Neil Roland for Bloomberg recently reported that plans to cease a down payment assistance program have been blocked in federal court for now. Here is the full story are reported in the Charlotte Observer:
A federal court temporarily stopped the government from canceling a down-payment assistance program used by hundreds of thousands of low- and middle-income homebuyers.
The U.S. Department of Housing and Urban Development was set to end the decade-old program, saying it leads to higher prices and a disproportionate number of foreclosures. The program lets nonprofit organizations including AmeriDream Inc. and Nehemiah Corp. of America fund down payments and be reimbursed by the sellers of the homes.
“HUD failed to supply a reasoned analysis for its departure from its longstanding policy,” the U.S. District Court for the District of Columbia said Wednesday in ordering a preliminary injunction. The agency also “failed to consider reasonable proposed alternatives,” the court said.
Federal law forbids sellers from paying down payments for buyers who secure loans through the Federal Housing Administration. Down payments show that borrowers have savings. They also give buyers equity or a stake in the house.
For years, however, sellers have been able to get around the law by forwarding down-payment money through special nonprofits such as AmeriDream.
The Observer has found a high rate of foreclosure in FHA-backed loans in the Charlotte area, especially when those loans involved an arranged gift from a charity to cover a borrower’s down payment. The Observer reported in September that FHA loans accounted for almost a quarter of recent foreclosures in Mecklenburg County.
AmeriDream, based in Gaithersburg, Md., and other nonprofit organizations are seeking a permanent injunction to HUD’s rule banning seller-paid down-payment assistance. The court ordered these proceedings to continue.
“We intend to abide by the court’s decision,” HUD spokesman Stephen O’Halloran said in a statement. He declined to say whether the government would appeal.
HUD’s decision to cancel the program, ordered Oct. 1, was to take effect Wednesday. The program was used by more than 100,000 consumers last year and accounted for a third of FHA-insured loans.
