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DPA Not Down for Count

JAN 31, 2013 3:28pm ET

WE’RE HEARING the controversial idea that downpayment assistance can be a financially sound endeavor apparently is not dead.

TD Bank, one of the 10 largest banks in the U.S. serving nearly 8 million customers nationwide, started offering a new downpayment assistance mortgage loan product.

Bank officials stressed their program was not bank-assisted or seller-assisted DPA, the kind blamed for big losses at the Federal Housing Administration and elsewhere. Rather, the mortgage customer must contribute 3% of the total of 5% down, with the other 2% allowed to come from elsewhere.

The bank said the "Right Step" mortgage product is designed for homebuyers who make up to 80% of the median area income as determined by the Department of Housing and Urban Development, to buyers in the bank’s Maine to Florida footprint.

Wells Fargo plans to invest $170 million in a private-public collaboration that will provide sustainable housing support designed to help the housing market in 20 cities affected by the economic downturn and the foreclosure crisis. Its Neighborhood Lift and City Lift loans will make homeownership affordable to buyers in the area by offering down payments of up to $15,000.

Those who have been in the mortgage industry long enough remember how only a few years ago it was difficult if not impossible to find sympathy for DPA programs. Many, including the FHA, blamed DPA for a surge in FHA loan delinquency rates to the detriment of customer advocacy groups and affordable housing supporters.

With the new TD Bank and Wells Fargo loans the concept is the same but the requirements, however, are different.

TD Bank introduced the “Right Step” loan “as an alternative to Federal Housing Administration-backed loan products” for home buyers who need flexible downpayment options to become homeowners.

Michael Copley, the bank’s EVP of retail lending, said the goal is to provide multiple options for “a diverse array of borrowers," through simplified underwriting and appraisal processes, potential savings on mortgage insurance, and 24/7 access to lending professionals. The TD Bank pledge is to provide competitive rates on various mortgages including jumbo, adjustable rate and FHA loans.

Wells Fargo plans to invest millions in DPA grants that will be distributed to homebuyers in partnership with the City of Baltimore, NeighborWorks America and Neighborhood Housing Services of Baltimore. The program, argues Wells Fargo’s regional president for Maryland, Andy Bertamini, offers an opportunity in times when “despite low home prices and historically low interest rates many families are  still unable to purchase a home because they struggle with making the downpayment.”

The megabank said it has set aside $4.5 million to give the City of Baltimore a facelift. The program is expected to help reduce the number of vacated homes and foreclosure sales. According to the city’s mayor, Stephanie Rawlings-Blake, CityLift complements Baltimore’s Vacants-to-Value initiative and supports efforts “to grow Baltimore by 10,000 families over the next 10 years.”

Qualifying criteria, however, is significantly different compared to TD Bank. Instead of 80% of the median area income, Wells Fargo requires prospective homeowners must meet income eligibility guidelines at 120% of the median income for Baltimore, complete a homeowner education course, and have signed a contract to buy a primary residence in the city of Baltimore.

Since the dispute is over how high risk DPA loans are, it is fair to presume that default risk is bound to be lower among higher-income, lower debt-to-income borrowers.

Amilda Dymi is the managing editor of Mortgage Servicing News. She has been covering the mortgage industry since 2001.