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Our Friends over at the Mortgage Lender Implode-O-Meter have issed a statement regarding the fishy-smelling goings-on regarding the uncertain future of FHA seller-funded downpayment assistance. Here’s a bit of their press release for a synopsis on the problem:
The SFDPA practice was completely banned by the July 2008 housing bill, effective October 1st. However, new legislation (HR 6694) is pending to re-enable this form of lending. Bill sponsors claim the loosened rules will help first-time home buyers and the housing market. SFDPA companies, builders, and Realtors have launched a major PR and lobbying campaign to generate support for HR 6694.
The ML-Implode statement warns of the risks of creating large amounts of new loans with a negative equity position, which are much more likely to default. It also draws alarming parallels between SFDPA loans (particularly as provided in HR 6694) and zero-down subprime lending.
ML-Implode warns that such lending is likely to cause even more damage to the economy than in the recent past, given the current environment of generally-falling home prices. While SFDPA loans may appear to help slow the decline, the site argues they will likely lead to a larger crash in the near future, as the underwater borrowers will default and foreclose at high rates.
The program, which was banned earlier this year, is getting funding and lobbying from the usual suspects, Realtors, home builders, etc. And why? Because they stand to gain financially by increasing the pool of eligible home buyers. This is recklessly myopic.
The problems with the housing market stem from the endless stream of unqualified buyers and easy credit which artificially inflated demand driving up prices and building massive systemic risk. The ongoing collapse is a testament to the dangers of this type of loose lending.
Now, with taxpayers shelling out $700 billion to “save” our economy special interests are trying to make an end run and loosen up FHA. Once again, a government (read: taxpayer) institution is being put at risk by greedy and short-sighted people who feel that under some clouded judgement that 100% subprime financing is fine as long as it is subsidized by the taxpayers and the the other households paying in to the FHA mortgage insurance fund.
I hope you’ll join me and ML-Implode in saying NO! to FHA subprime and the seller-funded downpayment assistance programs. The programs are a cancer to our housing market and promote:
- Subsidizing poor credit risks with taxpayer money
- Fraudulent real estate transactions including inflated housing values
- Foreclosure
- Greed and malfeasance by lenders and participants in the program
It’s time to recognize the underlying causes of the current calamity. A calamity which threatens to erase a decade or more of economic prosperity due to the greed of the leaders in Wall Street, Capitol Hill and the banks. FHA should not become the lender of last resort to subprime borrowers everywhere. Protect our tax dollars, protect our financial institutions from being hijacked by these obtuse special interest leaders and say no to FHA subprime.
More links:
- The Mortgage Lender Implode-O-Meter Press Release
- The Mortgage Lender Implode-O-Meter Statement on SFDPA
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
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