The Department of Housing and Urban Development has initiated a rulemaking process to crack down on downpayment assistance programs that have bolstered Federal Housing Administration single-family loan originations but also led to rising FHA defaults and foreclosures, according to the HUD inspector general."We are just happy that this thing is going forward on downpayment assistance," HUD IG Kenneth Donohue told MortgageWire. The HUD IG has been critical of the DA program for several years because it allows builders and sellers to funnel cash assistance through nonprofit groups to homebuyers. The sellers usually recoup the assistance through inflated property prices or fees. Mr. Donohue said he could not discuss specifics about the proposed rule, which is currently being reviewed by the White House Office of Management and Budget. However, the current DA program -- in the way it was designed and applied -- should be eliminated, Mr. Donohue said.

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