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HUD formally suspends downpayment documentation rule

The U.S. Department of Housing and Urban Development (HUD) has formally suspended a previously announced rule change that required extra documentation for downpayment assistance.

HUDThe controversial regulation was first announced this past April and required new documentation for Federal Housing Administration (FHA) borrowers receiving downpayment assistance. FHA rules require borrowers to provide a minimum of 3.5% down. Assistance from outside entities like family members and government agencies for this downpayment is a common practice, but HUD’s new rule sought to reassert a requirement that government agencies only offer such assistance within a certain geographic range. Per the rule, government-affiliated groups would have been required to show documentation that properties set to receive downpayment assistance were within their jurisdiction. 

The new rule immediately came under fire from organizations such as the Cedar Band of Paiutes. The group is a Utah tribe that manages the Chenoa Fund, an affordable-housing program that provides downpayment assistance nationwide. The tribe claimed that the new rule was discriminatory (the Paiutes estimate that some 50% of Chenoa Fund clients are minorities) and sued HUD to cease enforcement. In response, HUD issued a 90-day stay to the regulation.

Earlier this week, the rule suffered a blow in court when a Utah judge granted a motion to delay its implementation until the Cedar Band of Paiutes’ lawsuit could be decided. Now, HUD is suspending the rule change “until further notice,” according to a recent letter to lenders.

That’s good news for entities like the Paiutes, which celebrated the initial judicial ruling by not only reiterating its discrimination claim but also charging HUD of not looking after the mortgage industry’s best interests.

“We are pleased with the outcome,” Michelle Rogers, co-counsel for the Cedar Band of Paiutes, said earlier this week. “The Mortgagee Letter's immediate and harmful impact on not just our clients, but also borrowers and the industry, highlights the scope of the agency's overreach and the significance of today's decision.”


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