I just read an article by Gretchen Wenner about Seller Assisted Down Payment Programs going away. I knew this was coming and was watching out for it, but since it is now a topic in the Bakersfield Californian, here is what I think about it.

An example is the NEAMIAH program. It is a non-profit organization that takes money from the Seller and donates it to the Buyer to cover their downpayment. They also pay a fee to the non-profit organization on top of that, about $500 in some cases. Why would a Seller do that? In a slow market like we are in now, that may be the only way to get a property sold. An FHA loan requires at least a 3% downpayment.

The sub prime meltdown and the skyrocketing rate of foreclosures has caused the government to act. The thinking is that if a Buyer doesn't have a stake in his investment, he will be more likely to just walk away if he has trouble making the payments. In a perfect world, this law would be a good thing, but with the glut of foreclosures already on the market, it is dragging down house prices. The only way out of the jam we are in is to burn through all of these REOs so the market can stabalize, and perhaps begin to rise again. Though the sub prime meltdown might have been exacerbated by zero down loans, there were other problems that were a more direct cause of the problems, such as allowing non documented stated income loans, and Adjustable Rate Mortgages where the interest rate goes up after an initial introductory period, making the mortgage payment rise to the point where the Buyer can no longer afford it. In a rising market, you could refinance, but in a falling market, if you have no equity, that option is not open to you.

I see this happening a lot: you have loose or no regulation, but then there is a big melt down, so then there is a knee jerk reaction to over regulate. I don't think ending seller assisted down payment programs right now is a good idea, given that sales are already slow. If you were planning to use a program like that to buy a house, you better hurry up. If you can't get in Escrow before October, you will have to save up the down payment, or have a family member or friend "gift" it to you.

There might be an extension of the programs, but it is hard to say. I have heard that the programs were ending before, but so far they haven't. This time it looks like the programs will end, but it will have a severe dampening effect on an already soggy market.