FHA And HUD-OIG Duke It Out Over Legitimacy Of Down Payment Programs


FHA is expected to rebuff a report from the Office of the Inspector General of HUD that heavily criticized down payment programs and questioning why low-income borrowers are charged higher interest rates for FHA loans that utilize down payment assistance.

The HUD-OIG took issue in a report earlier last month with the so-called “premium pricing” of two down payment programs in Arizona.

HUD-OIG alleged that NOVA Financial & Investment, a Tucson, Ariz.-based mortgage lender, violated HUD rules by charging borrowers higher mortgage rates in return for assistance. It also alleged the lender failed to conduct proper due diligence on the non-profit government housing finance agencies that administer the down payment assistance programs. It now wants the lender to indemnify up to $48.5 million, depending on defaults, for 709 loans.

HUD-OIG told Kate Berry and Brian Collins at National Mortgage News, “The gifts were not true gifts as defined by HUD. To be considered a gift…there must be no expected or implied repayment of the funds to the donor by the borrower.”

NOVA’s attorney denies the allegations and claims that FHA sets the interest rate on down payment programs

But the report has raised fears among lenders, who fear they may have to indemnify FHA for past loans and if that happens they will have to shut their doors.

Meanwhile, state or locally-chartered housing finance agencies created by governments to meet affordable housing needs, fear their programs will be restructured or potentially eliminated altogether even though their business models have been HUD approved for more than 20 years.

Pete Mills, a senior vice president at the Mortgage Bankers Association told National Mortgage News, “This dispute has created a lot of uncertainty around these programs and each lender is going to have to make their own assessment as to the risk of continuing to participate in these programs.” 


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