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The end of the gravy train for Lennar and other builders...................

September 15, 2008 by DugoutNut

On October 1, builders will no longer be able to front the down payment for new home buyers who are using FHA to finance their new home.

How it works or a short lesson of just the basics:

The builder is allowed, under current FHA rules, to "give" the buyer the three percent down payment required to purchase the home through a third party non-profit such as Nehemiah in California. The builder gives the money to Nehemiah, who then "gifts" the funds to the buyer for a small fee that the builder pays to Nehemiah.

The end of this program, or loophole, is going to have a negative effect on the sales of new homes instantly. Instead of being able to move into a home with little to no money (we are in our current home, purchased in July of 2008, for a grand total out of pocket expense of $230) buyer will need to have 3.5% cash down. Builders will also be restricted to a concession maximum of 3% towards closing costs. On our purchase we were able to get over a 6% concession toward closing which covered all but the $230 of our closing costs.

In this economic climate, which with the Lehman Brothers and Merrill Lynch fiascoes today just got worse, you can expect builders to start cutting back in a big way and some to go out of business entirely. The unemployment rate is 6.1%, the highest in five years. The number of folks with the actual cash down to purchase a home is dwindling to a precious few.

Lennar, as seen here in this article http://tinyurl.com/endoftheline , has been using this program to fund 33% of their sales. What happens when this crutch vanishes?

I don't mean to sound bitter or mean, but Lennar is going to get just what they asked for.