by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Well, it looks like the Down Payment Assistance Programs are dead. Countrywide is usually the bellwether for any “out on a limb” lending and they sent me an e-mail today, telling me to “get my deals in” by Friday. Specifically, my down payment assistance transactions have to be locked by Friday and approved by a DE underwriter on Monday. Files are taking 3-4 days in underwriting so for all practical purposes, I’m out of the down payment assistance business as of 5PM, today.
That’s okay. I haven’t used these programs since 9-11 so I won’t miss out. Lower end home prices might get walloped next month, as the pool of unsuspecting buyers disappears, but we might just have a few more tricks up our sleeve.
Did you understand how those programs worked? You can read about how we got around the law by calling sellers “owners of participating homes” here. If it sounds a lot like the disclaimer that escorts use (escorts sell time; what happens between consenting adults is private), it’s because the same principle of “winking” at the law is employed.
The Rules of Fraud Club:
The first rule of Fraud Club is, don’t talk about Fraud Club.
The second rule is, you DO NOT talk about Fraud Club.
It would appear that this movie is about over. But wait, there’s a sequel! This one is called the First-Time Home Buyer Tax Credit. Essentially, it’s a $7,500 tax credit, that must be repaid, over 15 years to the Federal Government. If you’re buying a $200,000 home, that $7,500 covers your downpayment for a FHA loan. While “borrowing” downpayment monies are disallowed on loan programs, the first-time homebuyer tax credit is essentially an interest-free, government loan. The problem with this “trick” is that the buyers can’t get that credit BEFORE they close on the new home.
Hmmm…now, how do we get that money into the buyers’ pockets before April 15, 2009? I’ll bet that the downpayment assistance charities will find a way. Look for Nehemiah and AmeriDream to morph into “tax refund lenders”, some time this fall. Why?
Because, everyone knows the last two rules of Fraud Club
This is a satirical piece about the various incentives used in the real estate industry to prop up real estate. I defended down payment assistance programs, a few months back, in a Jesuit moment. Down payment assistance programs were a great way to get buyers into homes. I used them extensively, in the late 90s. These programs allowed many folks to build wealth, through real estate ownership. I have no real problem with them or the other laws and loopholes our government offers, to continue the dream of home ownership. While I may disagree with them philosophically, I aggressively operate within the letter of the law to do my job; get qualified buyers into homes. I just wish we would stop pretending they’re something else.
The opinion of this article is solely that of the author’s. His opinions do not reflect that of the other contributing authors, their companies, or employers. Mr. Brady’s opinion is not that of the owner of this site nor the owners of Bloodhound Realty.
Greg Swann says:
Here’s my take: If lenders are willing to so contort their minds as to pretend that a “gift” from the seller is somehow a “grant” from a third party and that, somehow, it’s perfectly permissible for the buyer to finance the full amount of that “grant/gift” so that the buyer can give the money to the seller, so that the seller can give it to the grant provider, so that the grant provider can give it back to the buyer, all of this so that the lender can pretend that this money is somehow a “down payment” — if lenders are willing to go through all of that, every bit of it nonsense, then they can permit buyers to finance the cost of buyer representation honestly — as opposed to the dishonest way they do it now.
August 26, 2008 — 8:04 pm
Austin Real Estate Blog says:
I dont really understand why the govt doesn’t allow people to use the 7500 for an actual downpayment. If the purpose is to promote home ownership it doesnt really do any good coming into play 5 months later. Considering the current state of the national real estate market down payment assistance would be helpful right now.
August 26, 2008 — 8:28 pm
Bob says:
I smell an opportunity.
August 26, 2008 — 8:51 pm
genuine chirs johnson says:
Well, shit. Now it’s time for me to go sell some credit-repairing moneymerge accounts. You just punched a hole in the way I make a living.
August 26, 2008 — 9:01 pm
Brian Brady says:
I was goofing on Active Rain, Bob, but your idea is similar to the one I had in the 90s. When learning about Nehemiah, the first think I thought of was, “How do I get to run a ‘non-profit’?”
How about “California Cares Fund”?
August 26, 2008 — 9:11 pm
Bob says:
It isn’t hard. I had a friend in the fundraising business (talk about the ability to legally steal money).
We need to think bigger than California – all 50 states.
August 26, 2008 — 9:21 pm
Robert Kerr says:
I don’t really understand why the govt doesn’t allow people to use the 7500 for an actual downpayment.
Because putting un/underqualified buyers into homes is how we got into this predicament.
A buyer that can’t save for a down payment is not ready to buy. Do we really need more foreclosures?
Think beyond your commission, please.
August 27, 2008 — 12:18 am
Apella says:
Brian,
I have to admit… I am a Huge Fan of your stuff… writing and of course the items that you touch base on! This whole thing reminds me of the lottery… when the gov could not beat the bookie the became the bookie… while I have never been a fan of the “assisted down” I can see that the government saw the money making and in the end stoled the ability to take their cut. The only difference is that they chose to take the cut on the back side.
Thanks for the Great Item!
August 27, 2008 — 12:20 am
Glenn says:
I totally agree with Robert Kerr on this issue.
Has anyone seen an appraisal where a comp was one where the seller contributed or paid for downpayment or/and closing costs and was not adjusted for these monies?
August 27, 2008 — 5:44 am
Brian Brady says:
“A buyer that can’t save for a down payment is not ready to buy. Do we really need more foreclosures?”
That is not necessarily true. While lower down payments have higher default rates, they can still be within a predictable and acceptable margin of risk. That can be offset by higher risk-based pricing.
The problem wasn’t the “easy money”, it was the “cheap, easy money”
“Think beyond your commission, please.”
Change your line; that will get nowhere with me in this discussion.
August 27, 2008 — 8:03 am