HUD Reissuing DPA Ban Proposal

June 10, 2008
By: National Mortgage News

To stem losses to the FHA insurance fund, the Department of Housing and Urban Development is reissuing a proposed rule that would ban seller-funded downpayment assistance on Federal Housing Administration-insured mortgages. HUD has been tangling for several years with nonprofit groups that arrange for low-income homebuyers to receive downpayment assistance from home sellers. HUD maintains that foreclosures on these FHA loans are three times higher than for other loans because the seller jacks up the price to recoup the downpayment "gift." In March, a federal district court judge ruled that HUD violated the Administrative Procedures Act in issuing a similar rule to stop seller-funded DPA programs. FHA Commissioner Brian Montgomery said the judge provided HUD with a "roadmap" to modify the proposed rule and reissue it for a new 60-day comment period. The FHA commissioner also told the National Press Club Monday that the FHA has booked $4.6 billion in "unanticipated long-term losses" mostly due to seller-funded DPA loans. He stressed that the FHA is solvent but may need a congressional appropriation if such losses continue. Meanwhile, downpayment assistance providers are ready to block the rule again. "We will not watch Commissioner Montgomery or HUD sever the only lifeline available to the low- to moderate-income families," said Scott Syphax, president and chief executive of Nehemiah Corporation of America.

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For additional information, please contact Shelley Mitchell, smitchell@nehemiahcorp.org, 916-231-1999.

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