In a brief Mortgagee Letter (ML), 2019-12, issued mid-month by the Department of Housing and Urban Development, HUD effectively rescinded their previous letter on revised down payment assistance, 2019-06: Downpayment Assistance and Operating in a Governmental Capacity, as well as 2019-07: Extension of the Effective Date of ML 2019-06, and 2019-10: Suspension of the Effective Date of ML 2019-06. QMS offered insight on the issues tied to the original Mortgagee Letter in our earlier blog posted in mid-July.
The subject of downpayment assistance (DPA) first came to light in April of this year when HUD announced in ML 2019-06 that they were issuing new documentation rules in this area, pointing a finger at governmental entities. HUD referred to these new rules as clarification versus regulation, which is where the concerns began. There were multiple obstacles created by the approach HUD used to disseminate these rules, as well as potential the impact on our industry as follows:
APA GUIDELINE INFRINGEMENT
HUD pushed on the boundaries of the Administrative Procedure Act (APA) requirements when they opted to circumvent required processes for implementing new rules. ML 2019-06 was issued without the required APA comment and review period, and went into effect on the very same date that the ML was issued.
GOVERNMENTAL ENTITY DEFINITION & CAPACITY
The documentation requirement in the original Mortgagee Letter brought into question the very definition of “Governmental Entity” by calling for documentation that blurred the lines of operational capacity and jurisdictional responsibility for these entities, with a direct impact on American Indian tribes.
INCREASED COST TO ACCESS DPA PROGRAMS
With downpayment assistance programs designed to assist low-to-moderate income and underserved borrowers, any additional cost can threaten the prospect of homeownership. The suggested documentation requirements could have brought a hefty increase in attorney fees for jurisdictional and capacity approvals.
ACCESS TO FUNDS AT TIME OF SETTLEMENT
Last but not least, the very nature of the process changes would seemingly unravel the current funding process used by nearly all Governmental Entities, including Housing Finance Agencies (HFA), when aggregating loans. The ML would hinder and possibly eliminate means for generating DPA monies and impair access to funds needed at time of closing. Although the rescission of ML 2019-06 seemingly indicates that the aforementioned issues are in the past, there is no guarantee that this is the case. For one, there is a 30 day Public Feedback timeframe, which could lead to further discussions on this topic, or HUD can resurrect the ruling at a later date. Additionally, the rescission was not HUD’s desired path, rather it stemmed from the US District Court in Utah’s ruling to grant an injunction that delayed HUD’s implementation of the Mortgagee Letter.
As our industry continues to evolve through legislation and agency guidelines, it’s important to partner with vendors that understand the nuances and their impact. QMS is a long-standing provider of quality control audits and reviews that has grown our processes, technology offering, and our expertise alongside of the mortgage industry. We understand where the business has come from and where we’re going. Most importantly, we focus on supporting your culture and processes within the confines of regulatory change.
Contact us today at 615.591.2528, or www.QCMortgage.com to revisit the benefits of working with a long-standing industry QC partner.