MBA: FHA Down Payment Assistance Guidance ‘Conflicting’
The Mortgage Bankers Association, in a Member Letter this week, said HUD has provided “conflicting information” regarding permissibility of down payment assistance programs offered by state and local housing finance agencies that use “premium pricing” as the source of assistance, and urged members to tread carefully.
MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills noted currently, a dispute exists between FHA and the HUD Office of the Inspector General regarding permissible sources of single-family down payment assistance offered through HFAs. Although the dispute was resolved by HUD’s Deputy Secretary in accordance with HUD’s internal protocols, the OIG continues to object to the ruling, has indicated it will continue to audit lenders, and is now seeking congressional assistance.
“Unless and until HUD provides more definitive guidance on the topic, MBA recommends that FHA lenders consult with legal counsel and consider carefully whether and when to participate in down payment assistance programs from HFAs that rely on premium pricing mechanisms,” the letter said. “MBA will continue to press HUD/FHA for clarity on this important issue.”
In a summary (http://mba.informz.net/MBA/data/images/HFA DPA Issue Brief 8 17 16.pdf), MBA noted over the past year, the OIG has taken the position in two published lender audits that some state and local HFAs down payment assistance arrangements that rely on “premium pricing” to fund the assistance violate the National Housing Act regarding prohibited sources of down payments.
The OIG has drawn parallels between these arrangements and the seller-funded down payment assistance programs that were the subject of so much controversy a few years ago, and the OIG has brought the matter to Congress in search of a resolution. However, a May 25 letter to the industry from Ed Golding, Principal Deputy Assistant Secretary for Housing and acting head of FHA, states that HUD rules allow state and local HFAs to provide down payment assistance funds to borrowers to help them make down payments on FHA loans.
In a July 26 letter to House Financial Services Committee Chairman Jeb Hensarling, R-Texas (http://financialservices.house.gov/uploadedfiles/igletterhensarling.pdf), the HUD OIG said this challenge calls into question the efficacy of the entire dispute resolution process for OIG audit findings.
As a result, MBA said, “the OIG action makes it very difficult for lenders to know how to comply with FHA rules and regulations to meet HUD’s compliance expectation.” MBA said despite HUD’s support for these programs, lenders participating in such programs could still be at risk for an OIG audit, at a minimum. “Other future enforcement actions cannot be ruled out,” MBA said.
“MBA urges the U.S. Department of Housing and Urban Development and the Federal Housing Administration to develop and publish authoritative guidelines for lenders participating in state and local housing finance agency down payment assistance programs that rely on premium pricing mechanisms to fund the assistance,” MBA said.
