DAP Demise Derailed

So, when did Larry Seidin get appointed to the federal district court bench in D.C.?

It's apparent that at least one federal district court judge doesn't read Bank Lawyer's Blog or, in the unlikely event he reads it, agrees with legions of its detractors that it's full of bat guano. We've been bloviating for the last month about the FHA's ban (set to go into effect yesterday) on seller-funded down payment assistance (DAP). The non-profits and home sellers who've running the DAP scam for years have fought hard to keep milking that cash cow, and yesterday they found a federal district court judge in D.C. to back their play.

A federal court temporarily blocked the U.S. Department of Housing and Urban Development from shutting down most of the nation's programs on Wednesday. It also delayed plans by the housing agency to close those run by Nehemiah and Maryland-based AmeriDream Inc. within six months.

In its ruling, the U.S. District Court in the District of Columbia said HUD "failed to supply a reasoned analysis" for ending the program. The court said HUD also "failed to consider reasonable alternatives" to its ban.

HUD maintains the controversial programs have helped push homebuyers into foreclosure and raised the price of homes for those who can least afford them.

Agency spokesman Brian Sullivan said HUD would continue to press its case against Nehemiah and others. The ban is in place only until the court considers additional arguments.

"We still have the merits of the case to deal with," he said.

HUD "failed to supply a reasoned analysis"? I suppose that if your mind is closed to the facts, then no analysis will ever be "reasoned." The 2005 GAO report on the increased incidences of foreclosure of DAP loans (not to mention the drill-down, step-by-step analysis of DAP loans by Tanta at Calculated Risk) referred to in our previous post linked above, ought to prove that HUD has more than enough support for its decision that DAP should be banned, or at the very least that its position is "reasoned." Heck, even the main stream media is able to figure this out!

The Observer has found a high rate of foreclosure in FHA-backed loans in the Charlotte area, especially when those loans involved an arranged gift from a charity to cover a borrower's down payment. The Observer reported in September that FHA loans accounted for almost a quarter of recent foreclosures in Mecklenburg County.

I guess the judge assumes that home builders and the standard-bearers of the professionally aggrieved have a constitutional right to circumvent the obligation of HUD to impose substance-over-form down-payment requirements on borrowers so that the American taxpayer isn't stuck with the tab when the loans the FHA insures go south. That right must be buried in the Fifth Amendment.

Then again, this is only a preliminary injunction. If HUD sticks to its guns, either the district court will eventually see the light or an appellate court will eventually correct his erroneous thought process.

I'm still sticking to my earlier hot opinion: "AmeriDream will lose its lawsuit to overturn the FHA's decision, and seller-funded DAP will be a no go from now on. Bank on it." Unfortunately for the taxpayers, the "now" in "from now on" may be many months in the future. In the interim, look forward to more losses funded by your tax dollars, as DAP loans continue to default.

UPDATE- 11/3/07: Flaks for the nonprofit housing biz e-mailed to tell me that the basis of the judge's decision has nothing to do with economic reality, and everything to do the formalities of the Administrative Procedures Act and HUD's failure to follow the same. Inasmuch as they're quoting from an opinion that is not yet posted to the D.C. District Court's website, I'll take their word for it. As one of the correspondent's put it: "When a key point by the defense is that Alphonso Jackson said during the comment period that he would adopt the rule no matter what the comments were in an interview with Bloomberg News you have a major problem. There were major screw ups by HUD in the rule making process and that is why HUD will lose this case."

If Alphonso made that public statement, it's one more reason why he has to go.

Another hot opinion from BLB apparently shot down in flames? If so, we take comfort in the fact that even Josh Beckett occasionally walks a batter. It won't deter us from our oft-stated mission of bloviating proudly with only half the facts but twice the attitude.