Federal Court Blocks HUD Ruling Prohibiting Down Payment Assistance Programs

A U. S. District Judge issued a temporary order yesterday blocking HUD's new rule prohibiting the use of seller-financed mortgage down-payment assistance programs. Such programs allow non-profit organizations, like AmeriDream and Nehemiah, to help buyers with down payments and be reimbursed by the seller. HUD, the IRS, and the Government Accountability Office had questioned the value of these programs, noting that "borrowers who used them were more than twice as likely to default on their mortgages or become delinquent in their payments" versus other borrowers with loans backed by FHA.

In a four-page ruling the Judge said HUD “failed to supply a reasoned analysis for its departure from its long-standing policy of approval” of the program and that such a move would effectively put the non-profit groups out of business.

HUD announced it will abide by the decision for now and will continue to press its case in the courts. As of now, the next round of court hearings has not been scheduled.

The decision was heartening for the non-profit groups who "hope that a sensible common ground can be achieved."  In our opinion, the non-profits should require a few more stringent standards. Tightening appraisal oversight that assures an "arm's length" transaction, more education for first time home buyers, and two years of stable rental payment history are just a few examples that would go a long way in helping prevent possible future defaults.

For more information or questions about these programs, contact us at Metro Mortgage Company and we'll be happy to assist you.

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