in default on their FHA loan. Additionally, the FHA delinquency rate has risen in tandem with increased use of seller-funded down payment assistance. It is a documented fact that loans involving seller-funded DPA have a substantially higher default/delinquency rate than loans not involving assistance.
Psue and Alexis May, try to understand that the issue against seller-funded down payment assistance is not to prevent homeowner assistance, but moreover, to ensure that assistance is meaningful, sustainable, and does not involve funding from prohibited sources. Again, bona fide assistance is not being prohibited.
While you state that the market crashed due to other loans, you completely dismiss the losses to the FHA fund that are being caused by seller-funded DPA. These programs increase sales prices by the inclusion of the down payment with the sales price and lack of consumer protections. There are no income or sales price limits, and the proposals to limit credit scores will likely displace low income borrowers and minorities.
Rather than support down payment laundering which mainly results in “non-profits” receiving millions in fees for serving as an intermediary, how about asking law makers to work with HUD to create a 100% program that serves low income and minorities?
There is no reason to support legislation that promotes deceptive business practices.
By Do the math on Feb 2, 2009
Whistleblower Warning: This poster’s I.P. Address belongs to Nehemiah Corporation of America. Readers are advised to take posters comments with a grain of salt.
Dear do the Math: It looks like we agree to disagree since I don’t believe a 1 in 5 ratio is enough reason to eliminate the program entirely. For all the testimonials provided in support of the program, who can say outright that they lost their home as a direct result of DPA? And to address the millions of dollars earned in the non-profit business, I think that many churches, hospitals and advocacy programs etc earn way more revenue than DPA’s, but their legitimacy is never called into question. Finally, inflated appraisals are addressed in HR 600, since it calls for DPA reform. Have you read the bill? I do respect your opinion, but the people who read this thread deserve to know the truth of what is being presented to them, not hearsay. I represent the 94%, who will represent the 1 from the 1 in 5 to ban the program for millions of underserved homebuyers?
By Psue on Feb 3, 2009
Whistleblower Warning: This poster’s I.P. Address belongs to Nehemiah Corporation of America. Readers are advised to take posters comments with a grain of salt.
Now that I think about it, a 1 in 5 default rate could be looked at as 4 out of 5 successful homeowners created from DPA vs 5 out of 5 forced out of the market completely. 5 out of 5 real estate transactions created and more families paying property taxes to their county for infrastructure. The plus outweighs the minus however you look at it.
By Psue on Feb 3, 2009
Dear Psue, With all due respect, your readiness to dismiss the 20% FHA delinquency/default rate smacks of self-interest. Hence, I believe you are an interested party (RE Agent, Broker, Lender, Builder, Non-Profit, Lobbyist) promoting an agenda. However, in the spirit of fairness and debate, I will address your concerns.
Let’s start with your success rate. Consider for a moment that the FHA delinquency/default rate of 20% includes loans not involving SFDPA. Since the delinquency/default rate is substantially higher for loans involving SFDPA than loans without it (per all studies), it would stand to reason that the delinquency/default rate for loans with SFDPA would be significantly greater than 20%. Instead of looking backward at statistics from when the market was expanding, pay attention to what can reasonably be projected going forward into a market contraction. Unless your definition of “successful” includes borrowers who are delinquent and at risk of losing their home, owe more than the home is worth, are entering the foreclosure process, have requested modification or short sale (or will), or filed bankruptcy, I don’t think your 94% success rate holds up.
The SFDPA organizations can obfuscate facts and skew statistics, but at the end of the day, the fact remains that as the use of SFDPA increased, the FHA delinquency rate increased. Consider that back in 2000, only 2% of FHA purchase loans involved non-profit assistance. In 2000, the FHA delinquency rate was only 9.070% or less than 1 in 10 borrowers. By 2008, 37% of FHA purchase endorsements involved non-profit down payment assistance (SFDPA), and the delinquency rate rose to 16.81% as of July 2008 (1 in 6 borrowers). The FHA delinquency rate has now risen to 19.25% and is 20.92% including defaults (1 in 5 borrowers). Mind you, the delinquency rate rose steadily from 2000 forward despite an expanding market and economy.
Its clear that you will not recognize that 1 in 5 borrowers in default is a social and economic crisis and is not a ’success’ as you would like to put it.
In regard to the millions that the SFDPA programs generate for the non-profits, consider the major scandals involving the founders of both Ameridream and Nehemiah. The founder of Nehemiah (Don Harris) was accused of embezzlement and was sued in court by Nehemiah. I am currently investigating Nehemiah’s leveraging of affiliated non-exempt entities into real estate development via loans and partnerships with Nehemiah and over $21 million in California state funds.
The founders of Ameridream were also accused of diverting millions into their private business interests. In fact, the Ameridream founders and Penobscot Indian Nation sought an injunction against ML and myself to remove my article regarding the Ameridream Founders and Grant America program. Fortunately, the injunction was denied.
However, just to show that I am equal opportunity in questioning the legitimately of all organizations, please review my story on the Genesis Program, LULAC MiCasa Program, and Freedom Home Baptist Church. http://whistleblower.ml-implode.com/?p=184
Rather than attempt to redirect the issue to other non-profit organizations, try reading the 990s of these SFDPA organizations and comparing them to the 990s of affiliate organizations. Pay attention to loans and investments that are funneled into non-exempt entities from the parent companies and exempt entities. Its truly fascinating.
Now, in regard to the inflated sales prices/inflation, I invite you to consider that a mere certification does not and will not stop the down payment from being added to the sales price. Appraisers do not control the terms of sale nor are they always privy to them. If SFDPAs are prevalent in an area, they will impact the sales prices in the area. Unless it is mandated that SFDPA be disclosed on public records and MLS data, the appraisers will not know to make adjustments to comparable sales, hence, appraisals themselves become inflated. If sales data for an area is comprised of inflated sales prices due to SFDPA, there is no way to combat inflated prices through appraisals. Because its a price inflation issue and not an appraisal inflation issue, H.R. 600 fails to address the problem.
This leaves us with the question of who will support a ban of the programs. At this point, its only fair to remind you that these programs are already banned. They were banned because they were high risk and a clear circumvention of FHA guidelines. Just because you pay a third party to take the funds from an acceptable source to give to the borrower does not change the fact that the funds came from an unacceptable source.
There are tons of reports and documentation including HUDs multiple attempts to terminate the programs for cause. Additionally, there have been a multitude of studies and recommendations as support. The jury was out a long time ago for the legitimately minded.
I’ve asked SFDPA providers and supporters repeatedly why they do not simply support a 100% program instead of resorting to down payment shell games and have not yet received a response. Perhaps you can explain why no body is fighting for a 100% loan program??? My guess is that 100% loans wouldn”t generate millions of dollars in revenues for the ‘non-profits’ that SFDPA programs do.
By Do the math on Feb 3, 2009
Whistleblower Warning: This poster’s I.P. Address belongs to Nehemiah Corporation of America. Readers are advised to take posters comments with a grain of salt.
Do the Math: I have been in several meetings with real estate industry folks when this site has been brought up in conversation. The word on you is that you try to attract attention to yourself by taking extreme positions filled with half-truths and and faulty statistics. According to this group of which a couple had been targets (or known targets personally) of this site from time to time, you don’t contact the companies you attack and when you get the other side of the story from someone you blow it off as not credible due to “an agenda” or “self-interest”. My old statistics professor once taught me to beware of someone who creates an argument using excessive statistics. The trick you use, is by throwing out dozens of stats, you figure no one will spend that time to counter them because it is too much effort.
I am now a retired realtor living just outside Sacramento. I have followed the Nehemiah success story closely over the years and have to tell you that you are dead wrong about these guys. I have referred other non-profits to Nehemiah and heard back that were great to deal with and bent over backwards to help them. A cousin of mind was able to get a sizable low-interest loan from their community lending group to expand her Foster Care center, when no banks would touch it. She checked their references and found mental health facilities, battered womens shelters and family housing operations that did the same and were full of praise for Nehemiah and its people. BTW, the $20 million Nehemiah was granted by the state was very public and uncontested. They are building what I have heard is a great development in a blighted area of downtown SAC that needs help. It will be mixed use and contain housing for LMI as well as other working class folks. It provides retail, commercial space and a community center. The project will help the town and it’s residents. I spoke to a friend who knows more than I and she said Nehemiah has to do this as a for-profit activity because the IRS considers development as non-charitable. That means the profits get taxed and what ever is left over goes right back to the non-profit to create more good work. I think you are trying too hard to make them out to be villains. Around here, everything I’ve heard is that since Don Harris was kicked out, they run a clean shop and help many people and good organizations with their DPA fees. On the other hand, from what I have heard about you, someone should check you out and expose your shaky background. From an old dog who has seen it all over the years, you seem to be someone who doesn’t want to work for a living, so you create these stories ANONYMOUSLY and hide behind your keyboard. I used DPA several times in my career to help clients and every deal we did was good for all parties. The way I saw it, DPA has the same impact on a transaction as seller concessions. The math is the same and the potential impact on the appraisal, sales price, etc. is not different. Why is it you are NOT going after that sacred cow?
By RE Champ on Feb 3, 2009
Whistleblower Warning: The I.P. Address of this poster belongs to Nehemiah Corporation of America. Readers are advised to take poster’s comments with a grain of salt.
My Sister and My Pastor both used the Nehemiah Program to buy there first homes neither one defaulted (had a late payment). My Sister sold her home with the same program. The information toted by the opponents sounds more like bitter hate mongering. Has any one actually read the GAO report? Did you know that HUD has yet to release the complete set of variables used to come up with the claims rates? Bottom line in the banking world 96.5% LTV is better then 100% oh by the way did any one read the Congressional Budgets Office evaluation of 6694 that said it would off set losses do to the PMI income? Bitterness does have a way of ignoring the truth.
By R Dorsey on Feb 4, 2009
Whistleblower Warning: The I.P. Address of this poster belongs to Nehemiah Corporation of America. Readers are advised to take poster’s comments with a grain of salt.
Wow, it is amazing how many people are so blind when it comes to the truth about SFDPA. Perhaps it is time to wake up, take the blinders off, and truly understand WHAT and HOW SFDPA works. It is not a shell game, smoke and mirrors, or a money laundering scheme as some have stated. SFDPA is an honest viable program designed to help those deserving of sustainable homeownership who may not have the capability of coming up with an initial down payment of say 3-5%. There are many good posts above supporting SFDPA but one stands out:
To RE CHAMP…..WELL DONE!
By Paul Stanley on Feb 4, 2009
Thank you for your comments RE Champ. First off, this is the Mortgage Whistleblower Blog and not the Warm and Fuzzy blog. My views are solely my own and only seem extreme due to the culture of corruption that has dominated the business world. Pointing out obvious down payment laundering and nonprofit abuse should not be considered “extreme views” but moreover, civil duty.
If you read my entries, you will see that I am also for fiduciary duty, agency representation, upfront compensation disclosure, responsible underwriting, sustainable lending, fair business practices and RESPA compliance. If these views are considered extreme, it speaks poorly for yourself and your associates.
While you accuse me of tricking people by “throwing out dozens of stats” you seem to be blind to the fact that this isn’t “SFDPA for Dummies”. This is a resource for thinkers that seek detailed information with links to supporting data. Those seeking pre-digested, glossed-over sound bytes will have to defer to other sources.
In regard to Nehemiah, I am still researching Capital Station 65, the Township 9 development, and the percentage of affordable housing attributed to the project. However, I will give Mr. Syphax the benefit of the doubt considering how he cleaned up Nehemiah. I also invite individuals and businesses who have been helped by them to email me their stories.
With that said, don’t ask me not to scrutinize 990’s, look at exempt and non-exempt entities or question various related business interests and activities of related organizations that involve government funding as well as lobbyist activities. Understand that these organizations attempt to influence public policy, and I have every right to ask tough questions.
I also have the right to question the values of a society or leadership that fails to recognize that pretending to make a down payment is not making a down payment. Taking funds from an unacceptable source and channeling the funds to the buyer through an intermediary is inherently dishonest. If down payments are irrelevant, do away with down payments and create guidelines with mortgage insurance premium structures (non FICO based) that sustain the program. I find it amazing how SFDPA proponents will chime in to support SFDPA, yet the peanut gallery remains mute on the topic of honest, straight up, 100% financing.
Since my views are really getting “extreme” here, I may as well go for broke and offer that any low or no down payment government insured home loan program should require:
1. Evidence of completion of homebuyer education and counseling.
2. Completed budget that supports that the borrowers can afford the purchase.
3. Predatory lending protection, limited compensation, and required approval of initial and final disclosures and HUD-1 Settlement statement.
4. Participating mortgage brokers and agents held to fiduciary standard.
5. Limited seller contributions.
6. Implement credit and financial management counseling and/or training for borrowers with low scores or alternative credit instead of resorting to higher score-based premiums.
7. Limit debt to income ratios or residual income, put a cap on housing expense increases, and require savings reserves.
8. Require that buyer participation not be dependent upon the financial participation of seller.
Here is an interesting tidbit derived from the HUD Housing Market Conditions Report (November 2008 edition), Table 18 titled: Mortgage Delinquencies and Foreclosures Started: 1986-Present (2nd quarter 2008):
http://www.huduser.org/periodicals/ushmc/fall08/USHMC_Q308.pdf
VA loans (which do not require a down payment) have surprisingly outperformed FHA loans (which do require a down payment) consistently. However, what is particularly remarkable is that the delinquency and default rates accelerated for FHA in the late 90’s to almost double the rate of VA loans in 2007. It is unmistakable that the FHA delinquency rate has rapidly expanded concurrent with increased use of SFDPA.
R Dorsey, have YOU read the GAO report in its entirety? What about the OIG reports and testimony? Have you taken the time to download current delinquency information for FHA loans from HUD’s Neighborhood Watch Site? Have you closely looked at the increasing HUD delinquency rate which has reached subprime levels?
Are you aware that the premium structure that is referenced in the Budget Office report would increase mortgage insurance costs to minorities and increase costs for some borrowers not using seller-funded assistance. H.R. 6694’s proposed premium structure would displace some borrowers entirely- including those who can make their own down payment. Incredulously, both H.R. 600 and 6694 provide preferential treatment for high credit score borrowers by exempting borrowers with credit scores of 680 or greater from paying risk-based premiums. If you did your homework, you’d know that non-minority borrowers are over-represented in the 680 and above credit score category while minorities and low income are over represented in the lower credit score tiers. Furthermore, the FTC is unable to resolve this anomaly. Hence, the proposed premium structure promotes discrimination via higher mortgage insurance costs for minority and low income borrowers.
Thank all of you again for your opinions and comments. If nothing else, its at least entertaining.
By Do the math on Feb 4, 2009
Re Champ, good one accusing ME of using half-truths and trickery. Ironically, it turns at that it is YOU and your comrades that are engaging in the very behavior which you accuse me by failing to disclose that are with Nehemiah. In fact, every Pro-SFDPA comment posted to this article originated from a Nehemiah Corp of America I.P. address.
Shame on yourselves and Nehemiah for engaging in deceptive practices. This says a lot about you and your organization.
Rather than delete your comments, I’ve decided to let them remain along with my public warning as a testament to Nehemiah. Shame on all of you.
By Do the math on Feb 5, 2009
Whistleblower Warning: This poster’s I.P. Address belongs to Nehemiah Corporation of America. Readers are advised to take posters comments with a grain of salt.
Just for the record, everything I said is the absolute truth. If I didn’t believe in downpayment assistance, I would never pretend to, and I would have never used the Nehemiah program to buy my home. I hope DPA does come back to help more homebuyers despite your own deception. No “real estate” blogger would ever go so far in an attempt to defame a non-profit when there are so many other bigger issues going on in the world today. You obviously have ulterior motives yourself.
By Psue on Feb 5, 2009
Psue, these “non profits” are not really charities according to the IRS which called some of them a scam. A true gift is one thing, money laundering for builders and sellers is not a gift, it’s a scam. We all pay for it in the end, and DPA’s were just part of the fraud of the housing bubble and bust that we’re now being told we’ll have to pay millions for, mainly to bail out the same crooks in the industry that caused this mess. So, no, DPAs are not a gift.
By Cindy on Feb 8, 2009
Let me get this straight, you accuse me of deception when you, Peggy Sue Carpenter, visit numerous blog and news sites and post pro-seller funded DPA comments and testimonials without disclosing that you are a paid employee of Nehemiah? Obviously, you are unclear as to the definition of deception.
Your internet posting tactics are as inherently dishonest as the seller-funded down payment laundering that you support. The fact that you have not reached a point in your moral development to know this is disturbing at best.
Furthermore, your reasoning that I must have ulterior motives because “No real estate blogger would ever go so far in an attempt to defame a non-profit when there are so many bigger issues going on in the world today” is beyond faulty. My motives are simple and direct: I don’t look the other ways on scams and schemes regardless of whether the companies that perpetrate them are “non-profit”. This is the Mortgage Whistleblower Blog and not the “Co-sign to Industry BS Blog.
By Do the math on Feb 8, 2009
I am pro homebuyer and if downpayment assistance is done right I am all for it. The problem was not down payment assistance, it was liberal underwriting guidelines, that allow purcdaser with marginal credit to buy a home. Regardless of the down payment program buyer who pay their bills will always pay their bills. If you have a purchaser with 700 credit scores he is not going to suddenly not pay his house not because he didnt put any money. HUD bares all responsibility because of their weak credit guidelines.
By DeeKay on Feb 19, 2009
DeeKay, down payment assistance is available from bona fide resources and only seller-funded assistance has been eliminated. Since you support zero down payments, you’ll be glad to know that FHA is committed to creating a low or no down program.
FHA has supported previous proposed legislation for zero down pilot programs that included underwriting controls, appropriate premium structures and consumer protections. Unfortunately, the SFDPA organizations paid lobbyists to block proposed legislation for minimal or reduced down payments on FHA loans. (I just finished researching this issue for an upcoming article).
While I agree that bona fide down payment assistance can be done right, I disagree with your statement that borrowers with good credit will always pay their bills. A high credit score does not give consumers the magical ability to transcend insolvency or market dynamics. Hence, borrowers with FICO scores in the high 700’s are losing their homes the same as borrowers with low scores. A FICO score is just a snap shot of a consumer’s risk profile as of a specific point in time and is not a guaranty of repayment. In fact, credit scores are only partially based on history and involve outside factors that have nothing to do with either character or capacity. Regardless of how good someone’s credit score is, if doesn’t make up for a lack of financial capacity. If there is more month than there is money, problems will ensue.
Credit dynamics are shifting, and borrower priorities are changing. As prices decline, more and more borrowers are defaulting on their mortgages and paying their credit cards instead. Also, many 700+ borrowers are filing bankruptcy or entering foreclosure. So while you may think that good credit is a magic talisman that allows borrowers to always pay their bills, the ongoing financial crisis suggests otherwise.
I also disagree that a 700 credit score buyer won’t suddenly stop paying because of the lack of down payment. The failures of the 80/20 programs have already proven you wrong. While many of these borrowers had very high credit scores, these loans are still massive failures. This is because borrower cash investment is a very important risk factor. Regardless of credit score, borrowers without skin in the game are more likely to walk when values drop than those that invested hard earned savings. Also, borrowers who do not have the demonstrated ability to save money and accrue reserves are a greater financial risk than borrowers with lower scores that are able to save. The process of budgeting and sacrificing to accrue a down payment is a financial Rite of Passage that signals financial readiness for home ownership.
I also disagree that SFDPA failure is FHA’s fault. It was the nonprofit organizations that failed by choosing not to implement appropriate eligibility criteria, appropriate budget and homebuyers education or predatory lending protections. The SFDPAs only required the seller to participate by agreeing to pay their fee and reimburse the provider for the down payment. The SFDPA’s merely “loaned” down payments for high fees. FHA, on the other hand, has been fighting tooth and nail to eliminate the SFDPA abuse and create an alternative program.
I appreciate your comments and encourage you research the issue(s).
By Do the math on Feb 25, 2009
It’s quite funny that this lady who is so against the SFDPA doesn’t mention that the home values always have and always will be marked up to cover the realtors compensation. We seem to want to limit buyers and sellers but we should just let the realtors run a much and charge their 6-12% while the middle men are making 5% for doing the real work!
So why is it we need to be so harsh to the sellers and buyers. There are plenty of buyers that SFDPA helped tremendously and they have been good payers of their mortgages. I know I process all our loans as well as track their performance.
If you want to keep whining about value markups you really should put your efforts toward capping the ridiculous realtor compensation!
By Bri on Apr 8, 2009
Bri,
You bring up an excellent point. In most transactions, real estate commissions are the largest cost of sale. While I have seen many agents do little to nothing to earn their commissions due to a lack of knowledge and expertise, I have never seen commissions added to the sales price. Commissions are deducted from the seller’s proceeds which is clearly shown on the listing contract and seller net sheet unless the seller is doing a net listing.
While some may earn 6-12%, this is not typical in my area where commissions range between 3-6%. In over 20 years, I have never seen a commission “added” to a sales price although I have seen agents obtain sellers a higher price through their marketing efforts.
However, real estate commissions are not “sale’s concessions”, but moreover, are typical and customary costs of sale. Whereas SFDPA is clearly a sale’s concession (according to the IRS).
If you had read my most recent article, you’d see that I provided evidence that the SFDPA providers actually lobbied against 100% FHA financing which would have negated the need for SFDPA. I clearly showed that SFDPA, under current proposed legislation (HR 600) is significantly costlier and puts the borrower in a greater negative equity position than 100% programs proposed under prior legislation.
While SFDPA may have helped many borrowers, it has harmed many borrowers that were not prepared for homeownership. In fact, according to HUD Secretary Donovan’s recent testimony, while only 12% of FHA’s first quarter 2008 portfolio involved SFDPA, they account for 30% of all FHA foreclosures for that year. Not exactly what I would call “helping”.
I encourage you to educate yourself on the subject, and not believe all the propaganda that you hear from the SFDPA providers.
Thank you for your comment and participation in the subject.
-Krista
By Do the math on Apr 8, 2009