Rob Chrane From Down Payment Resource: Lenders are Letting Too Many FHA Borrowers Leave DPA on the Table

Rob Chrane is the founder and CEO of Down Payment Resource and a leader in the homeownership affordability space. A 30-year veteran of the real estate and mortgage industries, Chrane actively collaborates with housing organizations and coalitions such as the Urban Land Institute, National Fair Housing Alliance and the Mortgage Bankers Association’s CONVERGENCE initiative. He is a frequent speaker at national and local events on the topic of homeownership affordability. Chrane received an MBA NewsLink Tech All-Star Award in 2023.

Buying a home sooner than later can benefit homeowners in many ways, including financially.

We often recall a story told to us by broker Peter Rivera, whose client, a single mother of two, wanted to buy a home so her daughters could have their own rooms, but thought she would need four to five years to save for her down payment. Rivera connected to Down Payment Resource’s database of down payment assistance programs through his MLS to find programs she could qualify for.

With his help, she was able to secure $7,500 in funding and move forward with buying a modest home in about one year — three years before she would have otherwise. That timing was crucial: Home prices in her market had continued to rise, and four years later, she would not have been able to afford the same home. But since she had owned the home for a few years already, she’d gained $70,000 in equity. She took advantage of that equity to purchase a larger, newly constructed home.

How DPA Makes an Important Difference

Down Payment Resource tracks all the 2,200+ DPA programs throughout the country and maintains current data on funds availability, among other metrics. Many of these programs can be used for costs beyond a down payment, such as closing costs or paying points to lower the buyer’s interest rate. Many programs are for first-time buyers, but others are open to repeat buyers.

Now, here’s the kicker. A lot of DPA goes untapped simply because buyers, lenders and agents are unaware it exists or have misconceptions about how it works and who can qualify. And that’s a shame for every participant in the housing finance and real estate market.

Too Many Borrowers are Left Behind

Down Payment Resource partnered with the Urban Institute to examine the impact DPA could have on buyers in today’s housing market. The study looked at HMDA data from the top 10 metros in the U.S. (Atlanta, Chicago, Dallas, Houston, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C.) and found that almost half (43.6%) of originated purchase mortgages were eligible for DPA. As far as loan types, FHA and USDA loans were the most likely to be eligible.

Urban Institute and DPR found in just those metros that DPA could have potentially helped salvage about 46,000 denied applicants (30.7%) who qualify for a purchase mortgage since it can lower the loan amount for a more favorable debt-to-income ratio or provide cash to meet necessary cash-to-close requirements.

Across channels, the study found that 79.9% of FHA loans likely could have qualified for DPA. Yet, according to HUD data, only about 15% of borrowers with FHA mortgages used down payment assistance from a government source. That gap, between the number of eligible loans (79.8%) and those that used DPA (15%) is 64.8% and represents a significant portion of LMI and minority applicants who may have qualified for an FHA loan with additional funds.

That means five times as many homebuyers who relied on FHA loans to finance their home purchases could have benefited from DPA than actually did. Plus, almost 44% of borrowers who used conventional first mortgage products were eligible for DPA, yet less than 10% actually received help.

Is it not concerning that in a world where so many lenders, real estate agents, housing trade organizations, government enterprises and policymakers profess to support the dream of homeownership — especially for the underserved — we’re not doing a better job of educating consumers about their full range of financing options?

Solving the DPA Disconnect

A 2023 poll by Keybank of 1,000 homeowners who earned less than $75,000 annually found nearly one-third (31%) did not seek out any information or resources on homebuyer assistance programs. “While the Fair Housing Act of 1968 set a precedent to make the sale, rental, and home financing process nondiscriminatory, borrowers in underserved communities are often at a disadvantage when it comes to awareness of tools, resources and affordable offerings available to help them achieve homeownership,” noted the report.

Whose role is it to help publicize the widespread availability of DPA? From my vantage point, all of us. Companies like Down Payment Resource. Lenders that need to expand their loan volume numbers, especially in LMI and minority communities. Trade organizations such as MBA, NAR, NAREB, NAHREP, CMLS and NAHB could take the lead in sharing best practices and customizable materials with their membership. Housing agencies and advocacy groups that have funds available (that go unused year after year). Government agencies that touch housing, especially affordable housing, along with the GSEs, Fannie Mae and Freddie Mac. And finally, the news media.

If entities all put forth a sustained effort to publicize the existence of DPA with the same channels and effort put forth for launching HARP and HAMP during the housing crisis, we could reach many of the creditworthy borrowers sitting on the sidelines thinking they can’t qualify for a mortgage.

Spreading the word on DPA deserves to be a concerted effort to reach potential homebuyers at every touchpoint possible because clearly, there’s a disconnect between the desire in America to purchase a home, widely acknowledged as a cornerstone of building wealth, and knowing help is available to do so sooner rather than later in the form of DPA.

If more borrowers could apply DPA to FHA and other loan types, we could salvage more loans and close the racial gap between white households and minorities. We could help more homeseekers get into their first home and help more families start earning equity through homeownership. If 15% of your FHA borrowers are now using DPA, why not set a goal for 45% or even higher? If you’re on a trade association committee for affordable homeownership, be sure DPA is a topic brought up often and you look for ways to promote it more broadly.

I think by working together and setting some goals, we can push the needle on homeownership rates, especially in LMI and minority communities. The infrastructure to do this already exists; it just has to be put in motion. I think that’s a goal worth pursuing, and I’m hoping some of you can help get the ball rolling.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)