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The Trump Administration is cracking down on national affordablehousing programs because of concern over growing risk to thegovernment's almost $1.3 trillion portfolio of federally insuredmortgages.

The effort targets providers of money for borrowers who can'tafford the 3.5% down payment typically required on Federal HousingAdministration loans. Such help — from government agencies andfamilies — enables 4 in 10 FHA loans. Borrowers in governmentdown-payment assistance programs become delinquent at about twicethe rate of those who put up their own money.

A new U.S. Housing and Urban Development guideline, published onits website late last week, would be particularly harmful to theChenoa Fund, one of the largest down-payment programs in theU.S.

A Utah mortgage entrepreneur named Richard Ferguson runs theChenoa Fund on behalf of the Cedar Band of the Paiutes, a tribalgovernment in Utah. It is providing about $100 million a month inloans to borrowers who can't meet FHA down-paymentrequirements.

While many cities, counties and state housing finance agenciesalso provide similar help, they typically limit the loans to localresidents. Chenoa operates nationally. HUD said government agenciesmust document that they are helping borrowers buy property onlywithin their jurisdictions. Tribal governments, it said, may onlyoffer assistance to members living on tribal land or elsewhere.

“This is obviously very concerning,” Ferguson said in a phoneinterview. “It appears that HUD is trying to put the tribe back onthe reservation.”

Cedar Band's mortgage company said in a statement that the HUDaction is discriminatory against Native Americans and would hurtminority borrowers who represent more than half of Chenoa'scustomers. It plans to challenge HUD in court, according to thestatement.

The Chenoa Fund was the subject last year of a BloombergBusinessweek article, which detailed concerns in the industry andWashington about its practices. Chenoa not only provides downpayments for borrowers across the country but it also profits frommaking the loans by charging above-market rates and fees.

The agency reiterated that no one offering down-paymentassistance should financially benefit from the transaction. Somemembers of the tribe say they see little evidence that profits fromthe Chenoa Fund have filtered down to them.

After the 2008 housing crash, Congress prohibited down-paymentassistance from any party with a financial interest in atransaction. Such operations ended up costing the FHA's insurancefund $17 billion when borrowers got in trouble.

But the FHA's ban didn't apply to federal, state, and localgovernment programs, which now make up the majority of the 2,500U.S. down-payment assistance outfits.

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