There are many rumors swirling around the rule HUD issued to eliminate down payment assistance on FHA loans. HUD has been ordered by a Federal District Court judge that they are not to enforce the rule, until the court has made a determination of whether the rule is legal and proper.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 203 [Docket No. FR-5087-F-02] RIN 2502-AI52
TITLE: Standards for Mortgagor’s Investment in Mortgaged Property
AGENCY: Office of the Assistant Secretary for Housing–Federal Housing Commissioner, HUD.
ACTION: Final rule.
DATES: Effective Date: October 31, 2007.
SUMMARY: This final rule amends the Department’s regulations governing the specific standards for a mortgagor’s investment in property for which the mortgage is insured by the Federal Housing Administration (FHA). Specifically, this final rule codifies HUD’s longstanding practice, authorized by statute, of allowing a mortgagor’s investment to be derived from gifts by family members and certain organizations. The standards established by this final rule address a situation in which the mortgagor’s investment is derived from a gift, loan, or other payment that is provided by any donor, including an individual or an organization, and also specify prohibited sources for a mortgagor’s investment. The final rule establishes that a prohibited source of downpayment assistance is a payment that consists, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale: The seller, or any other person or entity that financially benefits from the transaction; or any third party or entity that is reimbursed directly or indirectly by the seller, or any other person or entity that financially benefits from the transaction.
This final rule follows publication of a May 11, 2007, proposed rule and takes into consideration the public comments received on the proposed rule. After considering all comments received, HUD is adopting the May 11, 2007, proposed rule with certain minor clarification changes.
According to Nehemiah’s webiste getdownpayment.com, Nehemiah Corporation of America is “a not-for-profit community development corporation specializing in homeownership, affordable housing and community development….The nation’s largest privately funded downpayment assistance program. Since 1997, we have assisted over 230,000 families working with Realtors, builders and lenders nationwide to provide more than $900 million in downpayment gift funds.” Here’s what Nehemiah’s president had to say about the recent HUD rule.
October 1, 2007
Dear Colleague,
Today HUD published its rule known as “Standards for Mortgagor’s Investment in Mortgaged Property.” This rule threatens the existence of privately funded downpayment assistance. Below is an excerpt of a press release issued today that describes my assessment of the situation.
“HUD’s action to move forward with banning privately funded downpayment assistance programs is outrageous and we have responded by filing a lawsuit in Federal Court yesterday to challenge the merits of HUD’s damaging rule and to seek an injunction blocking implementation of this rule. It is inconceivable that HUD has taken this action in complete disregard for the House’s passage of legislation that would block it, driven by strong bipartisan support from House Financial Services Sub-Committee on Housing Opportunity Chair Congresswoman Maxine Waters (D-California) and fellow committee member Congressman Gary Miller (R-California). To date, privately-funded downpayment assistance programs have helped over 600,000 families become homeowners, and have been credited not only for helping people buy homes, but also stabilizing neighborhoods and cities and creating stronger families. As evidenced by the over 15,000 letters sent in opposition to HUD by families across the country, programs like The Nehemiah Program continue to be a lifeline for families working to reach the dream of homeownership. Further, broad opposition to this proposal by groups including the National Association of Home Builders, the Mortgage Bankers Association, the US Council of Mayors, and National Association of Counties speak to the validity and importance of seller-funded downpayment assistance programs. We remain hopeful that the legislative process reaches a successful conclusion.”
The HUD Rule has 3 major components:
1. Under the new rule downpayments cannot be derived from sellers directly or indirectly or any other party that benefits financially.
2. The rule takes effect on October 31, 2007 for all DPA providers except The Nehemiah Program.
3. Due to a 1998 legal settlement between Nehemiah and HUD, the effective date for The Nehemiah Program is March 31, 2008. The excerpt from the final rule states:
“…pursuant to an April 1998 settlement agreement resolving litigation between the Nehemiah Progressive Housing Development Corporation (Nehemiah) and HUD, the effective date shall be March 31, 2008 for the Nehemiah downpayment assistance program described in the settlement agreement between Nehemiah and HUD.”
Since May, Nehemiah has led the fight against this controversial rule, and will continue to take every possible step to preserve the option of privately funded downpayment assistance for low- and moderate-income homebuyers. We expect Congress to continue their opposition to the HUD rule. So far, the House of Representatives has opposed the HUD rule by including language in the FHA Reform Bill and the HUD 2008 Appropriations Bill that protects DPA. The Senate is presently working on its version of the FHA Reform bill and Nehemiah is diligently working with its leadership to make sure our concerns are heard.
We intend to prevail and ask for your support in preserving downpayment assistance by contacting your Congressperson and Senators to voice your concern about the elimination of downpayment assistance programs. Locate your elected officials by visiting takeaction.ahaanow.org/ahaa/home.
You can count on Nehemiah to keep you informed on the latest information surrounding the downpayment assistance industry. Stay up-to-date by visiting getdownpayment.com or call us at 877-634-3642 from 9:00 a.m. - 8:00 p.m. EST for answers to your questions.
On behalf of the Nehemiah family, I thank you for your support. Stay tuned!
Sincerely,
Scott Syphax
President & CEO
Nehemiah Corporation of America
424 North 7th Street, Suite 250
Sacramento, CA 95811
Was today’s HUD rule the seller-funded-down-payment-knockout-punch? Maybe it was. Maybe it was not.
Stay tuned!
WashingtonPost.com reported on FHA Seller Funded Down Payment Assistance Programs (DPAs) yesterday. I wonder if this HUD Rule will be challned in some way? Time will tell. For now, at least, it looks like here will be no more seller funded DPAs helping homebuyers to purchase.
From the WashingtonPost article we read:
The Federal Housing Administration will prohibit borrowers from using seller-financed down payment assistance programs that have helped hundreds of thousands of people buy homes but have come under the scrutiny of federal authorities.
Such programs allow home sellers to give money to charities, which in turn assist buyers with their down payments. The sellers pay the charities a service fee, but often recoup the money by charging a higher price for the homes, usually 2 or 3 percent more, or an amount equal to the down payment, according to a 2005 study by the Government Accountability Office.
In a conference call with reporters, Federal Housing Commissioner Brian Montgomery said the FHA will publish its new rule in the Federal Register on Monday. The rule, which is little changed from a preliminary version put out for comment in May, will go into effect 30 days after publication.
“These contributions often function as an incentive to purchase the home,” Montgomery said. “But these gifts are ultimately paid for by the borrower through a higher mortgage amount. The home buyers are often unaware that the ‘gift’ is something they end up paying for and is not a ‘gift’ at all.”
Almost 200 charities nationwide — one of the largest is AmeriDream in Gaithersburg — have participated in such arrangements. But the Internal Revenue Service and other government entities have raised concerns, particularly after the GAO study found that borrowers receiving assistance from the charities were more than twice as likely to default or become delinquent than other FHA borrowers were.
In a ruling last year, the IRS went so far as to call the seller-financed programs “scams,” accusing the charities of inflating home prices.
“Down payment assistance programs administered by charities have unfortunately been an area where my investigations and the IRS have found a great deal of abuse,” said Sen. Charles E. Grassley (R-Iowa), who has pushed for changes.
Ann Ashburn, president of AmeriDream, criticized the FHA rule and said there is no evidence that down payment programs raise prices.
The housing market has deteriorated so much that home prices cannot be inflated, she said. “At the end of the day, the buyer has the ultimate say.”
Borrowers with FHA-insured loans will still be able to get down payment assistance from family, employers, governmental entities or charitable organizations. But Ashburn said seller-financed down payment assistance has accounted for 30 to 50 percent of FHA purchase loans in recent years. The new rule, she said, would keep low-income borrowers from buying homes and further weaken the housing market.
“The rule does discriminate between the haves and the have-nots,” she said. “People who have money from mom and dad or have money on their own are still okay . . . but people who have no access to any sources — those are the have-nots — that group is now going to be discriminated against.”
The Mortgage Bankers Association also blasted the ruling. The programs provide “important assistance to cash-strapped borrowers,” said Steve O’Connor, the association’s senior vice president of public policy.
“While there is a need for stronger quality control measures, we shouldn’t throw the baby out with the bathwater and end the program,” he said.
Others called the ruling prudent.
“Given the poor performance of these loans, we can understand why . . . [the FHA] took the steps they did to shut it down,” said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 214 [Docket No. FR-4798-F-02] RIN 2502-AH99
TITLE: Housing Counseling Program
AGENCY: Office of the Assistant Secretary for Housing–Federal Housing Commissioner, HUD.
ACTION: Final rule.
SUMMARY: This rule establishes regulations for HUD’s Housing Counseling program, as authorized by the Housing and Urban Development Act of 1968, and for which, for the past several years, notices of funding availability have been issued on an annual basis. This final rule follows publication of a December 23, 2004, proposed rule that adopted and augmented the Housing Counseling program requirements with which grantees and housing counseling agencies are already familiar. This final rule takes into consideration the public comments that were received in response to the proposed rule and makes several changes to the proposed regulatory text at this final rule stage.
DATES: Effective Date: October 29, 2007.
FOR FURTHER INFORMATION CONTACT: Ruth Roman, Director, Office of Program Support, Office of Housing, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 9274, Washington, DC 20410- 8000, telephone, (202) 708-0317. (This is not a toll-free number.) Individuals with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Information Relay Service at: (800) 877-8339.
AND
Client Management System (CMS) Requirements:
The deadline for Client Management System (CMS) compliance, October 1, 2007, is almost here and HUD’s final regulation mandating the use of a CMS was published in the Federal Register today. The final rule is attached and should be opened in Adobe Reader. However, while a few CMS vendors are now offering fully functional products that interface with HUD, we understand that most are still putting the finishing touches on their systems.
If you or your CMS vendor has not completed the interface to HUD’s database, don’t worry. You will not be terminated from the Housing Counseling Program if the CMS interface is not completed by October 1st. In light of system development delays, HUD will require by October 1st only that you collect client level data:
1. Through a CMS vendor that has built an interface or is working to build an interface to HUD; or
2. Through your own CMS as long as you are working with HUD to build an interface with our database.
You will need to use a fully functional CMS that interfaces with HUD’s database by the time you submit your FY 2008 First Quarter Report to HUD in January, 2008.
New Reporting Requirements
Reporting requirements have changed fundamentally. Beginning in FY 2008, HUD is requiring that client level data must be submitted on a quarterly basis. Required agency profile data elements have also been expanded. Client level and agency profile data submitted must include all required data fields in the Interface Control Document (ICD). There is a separate set of client level data requirements for one-on-one counseling and group education.
Advanced Notice
This week we are anticipating that HUD will issue its final rule on down payment assistance (DPA) and attempt to eliminate all forms of “seller-funded” DPA. If HUD takes this action, it will be challenged in order to protect homeownership opportunities for low-and moderate-income (LMI) homebuyers and your ability to serve them.
Congressional Support for DPA & Lower Income Homebuyers
Federal lawmakers have recently passed legislation supporting privately-funded DPA programs and barring HUD from implementing its rule on DPA.
The House of Representatives, by an overwhelming margin, has passed the Expanding American Home Ownership Act of 2007, which includes an amendment by Congressman Gary Miller to allow qualified DPA providers to participate in the FHA program. Also, the House passed its version of 2008 funding for HUD which includes language protecting DPA and LMI homebuyers by eliminating any funding for HUD to implement its DPA rule.
As the Senate works on passage of its FHA reform legislation, concerns about HUD’s actions have been raised. In a recent interview with National Mortgage News, Senator Allard stated, “HUD seems to feel they have the authority to move forward on their own. At the very least, I think they need to consult with the Congress and seek out our consent.”
As you know, Nehemiah and AmeriDream have a long history of successfully protecting and advancing homeownership opportunities for LMI homebuyers. Once again, we are prepared to protect opportunities for the homebuyers we serve. Look for additional information from us as events unfold. Be assured that we will continue to be your trusted source of information on this important matter.
Go to getdownpayment.com for more information.
The scrutiny over FHA nonprofits has been ever increasing over the past decade and particularly the past two years. Many companies have sought nonprofit status as a means to participate in FHA nonprofit programs. The problem is that these FHA nonprofits have (at times) paid large salaries in the millions of dollars to the owners of the nonprofit organization. This author does not feel that such large salaries are consistent with the nonprofit status and surely FHA is in agreement with this authors view regarding FHA nonprofits. So without further ado, let’s look at what FHA has to say about FHA Nonprofit approval for single family homes. The following is from HUD’s website regarding FHA Nonprofits:
HUD issued two mortgagee letters (ML) relating to nonprofit programs, ML 01-30 and ML 02-01. Some instructions in 01-30 and 02-01 supersede the instructions in ML 00-8.
Copies of these and other HUD mortgagee letters can be obtained online. (ML2002-01 users please note: The addresses for the Denver Homeownership Center and the Santa Ana Homeownership Center have recently changed.
In addition, HUD published “Nonprofit Organization Participation in Certain
FHA Single Family Activities; Placement and Removal Procedures” on 06/06/02. This Federal Register notice provides information to nonprofit agencies seeking FHA approval.
All of the above publications tell nonprofits how to become FHA-approved to:
1. Act as a mortgagor using FHA mortgage insurance
2. Purchase HUD homes at a discount
3. Provide secondary financing; See “Application information for secondary financing/downpayment assistance providers.”
Important - Please Read This Entire Statement:
For New Applicants: HUD is in the process of transitioning to an on-line application system for Nonprofits applying/re-certifying for approval to participate in FHA activities. Starting August 15, 2007 all new Nonprofits that want to obtain HUD approval to participate as a FHA mortgagor, purchase HUD Homes at a discount, or administer a Secondary Financing/ Down Payment Assistance Program must submit an e-mail directly to their local Homeownership Center (HOC), Program Support Division, indicating that your organization would like to apply for approval to participate in FHA Nonprofit activities. The e-mail must also include the following information: your organization’s legal name, address, and executive director’s name and contact information (phone number and e-mail address). Additionally the e-mail should indicate whether the organization is a nonprofit or instrumentality of government, the date of your organization’s 501 (C)(3) determination letter and whether your organization has a minimum of two years, within the last five years, of housing development experience. Housing development experience is defined as acquisition, rehabilitation, and sale to low-to-moderate income persons. This e-mail should be sent to the appropriate HOC contact below. After your e-mail is received, HUD staff will send your organization an e-mail with instructions for accessing the on-line application system and a password and user ID.
For Re-Certifying Applicants: Nonprofits that need to re-certify, must submit an e-mail to the local HOC stating that your organization would like to apply for re-certification and request a password and user id. After your e-mail is received, HUD staff will send your organization an e-mail with instructions for accessing the on-line application system and a password and user ID.