Down Payment Assistance Programs May Be Saved And You Can Help

Â Down Payment Assistance Programs

When President Bush signed the Housing and Economic Recovery Act of 2008 back in July, there was a provision on page 479 that has had major implications. This provision will eliminate down payment assistance programs, or DPAs, starting on October 1st of this year. Efforts are underway to save these much needed programs.

Down payment assistance programs are typically third party, nonprofits, that provide a down payment to the buyer and is reimbursed by the seller. The programs help those that do not have the required 3% down payment required for a mortgage backed by the Federal Housing Administration. These programs are not only used by home builders, they have been used by millions of American across the country since its inception.

Since subprime mortgages have fallen out of favor in 2007, these programs provided a bridge for those that cannot take advantage of traditional mortgage programs. Opponents of these types of programs often state that borrowers using these programs are two to three times as likely to default on their loans if they received their down payment from a nonprofit. Others say that the programs allows millions to realize the dream of home ownership that would otherwise be left out in the cold.

“Down payment assistance has tremendously empowered those families across the United States to catch their dreams. That’s everything from providing a safe, secure household for their family and children to being able to capture some of that equity wealth to start businesses, send children to colleges, and improve their own professional training. Homeownership is that key to a better life,” said Scott Syphax, CEO of Nehemiah Corporation of America, one of the nation’s largest down payment assistance programs.

Members of Congress have proposed a bill would resurrect the programs with the backing of the Department of Housing and Urban Development. The compromise measure would limit their use to borrowers with higher credit scores. In exchange, HUD would be able to institute risk-based pricing for federally insured mortgages, allowing the agency to charge higher premiums for less-creditworthy borrowers.

The compromise is designed to ease concerns that the programs’ above-average default rates were causing the FHA to lose money. Borrowers with credit scores above 680 would be able to use the programs, and those with scores between 620 and 680 might face higher insurance premiums. Borrowers with credit scores lower than 620 wouldn’t be able to use the programs until mid-2009, when the HUD secretary would have the discretion to extend the program to less-creditworthy borrowers.

Supporters of the programs are calling on lenders, loan officers, real estate agents, and others in the housing market to contact their Senators and Representatives to support the legislation. If President Bush does not sign the new bill soon, down payment assistance programs will expire Sept. 30.