Fight to Resurrect Seller-Funded Downpayment Assistance Continues

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

Regardless of whether you feel positively or negatively about seller-funded downpayment assistance programs, the fact is the subject hasn’t died since the elimination of seller funded DPA with the passage of the Reform Act in 2008.

H.R. 600, which includes proposal to revise the requirements for seller-financed downpayments, was introduced on January 16th. The proposal offers a scale of up-front mortgage insurance premium ranging 1.25-3.0% based on the qualifying fico score for the borrower who applies for DPA funds and adds a paragraph explaining the right to impose civil penalties for any case associated with the improper influence of appraisal valuations.

To be honest, I’m not quite sure how I feel about this. On one hand, I wouldn’t own my own home had I not been able to utilize seller-funded DPA back when I purchased in 2006 but on the other hand, I have to wonder if we’re really quite prepared as an industry to “bring that old dead horse back into the barn yet.”

Right now our industry is completely overwhelmed by the lowering of interest rates in the recent months. The entire system is taxed and running in overload. Don’t get me wrong, I’m not complaining whatsoever about that part. It’s a wonderful problem for all of us to have. But in all honestly, if we open up the flood gates and start allowing seller-funded DPA again, can we handle the major increase in FHA purchase volume that may follow? Would that perhaps be the straw that may break the camels back?

There is one thing I have noticed since seller-funded DPA was rendered non-allowable last Fall and that is this: Most realtors and originators who completely relied upon seller-funded downpayment assistance are no longer with us. Most of their business dried up to the point they had to make career changes. However, in retrospect, most of the realtors and originators who have been in the business long-term are still around and thriving. This is due much because I think the market has reverted back to where it was twenty years ago and more. Loans aren’t easy anymore because qualification requirements aren’t as easy anymore- that’s the way things were back then.

My one wish for the proposed resurrection of seller-funded downpayment assistance is that there is no rush to judgment. I hope that all parties take time to seriously evaluate all components that need to be considered with such a decision. Are we 100% certain that we aren’t adding more undue strain in the market? Will the benefits outweigh the potential negative aspects? How will technology be able to respond in regards to determining the qualifying fico scores on these loans, and what about the up front MIP scale? I can tell you one thing- I think I did cartwheels when the Moratorium was released to suspend the risk-based premium structure last year. It was an absolute nightmare trying to keep track of what the up-front factors and monthly factors were supposed to be on each loan at the production level so I can only imagine the nightmare it created in underwriting and for HUD insuring. Those are the kinds of things our politicians don’t consider or think about.

I just hope that whatever decision is made, it’s reasonable and doesn’t create any greater confusion for those of us who have to work IN the business.

There are several resources you may wish to utilize to voice your support of H.R. 600:

Ameridream’s open letter to President Obama: http://www.ameridream.org/SupportUs/HR600/

Nehemiah- Groundswell- http://capwiz.com/nehemia/issues/alert/?alertid=11709431

Association for Homeowners Across America- http://takeaction.supporthomeownership.com/ahaa/issues/alert/?alertid=11521436&PROCESS=Take+Action

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.