Notice2023-23429
Federal Housing Administration (FHA): Home Equity Conversion Mortgage (HECM) HECM for Purchase-Acceptable Monetary Investment Funding Sources and Interested Party Contributions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 24, 2023
Issuing agencies
Housing and Urban Development Department
Abstract
This notice serves to inform members of the public and affected program participants of changes to the Federal Housing Administration's (FHA) Home Equity Conversion Mortgage (HECM) for Purchase program that HUD intends to make in a future update to HUD's Single Family Housing Policy Handbook. Pursuant to the FHA Commissioner's ("Commissioner") regulatory authority, FHA will expand the list of acceptable funding sources used to satisfy the borrower's monetary investment requirement and will permit additional interested party contributions. This notice also informs the public that FHA will remove existing restrictions that prohibit the borrower from accepting cash from a seller or another person or entity that financially benefits from the HECM for Purchase transaction. This notice seeks public comment on these changes.
Full Text
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<title>Federal Register, Volume 88 Issue 204 (Tuesday, October 24, 2023)</title>
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[Federal Register Volume 88, Number 204 (Tuesday, October 24, 2023)]
[Notices]
[Pages 73040-73042]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-23429]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-6382-N-01]
Federal Housing Administration (FHA): Home Equity Conversion
Mortgage (HECM) HECM for Purchase--Acceptable Monetary Investment
Funding Sources and Interested Party Contributions
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, Department of Housing and Urban Development (HUD).
ACTION: Notice.
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SUMMARY: This notice serves to inform members of the public and
affected program participants of changes to the Federal Housing
Administration's (FHA) Home Equity Conversion Mortgage (HECM) for
Purchase program that HUD intends to make in a future update to HUD's
Single Family Housing Policy Handbook. Pursuant to the FHA
Commissioner's (``Commissioner'') regulatory authority, FHA will expand
the list of acceptable funding sources used to satisfy the borrower's
monetary investment requirement and will permit additional interested
party contributions. This notice also informs the public that FHA will
remove existing restrictions that prohibit the borrower from accepting
cash from a seller or another person or entity that financially
benefits from the HECM for Purchase transaction. This notice seeks
public comment on these changes.
DATES: Comment Due Date: November 24, 2023.
FOR FURTHER INFORMATION CONTACT: Mary Jo Sullivan, Acting Director,
Office of Single Family Program Development, Office of Housing,
Department of Housing and Urban Development, 451 7th Street SW, Room
9266, Washington, DC 20410-9000, telephone number 202-402-2378 (this is
not a toll-free number); email address <a href="/cdn-cgi/l/email-protection#f18297979494959390929ab1998495df969e87"><span class="__cf_email__" data-cfemail="413227272424252320222a012934256f262e37">[email protected]</span></a>. HUD welcomes
and is prepared to receive calls from individuals who are deaf or hard
of hearing, as well as individuals with speech or communication
disabilities. To learn more about how to make an accessible telephone
call, please visit: <a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>.
SUPPLEMENTARY INFORMATION:
I. Background: Statutory Authority, Regulations, and Administrative
Guidance
Section 2122(a)(9) of the Housing and Economic Recovery Act of 2008
(HERA) amended Section 255 of the National
[[Page 73041]]
Housing Act to authorize the Department of Housing and Urban
Development (HUD) to insure HECMs used for the purchase of a 1- to 4-
family dwelling unit, one unit of which will serve as the borrower's
principal residence. In 2008, based on the authority in section 255,
FHA implemented the HECM for Purchase program through Mortgagee Letter
(ML) 2008-33, permitting mortgagees to originate HECM for Purchase
transactions. ML 2008-33 was superseded by Mortgage Letter 2009-11,
which required borrowers to satisfy a monetary investment using cash on
hand or cash from the sale or liquidation of the mortgagor's assets, or
certain additional funding sources defined in HUD Handbook 4155.1 REV-
5, section 2-10.
FHA through ML 2009-11, however, prohibited certain funding sources
for the borrower's required monetary investment. Specifically,
borrowers were prohibited from satisfying the monetary investment
requirement using sweat equity, trade equity, rent credit, or cash or
its equivalent, in whole or in part, received from the seller or any
other person or entity that financially benefits from the HECM for
Purchase transaction, or any third party or entity that is reimbursed,
directly or indirectly, by the seller or any other person or entity
that financially benefits from the HECM for Purchase transaction.
Additionally, ML 2009-11 prohibited seller contributions, also known as
seller concessions, in any HECM for Purchase transaction. Seller
concessions were defined as the use of loan discount points, interest
rate buy-downs, closing cost down payment assistance, builder
incentives, gifts or personal property given by the seller, or any
other party involved in the transaction. These limitations on funding
sources and interested party contributions redirected expenses
customarily paid by the seller or other interested parties to the HECM
for Purchase borrower.
On January 19, 2017, FHA codified the requirements for the HECM for
Purchase program, and other program changes, in the ``Federal Housing
Administration (FHA): Strengthening the Home Equity Conversion Mortgage
Program'' Final Rule (82 FR 7094) (``the final rule'') amending 24 CFR
part 206. The final rule changed the funding source restrictions from
ML 2009-11, to permit interested party contributions to pay fees
required to be paid by the seller under state or local law, for fees
that are customarily paid by a seller in the locality of the subject
property, and for purchase of the Home Warranty policy by the seller
(24 CFR 206.44(c)(1)).
FHA also codified three permitted funding sources for the
borrower's required monetary investment: cash on hand, cash from the
sale or liquidation of the borrower's assets, and HECM proceeds. The
final rule codified regulatory provisions that grant the Commissioner
the authority to permit additional funding sources and interested party
contributions through future notice in the Federal Register, 24 CFR
206.44(b)(4) and (c)(2), respectively. Based on the foregoing
regulatory authority, FHA is issuing this notice to permit additional
funding sources and interested party contributions in HECM for Purchase
transactions.
II. This Notice
HECM for Purchase requires Borrowers to contribute substantial
liquid assets to meet the negotiated contract sales price for the
property plus standard origination fees and charges. By expanding the
list of permitted interested party contributions, FHA is more closely
aligning its HECM interested party contribution policies with FHA's
forward mortgage programs, while meaningfully increasing the sources of
funds available for HECM borrowers to satisfy their capital
requirements to originate a HECM for Purchase.
For example, a borrower purchasing a property in the state of
Arizona with a HECM for Purchase, where:
<bullet> Contract sales price is $491,974.00;
<bullet> Borrower's Closing Costs are $20,300.00;
<bullet> Appraised Value is $492,000.00; and
<bullet> Principal Limit is $189, 902.00 (maximum proceeds
available to borrower from the HECM).
Under current policy, the total amount of cash due from the
borrower at closing to complete this transaction is $322,372 ($491,974
plus $20,300 minus $189,902). Under the proposed notice, interested
parties could contribute up to 6 percent of the sales price, or
$29,518.44, toward the borrower's monetary requirements, reducing the
total amount due from the borrower at closing from $322,372 to
$292,853.56.
Therefore, pursuant to the Commissioner's authority under 24 CFR
206.44(b)(4) and 206.44(c)(2), HUD is, through this notice, informing
the public and program participants of changes to the FHA's HECM
program, which HUD intends to make effective in a future update to
HUD's Single Family Housing Policy Handbook.
For the HECM for Purchase program, FHA will permit the use of an
``interested party contribution,'' up to six percent of the sales
price. ``Interested party contribution'' will be defined as a payment
by an interested party \1\ or combination of parties, toward the
borrower's origination fees, other closing costs including any items
paid outside of closing, prepaid items, and discount points. The six
percent limit may be applied towards but may not exceed the cost of:
origination fees; other closing costs paid outside of closing, such as
a credit report and appraisal; prepaid items; discount points;
interested party payment for permanent and temporary interest rate
buydowns; and payment of the initial mortgage insurance premium.
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\1\ ``Interested Parties'' refer to sellers, real estate agents,
builders, developers, Mortgagees, Third-Party Originators, or other
parties with an interest in the transaction.
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Through this notice, FHA will permit additional funding sources
that may be used to satisfy the borrower's monetary investment
including premium pricing; \2\ gifts; disaster relief grants; and
employer assistance. These permitted sources are in addition to cash on
hand, cash from the sale or liquidation of the borrower's assets, and
HECM proceeds that are already permitted by regulation.
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\2\ ``Premium Pricing'' refers to the aggregate credits from a
mortgagee or third-party originator at the interest rate chosen.
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Premium pricing credits from the mortgagee or third-party
originator will be excluded from the six percent interested party
contribution limit, provided the mortgagee or third-party originator is
not the seller, real estate agent, builder, or developer. Fees required
to be paid by a seller under state or local law or customarily paid by
a seller in the subject property locality, including real estate agent
commissions or fees, and the purchase of the Home Warranty policy by
the seller are already permitted under Sec. 206.44(c)(1) \3\ and will
be excluded from the six percent interested party contribution limit.
Further, as with FHA's policy for forward-mortgages, FHA will exclude
the satisfaction of a Property Assessed Clean Energy (``PACE'') lien or
obligation against the property by the property seller from the
definition of an interested party contribution in the HECM for Purchase
program.
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\3\ 24 CFR 206.44(c)(1) permits interested party contributions
that are defined as fees required to be paid by a seller under state
or local law, fees customarily paid by a seller in the subject
property locality, or the purchase of the Home Warranty policy by
the seller.
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This document seeks comment from interested members of the public
on this document generally, and on the issues
[[Page 73042]]
discussed previously in this notice. HUD will carefully consider the
public comments received through this solicitation as part of a future
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policy update.
Julia R. Gordon,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2023-23429 Filed 10-23-23; 8:45 am]
BILLING CODE 4210-67-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.