HUD to Investigate Down Payment Assistance Program Practices

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The Department of Housing and Urban Development appears to be trying to resolve a feud between the agency and its inspector general over whether Federal Housing Administration lenders are ignoring guidelines on down payment assistance programs.

The HUD IG claimed last year that under some downpayment assistance programs, FHA lenders are charging so-called premium pricing under which low- and moderate-income homebuyers pay a slightly higher interest rate.

HUD initially responded by downplaying those findings, sparking a disagreement between it and the IG. But in a statement on July 18, Nani Coloretti, a deputy HUD secretary, said that the department is now conducting its own investigation into issues raised by the IG's auditors.

"HUD will separately look into any inappropriate practices, some examples include: the extent to which government-sponsored down payment assistance programs fully informed borrowers of the loan terms, or imposed inappropriate fees or costs, or enabled steering or any other coercion of borrowers," Coloretti says in a note to FHA lenders.

The statement doesn't explicitly mention premium pricing and Coloretti reaffirmed HUD's support for down payment assistance programs.

"HUD reiterates that the department is supportive of government-sponsored DPA Programs. They enable access to credit that allows American families to purchase homes," she said in the note.

The National Association of Local Housing Finance Agencies welcomed HUD's statement.

"I believe the most important takeaway from the notice is HUD and FHA reiteration of strong support for Housing Finance Agency down payment assistance programs," said Jason Boehlert, NALHFA executive director.

He stressed that the association's members take their compliance responsibilities very seriously.

"Local HFA-sponsored DPA programs operate in a transparent fashion with the highest levels of due diligence, and welcome any opportunity to underscore their superior levels of consumer commitment and regulatory compliance," Boehlert said in a statement Wednesday.

The HUD Office of Inspector General did not respond to requests for comment.

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