Friday, September 12, 2008

You cannot get there from here

Arnold suggests that "instead of handing a low-income home buyer a subsidized mortgage with a low down payment, I'd rather hand the buyer a check to use for part of the down payment." This exists -- they're called Downpayment Assistance Programs (DAP) and they are a powerful font of corruption that does not help poor people at all.
Those who claim that DAP loans provide a benefit to borrowers without funds are making no sense even if you grant that making loans to people without even minimal skin in the game is a good idea: the DAP programs simply keep contract sales prices inflated, channel fees into the pockets of "nonprofits" who provide no other service than laundering money, and result in lower insurance premiums than FHA should be getting for loans with riskier profiles. If you care at all about the long-term survival of the FHA program, you would be doing everything you can to protect it from this kind of damage.

Supporting DAPs means supporting property sellers--particularly but not limited to builders and developers--and the "entrepreneurs" who form "nonprofits" to extract fees from naive homebuyers, not to mention loan originators who pocket higher commissions, with the risk being carried by government insurance. It is, precisely, the kind of sleazy, conflict-ridden, self-serving "initiative," overtly "faith-based" or its sort-of secular equivalent "dream-based," that thrives in an environment where regulation is dismantled or unenforced and "government" is bashed with one hand and milked with the other.
Maybe, instead, we should just accept that the Universe is a Tragic place where people who cannot afford to purchase homes, cannot afford to purchase homes.


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