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dirk2290
Nitroglycerin


Joined: 10 Sep 2007
Posts: 932

Advocates for the HR 600 Bill
PostPosted: Fri Apr 10, 2009 8:01 pm Reply with quoteBack to top

Advocate for HR 600, Seller Funded Down Payment Assistance Programs

Let me first begin by saying the reason I have put this together is because of the excessive dead horse beating that keeps taking place every week regarding this topic. I will certainly agree with the need for reform in this category. Here we go:

1. I have to say that I am so sick and tired of hearing that the Buyer will be in negative equity right out of the gate. This just simply is not true. As a matter of fact, this theory is so far off in “la la” land, it isn’t even funny. Obviously the folks that have this mentality are not Originating Loans currently. Do they not understand how conservative Appraisals are right now? Bottom line in this time of the Industry is that if your home doesn’t appraise for the value needed, then it doesn’t appraise. Appraised values are getting cut like they have never been cut before. There is an ultra conservative effort put on Appraisals. And now with the HVCC law that goes into effect on May 1st, the Appraisal process will only become more conservative. This is not 2005 or 2006, where an Appraiser can stretch value and get away with it. So the theory that you are walking into negative equity is a farce and simply couldn’t be more from the truth. Just because the seller would want to contribute more money to the equation, doesn’t mean there is an equity problem. Now, if you presented this theory in 2005 and 2006 and the early part of 2007, you would have a solid foundation for an argument, but my, my, my……you certainly are not in the trenches with Appraisals now a days and that is quite obvious.
2. Let’s compare this Seller contribution system to Real Estate Commissions. As you know the typical transaction is 3% to the Listing Agent and 3% to the Buyers Agent. Well, if you are the Seller and it is your Equity and your money, shouldn’t it be left up tp you to spend how you like? So, it is not uncommon for SMART Sellers to raise the Buyer’s Agent Fee to 4%, some times referred to as the “Co-Broke Fee”. I have done this on properties I have sold, and guess what folks, it works. You see when a Buying Agent is pulling up properties to show their Buyer to look at, guess which ones they are showing the Buyer first. That’s right a Co-Broke fee of 4%. It’s only human nature. Point being, I raised my Realtor Commission fees from 6% to 7% to sell my home. So, are you going to try and say because I did that, my home is falsely appraised and the Buyer is walking into negative Equity? Are you going to say that this Buyer is now more likely to default on their Mortgage?
3. Another Real Estate example is Rural Properties, Farms and some Commercial Property Types: These properties sell anywhere from 7-12% in total Sales Commission, and are usually derived to/from a bonus derivative type feature. This is legal and not frowned upon (legitimately speaking). This also does not take on the same assumptions of immediately being in negative equity or higher risk of default.
4. What about the total 6% in Seller Contributions to the Buyer? I mean really? This cap is put into place for a specific reason, right? Ok, so what about keeping this cap into effect but allowing the 6% to be used any fashion, whether it is closing costs or down payment or a combination of both?
5. What about making a minimum requirement of 1% or $1,000 (The higher of the two) into the transaction from the Buyer, but still acquiring Seller contributions.
6. What about alleviating the Charity Foundations and just making it a part of the contract, like they are just Seller Contributions. This removes skimming and making a lot of people rich that are simply laundering money. I totally agree with removing these entities or truly lower the fee of the service to no more than $99. There are many other Advocates that have mentioned this possibility already.
7. Put minimum Fico Score Requirements on the Program. I am totally in favor of that. Credit scores above 700 with a minimum of 2 trade lines open for 12 months and 1 for 24 months shows the capability of paying bills on time and the depth behind it.
8. Put slightly higher UFMIP’s on the loan to ensure the so called higher probability of risk.
9. If I am the Seller and I want to find ways to market my home better than the next guy, I should be able to use SFDPA’s as a way to do it. Especially if I would prefer to make a dream come true rather than lining the pockets of the Realtors. If you could run the SFDPA’s in a responsible format with an over site committee being funded with a portion of the UFMIP, this program could really work.


What I am trying to say is that there is another way to look at this. I really think this is a program that could work as long as there is reform. With reform and over site, this program could make dreams come true and could also help eliminate the abundant inventory we have right now, which will help us recover as a whole from the downward economy we are in. Many economists agree that when you stop the value of homes dropping, you are starting the Recovery process of the Real Estate Market, which is a MAJOR part of the foundation for an economy as a whole. Sure, while that should not be the major focus, but let’s not kid ourselves, when we know that would be a wonderful by-product goal to accomplish, that would please everyone……..Ending the Recession/Depression. So, instead of wanting to chop its entire head off, why can’t we put our heads together and come up with a program with reform and over site. A program that can work. A program that can help. Instead of just creating havoc and say no, we should be saying how! We can’t just give up, we need to try something. I believe in us with our intelligent minds and our Ivy league schooling and Manhattan Wall Street experience and our Hedge Fund Profits and our Washington ties, we should be able to make it work. Shame on us if we can’t. Our politicians and our Top Financial Companies and Banks of this country, should be smart enough to put something together that would work. It’s going to take a Team Effort from outside the walls of Congress. We owe it to the lower class and middle-lower class Americans to give that chance of Home Ownership, and any other family that would need such help.

REFORM AND OVER SITE – YES

DEATH - NO

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mmiskiel
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Joined: 11 Mar 2009
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I agree
PostPosted: Fri Apr 10, 2009 8:30 pm Reply with quoteBack to top

I agree with reform it will work but I must admit that I still cant see the difference in ANY other DPA program or for that matter GIFT FUNDS when compared to Ameridream etc. In my view no skin in the game is no skin in the game so they all need to go away or they all need to be allowed so long as there is a level playing field. Either that or get FHA to step up to the plate with a 100% program.
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Randall
Batman


Joined: 19 Oct 2007
Posts: 720
Location: Orange County, California

Re: Advocates for the HR 600 Bill
PostPosted: Sat Apr 11, 2009 2:51 am Reply with quoteBack to top

What you characterize as 'dead-horse-beating' is nonsense. First, we feel HR600 should be defeated, and until there is a vote, it is not dead. Second, the Implode-O-Meter is being sued based upon our opinions and reporting on this subject, and powerful lobbying groups and companies with a lot more money than us want to silence our opinion on Seller-Funded Down-Payment Assistance.

THAT does not a dead horse make. If you truly believe the vote is already in, then you have not read what the Congressional Research Service is distributing to Congress before the vote.

Now let's look at this from my personal point of view. The following are my opinions, based upon being forced to review and read everything and all the reports that come out on the subject. Let's also add that hundreds of people across America send us almost everything published on the subject, making my opinion pretty knowledgeable. We can look at your points one-by-one, and I'll add my two bucks:

Quote:
1. ... Obviously the folks that have this mentality are not Originating Loans currently. Do they not understand how conservative Appraisals are right now? Bottom line in this time of the Industry is that if your home doesn’t appraise for the value needed, then it doesn’t appraise.


I AM one of those folks, and by "those folks" you do mean the Mortgage Lender Implode-O-Meter. I've been licensed in California for over 21 years, and I am active in the business. I know what you are talking about. Sure we are losing control of 'our' Appraisers, and I'm aware of the consequences.

Quote:
1. ... So the theory that you are walking into negative equity is a farce and simply couldn’t be more from the truth. Just because the seller would want to contribute more money to the equation, doesn’t mean there is an equity problem. Now, if you presented this theory in 2005 and 2006 and the early part of 2007, you would have a solid foundation for an argument...


Here's a quote from a Congressional Research paper: "GAO analysis found that homes with seller-funded DPA were appraised at and sold for 2% to 3% more than comparable homes without that assistance." They didn't say this was a theory... this is based upon the most expensive and valuable research in the U.S. with all of the HUD documents available to them!

Further, the same CRS report states (as HR600 suggests to increase the insurance premium, which can be financed) "If the laws were amended to permit the mortgage to exceed 100% of value, then vulnerable borrowers could be entering homeownership with mortgages that exceed the value of their homes." Hmmmm... sounds underwater to me... smells like negative equity. Your use of the word "farce" is not wrong, only misdirected.

Quote:
1. ...but my, my, my... ...you certainly are not in the trenches with Appraisals now a days and that is quite obvious.


The Implode-O-Meter IS in the trenches with Appraisers working on solutions regarding the HVCC law. What you state as "quite obvious" actually means you are simply uninformed... we did not notify you, so no hard feelings. We are working diligently on supporting a 'cooperative' approach that would benefit the Appraisers, allow them self control, and governance of their own AVM, and dollars. This is VERY important, and this my friend IS the trenches. I last heard over 3,500 Appraisers are involved in the movement. You'll learn about it more soon here on the 'Meter.

Quote:
2. ...So, are you going to try and say because I did that, my home is falsely appraised and the Buyer is walking into negative Equity? Are you going to say that this Buyer is now more likely to default on their Mortgage?


Did the home get the selling price inflated to cover your extra 1% to the Broker? Did the Broker kick back to you any of this commission? The answers to both of those questions open another can of worms, mostly stinky... that's another subject.

When you as a seller are assessing the market and determining what price to list your house, you don't figure out that listing price, and then ADD the Broker's commission on top. Obviously you (the seller) are paying the Broker from your proceeds. Your comparison here doesn't apply to SFDPA because one is a seller expense, and the other (SFDPA) is an 'add-on' to the price of the house -- apples and oranges, but a common ploy we have seen in many of the smoke-and-mirror arguments to detract from the obvious - That in regards to SFDPA the house price is generally inflated so the seller can pay (through an intermediary) the buyers downpayment.

And yes, the Buyer is now more likely to default based upon the facts as charted in the Federal Register / Vol. 73, No. 116 / Monday, June 16, 2008, page 33952 thru 33955. Audited fact.

Quote:
3. Another Real Estate example is Rural Properties, Farms and some Commercial Property Types: These properties sell anywhere from 7-12% in total Sales Commission, and are usually derived to/from a bonus derivative type feature. This is legal and not frowned upon (legitimately speaking). This also does not take on the same assumptions of immediately being in negative equity or higher risk of default.


Yes, we ARE speaking legitimately here, but we are discussing SFDPA laundered down payments on FHA loans... now back to the subject. If you notice in your commission example, the Buyer is not financing the Brokers commissions.

Quote:
4. What about the total 6% in Seller Contributions to the Buyer? I mean really? This cap is put into place for a specific reason, right? Ok, so what about keeping this cap into effect but allowing the 6% to be used any fashion, whether it is closing costs or down payment or a combination of both?


Personally, I like this! Let the Brokers and Mortgage Brokers and Seller and anyone contribute to the increasing 'expense' of buying the home. Notice their is no 'equity' gain in that 6%? Yes, it's capped, and that percentage seems pretty generous. But should it be used so a buyer can get into ownership with no equity at all? Come on... let's have buyers get some skin in the game. Figures publicly available to you, me, and everyone on this forum show defaults are higher on 100% LTV's. Hasn't this been part of the problem? That is not even an argument... it's a given fact.

Quote:
5. What about making a minimum requirement of 1% or $1,000 (The higher of the two) into the transaction from the Buyer, but still acquiring Seller contributions.


Now you're thinking. You are also learning through the logic of your own writing that yes, the buyer should have something in the game. But a thousand bucks? If there was any reality in floating a program like that, not only would Wall Street be selling the heck out of it (OOPS! They tried that... didn't turn out so good, huh?), but FHA would have a premium for it that would make sense. Guess what? FHA did figure it out. HUD figured that a 5.56% premium (or more) would be required for FICO scores less than 680... And guess what? It doesn't work, and is so politically incorrect especially since minorities tend to have a higher incidence of lower credit scores. Imagine HUD coming out with a program that allowed FHA to stay solvent, charging higher fees to minorities... it'll never fly.

Quote:
6. What about alleviating the Charity Foundations and just making it a part of the contract, like they are just Seller Contributions. This removes skimming and making a lot of people rich that are simply laundering money. I totally agree with removing these entities or truly lower the fee of the service to no more than $99. There are many other Advocates that have mentioned this possibility already.


That is one of the solutions on the table. Allow the buyer and seller to negotiate, and put it on the HUD-1, right out in the open. But in essence, aren't you condoning 'no skin' and aren't you suggesting that FHA really should just open up the gates and allow 100% financing (for a premium of course)? Guess what? It doesn't work! They ran the numbers (after all it is insurance) and the premiums for the risk don't fit. You want to be part of the dream, you gotta' work hard, put your own money into your home so you get that warm fuzzy feeling that you want to keep it. FHA requires a down payment from the purchaser and that's that. There are some exceptions, but how much can FHA lose before it too becomes a taxpayer burden?

In the FHA fiscal year 2007, over 36% of the transactions involved seller-funder DPA (HUD Report, June, 2008). The financial effects were devastating.

Quote:
7. Put minimum FICO Score Requirements on the Program. I am totally in favor of that. Credit scores above 700 with a minimum of 2 trade lines open for 12 months and 1 for 24 months shows the capability of paying bills on time and the depth behind it.
8. Put slightly higher UFMIP’s on the loan to ensure the so called higher probability of risk.


Good points... it DOES come down to a numbers game, a very complex one. They ran the numbers on higher UFMIP's -- they don't work according to the following report. Both of these questions require 'perfect' answers, and they were directly and thoroughly addressed right here: http://ml-implode.com/info/SFDPA-RS22934.pdf

Further information on the actual numbers and DEFAULT rates are here in the Federal Register:
http://ml-implode.com/info/forum-post.pdf

Quote:
9. If I am the Seller and I want to find ways to market my home better than the next guy, I should be able to use SFDPA's as a way to do it. Especially if I would prefer to make a dream come true rather than lining the pockets of the Realtors. If you could run the SFDPA’s in a responsible format with an over site committee being funded with a portion of the UFMIP, this program could really work.


This particular idea of making a "dream come true" has actually contributed to the growing number of defaults, and has cost the FHA MMI fund billions of dollars in one year alone... fact. SFDPA enriches the pockets of intermediaries at the expense of the taxpayer. Realtors more often than not, earn there income just like everyone else.

See:
http://ml-implode.com/info/SFDPA-RS22934.pdf

...and then read it again. This is the same document being delivered to the House Financial Services Committee on HR600, and not circulated to the general public.

I went this far into the answers to your points because this IS a complex subject, SFDPA's existed because they were never fully understood, and the points you raised I'm sure are in many minds. It's time people asked the questions... raised the issues you have. It's time the studies and facts were out there, some of which have never seen the light of day beyond a Congressional Committee plagued by Lobbyists, and Congressmen moved by profiteers and special interest groups.

I do expect some flak from this posting. Hopefully I made the picture look simple, and that is not what the profiteers want. BTW -- that Congressional report mentioned above? Some friends on the Hill made sure we had it... it's a pre-pub issue, and is expected to be watered down before it actually hits your elected officials. Enjoy

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Last edited by Randall on Wed Apr 15, 2009 11:51 pm; edited 1 time in total
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dirk2290
Nitroglycerin


Joined: 10 Sep 2007
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Re: Advocates for the HR 600 Bill
PostPosted: Sat Apr 11, 2009 6:13 am Reply with quoteBack to top

Randall, while I do not support that lawsuit agaist you guys at all, I do still beleive there could be such a program if Smart Reform and Over Site were made. You have your opinion on the topic andI have mine. I understand the whole skin in the game thing, and that's why one of my ideas for reform was to require a certain said amount. I don't agree that just because you think that a certain amount of money may or may not be enough for involvement. When youdoa loan for Rural America and the are purchasing a $68,000 home, $1,000 is more than you think. Especially if they are paying for a home inspection and an Appraisal on top of that. Look, we go on and on back and forth Randall. I beleive you have somewhat up a bias opinion because of the lawsuit and I suppose I can't blme you, but it perhaps may not allow you to be as open minded as prior to the lawsuit.

We can't assume that every part of America is the same. There i much contrast out therein this Lending Indsutry and if you lend Nationally you will see that. But if you Lend in one area or region or state, you think the whole Countries Lending procedure, attitude, infrasrtructure is the same........and just is not. And certain areas have much higher default ratios than other areas. Demograpics and goegraphics are more important than you think.

With all the intelligent people we have in this county, we should be able to make a program that should make sense, and could help people, and still be a successful program with normal default ratios. And whatever tha tprogram may be, as long as it is a succesful program, it shouldn;t matter about our own personal Afgenda may be. Whether you or me as a person FEELS that their own skin in the game shoud be required should become secondary. It should be all about "whatever it takes to make the system work right. I consider myself above average intelligence and I stay on top of my biz and I have been doing it for 10 years, but I am still humble enough to know that I don't know it all and I don't have the 1 and only answer. All I want is for people to fix the problem instead of killing it. And I know that the process is only at the beginning stages as far as the bill is concerned.

I live in PHX, but I lend nationally. Lending nationally for the last 5 years has opened my eyes more than ever and has educated me tremendously. I look at some of my colleagues who have never doen a laon out side the city, let alone state, and I think WOW.........everything there missing out on.

Anyhow Randall, I know you are very passionate about your stance, but your stance is not he only one that makes sense or has points......and you did point that out too......eventually.

I support making a program that works for everyone, inclduing the share holders of the banks. Low default ratios is what is key result. How we get there is beyond just you and me and our personal agendas attached to it should be irrelevant

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kw
Dud?


Joined: 14 Apr 2009
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Re: Advocates for the HR 600 Bill
PostPosted: Tue Apr 14, 2009 5:16 pm Reply with quoteBack to top

Yes 100% Financing Programs can work (VA offers 100%+ financing programs) and has for years. DPA programs and minimal negative equity are not causing the problems, the problems were caused by underwriters approving borrowers that had bad credit historys etc... Also the Adjustable Rate loans that had low qualifing rates and big increases in payments hurt many borrowers. Remember the mid 1980's with the adjustable rates and massive foreclosures.... Just one of the many cycles that we go through and in a couple of years lending will lossen up new programs will emerge and the market will right itself.
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Aaron
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Joined: 24 Jan 2007
Posts: 824
Location: Atlanta, GA

Re: Advocates for the HR 600 Bill
PostPosted: Thu Apr 16, 2009 3:13 pm Reply with quoteBack to top

I'm not going to waste a lot of time on a reply to this for the following reason:

HOW CAN THIRD-PARTY SFDPA BE EXCUSABLE WHEN THE FHA COULD JUST OFFER 100% FINANCING ITSELF?

As we've reported, the SFDPA companies killed FHA 100% -- making the same arguments that could be made against themselves, except 10-fold. That alone should speak volumes as to what is going on.

Beyond that, the point about "appraisals being strict now" is nonsense. Stricter rules do not conservative practice make. Plus, all the reports I've seen in the last year (FBI, FHA, private studies) are saying that all forms of fraud are skyrocketing in response to the market stress. There may be less overall, but it is a much higher percentage of the market.

The data we've seen on SFDPA does not back up the "good appraisal" claim anyway. For example, when we looked under the hood at the LA Times' SFDPA example, we found ~10% (not just 3%!) value inflation relative to comps:

http://ml-implode.com/viewnews.....Downp.html

From the other data we have seen, this is the rule not the exception.

In fact, because it is a declining market, even an initial at-market appraisal will tend to be underwater within a few months. So, how does it help for the buyer to start out with no equity? Here is the specific, key question:

HOW CAN SOMEONE WHO CANNOT AFFORD A 3.5% DOWNPAYMENT AFFORD TO PUT IN 10-20% (OR MORE) IF THEY HAVE TO MOVE OR SELL????

(Cue Jeopardy theme)
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dirk2290
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Re: Advocates for the HR 600 Bill
PostPosted: Thu Apr 16, 2009 3:25 pm Reply with quoteBack to top

Hello Aron: I know you are huge advocate against such a program. A couple of things though: Did you you read my entire post? My post is not just "Allow SFDPA's" just because more loans can be available. I brought possible resolutions to the table. Not just one, which you only resolution is to force FHA to do 100% Loans and allow the Govt subsidized program take all the risk. While I will say, that is a good resolution, when in brainstorming sessions, we know we have to bring more than 1 idea to the table. The idea of eliminating the SFDPA's organizations all together, but still having a similar program is a resolution that is out there and one that I bring up as well. Why not Reform and Over Site?

I still don't agree with your thoery of negative equity the moment they take ownership or the now shifted theory of negaitive equity in 2-3 months.

While you may not like the idea that "they have no skin in the game", doesn't necessarily mean that a the program or a program should simply be chucked out the window. With reform and over site such a program could work. If we listen to your sole theory we mite as well do away with the VA Loan and the USDA Loan. Obviosuly, the VA and USDA Loans have some good Over Site and a good infrastructure system set up for it to be successful with low default rates. So.......you are saying that there is no way whatsoever, that our govt, COngress, Senate, house of representaives, Top Economists in this Country, HUD, could not come up with a program that could essentially work with low default rates, using a mixture of ideas and resolutions?????????

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title_gal
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Re: Advocates for the HR 600 Bill
PostPosted: Sun Apr 19, 2009 1:38 am Reply with quoteBack to top

I find it difficult to believe that anyone that has really thought about this still supports SFDPA. The only thing I can think is that the people that do still support it are concerned only of their own income and not about what it is doing to the industry and our country.

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dirk2290
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Re: Advocates for the HR 600 Bill
PostPosted: Sun Apr 19, 2009 1:58 am Reply with quoteBack to top

Title Gal: I ask you this: Did you even bother to read the the main Post that started this thread? I bet not, or you wouldn't have such a miopic view point. Concerned about Income? No, I am doing just fine with the current programs available. Concerned about our Economy, our Large sum of Inventory, Yes!, Concerned about Middle America/Main Street America taking it in the Shorts again.....YES! It's so easy for one to live in one certain part of the country and just ASSUME that the whole country is just like this place. I Lend Nationally and have been for the last 4 years of my career. I have poeple in my pipeline that are from Idiana, Hawaii, Texas, Florida, Utah, California, South Carolina, and Arizona (Where I Live). And I can tell you it has been quite an education to lend in so man ydifferent states. Oh beleive me there are places in this country that are still behind us by about 25 years. There are more rural areas than you think. Small rural communities still do things on a hand shake. The SFDA Program is not just for the Irvine, CA native that wants to buy a 415 Condo and have the Seller pay for the DP and CC. See, it's not all what the media tells you. When you deal with Main St Rural America........that loan is WAY WAY WAY different than a loan from a Huge City.

And all I suggested is A Program. Not the one that got ripped away. Just A Program. Something that could work. Are you really reading the entire posts?. If so, when you rebutal, make it a little more intelectual than the last one. I have many vaildi points. What about USDA and VA? How is it that these loans have low default rates? So you are saying that we don't have any more intelect left in our entire govt system and economic system to make just 1 more program ...........not even just 1 more program??????...........that would have low default rates. Come on.......I still have a little faith in man. With Reform and with over site!

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