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Are You Allowing Good Loans To Die?

There are plenty of ways through down payment assistance to save loans currently being turned down

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Lew Sichelman
Are You Allowing Good Loans To Die?

Would it surprise you to know you could close maybe a third or more of all the loans you might otherwise decline?

One large financial institution sure was taken aback when Down Payment Resource showed them that by letting their borrowers in on how to find some help accumulating their down payments, they could have “salvaged” roughly 33% of loan applications they ended up throwing in the circular file.

“It was eye-opening,” says Rob Chrane, CEO of DPR, an Atlanta-based company which tracks and maintains a comprehensive database of eligibility criteria for more than 2,200 home ownership programs from throughout the country and licenses its tools to lenders. “They were amazed they were leaving so much money on the table.”

Even more “shocking” is that this lender already had gone to the expense of onboarding a list of assistance programs its loan officers could recommend to marginal borrowers. Chrane would not disclose the client’s identity. But he did say that “they had a solution already in place but were declining loans without someone going back” to see if the lender had something to offer that could keep applicants moving forward.

To sell its services to new clients, DPA often looks at a sample of rejected loans — some small, some made up of a couple of thousand — to determine if the lack of cash for a down payment or perhaps even closing costs was the reason they were turned down. Sometimes it looks at whether the would-be borrower’s debt-to-income ratio was to blame.

Over the years, it has analyzed such samples from various size lenders, and has found the average of unnecessarily lost loans to be 33% — but sometimes more. “It’s not scientific, but it’s as scientific as you can get considering the limited sample size,” Chrane says of DPA’s missed opportunity index.

Cherry Creek Mortgage isn’t losing loans it might otherwise close. The folks at DPR are “amazing” to work with, says Angel Romero, national housing partner at the Englewood, Col.-based lender. “They help open up so many doors in regard to options available and how to access those options.”

Mark Svihel, a loan officer with Movement Mortgage in the greater Minneapolis-St. Paul region, works regularly with down payment assistance programs. He says he’s “impressed” with the accuracy and detail DPR provides and “get the word out” about “valuable” down payment help in his market.

This isn’t to tout DPR, though it is the most complete source of the thousands of programs available to borrowers that I know of. Rather, it is to get the word out that these programs exist. Most consumers don’t have a clue about them, and many realty agents don’t either. The latter even though 16 multiple listing services with some 458,000 agent and broker-members license DPR’s service. In addition, three Realtor associations totaling 269,000 agents and brokers use a basic widget which is not tied to property listings.

While there may be some overlap, that’s a total of 727,000 who should — but often are not — aware of what programs might fit their clients’ needs. But even when they are cognizant, they are just as apt to turn their noses up because these programs are “not worth the trouble” or are encumbered by too much red tape. There’s also an application for individual agents, but few solos have signed up.

But programs are not necessarily more paperwork intensive, according to the state housing finance agencies that administer many of them. Not only less so, says Dirk Swift from the Arizona Industrial Development Authority, but safer than when down payment funds come from family or friends. And Charles White of Florida’s HFC notes that borrowers are “completely underwritten” to be certain they meet program requirement.”

Anyway, if realty agents aren’t in the know, it leaves the job to lenders and their agents. So, with that in mind, here’s what you should know:

As of April 1, there was a total of 2,238 assistance programs nationwide — the actual number changes frequently as some programs end and others are added — and 85% had funds available for home buyers. “The count has been on the rise for several quarters,” Chrane reports.

Every state has at least one assistance program, not just for help with a down payment but also support for closing costs. But many have multiple plans. California has the most with 334, followed by Florida with 150 and Texas with 113. Delaware, Hawaii, Maine and North Dakota have the least at six each. (The state counts don’t include any national or regional programs also offered in the state.)

Nearly half of the programs are run by local municipalities or state and county governments and about a fourth are administered by state housing agencies. To a lesser extent, employers (18%) and non-profits (2.5%) also offer programs.

Roughly 73% of the programs currently listed in the database offer help with down payments and closing costs. These include grants which need not be paid back as well as low or no-interest or second mortgages with payments that may be deferred or totally forgiven. Blue Springs, Missouri, will fund half of any down payment up to $3,000 and pay for up to $3,000 of the buyer’s normal closing costs. And in Janesville, Wisconsin, loans of up to $10,000 are forgiven, one-fifth per year. So, after five years, they are wiped off the books.

Money isn’t just handed out, though. Many of these assistance programs come with eligibility requirements. For example, close to 20% are aimed at special groups such as veterans, first responders, educators and persons with disabilities or other special circumstances. About two-thirds are confined to first-time buyers. In Roseville, Minn., for example, rookie buyers could be eligible for loans of up to $25,000 that are payable when the borrower moves on.

There often are other restrictions, too, including limits on purchase price, location, property type, credit scores, history of home ownership, qualifying ratios and liquid assets. In Gaithersburg, Maryland, buyers in an Opportunity Zone within the city limits are eligible for down-payment help of up to 10% of the purchase price, not to exceed $25,000.

Many plans also have income limits, but those can be deceiving. In certain high-cost markets, the income ceiling can exceed 180% of the median income for the area. And 38% don’t include a first-time buyer requirement. Even with income limits, though, the benefit can run up to tens of thousands.

In Miami-Dade County, Florida, for example, the 53 down payment assistance programs currently available range in benefits from $2,125 to $150,000. In Austin, Tex., a family of three-to-six people earning up to $80,000 has access to 24 different programs, including a $2,000 per year federal income tax credit for the life of the mortgage, a grant of 6% of the loan amount to use to cover a down payment and closing costs, or an interest-free loan of 5% of the loan amount to use as part of the down payment and closing costs.

In Denver, Colorado, a three-person household with a veteran or military applicant making $100,000 a year and buying a $300,00 house has access to 21 programs, including a non-first-time buyer program offering up to a three-year, $17,100 forgivable second mortgage and a below-market-rate primary loan.

And in Jacksonville, Florida, a one-person household who is a teacher with an annual income of $70,000 has access to 17 programs, including a $15,000 “silent” second mortgage, a “forgivable” second mortgage for up to 5% of the loan amount for down payment and closing cost assistance and a $2,000 a year federal income tax credit for the life of the mortgage.

Nationally, according to DPR’s latest count, the average down payment benefit is $15,664. And across all 2,065 programs that are flush with cash, the average benefit of all kinds, not just down payment assistance, is a whopping $24,263. Certainly, that kind of money is enough to save at least some deals on which you are currently turning down. n

EDITOR’S NOTE: A recent column indicated Freddie Mac was currently involved in a single-family rental pilot program, but that short-lived initiative ended in 2018.

This article was originally published in the NMP Magazine June 2022 issue.
Lew Sichelman headshot
Lew Sichelman,
National Mortgage Professional Contributing Writer

Lew Sichelman has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country. He also has been the real estate editor at two major Washington, D.C., dailies and spent 30 years on the staff of National Mortgage News, formerly National Thrift News.

Published on
Jun 16, 2022
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