AmeriDream Inc. of Gaithersburg said today that it is suing to stop the U.S. Department of Housing and Urban Development from banning a type of down payment assistance the nonprofit gives to homebuyers.

HUD said earlier this year that the assistance -- in which nonprofits provide the down payment help to a buyer and then are reimbursed by the seller -- is "a contributing factor of increased risk in our portfolio" of loans. In plain English: It's contributing to defaults and foreclosures. The agency said the proportion of foreclosures on homes whose owners got such assistance is more than twice that on other loans insured by the Federal Housing Administration.

But AmeriDream says in its suit that the ban "is contrary to the clear intent of Congress, HUD's own historic practices and interpretations, and governing judicial precedents." It says it has since 1999 provided more than 200,000 down payment "gifts" -- an average of $3,600 each -- to low- and moderate-income homebuyers. (The median income was about $50,000.)

Without seller-financed down payments, AmeriDream says, fewer homebuyers could make the required 3 percent minimum down payment on FHA-insured loans and might turn to subprime mortgages. That's bad for buyers and FHA, the nonprofit said.

Back in May, when HUD was considering a ban, I talked to Vincent P. Quayle, executive director of the St. Ambrose Housing Aid Center in Baltimore. He thought the practice should be banned because he believes it doesn't do buyers any favors. "The seller would just raise the price" on the house to make up for the money being contributed to a nonprofit, he said.

On a related note: Sellers nowadays, looking for an edge in a slow market, are making contributions directly to buyers -- no nonprofits involved. They're often helping with closing costs, though the effect can help a buyer free up cash for a down payment. See my Sunday story if you missed it and want details.