Last week, the Department of Housing and Urban Development announced it was issuing new rules for down payment assistance on mortgages backed by the Federal Housing Administration.
According to HUD and the FHA, the new rules were meant to provide clarity around what documentation would be required for borrowers who are using funds from another person or entity to cover part of the FHA’s minimum down payment requirement of 3.5%.
But, according to one group, those rules do much more than that. In fact, the Cedar Band of Paiutes, the Cedar Band Corporation, and the CBC Mortgage Agency claim that the new rules effectively put their down payment assistance program out of business.
And now, the group is suing HUD to get the rule change overturned.
The Cedar Band of Paiutes is a federally recognized American Indian band that operates the Cedar Band Corp., a band corporation chartered by the Department of the Interior.
The Cedar Band Corp. operates the CBC Mortgage Agency, which provides down payment assistance to borrowers nationwide through its Chenoa Fund.
Through its programs, CBC Mortgage Agency earns money that goes to the Cedar Band, which uses the money to fund economic, cultural, and educational programs, and maintain the Cedar Band’s buildings on a reservation.
But the Cedar Band group claims that HUD’s new rules are not the “informal guidance” they appear to be. Rather, the group claims that the rules will lead to the “unlawful destruction” of its down payment assistance program and the end of CBC Mortgage Agency’s business.
“In fact, the Mortgagee Letter represents a radical shift in longstanding HUD policy that effectively outlaws CBCMA’s business and pulls the rug out from under many borrowers, who now will be unable to close on their home purchase,” the group claims.
According to the group, HUD’s letter on the new rules “prohibits national housing finance agencies owned by Native American tribes from providing down payment assistance to anyone except tribal members purchasing properties on their own reservation,” adding the restriction “effectively puts such organizations out of business immediately.”
The group claims that HUD issued the rules both in violation of the law and outside its normal procedures for making rule changes of this type.
“HUD released the letter without prior notice, without soliciting comment, without consulting with affected American Indian tribes and bands, and without gaining the approval of necessary executive branch officials, including the President,” the group stated.
“HUD does not have the statutory authority to establish the rules contained in the Mortgagee Letter, and it infringed Plaintiffs’ due process right to fair notice,” the group continued. “The Mortgagee Letter also encroaches on tribal sovereignty and contradicts the established federal policy of promoting the economic development of American Indian tribes and bands.”
The group claims that HUD’s move “unlawfully targets American Indian tribes and bands by prohibiting them from participating in home-purchasing assistance programs and thus threatens a critical source of revenue for the Cedar Band.”
And therefore, the group is suing HUD.
“The harm that HUD has inflicted on CBCMA and the members of the Cedar Band with this administrative action is staggering,” the group’s lead counsel, Helgi Walker of Gibson Dunn & Crutcher, said in a statement.
“CBCMA has operated as a governmental provider of down payment assistance for years, indeed pursuant to regulations that expressly allow tribes to provide down payment assistance,” Walker continued. “But now HUD has changed the rules without notice, throwing CBCMA and borrowers into a state of chaos. We intend to rectify this unlawful agency action and vindicate our client’s legal rights.”
The group said that it plans to continue fighting and believes a court will strike down the rule changes.
“Mortgagee Letter 19-06 is an effort to force American Indians back onto the reservation,” the group said. “The Cedar Band of Paiutes, Cedar Band Corporation, and CBCMA are confident that the court will swiftly put this unlawful, unconstitutional, and discriminatory action on hold and ultimately strike it down permanently. The Cedar Band and its subsidiary corporations strongly urge HUD to do the right thing and withdraw the Mortgagee Letter.”