HUD Says No to DPA

The Department of Housing and Urban Development is sticking to its guns regarding downpayment assistance on Federal Housing Administration-insured mortgages.Despite some congressional opposition, not to mention cries of foul from DPA providers, the agency will publish a controversial final rule Oct. 1 that will bar anyone who has a financial stake in the transaction from providing buyers with cash for a downpayment, even if they give the money to third-party nonprofit organizations that funnel it to buyers. The House recently passed an FHA reform bill that would set new standards for DPA, including a requirement that nonprofits have a net worth of at least $4 million. But the Senate Finance Committee's version of the reform package prohibits DPA. Sources at HUD, who used the term "collusion" and maintained that the funds are not really a gift because sellers tack on the amount to their asking price, said "we are putting out a final rule that would no longer permit seller-financed downpayment assistance for FHA loans." The agency says the default rate of these loans is almost three times that of other FHA loans. Last year, the Internal Revenue Service ruled that the "self-serving, circular financing arrangements" HUD is trying to stop are not charitable operations.