Written By: Stacey Sprain
I realize HUD’s Mortgage Letter 2009-15 generated a lot of excitement and buzz for the industry upon it’s posting on May 12th but no one was more pleased to see HUD retract it just as quickly on May 13th than I. Please note that when I voice my pleasure for the retraction, it certainly doesn’t include any nod for HUD’s methods. I find it completely and utterly cowardly that they post something, include it in a speech to generate all the excitement that they did only to quietly retract it all with no notification, no explanation to accompany the decision and sweep in under the rug. I don’t know what on earth went down with this whole thing but I can tell you I am not finding ANYTHING anywhere on the net and I consider myself to be a pretty darn good bloodhound when it comes to digging until I find what I’m determined to find.
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I’ll be honest, I was livid when I saw the Mortgagee Letter explaining that HUD had taken position to accept the $8000 tax credit advance as a source of downpayment because in my opinion, we would not be doing our borrowers any favors by leading them into these questionable offers. I realize I have realtors and loan officers everywhere all riled up with my opinionated statement but let’s stop and think about this for a moment with a clear head and with most importantly, common sense. Given that the current state of the housing industry was created by handing mortgages to borrowers who either didn’t qualify or have downpayment funds available in the first place, why on earth would the feds of all people want to encourage that potential homeowners go out and borrow funds on an asset that isn’t even theirs yet? The idea is simply preposterous! I am still completely flabbergasted that they would have approved this idea!
At the same time, I feel for those first time homebuyers who, for a brief moment in the past 24 hours, may have gotten their hopes up that this would be the option they’d been waiting for only to have their dream crushed almost as immediately as a glimmer of hope appeared. But in all honesty, I feel like it’s our job to PROTECT potential first time homebuyers from these kinds of things and it’s a responsibility I personally do not take lightly. Young homebuyers don’t always think of “the big picture” as so many of us have learned to do over the many years we’ve spent in the business. It’s our job to do the research and to make sure that what we’re getting them into doesn’t have the potential to cause them harm. I don’t feel confident at this time that any one of us can make that promise on an advance of the $8000 tax credit given that the unemployment rates are rising, federal debt is rising, consumer confidence is down, and that based on recently issued figures, Fannie and Freddie may be on the brink of complete failure. There’s an old saying we industry vets pass around among us and if I’ve heard it once I’ll say it again- “If it sounds too good to be true, it probably is! “
When I first heard about these places concocting these $8000 credit advance schemes my brain immediately flooded with questions; many of which are still there-unanswered. I have already heard and read of some horror stories out there where borrowers were flat out taken advantage of. They borrowed the monies, bought the home, lost their job and are now stuck holding an outstanding loan that was secured on an asset they now may not even be entitled to because they can’t even make the mortgage payments on the home they bought with the advance on their anticipated tax credit in the first place. These are the kinds of things that we all need to think about before recommending these advance loans to potential homebuyers.
With the state of the current housing market and the instability of the employment sector, let’s be serious. Is this really a good idea for anybody involved? Sure-It’s great for the schemers who are making boatloads of interest and penalty charges on these advances. But did anyone really stop to consider the likelihood of potential loan default? Are these advances really and darn different than seller funded downpayment assistance which has now been outlawed? When the statistics supposedly show that borrowers are three times more likely to default when they don’t contribute any of their own funds toward their downpayment, is this really a good idea to promote out there? Do we really think it will stimulate the economy? What if it completely backfires? Then what? That’s a backlash the housing industry simply CANNOT AFFORD right now.
What made me most angry upon reading the Mortgagee Letter was that in one top newspaper’s headlines, there was a small paragraph about HUD deciding to allow the advance tax credit loans while just a paragraph below I read the following:
Freddie Mac Reports Loss, Needs More Capital From U.S.
Wall Street Journal (05/13/09) P. A9; Hagerty, James R.
As the costs of mortgage defaults continue to mount, Freddie Mac posted a first-quarter loss of $9.85 billion and announced that it will need another $6.1 billion of capital from the Treasury. A week earlier, Fannie Mae recorded a quarterly loss of $23.17 billion and said it would require $19 billion to stay afloat. Federal regulators seized control of the two government-sponsored enterprises last fall. The Treasury has since agreed to provide up to $200 billion of capital each to the GSEs by buying preferred shares paying 10 percent dividends.
My first thought was to sit back and read it one more time. Yep, that’s what it says all right. Even with the huge ongoing refinance boom we are in, both Fannie and Freddie appear to be in major trouble. So tell me again WHY it’s a good idea we let first time homebuyers borrower money for their downpayment by securing a loan against an asset they haven’t even earned yet? No matter which side of the fence you sit on over this whole thing, I think we can all agree that it will be interesting to see how this whole situation plays out….
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About The Author
Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: firstname.lastname@example.org.