The department has hit the breaks on the rule after backlash
The US Department of Housing and Urban Development (HUD) has agreed to delay the implementation of new rules that would prohibit Native American groups from participating in home-purchasing programs.
The HUD pushed back the effective date of Mortgagee Letter 19-06 for 90 days after the Cedar Band of Paiutes, a federally recognized American Indian group that operates the Cedar Band Corporation and CBC Mortgage Agency, filed a federal court suit in the US District Court in Utah.
The Mortgagee Letter is an informal guidance document that intends to clarify current law governing the provision of down payment assistance for loans backed by the Federal Housing Administration, according to the HUD. But CBCMA said the new set of rules would bar its business, which provides down-payment assistance to borrowers obtaining FHA-insured home mortgages.
"The harm that HUD inflicted on CBCMA and the members of the Cedar Band with this administrative action is staggering," said Helgi Walker, lead counsel with law firm Gibson Dunn & Crutcher. "We are pleased that the government understood the need to hit the pause button and return to the status quo for a period of time. We remain confident that we will prevail in permanently rectifying this unlawful agency action."
"Staying the effectiveness of the Mortgagee Letter will help the borrowers harmed by this action, the other government entities placed in limbo through its publication, and the industry as a whole by providing greater certainty while this matter is litigated," attorney Michelle Rogers said.
The lawsuit called for an order to freeze the enforcement of the Mortgagee Letter on the grounds that it was adopted without prior notice, an opportunity to comment, and without legally required consultation with affected Native American tribes and bands, violating federal law.
"We understand that HUD officials must balance protection of the Mutual Mortgage Insurance Fund (MMIF) with its mission of helping low- to moderate-income families fulfill their dream of homeownership," said Bobby Rowser, a member of the Cedar Band of Paiutes. "However, limiting the Band to the reservation does nothing to lower defaults on FHA mortgages. We urge HUD to seek for and evaluate public commentary and data, prior to implementing policy changes."