Nonprofit’s Sue HUD for Barring Them From Providing Down Payment Assistance

Reaction was swift to the HUD ruling yesterday to bar nonprofit’s from helping homeowners with down payment assistance on the FHA program. AmeriDream and Nehemiah Corp. of America have filed a suit.  Below is a section about Nehemiah’s complaint reported at the Sacramento Bee:

Nehemiah, which says its down-payment program has helped some 230,000 low-income and minority homebuyers, sued the U.S. Department of Housing and Urban Development on Sunday in U.S. District Court in Sacramento, seeking a court order overturning the ban. A Maryland nonprofit that offers a similar program announced its own suit against HUD.

Below is a section of the press release from AmeriDream:

Gaithersburg, MD — AmeriDream, Inc., a 501(c)(3) charitable entity dedicated to helping low and moderate income families purchase their own homes, announced today that it has filed suit to block a regulation issued by the Department of Housing and Urban Development (HUD) which seeks to terminate successful down payment assistance (DPA) programs sponsored by AmeriDream and other charities.

We’ll see how this develops.

Killing the FHA Program

For a few years now the IRS has had issue with down payment assistance programs which borrowers use to meet the 3% required down payment on a FHA loan. Basically, the IRS doesn’t think these assistance programs are non-profits. Since FHA only allows non-profits to contribute towards this 3% the whole thing falls apart if the IRS strips them of their non-profit status.

Today the FHA announced that it will prohibit borrowers from using seller-financed down payment assistance programs.

WASHINGTON — 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 then give down payment assistance to buyers. The sellers pay the charities a service fee, then 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 study by the Government Accountability Office.

Inflating the price is bad, however, this isn’t easily done in todays market and appropriate safeguards are already in place. Furthermore, the seller (if accepting an offer from a FHA borrower) needs to understand that they will need to give 3% from their proceeds towards down payment assistance. If they choose to do so then the loan should move forward.

Talk about bad timing. Since the collapse of the subprime market FHA has seen a resurgence in the past few months. This new ruling will essentially kill the FHA program for now and will make the housing market worse. I can understand greater scrutiny, but to freeze out all these assistance programs in one big swoop doesn’t sound right. Isn’t there a better way?

The Feds Finally Turn on the Radio

Old Radio SetThey may be listening to your phone calls, reading your e-mails and peeking into your shoes at the airport, but the Feds apparently never listened to the radio. Well, they just tuned in and heard something they didn’t like. Yesterday the FTC issued a warning to lenders claiming those ridiculously low interest rate programs.  You know the one where the guy says stuff like: “Rates just fell to 1.25%, you could save thousands” and the like.

I wonder when the Fed’s will get on the Internet and see the low mortgage rate ads, which shows a $400 payment for a $500,000 mortgage with no corresponding APR disclosure? Or, something like that.

Here is an excerpt from the FTC statement issued yesterday:

The Federal Trade Commission is warning mortgage brokers and lenders, and media outlets that carry their advertisements for home mortgages, that some of the advertising claims currently appearing in Web sites, newspapers, magazines, direct mail, and unsolicited e-mail and faxes may violate federal law.

“Many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story – for example, that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “Home ownership is the American dream, but it can become a nightmare for consumers who don’t have the information they need to understand the terms of their mortgage.”

Read the full statement here.

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