WASHINGTON — The inspector general for the Department of Housing and Urban Development is not backing down on his concerns about premium pricing associated with Federal Housing Administration down payment assistance programs.

"While we do not have a concern with the overall down payment assistance program, we believe this specific aspect, where external lenders are originating FHA loans with ineligible down payment assistance gifts and secondary financing and agree to inflate the interest rate on the borrowers' FHA loans, violates the law and harms borrowers," the HUD inspector general, David Montoya, said in a statement Thursday.

The HUD inspector general and FHA officials have been at loggerheads over premium pricing for nearly a year after an inspector general audit of NOVA Financial & Investment Corp., a Tucson, Ariz., FHA lender.

HUD Deputy Secretary Nani Coloretti rendered the department's decision in the dispute Wednesday by upholding the FHA's current practices.

Lenders were hoping the deputy secretary's decision would create more certainty about their participation in state and local Housing Finance Agency down payment assistance programs. But they will still have to be wary of IG auditors.

"We strongly disagree with the Department's decision on the NOVA Financial" audit, Montoya said. "We stand behind the audit's findings and intend to pursue all avenues at our disposal to continue to convey concerns."

It also means the HUD inspector general will continue its down payment assistance audits.

"There is another IG audit of an FHA lender currently underway," a spokesperson for the inspector general said. "This audit was initiated because the lender used funds derived from premium priced mortgages to pay for the borrower's down payments assistance, gifts or secondary financing."

A HUD spokesman declined to comment on Montoya's reaction.

But the Mortgage Bankers Association objected to the inspector general's stance.

The group is "deeply troubled by the HUD inspector general's reaction to … Ed Golding's announcement regarding the permissibility of housing finance agency downpayment assistance programs," said Pete Mills, a senior vice president for the MBA. "Until there is official, authoritative policy guidance from the HUD secretary — published in the Federal Register — we urge lenders to evaluate their ongoing participation in these programs with extreme caution."

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