FHA Repairs CalHFA FHA & CHDAP Interpretation
UPDATE: Effective immediately on January 29th, 2013 the federal government has given a “transitional” period for CalHFA to comply with guidelines. This means that CHDAP is temporarily reinstated. The emphasis here is on the word “temporary”.
Any FHA loans originated after June 1st, 2013 may be ineligible for federal insurance. In other words, if you’re going to buy a house using CHDAP you need to close BY MAY 31ST, 2013!
By no means is CalHFA out of the water yet, but it’s good news for now. We’ll keep an eye on this as it develops.
On Friday, January 25th 2013, FHA dropped a bomb on Housing Finance Agencies nationwide that caused CHDAP to be immediately suspended.
The suspension was the result of an interpretive rule governing a provision of the Housing and Economic Recovery Act of 2008 that affects how all Housing Finance Agencies (HFAs) provide down payment assistance on FHA insured loans.
The interpretation by FHA conflicts with the way that Housing Finance Agencies fund the buyer assistance program at the close of escrow. As a direct lender approved with the California Housing Finance Agency (CalHFA), we provide the funds for the CHDAP buyer assistance loan at the close of escrow, and are reimbursed by the Housing Finance Agency after the loans are closed.
As you can imagine, FHA causing the State of California to suddenly suspend the Homebuyer Assistance program has caused ripples of panic throughout an already volatile and struggling California housing market.
CalHFA’s commitment to provide assistance to low t0 moderate income California Families was instantly undermined, as was the goal of Housing Finance Agencies nationwide. The backlash was immense, causing FHA’s new commissioner Carol Galante to release a letter today (Monday, January 28th 2013) recognizing that they may have over-reacted.
In light of concerns that have been raised about the consistency of some HFAs’ homeownership program funding models with the standards articulated in the interpretive rule, FHA, through its normal oversight process, will review its portfolio for compliance with the prohibited sources provision beginning with loans closed on or after June 1, 2013. Prior to that date, FHA will review transactions’ audit trails to ensure that HFAs were the ultimate source of funds for the down-payment assistance.
Now, whether this means that FHA is going to retract the suspension until June 1st, 2013, or whether it means that they will take this time to determine how to protect the HFA’s interests and allow financing to continue is yet to be seen.
Around 5:00pm on Monday, January 28 2013, the California Housing Finance Agency (CalHFA) posted this on Facebook in regards to the State of California Homebuyers Downpayment Assistance Program, CHDAP:
My hope is that by the time you’re reading this, CHDAP will be reinstated and we’ll be none for the worse other than having to suffer through a couple days of uncertainty.
If we get confirmation of CHDAP being reinstated for use with an FHA first mortgage, I will update this post immediately. In the meantime, if you have questions, comments or would like to make sure you don’t miss a single update – leave a comment below, give us a call, or at the very least enter your email below for updates.