But have we truly seen the end of 100% financing? The industry has differing opinions.
IN THE U.S. AND ELSEWHERE IN THE WORLD, lenders prefer to avoid the risk associated with 100% financing or nodown payment loans. Most are not willing to add down payment assistance risk to the overall default and foreclosurerisk already looming over the mortgage market. Some of the country's largest lenders have already exited that segmentof the marketplace. "We do not offer 100% financing products," Chase media relations representative forNew York, New Jersey and Connecticut Michael Fusco told Broker.
At least until August 2008 Fannie Mae continued to provide no down payment, or special financing. Fannie offered100% financing on select Fannie Mae owned properties through ExpressPath, a loan option provided by Fannie-approvedlenders.
Properties eligible for ExpressPath are marked with the product logo and can be searched through listed agentswho have all the information about availability of financing.
A Fannie spokesperson said she would look into the issue of whether the product is still available, but couldnot come up with an answer by press time.
A few other lenders did not reply to inquiries.
Case in point, Carolyn Holmes, marketing director of Sacramento-based National Homebuyers Fund, would not returncalls or comment on the company's advertised claim that it provides 100% financing in 45 states.
"Down payment and closing cost assistance still exists today," the National Homebuyers Fund paperad says.
After all 100% financing is legal, except for seller-funded down payment assistance.
Judging from the yearlong debate over the validity of Federal Housing Administration-insured seller-funded downpaymentassistance, it is safe to say public opinion is split between thousands of borrowers and various organizationswho embrace this type of financing, and others in the industry and Congress who completely reject it.
Scott Syphax, president and CEO of the Nehemiah Corp. of America, one of the country's downpayment gift pioneers,still believes the product is one of the best alternatives for those who need assistance to move into homeownership.
Unfortunately, he said, nowadays the market is under-pricing homes and at the same time closing the homeownershipdoor for many lower income, first-time homebuyers and working families.
"When Congress enacted the housing regulation into law, it closed off the largest program in the countrythat could help people become homeowners. In most parts of the country there are no other alternatives."
The irony, he said, is that down payment assistance, as it was reformed in HR 6694, not only provided accessto homeownership to families across the country, it did so at no cost to the taxpayer. "Today we have a situationwhere the housing markets all across the United States are either fragile or losing value. One of the most effectivetools in promoting homeownership and stabilizing property values - seller funded down payment assistance - is onthe sidelines when it's needed most."
Currently no down payment products or 100% financing is scarce. The market has aborted most of the subprime100% financing products that were abundant during the boom years.
"Many of the 100% financing products that existed tended to be predatory either in their terms, interestrates, or other features that made them either burdensome or unsustainable products for the buyer," Mr. Syphaxsaid.
Asked whether he could point out to any non-predatory and affordable 100% financing options, other than seller-fundeddown payment assistance, he replied: Not much.
"The reason I say that is because the seller-funded model is one that has been used with over one millionfamilies, has been scrutinized by all levels of government, and reforms that Congress attempted to enact. It wouldhave been a benefit to the market during these challenging times."
Mr. Syphax stressed however that there are a few other options he deems effective.
"Every city and state in the country has a down payment assistance program. From what we have been toldduring our continuous conversations with local governments and their representatives is that those programs, becauseof a lack of liquidity in the market, are really over subscribed right now. There's ten times as much demand asthere is supply for those traditional DPA programs."
Mr. Syphax offers the following recommendation to brokers interested in providing homebuyers some extra helpamidst the crisis, "Look first with your local and regional government housing agencies and find a local programthat might fit the needs of buyers."
There are very few such resources left, he said.
Some examples, according to Mr. Syphax include the California Housing Finance Agency DPA programs and similaroptions historically offered by the state of Maryland.
"I haven't checked on them recently, but there are some very fine down payment assistance programs thatthey offer, which is why I really feel that real estate professionals need to investigate those government resourcesfirst. There are some private resources available, but they focus on the very low income population so they maynot be appropriate for a working class family or someone earning above that level."
Meanwhile, overall housing credit and liquidity resources continue to shrink.
"What we will continue to see is more of the same. As the housing evolves in the next few months we'llsee a continued slow down in housing sales in part related to the fact that there are very few options for peoplein a buying market," he said.
"The problem is that right now the housing industry is moving in the exact opposite direction by requiringhigher down payments and stricter qualifying requirements. At the same time, people are losing their 401K moneyand up to 30% to 40% of their savings because of the implosion of Wall Street."
He believes even the growing amount of REO property inventory and sales cannot provide the needed supply ofaffordable housing unless DPA is available.
Before the ban was enacted, he said, Nehemiah's DPA has been the tool of choice in moving REO properties oftof the balance sheets of banks and back into the hands of productive homebuyers. If affordability has returnedin the current marketplace, he feels it is a problem the government has eliminated many of the prime tools thatcould help families take advantage of that opportunity.
"What is frustrating is that this is the moment when we can help and reach more people than ever beforeand for the long term, but we can't."
On July 30, 2008, President Bush signed H.R. 3221 - Housing and Economic Recovery Act of 2008. Effective October1, 2008 the Section 2113 of the bill prohibits seller-funded down payment assistance for loans backed by the FederalHousing Administration. Prior to this bill, the seller could contribute up to 6% to the buyer to cover either adown payment or closing costs on an FHA loan.
It is old news that lack of down payment funds is the no. one obstacle to homeownership. However, now borrowerseligible for FHA insured mortgage loans are required to put down an amount at least 3% of the loan. Starting onJan. 1, 2009 the minimum down payment requirement increases to 3.5%. A change that becomes significant especiallyfor loans larger than $500,000. For example, if a home is priced at $500,000, at 3% the DPA is $15,000, comparedto $17,500 for a 3.5% DPA. Besides one's savings, additional funds towards down payment may be a gift or loan fromfamily members.
Traditionally 100% financing, or no money down mortgages are offered by lenders either as a first mortgage exclusively,or as a combination of a first and second mortgage, often referred to as a piggyback mortgage.
Obvious advantages to 100% financing also include no need to liquidate stocks and other investments and taxdeductions. Properties must be owner occupied. With recent changes in the mortgage industry the FICO score requirementhas increased above the once acceptable 620 and debt ratios of 45 or less. Today's options include the 100% financing,no down payment USDA 502 Guarantee Program.
This unique feature is allowing closing costs to be rolled into financing up to the appraised value even ifappraised value is above the purchase price. It is open to all buyers including first time homebuyers, but excludesinvestors.
As a last resort, some experts also suggest using 401K funds or IRA retirement accounts for down payment, dependingon how much is available in times when many are losing their 401K resources to the market volatility. Whether onecan borrow from a 401K program depends on specific company rules. Federal law currently permits the borrowing ofup to $10,000 from an IRA for the purchase of a first home, without paying a penalty.
Earlier this year, after the ban on the seller-funded FHA insured downpayment assistance has been enacted, itscreator Don F. Harris is calling for a revised, alternative down payment assistance solution instead of the resurrectionof the old model
Mr. Harris' new creation is the Indian Tribe Mortgage program offered by the Lower Brule Sioux Indian Tribeof central South Dakota. Unlike the banned seller funded down payment assistance programs, ITMO is a second mortgageprogram offered by a government entity, a native American Indian Tribe, and complies to regulations.
"ITMO addresses the concerns that resulted in the elimination of seller funded down payment programs, namelyinflated sales prices and poor loan performance," Mr. Harris said.
ITMO is the bridge between down payment and closing a loan for some homebuyers. It is structured as a silent,no monthly payment or amortized payment loan. The principal amount, plus interest that accrues at 3% becomes dueupon the sale, refinancing or a transfer.
Another long time believer in 100% financing is real estate industry veteran Evelyn Nichols. Recently she reintroducedthe Mana Loan, a patent pending product she initially introduced in 2003 hoping to market test it during the mortgageboom years. The new product was also the reason why she established the Mana Company LLC, Seattle.
Had there been a Mana Loan widely available in the market, she said, those borrowers would not have defaultednow. Her Mana loan did not take off as she expected because, "lenders were busy making money with the subprimeloans," she said. Beyond the what could have been, she insists the concept of the Mana loan is viable anda great product in today's market.
