On April 18, 2019, US Department of Housing and Urban Development (HUD) issued a clarification of interpretation letter to lenders; Mortgagee Letter 19-06.

The letter’s purpose was to clarify documentation requirements when a homebuyer is receiving down payment money from another person or entity.  It was immediately effective, referring to effective date for case numbers assigned on or after April 18, 2019.  HUD cited its responsibility to minimize risk by requiring the borrower to make a minimum cash investment when buying a property with FHA insured financing.  Since 2008, amidst a financial crisis that spawned the great recession, certain sources of funds were prohibited, because the programs seemed to have been created to sidestep FHA’s three percent down payment requirement. 

Housing Finance Agencies, which provide various services to assist their citizens attain affordable housing options, were still approved as a source of funds for this loan program.  In this newest letter, FHA specifically required that the governmental entity must demonstrate…”funds provided towards the Borrower’s MRI were funds legally belonging to the Governmental Entity and were provided in the … Entity’s governmental capacity in the jurisdiction in which the Property is located, or for the federally recognized Indian Tribe’s enrolled member, consistent with its down payment assistance program, at or before closing.”

According to the Cedar Band of Paiutes, the Cedar Band Corporation and the CBC Mortgage Agency, the new rules shut down their down payment assistance program, and they are suing HUD to overturn the rule change.  CBC Mortgage Agency earns money that goes to the Cedar Band, which uses the money for educational, cultural and economic programs  as well as to maintain the Cedar Band’s buildings on a reservation.  The Band claims the Mortgagee letter 19-06 is a drastic change in a longstanding HUD policy that outlaws all CBC Mortgage Agency business, and without advance notice, cut off many borrowers, who are now unable to close on their home purchase

Image by mastersenaiper from Pixabay

The group further claims that HUD issued the rules in violation of the law and outside its normal procedures for making rule changes of this type.  The group insists, “HUD released the letter without prior notice, without soliciting comment, without consulting with affected American Indian tribes and bands, and without gaining the approval of necessary executive branch officials, including the President.” 

Cedar Band’s lead counsel, Helgi Walker of Gibson Dunn & Crutcher, stated, “The harm that HUD has inflicted on CBCMA and the members of the Cedar Band with this administrative action is staggering.”

Therefore, the group has filed a complaint against HUD.