The Federal Housing Administration (FHA) announced the extension of the effective date regarding documentation requirements for FHA loans with borrower downpayment assistance provided by a governmental entity, FHA announced in a press release.
The guidance is set to apply to all loans with FHA case numbers assigned on or after July 23, 2019, rather than the originally published date of April 18, 2019. FHA states that this extension will permit time for governmental entities to prepare the documentation described.
On April 18, FHA set forth specific documentation requirements for FHA loans where a governmental entity is providing downpayment assistance (DPA) that is part of the borrower’s Minimum Required Investment (MRI).
“Officially, these requirements clarify existing U.S. Department of Housing & Urban Development (HUD) policy, but as a practical matter, they significantly limit the ability of ‘governmental entities’ to provide downpayment assistance that covers all or part of the borrower’s minimum required investment (MRI),” FHA said. “At least one legal challenge to the mortgagee letter was filed, which resulted in HUD agreeing to delay the effective date, which has now been formalized, as noted above.”
The main changes announced in the mortgagee letter concern:
- The geographic scope of the downpayment assistance that governmental entities can provide;
- The documentation that a mortgagee must collect to document that the DPA is from a permissible source; and
- Limitations on the ability of the governmental entity to recoup the funds that it uses to fund the DPA.
“In terms of geographic scope, HUD will require governmental entities to be a federal, state, or local government, or an agency or instrumentality thereof, ‘within the jurisdiction, in which the property is located,’ ” the release said. “HUD will further permit federally recognized Indian Tribes to provide DPA only when ‘operated on tribal land in which the property is located or to enrolled members of the tribe.’ HUD has expressed informally for some time that a governmental entity must operate with the authorization of the jurisdiction in which it is providing DPA — this formalizes and expands that restriction.”