The Department of Housing and Urban Development issued a notice to lenders Tuesday announcing the formal suspension of its rule change to down payment assistance guidelines.
According to the bulletin, HUD is halting the effective date of a mortgagee letter it issued in April that provided clarification to the documentation needed to qualify for down payment assistance on loans backed by the Federal Housing Administration, suspending the guidance “until further notice.”
HUD’s move is a reaction to a ruling this week made by a federal judge in Utah, which ordered the suspension of the program until its legality is determined as part of a lawsuit between HUD and a Utah-based Native American tribe.
The lawsuit was filed against HUD on behalf of the Cedar Band of Paiutes, a federally recognized American Indian band that operates the Cedar Band Corp. and the CBC Mortgage Agency.
It held that what HUD labeled as merely “informal guidance” to clarify down payment assistance rules would effectively put its down payment assistance program out of business.
According to the suit, HUD’s new guidance “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.”
The lawsuit sought an order to immediately halt the policy’s enforcement on the grounds that it was adopted without issuing proper notice and opportunity for comment, and that it stands in violation of federal law.
Immediately following the suit’s filing, HUD issued a 90-day stay to review the policy in light of the Cedar Band’s claims.
Then, this week, a Utah judge ordered that stay be extended until the case was hashed out in court, a move HUD acknowledged in Tuesday’s letter to lenders.