The HUD Office of Inspector General (OIG) released OIG Audit Report 2015-LA-1005 on June 9, 2016, that states loans that included down payment assistance programs from state housing agencies did not comply with HUD regulations. Specifically, the HUD OIG’s audit found a private lender’s participation in single-family housing programs conducted by a state agency was in violation of HUD lending guidelines for two main reasons: 1) the down payment assistance is derived from a “premium priced mortgage;” and 2) borrowers are making a “repayment” of the down payment assistance grant through an above-market mortgage loan rate.

On the other hand, Edward Golding, Principal Deputy Assistant Secretary for Housing and Head of the FHA, recently issued a press release detailing “FHA’s support of certain down payment assistance programs, like those run by state housing finance agencies.” Additional releases as recent as May 25, 2016, stated “that loans that include down payment assistance provided by state and local housing finance agencies continue to be eligible for FHA insurance. After conducting a thorough and deliberative process, HUD has determined that housing finance agency down payment assistance programs are legal and consistent with the National Housing Act. Government entities may provide funds to borrowers to help make down payments on FHA loans.”

HUD’s OIG Inspector has continued to disagree with FHA’s decision and states that an audit of a lender is currently underway related to a similar down payment assistance program.

Golding’s press releases provide little relief from the time and costs lenders must spend if they are subject to an OIG Audit. Any lender participating in such program should evaluate their participation.