Ed Golding, Principal Deputy Assistant Secretary for Housing and Head of the FHA, (that’s what it says on his letterhead), issued an informal letter (The Letter) to all FHA lenders on the acceptance of Housing Finance Agency (HFA) down payment assistance programs. Everybody rejoiced.
Seems FHA had put to bed the industry’s concerns resulting from actions taken by DOJ against a lender for participating in such a program. But, things are never that simple when the government is involved. DOJ fired back saying that they do not accept the letter and are continuing their action against the lender involved and may have other actions in the works as well.
Here’s the rub, as I see it. FHA allows down payment assistance to come from an authorized source. A housing finance agency participating in such programs is considered an authorized source. However, FHA also says that no part of the down payment assistance may be financed in the FHA insured loan.
As I understand it, the lender involved that started this whole mess was charging a higher rate to pay for the cost of the down payment assistance. So, indirectly the cost of the down payment assistance was being financed through the FHA insured loan. That may be considered a violation. The courts may have to decide.
MBA advises lenders to tread very carefully on this issue, and I wholeheartedly agree. The letter issued by Mr. Golding is not official commentary (kind of like those letters that CFPB put out on TRID). So, the ground on which a lender may stand in defending the use of such program where the interest rate is increased to pay its cost is still a little shaky.
I’d be very careful if venturing out onto this ground.