Are we throwing out a program that works, the FHA Down Payment Assistance Program, in this case the baby, while trying to fix the sub prime mess, the bathwater? I guess it all boils down to how valuable home ownership is and how well it helps drive a healthy economy.
A lot of realtors, including myself, have used an FHA non profit down payment assistance program (NDPA) with borrowers that want to own a home but can’t save a down payment fast enough to keep up with rising home prices. FHA programs, like Nehemiah or AmeriDream, allow more options for buyers, including the gifted down payment portion, and now that zero down payments are hard to find, this program is needed even more.
The non profit down payment assistance programs are going to be stopped in February unless Congress votes to extend the program. In the HUD Appropriations bill, congressional members are being influenced by a study done by HUD that shows that the default rate from the non profit down payment programs is 1% higher than other down payment assisted loan programs.
However, there is a further study by George Mason University that contradicts the HUD study and calls into question the validity of that statistics. For instance, the HUD sampling was limited to four US cities that had a higher than normal use of the programs and decreasing home values. Because of this study, the bill extending the programs may not pass.
The George Mason University study as well as the HUD bill is available by emailing me. It is long and takes time to get through, but here are the key findings, extremely edited!
1. 627,000 NDPA loans in 5 years.
2. National economic benefits as a result of these loans in the same time period is 4 times the estimated costs.
3. Those using this program had total wealth growth of 9.6 billion of this period.
4. NDPA homeowners contributed 228 million in property taxes in that time period.
5. NDPA homeowners generated 7293 jobs just in using more utilities due to their home ownership
6. Spending on household items created 60794 jobs, 1.8 billion in personal income, and 5.8 billion in total economic output.
Senator Patty Murray has voted against this bill possibly because of the influence of the HUD study. I hope she changes her mind. Since over 95% of all homebuyers using this program have not defaulted, we would be punishing those hopeful buyers and throwing out a wonderful and productive program.