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Schumpeter Reincarnate


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Re: Discussion on ML-Implode Statement On H.R. 6694 And FHA "Se
PostPosted: Mon Dec 15, 2008 12:50 am Reply with quoteBack to top

http://ml-implode.com/article/.....nt/01.html
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Crow
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Joined: 04 Nov 2008
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Location: U.S.A.

Down payment assistance should stay gone
PostPosted: Wed Dec 17, 2008 8:19 pm Reply with quoteBack to top

Homebuilders are one of the most common industries to push for down payment assistance. They apparently can't sell their overpriced shoddy houses without it. The IRS has called these programs scams, and they've been compared to money laundering. Artificial price inflation is another result. With all that, and foreclosures too, there is no earthly reason to revive down payment assistance programs, and the industry is just looking to make more sales commissions. This attempt to bring them back has NOTHING to do with any altruistic desire to help Americans achieve the so-called dream of homeownership. True charities do not launder money for builders and sellers, and these programs were not charities, which was part of why the IRS called them scams.
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BobbaLouie
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Down Payment Assistance
PostPosted: Thu Dec 18, 2008 2:48 pm Reply with quoteBack to top

Quote:
"H.R. 6694, before Congress currently, would revive a recently-banned practice known as FHA "seller-funded downpayment assistance" (SFDPA) lending."



This is the same scam practice of 100% financing that has the mortgage industry on it's heels. Will this industry ever learn?

Bobba
www.scamandfraudblog.com
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AMD
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Re: Discussion on ML-Implode Statement On H.R. 6694 And FHA "Se
PostPosted: Thu Dec 18, 2008 7:59 pm Reply with quoteBack to top

This commentary includes too many inaccuracies to let stand, so I appreciate the opportunity to respond. Downpayment assistance funded in part by sellers, which does not cost the taxpayer a dime and helped create 1 million homeowners over the last decade, deserves a defense.

First, you incorrectly describe downpayment assistance, known as DPA, as a “violation of HUD policy.” HUD’s own office of general counsel reviewed DPA and found it in compliance. DPA funded in part by sellers operated within HUD guidelines for a decade and was designed specifically to serve the same population the FHA serves.

Second, you incorrectly describe DPA as a “loan.” DPA is not a loan. It is a gift that is not paid back.

Third, you advocate for DPA’s elimination on grounds that recipients make no “personal sacrifice” to save for a downpayment. This argument holds no credibility in light of the common and legal practice of wealthy individuals providing downpayment assistance to their relatives. Where is the personal sacrifice in that arrangement? Tragically, the law rewards individuals who are born into wealthy families, and punishes those who are not.

Fourth, HUD’s argument that recipients of DPA are 2-3 times more likely to go to foreclosure is statistical sleight of hand. The GAO has stated that 94% of DPA recipients pay their mortgage without difficulty when measured over a three-year period. A 94% success rate is solid no matter how you slice it.

Fifth, it is inaccurate to compare DPA to sub-prime loans. No subprime loans were backed by AmeriDream downpayment assistance gifts. AmeriDream’s DPA gifts were provided only to FHA qualified homebuyers with FHA loans. The average DPA gift was $3,600 and the average home price was $108,000, compared to an average $116,000 for other FHA-insured loans. This is the definition of modesty.

If one still believes HUD is an objective voice in this debate, please read the so-called “Brill Report” that finds HUD and other critics drastically exaggerated their claims against DPA. See report here: http://www.supporthomeownershi.....t-2008.pdf

Finally, let’s take a broader look at the economy. There is near universal agreement that the housing market lies at the foundation of our economic crisis. As FDIC head Sheila Bair has stated, too much has been done to help Wall Street, and too little has been done help Main Street. The next generation of homeowners have no incentive to enter the market. DPA funded in part by sellers is a logical means for getting responsible, creditworthy homebuyers off the sidelines.

Thanks again for the opportunity to respond.

Ann Ashburn
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Justin
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Re: Discussion on ML-Implode Statement On H.R. 6694 And FHA "Se
PostPosted: Fri Dec 19, 2008 6:41 pm Reply with quoteBack to top

I won't hit all AMD's points, but there were a few I just can't let stand. Here we go:

Quote:
Downpayment assistance funded in part by sellers, which does not cost the taxpayer a dime


This is a straw man response. Sure the DPA, itself, doesn't come from the taxpayer, but when SFDPA a) inflates house prices b) results in foreclosures that create losses for the Federal government, it negatively impacts the taxpayer.

Quote:
Second, you incorrectly describe DPA as a “loan.” DPA is not a loan. It is a gift that is not paid back.


I believe you are misreading the article, which is using the phrase "SFDPA loan" to refer to FHA loans that are created with the help of seller-funded downpayment assistance.

Quote:
Third, you advocate for DPA’s elimination on grounds that recipients make no “personal sacrifice” to save for a downpayment. This argument holds no credibility in light of the common and legal practice of wealthy individuals providing downpayment assistance to their relatives. Where is the personal sacrifice in that arrangement? Tragically, the law rewards individuals who are born into wealthy families, and punishes those who are not.


Here you're claiming the argument regarding "personal sacrifice" has no credibility while making a couple pretty blatant logical errors.

First, you're painting people as either haves or have-nots, which entirely ignores the fact that millions of people (most of whom aren't in the upper echelons of wealth) have been able to save enough money for a downpayment, and most of these savers would not be considered rich. Nor were most of these people born to wealthy families.

Further, even in those instances when family provides help with a downpayment, it's not as if they just fork over thousands of dollars only to forget about the money or their investment in their fellow family members. Families tend to become annoyingly intertwined with each other when money changes hands. This means that family will expect the buyer to pay a competitive price and have the means to afford the mortgage, even going so far as to help pay the mortgage down the road should it be needed.

Compare that sort of relationship to SFDPA. As you point out, SFDPA is a "gift" -- it's completely "no strings attached" to the buyer. This is a far cry from getting a gift from "mom and dad," which is anything but "no strings attached."

It's completely reasonable to expect a buyer of any asset to be able to save money. Having a stockpile of funds to buy a house is indicative of a person's ability to save first and spend later. It's also indicative of the sort of prudence that enables someone to weather unforeseen financial storms.

Quote:
Fourth, HUD’s argument that recipients of DPA are 2-3 times more likely to go to foreclosure is statistical sleight of hand. The GAO has stated that 94% of DPA recipients pay their mortgage without difficulty when measured over a three-year period. A 94% success rate is solid no matter how you slice it.


I haven't looked into the stats, but just on the face of it, your counterclaim of "sleight of hand" strikes me as legerdemain, itself.

If 6% of DPA recipients fail to pay their mortgage over a three-year period as compared to only 2-3% of non-DPA recipients, then the stat is not only true (sleight of hand implying it is false), but its a meaningful difference -- one you are trying to write-off entirely. What more, we've yet to see how many SFDPA loans will default in a time where house prices are falling (such as right now, when we are experiencing likely biggest housing bust in U.S. history).

I'm gonna skip down and leave the rest for others to debate. You say:

Quote:
Finally, let’s take a broader look at the economy. There is near universal agreement that the housing market lies at the foundation of our economic crisis. As FDIC head Sheila Bair has stated, too much has been done to help Wall Street, and too little has been done help Main Street. The next generation of homeowners have no incentive to enter the market. DPA funded in part by sellers is a logical means for getting responsible, creditworthy homebuyers off the sidelines.


So we had a monster house price bubble -- house prices reached untenable levels. Without going into the reasons for this, the bursting of the bubble means that house prices return to more historically reasonable levels. In other words, the cure for the disease is that house prices fall. The next generation of homebuyers is smart to wait for house prices to fall back to reasonable levels so they don't get stuck with more multi-decade debt than they need. SFDPA simply bails out existing homeowners to the detriment of would-be homeowners. So no, this "incentive" argument has no teeth -- the incentive would-be homebuyers need is for house prices to fall. SFDPA thwarts that process.

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phillips65020
Dud?


Joined: 16 Oct 2008
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HR 6694
PostPosted: Fri Dec 19, 2008 7:04 pm Reply with quoteBack to top

SFDPA is not evil. The people who manipulate it beyond it's intent are evil. If an appraisal report does not inflate value, the seller then will truly give up 3.5% of his/her profit and so long as credit & income criteria are met, this tool toward 100% financing is legitimate and worthwhile to reinstate.

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Do_the_math
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Joined: 14 Mar 2007
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Re: Discussion on ML-Implode Statement On H.R. 6694 And FHA "Se
PostPosted: Fri Dec 19, 2008 7:39 pm Reply with quoteBack to top

AMD wrote:
This commentary includes too many inaccuracies to let stand, so I appreciate the opportunity to respond. Downpayment assistance funded in part by sellers, which does not cost the taxpayer a dime and helped create 1 million homeowners over the last decade, deserves a defense.

First, you incorrectly describe downpayment assistance, known as DPA, as a “violation of HUD policy.” HUD’s own office of general counsel reviewed DPA and found it in compliance. DPA funded in part by sellers operated within HUD guidelines for a decade and was designed specifically to serve the same population the FHA serves.

Second, you incorrectly describe DPA as a “loan.” DPA is not a loan. It is a gift that is not paid back.

Third, you advocate for DPA’s elimination on grounds that recipients make no “personal sacrifice” to save for a downpayment. This argument holds no credibility in light of the common and legal practice of wealthy individuals providing downpayment assistance to their relatives. Where is the personal sacrifice in that arrangement? Tragically, the law rewards individuals who are born into wealthy families, and punishes those who are not.

Fourth, HUD’s argument that recipients of DPA are 2-3 times more likely to go to foreclosure is statistical sleight of hand. The GAO has stated that 94% of DPA recipients pay their mortgage without difficulty when measured over a three-year period. A 94% success rate is solid no matter how you slice it.

Fifth, it is inaccurate to compare DPA to sub-prime loans. No subprime loans were backed by AmeriDream downpayment assistance gifts. AmeriDream’s DPA gifts were provided only to FHA qualified homebuyers with FHA loans. The average DPA gift was $3,600 and the average home price was $108,000, compared to an average $116,000 for other FHA-insured loans. This is the definition of modesty.

If one still believes HUD is an objective voice in this debate, please read the so-called “Brill Report” that finds HUD and other critics drastically exaggerated their claims against DPA. See report here: http://www.supporthomeownershi.....t-2008.pdf

Finally, let’s take a broader look at the economy. There is near universal agreement that the housing market lies at the foundation of our economic crisis. As FDIC head Sheila Bair has stated, too much has been done to help Wall Street, and too little has been done help Main Street. The next generation of homeowners have no incentive to enter the market. DPA funded in part by sellers is a logical means for getting responsible, creditworthy homebuyers off the sidelines.

Thanks again for the opportunity to respond.

Ann Ashburn


I am not sure if this is really Ann Ashburn, but the arguments sound like those presented by Ameridream and other SFDPA providers. Before I respond to statements, I'd like to know if this is truly Ann Ashburn that made this comment.

_________________
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Last edited by Do_the_math on Fri Dec 19, 2008 7:58 pm; edited 1 time in total
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Do_the_math
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Re: HR 6694
PostPosted: Fri Dec 19, 2008 7:52 pm Reply with quoteBack to top

phillips65020 wrote:
SFDPA is not evil. The people who manipulate it beyond it's intent are evil. If an appraisal report does not inflate value, the seller then will truly give up 3.5% of his/her profit and so long as credit & income criteria are met, this tool toward 100% financing is legitimate and worthwhile to reinstate.


Nobody said that SFDPA was evil, just that the concept is a scam (according to the IRS).

If SFDPAs are prevalent in an area, the comps themselves are inflated as area prices are impacted.

Most MLS' do not require the agent to report when seller funded down payment assistance is used nor does public records. If several sales are inflated, then values become distorted. Over time, the effects of adding the down payment to the sales price results in higher prices.

The SFDPA providers advances the down payment which the seller pays back with a fee after closing. What part of that isn't a scheme to circumvent HUD policies that the down payment not be provided by the seller.

Using a laundering scheme to circumvent HUD guidelines to achieve 100% financing is not an ethical way of transacting business or promote responsible homeownership.

There are legitimate alternatives for buyers that need assistance. If the private sector wants to come up with a 100% program, there is nothing stopping them. Oh, but wait, the private sector did. As it turned out, 100% financing is very practical for markets, inflation, or the economy.

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"Two things are infinite: the universe and human stupidity; and I'm not sure about the the universe." -Albert Einstein

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phillips65020
Dud?


Joined: 16 Oct 2008
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HR 6694
PostPosted: Fri Dec 19, 2008 8:14 pm Reply with quoteBack to top

Property values are not inflated if the seller is truly giving up 3.5% of his/her profit.

If it's 100% financing you want to get rid of... ask for HUD to shut down RD. What's the difference? RD is a 100% financing program.


Fact of the matter is... you have too many brokers dictating content & value to appraisers. AMCs would be a step in the right direction to stop broker influence on appraisers & their reports.

Good underwriting and good appraisal reports make 100% loans to responsible borrowers worth our time & effort.

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whippm
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Re: Discussion on ML-Implode Statement On H.R. 6694 And FHA "Se
PostPosted: Fri Dec 19, 2008 11:45 pm Reply with quoteBack to top

HUD’s Faulty Reasoning

HUD has tried to link seller funded down payment assistance (SFDPA) with higher foreclosure rates by showing a correlation between the use of SFDPA and foreclosures. The problem is, they have not even attempted to establish causation using any number of proven techniques. A classic example of HUD’s specious reasoning in trying to link SFDPA with higher foreclosure rates by merely showing a strong correlation is the following: A Federal agency sets out to determine policy on the number of fire engines to send to fires. The agency does the following: (1) it gets data on all the fires in San Francisco for the last seven years; (2) it correlates the number of fire engines at each fire and the damages in dollars at each fire. The agency notes the significant relationship between number of fire engines and the amount of damage. The agency observes that:

The more firemen fighting a fire, the more damage there is going to be.
Therefore, firemen cause damage.

The agency proposes a new rule to limit the damage caused in fires. It mandates that only one fire truck with a maximum of 5 firemen will be dispatched to any fire.

The flaw in the above reasoning is easy to observe. The strong correlation between the number of firemen sent to a fire and the damage that is caused does not mean that the firemen cause the damage. The larger the fire, the more firemen that are sent—so the truth is, large fires cause more damage. There are two variables that move in tandem, not because one is causing the other, but because a third variable causes an increase in both of the first two variables.
Yes, foreclosures and the use of SFDPA move in tandem, but not because SFDPA causes foreclosures, but because other variables that cause people to need down payment assistance also put these people more at risk of foreclosure. FHA has failed to control for other factors that are indicators of a buyer’s probability of default such as co-borrower’s information, collections owed, amount of closing costs, employment, income, debt, monthly payment, bankruptcy, if the borrower is a first-time homebuyer, interest rate, FICO score (not just FICO category), etc.
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