Rob's Rant

As promised, I am writing today about my opinion of the DPAs, their effectiveness, and their potential benefits and harms to the marketplace.  Please be aware these are my opinions only, and no attempt to discredit any person, organization, agency, or group is implied or stated.

Mortgages traditionally have required some money from the Buyer as down payment.  In the "old days" 20% minimum was the norm.  In the '30s, the Federal Housing Administration (FHA) was created as part of President Roosevelt's New Deal.  FHA reduced the amount required from 20% to merely 3%.

Naturally this reduction in the amount that needed to be saved for down payment opened up many, many more available Buyers for homes.  By allowing more people to buy, demand for homes rose and home prices stabilized (a stable national housing market was the primary reason for the creation of FHA).

You are likely aware that a major factor in the current "Credit Crisis" is the recent availability of zero-down aka 100% Mortgages.  (If not, please come out of your cave and join us here in the light!)  The worldwide credit market is in turmoil and the end of it seems to be a ways off. 

DPAs allow a paper-trail transaction wherein the Buyer can do a 97% FHA loan with no money out of his pocket.  There is a Gift from the DPA charity to the Buyer, and then a subsequent Gift to the DPA from the Seller.  The issue becomes the Buyer still has no "skin in the game" and FHA Guidelines are not able to compensate for the additional risk involved.  FHA was never intended to be a "zero-down" loan.  In fact--with the exception of these DPAs, FHA was never "zero-down", even in the height of the Subprime Boom when it seemed the only way to make loans was to do so at 100%.

It seems to me by allowing these programs to continue, we are simply transferring the risk from the Banks and Lenders who made these risky 100% loans, to the FHA.  This may seem helpful in the short-term, however in the long-term it is my humble opinion that we only prolong our pain and thereby make it worse.  If FHA becomes no longer viable because it is swamped with bad loans, I doubt this will have a long-term positive effect on the US Economy.

Naturally if they continue to have these programs, we all must understand them and do them the best we can.  It is always important to provide service to our clients.  However I look forward to a time when these programs are either gone, or drastically changed to make them more in line witht the rest of the marketplace.