HUD Sued Over New FHA Down Payment Assistance Rules

April 25, 2019

A Native American group in Utah is suing the U.S. Department of Housing and Urban Development over its newly issued down payment assistance rules for Federal Housing Administration mortgages. The groups argue that the new rules are unlawfully targeting Native American tribes and bands by prohibiting them from participating in home-purchase assistance programs.

The Cedar Band of Paiutes, the Cedar Band Corporation, and the CBC Mortgage Agency filed a lawsuit in the U.S. District Court for the District of Utah just days after HUD released revised new rules for down payment assistance on mortgages backed by the FHA. In those new rules, HUD and the FHA said they were providing clarity around what documents would be required for borrowers who are using funds from another person or entity to cover part of the FHA’s minimum down payment requirement of 3.5 percent.

But the groups claim that HUD’s new rules will prohibit national housing finance agencies owned by Native American tribes from providing down payment assistance to anyone except tribal members purchasing properties on their own reservation. They say the new rules will essentially put their down payment assistance programs out of business and claims the guidance is an effort “to force American Indians back onto the reservation.”

CBCMA is a federally recognized Native American band and a subsidiary of Cedar Band Corporation, a band corporation chartered by the U.S. Department of the Interior that is owned by the Cedar Band of Paiutes. CBCMA provides down payment assistance to borrowers seeking to finance the purchase of a home with a mortgage insured by the FHA.

HUD’s Mortgagee Letter was released last week to clarify existing laws governing down payment assistance. CBCMA officials argue, however, that HUD cannot abandon law and policy through the issuance of “industry guidance.”

“The harm that HUD has inflicted on CBCMA and the members of the Cedar Band with this administrative action is staggering,” says lead counsel Helgi C. Walker of Gibson Dunn & Crutcher LLP. “CBCMA has operated as a governmental provider of down payment assistance for years, indeed pursuant to regulations that expressly allow tribes to provide down payment assistance. But now HUD has changed the rules without notice, throwing CBCMA and borrowers into a state of chaos. We intend to rectify this unlawful agency action and vindicate our client’s legal rights.”

View HUD’s full mortgagee letter.