FHA Seller Financed Downpayment Reform and Risk Based Pricing Authorization Act of 2008
This new bill was proposed on August 1st. It is a new bill might bring life back to down payment assistance and non-profit companies such as Nehemiah and Ameridream. The bill is H.R. 6694 and currently looks like the only hope to keep down payment assistance around after October 1st, 2008.
Who Did It?
The bill was sponsored by U.S. Representative Al Green (from Texas). This new legislation was also co-sponsored by U.S. Representatives Gary Miller (of California), Maxine Waters (also of California) and Christopher Shays (Connecticut).
What Would This New Bill Do?
The Main Objective
This new bill would again allow Down Payment Assistance (a.k.a. DPA) be an allowable gift source for FHA loans. Currently, the recent passing of H.R. 3221 has left down payment assistance discontinued as of October 1, 2008.
The Big Obstacle
Obviously down payment assistance was included in the recent housing bill because it has been the source of many foreclosures. Specifically, loans with down payment assistance were 3-4 times more likely to be foreclosed on. Kind of wild.
Also, this doesn’t take into consideration many of the loans that have been originated after the popular Fannie Mae and Freddie Mac programs disappeared (it wasn’t long ago!).
Major Changes
In order for down payment assistance to even be considered to be reinstated, I think it’s obvious that there would have to be some changes to the way. Here’s what I read so far (actual numbers will likely change if this bill makes it through):
Down Payment Assistance:
- FICO Scores over 680 get a ‘free pass’ to use Down Payment Assistance.
- FICO Scores between 620-680 mortgage insurance is required (at least that’s how I read it)
- They would like to allow borrowers with less than 620 FICO score, but they have to determine the mortgage can be insured without ‘resulting in need for an appropriation for a credit subsidy’.
Risk Based Pricing:
- In all, the bill is requesting the authorization for risk-based pricing. This is the same type of risk-based pricing that Fannie Mae implemented in the first quarter of this year. If a borrower has less than a 680 FICO score (or 720 in some cases), you will pay a higher interest rate.
This goes back to risk vs. return. Basic rules of business.
Interpretation
Remember, this bill was just released over the weekend. I believe I’m the first person to write anything on it, so I’m interpreting the legal speak at my best. I’m not an attorney, I’m a mortgage guy. If you’re looking for an attorney’s summary, I can recommend someone 😉
Ultimately, this bill will probably see some changes before it moves through and would be passed.
Who Cares?
You should. But if you know anyone who’s been looking at buying a home and cannot come up with the 3% required down payment. Many Americans (that are still managing to make their house payments) have purchase their home with little to no money down. If programs like seller down payment assistance disappear, you’re going to shore up a lot of potential buyers and kick them right out of the market.
Over the past year, over 32,000 Americans have called on Congress and the Bush Administration to keep downpayment assistance around. Some of the large supporters include:
- National Association of Homebuilders
- Labor Council for Latin American Advancement
- U.S. Conference of Mayers
- Congressional Black Caucus
- Congressional Hispanic Caucus
Talk about a diverse group of supporters. It’s obvious that this impacts many Americans and I encourage YOU to take action and do what you can to support this bill. It’s a very big deal.
Want To Help Keep Downpayment Assistance Around?
Contact your local state representatives and let them know why you feel it’s good for Americans.
In the Meantime
If you or someone you know is looking at purchasing a home, let them know that they have until October 1st to close on a loan with down payment assistance. If they need help in getting qualifed of need a second opinion, let me know. My team and I would be glad to help!
Heavy Reading
If you’d like to see the actual bill, it can be seen here: Copy of HR 6694
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New Bill May Eliminate Down Payment Assistance (DPA)
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Mortgage Insurance on FHA Loans IS Increasing
You May Want To Get Your FHA Loan Before It’s Too Late!
{ 5 comments… read them below or add one }
Thanks for sharing this new info, Tyler. I’ll be tracking here to see what you learn as the week progresses.
Most lenders are changing to NO DPA\\\’s as of Sept 1st instead of waiting until October 1st. I don\\\’t know why the hurry, but even if the bill gets past, I wonder how long the lenders that have instituded the NO DPA law Sept 1st will take to change back to accepting the DPAs?
@ Brian – I’ve heard the same thing from multiple lenders. It all has to do with being able to sell the loan off on the secondary market. If HUD (who purchases FHA loans) places a cut off for certain banks, this would be the reason.
My primary bank has not instituted anything before October 1st…. YET. I don’t see it changing, but ultimately, there is a decision maker siting somewhere. That decision maker is not me 😉
Thanks for joining the conversation Brian!
Also in support of Bill H.R. 6694 are the National Association of Realtors and the National Association of Mortgage Bankers. FHA estimates that 37% of all FHA loans use DPA funds. Here is a program that works without taxpayer money and helps promote the \\"bottom up\\" nature of the housing industry. If first time home buyers cannot get into a home, the market will not operate. Therefore, it is vital we have legislation in place to support \\"main street\\" taxpayers and, at the same time, stimulate the housing industry. Please take a moment to write your Senator and Rep and tell them to vote YES for DPA.
I agree with Chuck DPA is needed contact your local Senator and State Rep.
DPA has been a valuable tool for many homebuyers & it should be continued.
Support DPA!