How buyers were lured into home ownership they couldn't afford

In June 2005, Black Enterprise was encouraging potential minority home buyers with the following article, which contained a chart (scroll to the bottom of the article) of private and government programs to assist with low or no down payment home ownership:

With interest rates still near historic lows and the growing popularity of low down payments and "no money down" mortgage programs, more families and individuals are taking the plunge into first-time homeownership. . . many people are still delaying building wealth through homeownership because they think they must already have the money in the bank to do it. "People assume they'll need 15% to 20% down to get their first home, which is simply not the case these days." [said Pierre Dunagan, president of The Dunagan Group].

Fannie Mae, while not a lending institution itself, is a government-sponsored enterprise that buys loans from lenders to make mortgage financing available to more borrowers. A number of financing programs that don't require the standard 20% down payment -- or any down payment at all -- are available through approved Fannie Mae lenders and mortgage companies. One of them is the Flexible 100 program, which is especially popular with first-time home buyers. Borrowers need only contribute $500 toward the down payment and/or closing costs. The Flexible 97 program, which allows borrowers to put up just 3% of the cost of the home, is also available through Fannie Mae. Banks have created similar programs to help new home buyers. . .

SPECIAL PROGRAMS MAKE IT EASIER
Many of the new loan products for first-time home buyers have been created specifically to make homeownership easier, says Fannie Mae spokesperson Sandy Cutts. "In addition to our Flex programs, we have the Expanded Approval/Timely Payment Rewards program for people with less than perfect credit. With this program, the homeowner makes on-time payments for two years, then after that time, their interest rate automatically lowers," she explains.

Cutts also says Fannie Mae has rolled out a new pilot product called the Payment Power program, which allows borrowers to defer two monthly payments a year -- but no more than 10 over the life of the loan -- in exchange for slightly higher interest rates. The loan reamortizes, meaning that the skipped payments are recalculated into the remaining payments. This program may be especially beneficial for people who hold seasonal jobs, such as teachers and construction workers who may not have an income during certain times of the year.

Dunagan says there are also 100% financing programs available for first-time home buyers but, in some cases, they have higher interest rates and higher private mortgage insurance costs. He says deciding whether having a higher interest rate is better than long-term renting is an important decision prospective home buyers will have to make.

One of the programs listed in this article is AmeriDream, which as near as I can determine was a shell game founded in 1999 under the Clinton Administration whereby builders “donated” the down payment to a charity (AmeriDream), took a charitable deduction, and then that was gifted to the buyer. The buyer was actually charged that amount more for the house, plus paid a fee to AmeriDream, but it looked like they had the down payment to qualify for a loan. By law the seller gifting the buyer is illegal, and of course it hurt many buyers in the long run, who would have been better off saving first, buying later. The AmeriDream program was eliminated on July 30, 2008, after which Representatives Gary Miller, Maxine Waters, and Christopher Shays introduced legislation to reauthorize and reform the charitable down payment assistance funded in part by sellers. The program was eliminated by legislation signed by President Bush on July 30, 2008. It still has a website, and is appealing for funds--and its life.

The Black Enterprise article has links to some other programs--Austin, Sacramento, Washington, DC, etc. but I haven't looked at all of them. Some sites I googled no longer exist--I suspect the companies have gone under with their clients.

Cheers for GWB for eliminating AmeriDream, but I suspect it will resurrect itself after Maxine can show her face in public again. Miller and Shays serve on the House finance and banking committee, and Shays is up for reelection.