HUD Agrees to Delay Implementation of New Rule Announced in Mortgagee Letter That Would Destroy Home-Purchasing Program of Utah-Based American Indian Band

For Immediate Release – April 24, 2019
Contact: Doug Elmets – 916-329-9180

View Press Release: Press Release On HUD Extension
WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) on Wednesday agreed to a stay of the effective date of Mortgagee Letter 19-06 for 90 days, in response to a federal court suit brought by the Cedar Band of Paiutes, the Cedar Band Corporation, and the CBC Mortgage Agency (CBCMA).  The announcement of the stay came two days after the initiation of the lawsuit.


CBCMA provides down payment assistance to borrowers who need help obtaining a home mortgage insured by the Federal Housing Administration (FHA).  Through its downpayment program, CBCMA has helped thousands of borrowers achieve the dream of homeownership.


Released last week, the Mortgagee Letter was characterized by HUD as an informal guidance document that merely clarified existing law governing the provision of down payment assistance. In fact, it announced a new rule that upended longstanding HUD policy, effectively outlawed CBCMA’s business, and created chaos for hundreds of borrowers suddenly threatened with the loss of the down payment help they need to close on their home purchase.


“The harm that HUD inflicted on CBCMA and the members of the Cedar Band with this administrative action is staggering,” said lead counsel Helgi C. Walker of Gibson Dunn & Crutcher LLP.  “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.”


Co-counsel Michelle L. Rogers of Buckley LLP added: “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.”  


The lawsuit, filed in U.S. District Court in Utah, sought an order immediately halting enforcement of the Mortgagee Letter on the grounds that it was adopted pursuant to an improper process and otherwise violates federal law.  Among other things, the letter was issued without prior notice and an opportunity to comment, and without legally-required consultation with affected American Indian tribes and bands.


“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 who serves on the board of Cedar Band Corporation, the parent of CBCMA. “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.”


HUD 90 Stay FAQ

  • Why did HUD issue Mortgagee Letter 2019-06?
    • HUD Stated they issued the letter out of concern to inordinate risks the MMIF Fund, averring that DPA provided by government entities were riskier and defaulted at a higher rate. However, HUD data shows that DPA from governmental entities performs on par (only very slightly higher default rates) with DPA from friends and family, which HUD as not indicated it intends to place restrictions on.

    • What new rules went into effect with the new Mortgagee Letter?
      • Several new rules went into effect with this Mortgagee Letter. While there is some confusion, it appears at least three things can be gleaned.  First, that any DPA provided must be provided by a government entity as defined by its jurisdiction. Second, A qualified attorney letter must be supplied affirming the DPA provided is within the government entity’s jurisdiction. Third: Government Entity DPA providers must not make the DPA conditional upon the sale or transfer of the 1st mortgage.

      • What impacts did this have new rule have on the marketplace?
        • This rule affected not only CBCMA, but also all providers of down payment assistance. For CBCMA, this confines the Chenoa Fund to only being available for its own tribal members or to reservation land. For other providers, given the immediate effectiveness of the Mortgagee letter, many are suspending their programs, as they struggle and attempt to find out how they comply with the rules. Borrowers are impacted who were approved for financing, but out shopping for homes, were suddenly impacted. Sudden substantive rule changes cause untold disruption to the market, and shake the faith of originators to engage in FHA lending.


        • How does the mortgagee letter affect CBCMA?
          • The harm that HUD has inflicted on CBCMA and the members of the Cedar Band with this administrative action is staggering.  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.  But now HUD has changed the rules without notice, throwing CBCMA and borrowers into a state of chaos. This rule effectively tells the Indians to stay on the reservation, in contravention to established law and 80 year history of tribal government operations off reservation in order to create economic development opportunities and lessen dependency upon the federal government. In addition, the rule inordinately affects minorities as 54% of the DPA provided by CBCMA is to minorities.

          • Why did CBCMA sue HUD?
            • While CBCMA certainly supports initiatives to manage risk to the MMIF, HUD has no data to show that limiting governmental down payment programs by jurisdiction will protect the fund. In addition, CBCMA has provided HUD with data demonstrating that its program, operating nationwide, performs better than the average governmental down payment assistance program.

            • Why do you think your lawsuit will be successful?
              • The Mortgagee Letter is the result of an improper process and violates federal law.  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.  HUD does not have the statutory authority to establish the rules contained in the Mortgagee Letter, and it infringed on our due process right to fair notice. 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.

              • Is there any news on the lawsuit?
                • Yes, on April 24, 2019, HUD agreed to issue a stay of 90 days for the effective date of the Mortgagee Letter. 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.

                • What does this mean for mortgage lenders?
                  • For at least the next 90 days, through July 23, 2019, all case numbers using Chenoa Fund DPA will still be insured. Lender can with confidence originate new loans relying on down payment assistance from Chenoa Fund, knowing that FHA will insure all loans that are issued an FHA case number on or before July 23, 2019. Lenders should use this time to urge their qualified borrowers who may be delaying purchase, to move ahead with the decision to buy. Whether this program will be available after July 24, 2019 will depend upon litigation.