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By G. Steven Bray
The government is having fits of schizophrenia again. On the one hand, it’s easing loan standards to promote homeownership. On the other hand, it wants to eliminate a popular down payment assistance program.
A number of down payment assistance (DPA) programs, including the state’s My First Texas Home program, use so-called premium pricing to fund them, and the HUD Inspector General has raised concerns about it. The programs grant a homebuyer down payment funds in exchange for an above-market interest rate. The higher rate makes the loan more attractive to investors, and they pay a premium for it, and that premium is what is used to fund the grant.
For FHA loans, federal loan guidelines seem to prohibit such a practice. The IG’s office wrote, “The funds derived from a premium priced mortgage may never be used to pay any portion of the borrower’s down payment.” However, a recent memorandum by HUD’s General Counsel contradicts that saying HUD changed its standards in 2013 and no longer prohibits the practice.
At this point, HUD is studying the issue, leaving the programs in limbo. Many lenders are refusing to participate in the programs until HUD takes its meds.