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Yes, Amerdream is still in business but the clock is ticking and, hopefully, time will run out at the end of September, 2008
On October 1st, it'll become illegal to use DPA (seller assisted down payment assistance) to get a mortgage; a painful realization for some but it's better for the country as a whole
Ameridream is shaking the trees, trying to get people to call their congressman and anybody else who can help them stay in business.
I hope it's not going to happen. The American Dream is not built on companies such as these...it's built on hard work and sacrifice which, in turn, allows anybody to get their piece of the pie. Ameridream and other DPA companies prey on lower income and poor risk home buyers who are convinced that they're ready to own their own home. Come on, people. Give it some time and save up that down payment. Don't take the easy way out. It's more painful and you may regret taking that easy road instead of one where you have some equity in your largest investment...your home.
Friday, September 26, 2008
Tuesday, September 16, 2008
So how does Ameridream do their thing?
Basically, it's because they (and the Nehemiah company) are legal conduits whereby the seller can give some or all of the down payment for the sellers property to the buyer.
Here's what happens: The buyer wants a house from the seller. They don't have a down payment or they don't have enough (often 3% or better).
The seller increases the price of the house accordingly. That increase is marked as a payment to the Ameridream company and the Ameridream company makes a tax deductible gift to the buyer.
Sometimes the realtors make out a bit better too since the price of the house has been jacked up, the realtor's commission, which is generally a percentage, is higher than the original buyers price. The seller often pays the increase in commission (though savvy sellers should watch for this and request that the commission is based on the pre-jacked price.)
Not too shabby, right?
Oh, forgot to mention. Ameridream often makes the buyer's realtor rewrite the offer to purchase (instead of adding an offer to purchase amendment)
So the seller increases the price of the house to a bit more than what the buyer will receive to help them with the down payment. A little more, you ask? That's the pound of flesh that the Ameridream or Nehemiah Companies receive for their services...non-profit my butt.
There is a stickler and that has to do with the appraisal of the house. When one gets a mortgage, the mortgage company (bank, broker, etc.) usually REQUIRES a 3rd party independent appraisal company. This will help the bank determine if the house is actually worth what the buyer is paying for it. If it's not worth it, the buyer might not get the loan...thus, it's almost always a good idea to put a financing contingency into your offer to purchase just in case. But talk that over with your realtor or real estate lawyer. If you don't have a contingency in there and the bank balks on the loan, the seller may be able to force you to purchase the property even if you can't get a loan...they certainly have grounds to grab your earnest money.
Back to the appraisal and the appraiser. Very often, the appraiser will KNOW THE EXACT AMOUNT OF THE SALE PRICE OF THE HOUSE. That's rediculous but very often the case. Do you think they may have a conflict of interest here? After all, if a bank calls the appraiser and his or her values come in lower than the sale price consistently, the buys won't go through. But if the appraiser knows the cost ahead of time, they can dry-lab the numbers from the get-go. Yeah, I know there are honest appraisers out there...but there's are dishonest ones that are out there too. Live with it and beware.
Ameridream continues to refer to this as a gift and, I suppose, by legal definition it is. But it ain't a gift to the mortgage industry. The buyer now owns a house, sure. But they have nothing invested (equity) in the property so, if bankruptcy comes along, it's really not that big of a deal if they need to walk away. It's not (mostly) their money, it's the mortgage company's. Hmmm...didn't I hear recently of a mortgage company bail out? Think this had anything to do with it?
Basically, it's because they (and the Nehemiah company) are legal conduits whereby the seller can give some or all of the down payment for the sellers property to the buyer.
Here's what happens: The buyer wants a house from the seller. They don't have a down payment or they don't have enough (often 3% or better).
The seller increases the price of the house accordingly. That increase is marked as a payment to the Ameridream company and the Ameridream company makes a tax deductible gift to the buyer.
Sometimes the realtors make out a bit better too since the price of the house has been jacked up, the realtor's commission, which is generally a percentage, is higher than the original buyers price. The seller often pays the increase in commission (though savvy sellers should watch for this and request that the commission is based on the pre-jacked price.)
Not too shabby, right?
Oh, forgot to mention. Ameridream often makes the buyer's realtor rewrite the offer to purchase (instead of adding an offer to purchase amendment)
So the seller increases the price of the house to a bit more than what the buyer will receive to help them with the down payment. A little more, you ask? That's the pound of flesh that the Ameridream or Nehemiah Companies receive for their services...non-profit my butt.
There is a stickler and that has to do with the appraisal of the house. When one gets a mortgage, the mortgage company (bank, broker, etc.) usually REQUIRES a 3rd party independent appraisal company. This will help the bank determine if the house is actually worth what the buyer is paying for it. If it's not worth it, the buyer might not get the loan...thus, it's almost always a good idea to put a financing contingency into your offer to purchase just in case. But talk that over with your realtor or real estate lawyer. If you don't have a contingency in there and the bank balks on the loan, the seller may be able to force you to purchase the property even if you can't get a loan...they certainly have grounds to grab your earnest money.
Back to the appraisal and the appraiser. Very often, the appraiser will KNOW THE EXACT AMOUNT OF THE SALE PRICE OF THE HOUSE. That's rediculous but very often the case. Do you think they may have a conflict of interest here? After all, if a bank calls the appraiser and his or her values come in lower than the sale price consistently, the buys won't go through. But if the appraiser knows the cost ahead of time, they can dry-lab the numbers from the get-go. Yeah, I know there are honest appraisers out there...but there's are dishonest ones that are out there too. Live with it and beware.
Ameridream continues to refer to this as a gift and, I suppose, by legal definition it is. But it ain't a gift to the mortgage industry. The buyer now owns a house, sure. But they have nothing invested (equity) in the property so, if bankruptcy comes along, it's really not that big of a deal if they need to walk away. It's not (mostly) their money, it's the mortgage company's. Hmmm...didn't I hear recently of a mortgage company bail out? Think this had anything to do with it?
Tuesday, September 9, 2008
Should Ameridream/Nehemia be saved?
The bill hasn't been passed yet but Ameridream is certainly lobbying for it to be passed.
As you may have heard, Ameridreams business model is based on a legal loophole. That is, DPA (down payment assistance) from a non-profit that has a sellers contribution is (currently) legal. It's due to die as of October 1st.
It really doesn't make sense, if you think about it. After all, whats the purpose of a down payment. It gives the homeowner some equity in the property and therefore makes them more apt to feel a sense of ownership. When a person buys a property and owns nothing right off the bat, what happens? Well, since they don't have anything to lose (other than their credit rating, I grant you), they may very well be more likely to walk away; after all they're not really losing any of their money.
The other thing that people forget is that the price of the property needed to be artificially inflated to offset the sellers kickback to the Amerdream program. Then an appraiser who was willing to inflate the price needed to be in on the action. I speak from experience in this matter: these appraisers usually know the sales price of the property before they step foot into it. So if they want to keep appraising properties, its in their best interest to find comps that bump the property's value up. All well and good, but come time to re-sell this property, it often doesn't add up and the sale cant go through or foreclosure can occur.
I don't deny that there are anecdotal instances where this is a good thing to do. I just believe that in the majority of the cases, a down payment is a necessary rite of passage that a homeowner should take before embarking on the sale journey.
As you may have heard, Ameridreams business model is based on a legal loophole. That is, DPA (down payment assistance) from a non-profit that has a sellers contribution is (currently) legal. It's due to die as of October 1st.
It really doesn't make sense, if you think about it. After all, whats the purpose of a down payment. It gives the homeowner some equity in the property and therefore makes them more apt to feel a sense of ownership. When a person buys a property and owns nothing right off the bat, what happens? Well, since they don't have anything to lose (other than their credit rating, I grant you), they may very well be more likely to walk away; after all they're not really losing any of their money.
The other thing that people forget is that the price of the property needed to be artificially inflated to offset the sellers kickback to the Amerdream program. Then an appraiser who was willing to inflate the price needed to be in on the action. I speak from experience in this matter: these appraisers usually know the sales price of the property before they step foot into it. So if they want to keep appraising properties, its in their best interest to find comps that bump the property's value up. All well and good, but come time to re-sell this property, it often doesn't add up and the sale cant go through or foreclosure can occur.
I don't deny that there are anecdotal instances where this is a good thing to do. I just believe that in the majority of the cases, a down payment is a necessary rite of passage that a homeowner should take before embarking on the sale journey.
Monday, September 8, 2008
AmeriDream - Not great for the mortgage industry
Ameridream Mortgage Assistance program. This is a legal downpayment assistance program, that, in my opinion, should be outlawed and dismembered. It uses a loophole in the current law to create a system whereby a person can get a virtually 100% home loan with no money down.
There are reasons that the goverment (and many mortgage companies) require a homeowner to put a downpayment down in order to qualify for a home mortgage. Here are some of those reasons:
When President Bush recently signed into law the mortgage assistance bill, (due to take effect on October 1st), many thought that the Ameridream program might finally bite the dust...
But there's a movement out there and it's got some momentum.
It's called bill # HR 6694 and it does have some support from the government powers that be.
Here's the bill:
http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.6694:
On my next entry, I'll describe the Ameridream program and why I believe it's bad for everybody.
There are reasons that the goverment (and many mortgage companies) require a homeowner to put a downpayment down in order to qualify for a home mortgage. Here are some of those reasons:
- When your loan includes a downpayment the loan rate (interest rate) almost always is lower than if you didn't have one.
- You are immediately telling the mortage company and the government that you have some of your own sweat and tears into the home. You're not just borrowing the entire amount so you have no equity
- It shows you have the self control and financial wherewithall to save some $$ for something very important
When President Bush recently signed into law the mortgage assistance bill, (due to take effect on October 1st), many thought that the Ameridream program might finally bite the dust...
But there's a movement out there and it's got some momentum.
It's called bill # HR 6694 and it does have some support from the government powers that be.
Here's the bill:
http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.6694:
On my next entry, I'll describe the Ameridream program and why I believe it's bad for everybody.
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