The Department of Housing and Urban Development announced late last week that is officially bailing on a contentious set of changes to its rules for down payment assistance on mortgages insured by the Federal Housing Administration after the initial proposal led to the agency being sued.
Last week, HUD issued a new mortgagee letter, 2019-12, which retracts the agency’s original changes to the down payment assistance rules and all subsequent actions in the matter.
Earlier this year, HUD announced that it would be issuing new rules on down payment assistance on FHA mortgages, citing potential issues with some “entities” that may have been operating outside of the agency’s rules.
According to HUD and the FHA, the “informal guidance” was meant to provide clarity around what documentation 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%.
But, according to the Cedar Band of Paiutes, a federally recognized American Indian band that operates the Cedar Band Corp. and the CBC Mortgage Agency, the rules had far-reaching and damaging consequences, and effectively put its down payment assistance program out of business.
The Cedar Band Corp. operates the CBC Mortgage Agency, which provides down payment assistance to borrowers nationwide through its Chenoa Fund.
In the immediate aftermath of the rule changes being announced, the group sued HUD, claiming that the rules will lead to the “unlawful destruction” of its down payment assistance program and the end of CBC Mortgage Agency’s business.
HUD reacted to the lawsuit by delaying the implementation of the rule changes to allow for a 90-day stay to review the Cedar Band’s claims.
But that didn’t stop the Cedar Band from pursuing the case in federal court. And last month, the group was handed a victory when a federal judge granted the group’s motion and formally halted the implementation of the new rule until the case can be decided.
That led to HUD formally suspending the guidance “until further notice,” pushing the effective date of the rule changes to an undetermined point in the future.
And now, HUD is completely abandoning the proposed rule changes, saying in a new mortgagee letter, that it is rescinding the original rule change announcement, the extension of the rule change adoption timeline, and the most recent formal suspension of the rule change adoption.
To put it simply, HUD is pulling back all of the proposed rule changes and every piece of formal action on the matter that came after it.
According to HUD, all of the rescissions are effective immediately.
Despite the seeming victory in the matter, the Cedar Band said it will continue pursuing the case in federal court.
“While it marks a significant step forward, the litigation will continue and is essential to resolve the core questions at issue,” the Cedar Band said in a statement provided in to HousingWire. “CBCMA filed a motion to enforce the injunction after a HUD employee conveyed false information about Chenoa’s ability to provide down payment assistance, and that the motion is still pending.”
Nevertheless, the group said it welcomes HUD’s reversal on the matter.
“HUD’s latest letter is a welcome and encouraging gesture that begins to repair the damage caused by the rule change the government sought to enforce against us in April,” Delice Tom, the chairwoman of the Cedar Band, said in a statement. “We hope this is evidence that in the future, we will not face illegal threats to our sovereign rights and our ability to generate crucial economic resources for our people.”