Toomey Demands HUD Follow the Law on Down Payment Assistance to Homebuyers
Requests HUD, OIG briefing on “inaction and refusal” to stop circular funding schemes
Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) is demanding the Department of Housing and Urban Development (HUD) follow federal law on down payment requirements meant to safeguard taxpayer dollars and protect borrowers from overpaying for HUD-financed homes.
In
a letter
to HUD Secretary Marcia Fudge and HUD Inspector General Rae Oliver Davis,
Ranking Member Toomey wrote:
“Even though Congress passed
legislation to eliminate all harmful circular funding schemes, they still
continue to operate because of HUD’s inaction and refusal to see parallels
between schemes of today and those of the past.”
While
HUD’s Federal Housing Administration (FHA) loans require borrowers to put 3.5%
down when purchasing a home, the program does permit down payment assistance,
which allows borrowers to purchase homes without putting any money down.
In
2008, Congress amended the National Housing Act to prevent any part of the down
payment from being financed by an entity benefiting from the transaction.
However, many down payment assistance programs are structured in a way where
the assistance provider is reimbursed for providing the down payment, thereby
financially benefitting from the transaction. Beginning in 2015, the HUD Office
of Inspector General (OIG) conducted a series
of audits finding that these programs, often referred to as “circular
funding schemes,” have continued despite the fact that they violate the law.
The
letter requests HUD and OIG brief Committee staff no later than the week of May
24, 2021 to ensure HUD is following the law and implementing the OIG’s audit
recommendations.
Click
here to read the full letter.
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