I made brief mention of the Oregonian story on Sterling Bank foreclosing on 15 Buena Vista Custom Home’s properties. Buena Vista is not alone. A quick search on RealtryTrac on our TurnerRealtors.com website shows that there are 571 homes listed as foreclosures (it isn’t possible to get an accurate count from RMLS as “Third Party Approval” includes foreclosures, short sales, some relocation properties an some court overseen sales.
I thought the mortgage market was supposed to be tightening; almost everything that we see and have experienced says that’s the case which makes this article in Forbes, “Going Tribal”, even more surprising. Down payment assistance programs, as far as I know, are supposed to be going away soon. The idea that the seller pays for the buyer’s down-payment is high risk to lenders:
Follow the ball as it’s passed among six players on the field. First, Russell wired $5,940 of what was ostensibly Penobscot Indian Nation money from an account he controls to a title company assisting at the closing. The lender, a bank taking advantage of a federal loan guarantee, put up $192,060. The eager seller, a homeowner (Russell doesn’t usually work for builders or banks), was selling the home for $198,000 but collected only $191,665 (before the real estate agent’s and other fees). What happened to the other $6,335? The title company wired that money right back to the Russell/Penobscot bank account. When the dust settled, the Indians had their “down payment” back, plus that extra $395. The vigorish was divided: $79 was kept by the Penobscots and $316 went to Russell’s Global Direct.
The article says that the end of Down Payment Assistance Programs my be tied up in courts for years. The method in the article uses an Indian tribe as the source of funds; entities that are currently one or more steps in front of regulation.
The Penobscot operation was barely up and running when HUD, which blames down-payment assistance for $4.6 billion in losses on its mortgage guarantees, announced last year it was going to disregard down payments coming from any entity that gets reimbursed. (You’d think that this was already covered by the rule against having an economic stake in a sale, but hairsplitting lawyers can argue otherwise.)