AmeriDream announced today that HUD gave it until Feb. 29, 2008, to continue providing seller assisted down payments on FHA-insured mortgages. The nonprofit company had originally been instructed to cease the controversial program after this month.

The move follows a lawsuit filed earlier this month against HUD and the agency’s chief, Secretary Alphonso Jackson, in which Gaithersburg, Md.-based AmeriDream claimed, “The regulation adopted by HUD is arbitrary and capricious.”

HUD had issued a final rule the day before the lawsuit was filed that prohibited sellers and other interested parties from contributing to a borrower’s downpayment on FHA loans.

Another lawsuit was filed on the same day as AmeriDream’s by competitor Nehemiah Corporation of America — even though Nehemiah was the only company to be granted a six-month extension by HUD at the time. Nehemiah’s President and CEO Scott Syphax issued a statement calling HUD’s ruling “outrageous” and suggesting groups including the National Association of Home Builders, the Mortgage Bankers Association, the U.S. Council of Mayors and the National Association of Counties were opposed to HUD’s decision.

“This agreement will facilitate litigation on an orderly schedule and provide the court with ample time to consider the merits of this important dispute,” today’s announcement from AmeriDream said. “AmeriDream asserts HUD’s regulation violates the Administrative Procedures Act, violates the equal protection component of the due process clause of the Fifth Amendment, and that HUD improperly prejudiced the outcome of the rulemaking proceeding.”

AmeriDream withdrew its motion for Preliminary Injunction and motion for Temporary Restraining Order as a result of HUD’s voluntary extension, according to a copy of a Stipulation and Order provided by AmeriDream.