No down payment? Still no problem -- at least for now

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Desperate Southern California home builders are in full liquidation mode, as signs dotting the backroads of Hemet attest.

To a small degree it may be working -- a report from industry research firm Metrostudy says finished vacant inventory of new homes declined in the second quarter. Still, the supply of vacant developed lots stands at a 10-year high.

Yet, it is curious to see that some builders are still resorting to the no-money-down lure. D.R. Horton, which specializes in entry-level housing, and Lennar Corp. have been quite brazen in their campaigns. But there’s a good reason: The big builders have relied on these incentives -- known as down-payment assistance -- to boost sales through the housing boom and now bust.

In Horton’s case, 21% of loans made through its mortgage arm in the second quarter were with seller-funded down-payment assistance. Typically, these loans, which are backed by the Federal Housing Administration, involve a nonprofit group that gives a 3% down payment to the buyer. The group is then reimbursed by the seller/builder.

But the clock is ticking. When the new federal housing bill goes into effect in October, builders will be banned from using these down-payment ‘charities’ -- much to their chagrin. Donald Tomnitz, Horton’s chief executive, derided this aspect of housing bill on a conference call with analysts earlier this month, saying the DPA programs are something his industry ‘so vitally needs.’

Maybe so. But during the boom, new-home buyers were among the biggest category of borrowers utilizing subprime, 100% financing. They now are reportedly suffering the consequences, i.e. foreclosures, at an alarming rate.

-- Annette Haddad

Top photo: Road sign along Sanderson Avenue in Hemet

Second image: Lennar ad

Questions? Comments? Email: annette.haddad@latimes.com