Down Payment Assistance Programs

Inspiration for this enter comes from Seeking Alpha and the Wall Street Journal

This is going to be a quick one. I'm not sure if any of you have heard about these "down payment assistance programs" or seen signs on the road for such a thing. I never understood why a not-for-profit agency would be willing to give out grants to people for a down payment. Nor did I ever understand how they could find sufficient donations to make it work. I was puzzled.

I am puzzled no longer!

Most of these down payment assistance programs are actually sponsored by home builders. While banks are no longer providing 0% down loans, this can be worked around.

Here it goes:

1. Instead of marking down a $250,000 home 10%-15%, these home builders create a not for profit, "home buyers assistance program" and "donate" $7,500 to it.
   
   
2. They put up signs saying, "First time home buyer? Down payment assistance available! Dial 1-888-555-5555"
   
   
3. You call the number and they say that they're willing to give you $7,500 (3%) in assistance if you buy these homes from the builder.
   
   
4. Builder gets the sale, and doesn't need to mark down the remaining homes in his subdivision, keeping the prices artificially high.
   
   
5. Buyer who may not be able to afford the mortgage gets a government (tax-payer) sponsored loan from Fredie Mac or Fannie Mae because they put 3% down. These are still higher risk borrowers - they haven't proven they could save a dime!
   
   
6. Tax payers foot the bill if the borrower defaults.