The U.S. Department of Housing and Urban Development (HUD) recently announced a plan to eliminate the organization's privately funded down-payment assistance (DPA) program for loans insured by the Federal Housing Administration (FHA) because research reveals that homeowners receiving down-payment aid are more likely to default on mortgage loans. HUD's decision has sparked opposition from politicians, special interest groups, and nonprofit organizations that provide down-payment assistance. Two of the nonprofits, The Nehemiah Corp. of America and AmeriDream, filed lawsuits on Monday challenging HUD's ruling.

The Nehemiah Corp., which says its has helped more than 230,000 low-income and minority home buyers, filed an injunction in federal court in Sacramento, Calif. AmeriDream, a nonprofit that has made $726 million worth of down-payment gifts since 1999, filed a similar suit in a U.S. District Court in Washington, D.C. Both companies say HUD has forgotten that more than 600,000 families have benefited from the assistance program.

"HUD's action makes no sense," says Ann Ashburn, president of AmeriDream. "DPA programs work, and work well, having provided critical assistance to over one million individuals and families in the past few years to buy their own homes, some 80 percent of whom for the first time, facts which HUD does not dispute. By challenging HUD in court, we will fight to continue to help low- and moderate-income families achieve the American dream of homeownership."

During a Tuesday morning teleconference, Nehemiah CEO Scott Syphax echoed similar sentiments to Ashburn's comments.

"We find it absolutely incredible that HUD would take this action while Congress is still debating this subject," he said. "This particular rule could not happen at a worse time for working families and for the economy itself. Over 10,000 homeowners are created every month utilizing this program - those people immediately will no longer be served."

The DPA program allows a nonprofit organization to provide a financial gift to a home buyer to use for a down payment. Current law requires home buyers seeking FHA loans to make at least a 3 percent down payment on their homes, but permits them to receive some or all of that amount as gifts from charities.

In a press statement, Ashburn charged HUD of ignoring attempts to find a middle ground concerning DPA programs.

"We are all for making sure that our down-payment assistance programs work precisely the way they should and help the people they are supposed to help," said Ashburn, "and we have pleaded to work with HUD to achieve that goal. But they have repeatedly refused to meet with us and other charities and ignored our written submissions. Instead, they have sought to shut down charities that are providing crucial help to many minority, first-time, low-income, or single-parent home buyers. It's just crazy."

Lemar Wooley, a public affairs specialist, says HUD is not commenting in detail on the pending lawsuits.

"As this matter is currently in litigation, it would not be appropriate for us to comment further, other than to restate HUD General Counsel Robert Couch's statement that 'we will vigorously defend any lawsuit,'" Wooley told BUILDER Online.

HUD's recent ban is not the first time it has tried to eliminate the program. It also tried to ban private down-payment assistance in 1999. At the time, HUD received 1,800 letters in opposition, and only 23 in support.

According to Federal Housing Administration Commissioner Brian Montgomery, the current ban is centered on two issues:

  • HUD wants to stop a practice that often causes the most vulnerable of home buyers to go into default, and, in many cases, lose their home.
  • HUD wants to prevent any more of these poorly performing loans from entering the FHA portfolio and impacting the soundness of the FHA insurance fund.

Since HUD's announcement, support has poured in for DPA programs. The National Association of Counties passed a resolution that calls the program an "important tool for families seeking the dream of homeownership." In addition, the U.S. Conference of Mayors considers HUD's action to ban privately funded DPA programs to be "not only outrageous, but potentially devastating."
In a joint statement, U.S. Representatives Gary G. Miller (R-Calif.), Maxine Waters (D-Calif.), and Al Green (D-Texas) issued the following: "This rule would effectively eliminate many legitimate down-payment assistance programs. If there are concerns with certain down-payment assistance providers, HUD should address these individual providers and put the controls in place to weed out the bad actors, rather than completely eliminating a program that has successfully expanded homeownership opportunities for millions of families."

HUD's ban of DPA programs is scheduled to take effect on Oct. 31.

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