October 3, 2007 | Read Time: 2 minutes
A decision this week by the U.S. Department of Housing and Urban Development to ban nonprofit housing programs from giving down-payment assistance to home buyers has sparked a federal lawsuit from two nonprofit groups that are looking to preserve the practice.
Ameridream, of Gaithersburg, Md., and Nehemiah Corporation of America, in Sacramento, this week filed lawsuits at the U.S. District Court in Washington to block the HUD rule, which is scheduled to take effect Nov. 1. The HUD law applies to mortgages that are insured by the Federal Housing Administration.
In its suit, Ameridream claims such programs have helped more than 1 million people buy homes and that roughly 80 percent of those sales were to first-time home buyers.
The ban would place obstacles in front of the low-income, first-time, and minority home buyers HUD is seeking to protect, Ameridream contends.
“By limiting the financing choices that these borrowers have, many will choose other options, such as subprime loans,” Ameridream said in its lawsuit. “Since delinquency and foreclosure rates for subprime loans do not compare favorably to those of [the Federal Housing Administration], these choices are not optimal.”
HUD, in its rule, said many transactions that take place through down-payment-assistance programs are nothing more than pass-throughs from the seller to the buyer.
Often, a nonprofit group that provides down-payment assistance to a home buyer receives money from the seller in the form of a charitable contribution. The price of that gift is then built into the sale price of the home.
“In these cases, there is a clear quid pro quo between the home buyer’s purchase of the property and the seller’s ‘contribution’ or payment to the charitable organization,” HUD said.
