With COVID-19 flattening the U.S. economy into a bleak and colorless landscape for prospective first-time buyers to navigate, it seems an odd time for the Department of Housing and Development to move forward in their efforts to shut down national down payment assistance plans.
But that’s precisely what’s happening, according to CBC Mortgage Agency president Richard Ferguson.
“It’s really quite troubling,” he says.
HUD has been a vocal opponent of national down payment programs since the 2008 financial meltdown, for which the Department laid some of the blame on the once widespread practice of seller-funded down payment assistance. Ferguson explains that rather than actually providing funds for buyers, sellers were more often in the habit of raising the asking price of their properties and funnelling the proceeds back to buyers through the aid of a non-profit. The inflated prices meant countless buyers wound up purchasing homes that were overvalued shortly before the housing market fell off a cliff and hit every crag on the way down.
“They see a company like Chenoa Fund,” CBC’s down payment assistance program, “and they start to get just a little worried that national down payment assistance programs could have the same kind of affect that they had in 2008,” Ferguson says. “But down payment assistance isn’t what it was 12 years ago.”
Still, HUD has remained active over the past year in trying to eliminate the viability of programs like the Chenoa Fund. Circa Easter 2019, the Department attempted to implement a rule that would have spelled the end of such national DPA programs. Fortunately for Ferguson and CBC, the rule was so poorly worded that, if it had been implemented, it would have also prevented individual states from providing down payment assistance.
“We immediately followed suit,” says Ferguson. “It was an easy win.”
But HUD has gone back to the drawing board. Ferguson says the Department is attempting to craft a rule that would limit a government entity like the Chenoa Fund to lending within its jurisdiction. Because CBC is a native entity operating on tribal land in Utah, HUD may be hoping the courts limit the Chenoa Fund’s reach to its tribal boundaries.
As far as legal arguments go, it’s not exactly foolproof.
“What HUD’s not recognizing is that the federal government bureau that gave us our charter, the Bureau of Indian Affairs, actually stated that we have the ability to provide down payment assistance or operate nationally,” Ferguson says. Any rule in contravention of that charter would likely be thrown out in court.
HUD declined involvement in this story, so questions around why shutting down national DPA programs remains a priority when 30 million Americans are out of work will have to be left unanswered.
Ferguson believes such programs are more necessary now than ever. Originators, because of the rapidly changing rules and lending standards that COVID-19 has triggered at the state level – not to mention the murk forbearances add to the equation – are growing increasingly wary of providing down payment assistance to borrowers whose loans may not be able to be sold to state housing agencies.
“FHFA would be well served by allowing a national provider of down payment assistance to provide a countercyclical balance to what they states are forced to do when these market issues happen,” he says. “We’re actually saving a lot of deals that the states are no longer accepting because they’ve raised credit requirements or lowered DTI or changed pricing.”
Reducing the amount of DAP available in the market seems like a curious move for a department whose mandate is “to create strong, sustainable, inclusive communities and quality affordable homes for all”. Ferguson feels homeownership is one of the most effective ways of addressing the widening wealth gap that exists in the U.S., and that HUD’s attempt to cripple programs like the Chenoa Fund will fuel further inequality.
“If these down payment assistance programs go away, most of the minorities that are reliant on these programs will be shut out of the market and will be forced to be a permanent renting underclass,” he says.
The Chenoa Fund assists approximately 7,000 homeowners every year.
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