HUD Rescinds Downpayment Assistance Rules for FHA Loans

by Kathy Hereford, August 20, 2019

The guidance released in April tried to clarify documentation requirements for government entities that provide downpayment assistance to buyers with FHA loans.

WASHINGTON – The Department of Housing and Urban Development (HUD) on Friday quietly rescinded guidance on downpayment assistance requirements, which have been at the center of recent lawsuits.

The guidance, released In April, attempted to clarify requirements for government entities that provide downpayment assistance to homebuyers using Federal Housing Administration (FHA) financing by outlining the required documents borrowers must supply if they’re using funds from another person or entity to cover part of FHA’s minimum 3.5% downpayment requirement.

Shortly after HUD released the guidelines, however, a Native American tribe filed suit, alleging that the new rules prohibited national finance agencies owned by tribes from providing downpayment assistance to anyone except tribal members who purchased properties on their own reservation. In the complaint, the tribe argued that the new rules were an effort “to force American Indians back onto the reservation.”

Following the lawsuit, HUD suspended the guidance while the legal challenges proceeded.

In July, a U.S. District Court judge granted a preliminary injunction that prevented HUD from implementing the requirements. The FHA and Department of Housing and Urban Development (HUD) have not commented publicly on the decision to rescind the Mortgagee Letter. The rescission is effective immediately.

Source: HUD.gov; “FHA Rescinds Mortgagee Letter at Core of Tribal Lawsuit,” National Mortgage Professional Magazine (Aug. 16, 2019); and “HUD Throws in the Towel on Down Payment Assistance Revisions,” The National Law Review (Aug. 15, 2019)

© Copyright 2019 INFORMATION INC., Bethesda, MD (301) 215-4688

Source: Florida Realtors | Live Learn Nona Blog | Lake Nona Real Estate