Monday, August 25, 2008

Downpayment Assistance (DPA) Eliminated. Now what?

October 1st may mean nothing to you, but to mortgage professionals/realtors, etc. it marks the end of Downpayment Assistance (or DPA). The new Federal Housing Bill ended this program. DPA allowed the Seller to bump their sales price anywhere from 3-6% to enable the buyer to receive 3% downpayment as required by FHA and up to 3% in closing costs. Nothing wrong with that scenario; someone wants to sell their home and someone wants to buy it (but they may not have enough money saved for a downpayment). As long as 1) the buyer can afford this home and 2) the property will appraise for the added value then the transaction makes sense. What is the problem? Well, I have heard that 1 in 3 homes using DPA were among the thousands that were foreclosed of late. With that info, I can understand the desire to delete this program so that banks lose LESS money! How can we fix this system? This video explains a bit, but again, how do you account for the huge numbers of losses as it relates to DPA? Perhaps you could base DPA amounts on credit scores/risk but other than that, what can you do? Anyone have any ideas?