As we quickly approach the extended deadline of July 23 for Mortgagee Letter 2019-06, granted in ML 2019-07, one can’t help but wonder what the outcome will be. The original Mortgagee Letter issued by the U.S. Department of Housing and Urban Development (HUD) on April 18 threatens to eliminate down payment assistance (DPA) offered by various Governmental Entities, including housing finance agencies (HFAs), and other state and local housing programs that support low-to-moderate income or underserved markets.
Governmental entities serving these markets provide all or part of the Minimum Required Investment (MRI), which is the down payment component of FHA loans, through special programs designed to increase access to homeownership.The ML seeks to add additional requirements to the provision of down payment assistance that would make it extremely difficult for Governmental Entities to fund the corresponding loans, subjecting them to losses, and also increasing costs for the homebuyer.
In a letter to HUD dated June 24, the Mortgage Bankers Association (MBA), National Association of Local Housing Finance Agencies (NALHFA), and National Council of State Housing Agencies NCSHA), joined together to seek clarification on the DPA eligibility requirements under the ML.This communication focuses on language that appears to prohibit the commonly used practice whereby HFAs and other Governmental Entities use a process similar to a sales contingency on the first mortgage to facilitate funding commitment.A mouthful, yes, but this aspect of DPA programs helps ensure straight-forward delivery of the loans for eligibility and securitization, as well as creating a means for raising monies to fund DPA.
At a higher level the broad implications of this ML fall into four major areas of concern for the industry by potentially:
Bypassing government rule-making protocol by violating Administrative Procedure Act (APA) requirements for amending or repealing existing rules.
Redefining government entity and capacity to the extent that underserved minority and low-income homebuyers, including American Indians, will be denied access to down payment assistance (DPA) programs outside of their primary jurisdiction or locality.
Significantly increasing closing costs on DPA, as well as Housing Finance Agency (HFA), programs by demanding legal opinions and other documentation not previously required.
Adding funding transfer practices that prohibit the ability to provide DPA monies at time of loan closing, effectively shutting off access to these programs.
It’s important that industry players support the efforts of the MBA and other trade associations to ensure ML 2019-06 is implemented as a proper rule with clear direction and avoidance of unnecessary costs or impact to underserved homebuyers.MBA efforts on The Hill can be supported through the Mortgage Action Alliance (MAA), which does not require MBA membership but supports a unified industry voice.
There is not a lot of time left to step up and have your voice heard, and although some state and local Governmental Entities are readying for possible change, many other DPA programs are preparing for shut down. To learn more about this important issue, you can contact us for a copy of our white paper, “Do you know how HUD Mortgagee Letter 2019-06 could impact your lending practices?” by emailing QMS Owner and Chief, Tommy A. Duncan, at taduncan@qcmortgage.com.
Quality Mortgage Services (QMS) is an active MBA member that values our customers and honors their needs.To that end, we strive to offer thought leadership and guidance on issues that impact homeownership and diversity in lending to help support the ongoing evolution of our industry. In this scenario, as with other aspects of regulatory change, lenders and servicers need to be cognizant of areas that will require special review and audit. QMS is here to help you ensure loan quality and risk mitigation, so your leadership team can focus on strategic foresight, technology innovation and competitive market share. Our unique set of solutions includes professional quality control and audit support, including pre-funding, pre-purchase due diligence, post-closing and early payment default, as well as numerous other tools and audits in the QMS suite.Visit us at www.qcmortgage.com to see how our team can help you navigate ongoing industry change and empower your organization.