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Some lessons are learned the hard way.  Before the mortgage meltdown, HUD would allow third parties to make a "gift" to a buyer in the form of a downpayment.  It was simply a shell game - the sale price would be inflated so the seller could make a "donation" to the downpayment assistance program.  In turn, the program would present the "gift" to the buyer.  It was no surprise when these loans experienced unusually high default rates.  In a recent email update, HUD reminded real everyone of their current policy:

"Mortgagees are reminded that the use of downpayment assistance programs where the funds for the homebuyer’s required investment in the property are provided by the seller or any other person or entity that financially benefits from the sale of the home, or any third party or entity that is reimbursed directly or indirectly by the seller or any party that financially benefits from the transactions, is PROHIBITED under section 2113 of the Housing and Economic Recovery Act (HERA) of 2008. Mortgagees are advised to exercise due diligence in the underwriting of FHA-insured loans using downpayment assistance to prevent insuring transactions prohibited under section 2113 of HERA. Further guidance on this issue with details on lender responsibilities is forthcoming in a Mortgagee Letter."

As part of the appraisal process, we're required to analyze the current agreement of sale.  Of course, when we commented that "the current sale price was above the asking price" and explained it was likely due to the seller making a "donation" to the program - we were immediately criticized as being "deal killers."  So thank you, HUD, for returning to responsible lending practices...we're happy to let you wear the outfit.