DAP: The Bad Idea That Won’t Die


I think it was only last summer or early fall when FHA finally prevailed and Congress, after a lot of kicking and screaming, outlawed the product. No sooner was it buried than the home builders and real estate industry were trying to exhume the corpse. They tried the frontal assault and their enablers were sympathetic but politically it wasn’t worth the risk. Well, never say die. They’re back with a stealth version.

This time they want a piece of the fiscal stimulus bill to include a tax credit for home buyers of from $10,000 to $20,000. But their proposal comes with a twist. They want buyers to be able to “monetize” the credit. Translation, you get it upfront to use for your downpayment. Basically, the taxpayers fork over the money upfront so others can buy a house with no money down. But they don’t stop there. They would also like the government to pay for an interest rate buydown.

From HousingWire, here is what the NAHB had to say about this.

The housing stimulus NAHB is advocating involves a temporary program that would be effective for any home — new, existing, or foreclosure-sale — purchased in 2009 as a primary residence. The buyer would not be required to repay the credit, which would range from $10,000 to $22,000 depending on the local mortgage limits regulated by Fannie Mae  and Freddie Mac . The credit could be “monetized,” or moved up from the buyer’s tax return to the date of closing, to be used as the down payment for the home. It would act in concert with a federal mortgage rate buy-down, which would vary depending on which part of 2009 the buyer closed the purchase in.

Now, if  you remember DAP, there were two things about it that were highly objectionable. One, it was basically a sleazy money laundering operation that involved the seller donating money to a “nonprofit entity” that in turn made the downpament for a buyer. It was a detour around the law. Bad enough, but the big problem was that it cost the government a lot of money. If I remember correctly (never mind, here is the previous post on DAP) the default rate for FHA loans utilizing DAP for downpayments is three times the rate for normal FHA downpayment loans.

This new initiative is truly just a DAP in sheeps clothes. The industry is hooked on credit and for that matter easy credit.

Isn’t that what got us to this point in the first place?


Leave a Reply