Rising Interest Rates Could Force More Homebuyers to Use Government Assistance

ANDY MEEK | The Daily News

It says something about the usefulness of a housing assistance program offered by the Shelby County Department of Housing when one of its most recent beneficiaries is an employee of another housing department - the City of Memphis'.

Robert Brimhall, a planning analyst for the city's housing agency, moved with his wife into a new home a little more than a year ago thanks to help from Shelby County's Down Payment Assistance Program. The DPA program was set up to help middle-income homebuyers like him cover a portion of their down payment and closing costs.

As Brimhall remembers it, he and his wife ended up paying close to $500 out of pocket. Without the aid, their tab would have been closer to $3,000.

"Just from working here with the city and knowing how these sorts of programs work, it was kind of one of those word-of-mouth things," said Brimhall, whose job requires him to process statistics, GIS requests and other queries for the city housing agency.

Another kind of tsunami

Jim Vazquez, deputy administrator of the county housing department, sees the Brimhalls as the crest of a wave that could soon splash with a vengeance onto the housing market's closely watched shores. With interest rates swinging upward, he said, the evidence points to a subtle shifting of the real estate climate from a seller's to a buyer's market.

And given the sheer number of programs out there that offer help for cash-strapped homebuyers, housing analysts like Vazquez believe the number of people who depend on programs like Shelby County's could soon get large enough to fill every square foot of a suburban McMansion.

"We basically have two down payment assistance programs that are slightly different," Vazquez said. "One is the American Dream Down Payment Initiative, and the other is the county's Down Payment Assistance Program."

Here's how they work: Under the ADDI program, Shelby County funnels federal Housing and Urban Development (HUD) funds to first-time, low-income homebuyers. The DPA program is designed to help people with moderate-level incomes cover part of their down payment and closing costs.

The ADDI program offers a five-year forgivable grant, while the DPA money comes in the form of a low-interest loan. The maximum amount of assistance through DPA is $3,500. Under the ADDI program, the county can pay up to 75 percent of the down payment costs, up to $10,000, or 6 percent of the sales price - whichever is larger.

Hoops and red tape

But several steps have to be met, of course, before county officials simply hand over a check.

"Under the DPA program, basically what the homeowner has to do is go to a mortgage company and qualify with the mortgage company," said Israel Henry, finance manager for the county housing department. "Once they qualify and acquire the property, then the mortgage company will submit to us an application on their behalf.

"Once they submit that to us, we'll take a look at it to make sure it meets all of our program guidelines. And when that's done we submit an approval form to the mortgage company and go through the process of writing a check."

Homebuyers who use the DPA program also are required to go through a one-day counseling class, which new homeowner Delisha Moore said was indispensable to learning about the rigmarole associated with buying a home.

"I learned so much about the process going through the class," she said. "I loved the customer service and the whole idea of the program, because it actually got me into a beautiful home."

Instead of looking at help available through the office where Robert worked, the Brimhalls turned to the county's DPA program because Brimhall said their income knocked them out of the city's eligibility range.

"Basically, you went to a housing class that was an all-day class, they gave me a certificate, and with that certificate, I was able to get the down payment assistance," Brimhall said.

Catch-22

Low interest rates and a much-publicized housing boom aside, county officials admit a curiosity about the fact that fewer people than expected have applied for each program. The county's DPA program, which is almost three years old, so far has helped about 30 homebuyers pay part of their closing costs.

County officials are still waiting for someone to qualify for the ADDI program, which is a little more than a year old. Therein is the Catch-22 of housing assistance aid targeting low-income homebuyers: Credit problems have disqualified most of the 90 or so applicants who've applied so far, Vazquez said.

To actually get a check in hand through either funding arrangement, the steps are slight variants of each other. Under ADDI, a homebuyer must contact the county housing department and complete an ADDI application form. After eligibility has been determined, the buyer gets a commitment letter.

That's taken to a mortgage lender, who sends county housing officials a letter describing the value of a home for which the buyer pre-qualifies and the estimated closing costs. The county then responds with a letter committing ADDI funds for a percentage of the closing costs. At closing, a check is issued to the lender.

"We got off to a slow start with the DPA too, but we tweaked some things here and there - the income guidelines and such - because we have more flexibility with that program," Henry said.