HUD Rescinds Down Payment Assistance Rules for FHA Borrowers

August 19, 2019

The Department of Housing and Urban Development on Friday quietly rescinded guidance on down payment assistance requirements, which had been at the center of recent lawsuits.

The guidance, which was released In April, sought to clarify documentation requirements for government entities that provide down payment assistance to home buyers who have financing through the Federal Housing Administration. The guidance outlined the required documents for borrowers who use funds from another person or entity to cover part of the FHA’s minimum down payment requirement of 3.5%.

But shortly after HUD released the guidelines, a Native American tribe filed suit, alleging that the new rules prohibited national finance agencies owned by such tribes from providing down payment 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 HUD have not commented publicly on its decision to rescind the Mortgagee Letter. The rescission became 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)