There are many sides at fault in this whole thing but one major factor that I've not heard much of concerns the Nehemiah Program.
http://www.nehemiahcorp.org
Generally, this is how it works.
Remember the term, faith based initiatives?
OK, at this link read page 2 very carefully and especially under item #2 on page 2 under the heading "How Are Gift Funds Requested?" The last sentence in that section is the focus.
https://web.archive.org/web/20070315134523/http://www.getdownpayment.com/pdfs/guidelines.pdf
Now, this is the reality of how it works and my wife does law in real estate and she filled me in on this process. The gov't and certain private interests advocated home ownership but the problem was for some of these people, they could not qualify, mostly in the area of downpayment. What Nehemiah did was get the seller. builder, whoever to donate the money for the downpayment to be transacted at the closing table. May sound good but here is the reality of how it worked.
Real Estate agent brings client to Loan originator and mostly these folks can only get FHA loans because of being first time buyers or whatever. If lack of down payment, home buyer would get plugged into Nehemiah and this is where the fun begins. Few sellers are willing to take money off the table to in effect give to the buyer for a down payment. What would happen at this point, the loan originator would send out a property appraiser who would overvalue the property equal to the amount need to qualify the property at the seller's asking price plus the down payment. The deal would be worked so that the seller at the closing table in effect give the buyer the money needed for the down payment. The seller would also get a nice tax deductible write off for his/her act of charity. Really an act of nothing or a fiction.
The bottomline, the real estate value has become over inflated which local gov't likes since higher values mean more tax dollars. Surrounding neighbors love it because their own values go up allowing for higher equity lines of credit on their own home. Sellers don't care because they get the price they wanted in the first place and the higher value tends a bit to give the real estate agent a little more money. Even the lawyers make out as some of the fees are % driven by the sale transaction amount. Loan companies get the business but then many of these companies turn around and sell the loan and make their money off the yield spread.
The new home owner get their home but they walk in with no money in the place, (comes in handy latter when you need to walk away) through creative financing they are paying every drop of the tab and in reality their holding a 120% loan of the true home value and it will take several years before even the first cent of equity is realized. In the meantime, everyone else in this deal has their money and moving on to the next victim and all of this using gov't created or gov't approved programs.
Alot of these people were sold on home ownership with a monthly rate right about what they were paying for rent but many of these loans had balloon rates and this is where the problem exploded. When the balloon rates hit, it was impossible to re-qualify for a new fixed rate mortgage even though they may have made ever previous payment on time because the amount of the home was toploaded and the homeowner had an actual negative equity. In other words, they needed more money than the home was truly worth.
Every bit of this was all done above board and in full sight of elected officials and regulators but no a soul raised a finger to stop it. Now that the system they created has busted, they want the taxpayer to step in a bail them out? OH HELL NO!
I'm all for seeing hardworking folks get ahead but I'm telling ya, IMHO, they (the system) brought this stuff on themselves in what can only be called pretatory lending practices of the worse sort. 3 to 5 years ago my wife told me that down the road was a huge bubble that would burst and she was so right. And we may not have seen the worst yet people!
Just an FYI!
