Down payment assistance programs have proliferated, but is anyone using them?

The net number of down payment assistance programs increased in the second quarter, good news at a time when even more potential buyers are facing affordability issues.

But is the target market really looking to CCA to help finance a home purchase?

Among the three issues affecting the use of CCA is competition with cash buyers, as sellers seek to take the path of least resistance even when someone has a full mortgage approval, Tai Christensen said. , director of government affairs for provider CBC Mortgage Agency. Additionally, those in need of ODA are more likely to have lower incomes, making affordability difficult for them.

Finally, many homes are still selling above listing price. “Keep in mind that the purpose of the DPA is to help someone who doesn’t have enough resources at their disposal to make a down payment,” Christensen said in a statement. “If a DPA borrower is required to pay 5% more than the listing price of a home, they must show up at the closing table with that extra amount in cash.” And it’s difficult if they don’t have “mom and dad’s bank” to help them.

The number of DPA programs available is on the rise: There was a net increase of 36 DPA programs in the second quarter to 2,273, a 1.6% gain over the previous three months, Down Payment said. Resource.

Last March, mortgage fintech wemlo, a subsidiary of Remax, began offering processing services for DPA, as well as non-qualified and Federal Housing Administration mortgages.

“Yes, wemlo has absolutely seen an influx of down payment assistance requests since we rolled out support for the product,” Chelsea Balak, vice president of operations, said in a statement. “Historically, wemlo has primarily handled conventional loans, but…we have expanded our offerings to help our clients better navigate the fluctuating market.”

As a result, wemlo has just added the low-cost Fannie Mae HomeReady and Freddie Mac Home Possible programs to its processing services.

Nearly 73.5 million homes were purchased or built during the period covered by the Census Bureau’s 2019 American Housing Survey.

Although they did not directly ask about CCA, nearly 2.7 million respondents said the main source of their down payment funds came from additional borrowing (not using property) . This represents 6.5% of all transactions that could have used DPA. Meanwhile, 2.1 million used a donation or inheritance.

The overall reputation of DPA programs was a bit sketchy coming out of the Great Recession. HUD data revealed that between October and December 2007, which was the first fiscal quarter of 2008 for the federal government, due to vendor-funded programs, more than 22% of Federal Housing Administration insurance endorsements had a form of DPA. The Housing and Economic Recovery Act passed in 2008 prohibits the use financed by the seller, due to their high delinquency rates. By the third quarter of fiscal 2009 (April to June), DPA usage had fallen to just 0.2%.

In 2019, the Trump administration’s Department of Housing and Urban Development sought to further restrict the use of the DPA, but was forced to back down. after he was sued.

During the second fiscal quarter of this year, between January and March, just under 25% of FHA endorsements had some form of assistance from a parent. This range has remained constant since the beginning of the 2013 financial year.

Use of government DPA programs—those from a state or local agency—increased, with more than 15% of Q2 endorsements using this source, up from 7.7% in the first quarter of fiscal 2013 .

However, the non-governmental/non-relative share remained low. It was 0.36% in the first quarter of fiscal 2013 before peaking at 2.18 in the second quarter of fiscal 2016. It then slipped below 1% for seven consecutive quarters until the second quarter of the fiscal year 2021 before returning to 1.16% for the second quarter of this year. fiscal quarter.

For conforming loans, the Federal Housing Finance Agency’s National Mortgage Origins Survey dataset is drawn from a sample of 39,657 loans issued between 2013 and 2019. But only 1,100 or less than 3% indicated the use of aid or a loan from a non-profit or government agency.

The good news is that DPA users earned on average $25,000 in equity since their purchase, said a 2020 CBC Mortgage Agency study.

Some believe that the need for these programs is still growing due to rising rates and prices. In the fourth quarter, it will take a first-time home buyer with a median income 11.3 years to save enough for a 10% down payment and 22.6 years to be able to put down 20%, according to a new report from Standard & Poor’s. . That’s more than double the pre-pandemic rates of five and 10.6 years, respectively.

“Low-income households in the bottom 40% have already been pushed out of the market,” Beth Ann Bovino, S&P’s chief North American economist, said in a press release. “In the first quarter of 2022, a middle-income first-time home buyer was unable to afford monthly mortgage payments, with 60% of households no longer able to afford a home until the fourth quarter. 2025.”

Down Payment Resource’s homeownership program index rose 1.6% quarter-over-quarter, with a net increase of 36 programs to 2,273. Of that total, 83.5% had funds available for eligible homebuyers as of July 5.

By type, 74% provided some form of down payment and/or closing cost assistance; these may be grants or loans with deferred and/or canceled payments.

Another 11% was a senior loan with below-market rates, no mortgage insurance requirements or 100% financing. Vouchers and similar programs had an 11% share, while tax credit programs accounted for 5% of the market.

However, 11% of DPA programs are currently inactive, with 3% on a waiting list for funding and 2% temporarily suspended.

“Despite a slight increase in the number of inactive and suspended programs, our analysis indicates that opportunities to help homebuyers continue to grow, Rob Chrane, CEO of Down Payment Resource, said in a press release. “In this particularly challenging housing market, program providers are finding creative ways to help qualified buyers overcome economic barriers and reap the long-term financial benefits of homeownership.”

Christensen of mortgage agency CBC is also positive about the future of the DPA, saying: “Despite these headwinds for low-income homebuyers, I am optimistic that market conditions will eventually change and that incomes of families in economically disadvantaged communities will increase, providing more opportunities for homeownership.”

About Matthew R. Dailey

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