MN Mortgage Broker Believes Pending Mortgage Legislation Will Hurt The First Time Home Buyer-Real Estate Recovery Will Be Stalled

Minnesota Mortgage Broker-Venture Development Inc shares their opinions regarding the government proposed solution to the housing crisis. In an article this week in the Washington Post, Chairman Barney Frank of the House Financial Services Committe is quoted as saying that "the House will yield to the Senate on the termination of seller participation in down payment assistance programs." Down Payment Assistance will end as we know it if this is signed into law by the president. Down payment assistance under the current guidlines allows the private sector to provide the solution. The Bill as proposed presents no government alternative or any alternative suggestion on how to keep the program intact. Their are provisions in the overall bill that may help-like a first time buyer tax credit, but they don't address the inability to come up with the initial funds to purchase a home.

The progression of home sales within the housing market is dependent on first time home buyers starting the domino affect. Their home purchases are the catalysts that allow people to sell their existing home and then move into a new property such as a larger home, condo or townhouse. In order to keep the housing market moving forward, we need to encourage homeownership at the beginning of the cycle. Mortgage programs that are underwritten with greater flexibility regarding credit, income and down payment will create more homeowners. We need mortgage loan programs that allow you to buy a home with as little money down as possible.

As recently as March of 2008, there were conventional loans that allowed for 100% financing such as the Home Possible, My Community, and 80/20 combination first and second mortgage programs. Declining property values coupled with high mortgage delinquencies in all real estate markets have all but eliminated investors for these types of high LTV loans. In addition, due to large losses by private mortgage insurance companies (PMI) there is an unwillingness of mortgage insurers to insure these loans. Hence these loan programs have either been eliminated or now require a down payment. With Fannie Mae and Freddie Mac's current financial problems and the overall state of the mortgage markets, don't expect that they will be creating any new high loan to value zero down mortgage products anytime soon.

Herein lies the problem. Most first time home buyers lack sufficient resources for the down payment and closing costs. They often have good credit and the ability to make a payment. Until they save enough money, they are left out the housing market. FHA loans currently allow buyers to obtain down payment assistance (DPA) from a relative or from a qualified down payment assistance provider. This means that buyers without enough current resources may be able to obtain enough funds to buy a home today. There are a number of approved down payment assistance providers-some of the largest names are Nehemiah, Genesis, and Ameridream. In a nutshell, these non-profit organizations issue down payment assistance to a prospective home buyer and then collect funds from the seller of a home who has agreed to participate in this program at the time of closing. The non-profit charities charge an administrative fee of between $300 and $500 to facilitate with the assistance of this funding. FHA sometimes refers to this arrangement as seller funded down payment-which they don't allow. Although the funding is coming from a non-profit, the FHA perception is that it is actually from the seller, albeit indirectly. The problem stems from losses. According to FHA, they have experienced larger losses on portfolios of loans that were funded with DPA funds.

In fact, FHA hopes to eliminate these programs altogether through the fast tracked housing bill going through congress now. Time is of the essence! The senate version-which is the supported version-will eliminate DPA. What would this mean? Let me make this clear-if this bill passes fewer houses will be sold. More qualified homeowners will remain as renters. More homes will stay on the market and the real estate and mortgage crisis will get worse. DPA funding offers a solution to our crisis by making homeownership possible. If there are problems with the way things are being done within the current DPA program then let's work on modifying them. Let's identify solutions-such as raising the minimum required credit score on DPA funded loans. This would probably lower the defaults and match the underwriting to the risk. Elimination or outright banning of DPA programs that are currently helping our ailing housing market is foolish. As a Minnesota FHA mortgage broker who works in the market on a daily basis, I can tell you about clients who are good people who want to become homeowners. Their shot at owning a home depends on these programs. Get involved and learn more. The consequences of making the wrong decision about the fate of DPA's will affect our entire economy.

Currently, many mortgage brokers and banks are not offering FHA financing. Twin Cities mortgage broker Venture Development Inc does provide access to FHA mortgages and works with buyers that wish to utilize down payment assistance. We encourage all borrowers-not just first time buyers- to consider FHA financing and compare it to conventional or veteran financing options. There are special features found only in FHA loans. Call us for details. The interpretations and opinions expressed herein are those of the Principals of MN mortgage broker Venture Development.