[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32455-32456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08819]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6382-N-02]


Federal Housing Administration (FHA): Home Equity Conversion 
Mortgage (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.

-----------------------------------------------------------------------

SUMMARY: On October 24, 2023, HUD published a Federal Register notice 
(October FR Notice) announcing and seeking public comment on changes to 
the Federal Housing Administration's (FHA) Home Equity Conversion 
Mortgage (HECM) for Purchase Program--Acceptable Monetary Investment 
Funding Sources and Interested Party Contributions requirements. The 
proposed changes from HUD's October FR Notice were included in an 
update to HUD's Single Family Housing Policy Handbook, which was 
published October 31, 2023, and becomes effective on April 29, 2024. 
After consideration of the public comments received in response to the 
notice of the proposed changes, FHA has decided not to implement some 
of the changes proposed in the October FR Notice at this time. HUD will 
publish a Mortgagee Letter or update the Single Family Housing Policy 
Handbook to align HUD's policy with this Federal Register notice. All 
other changes previously included in the Handbook will go into effect 
on April 29, 2024, as planned.

FOR FURTHER INFORMATION CONTACT: Brian Faux, 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 [email protected]. 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: 
https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION:

I. Public Comments in Response to HUD's October Federal Register Notice

    HUD's regulations at 24 CFR 206.44(b)(4) and 206.44(c)(2) provide 
the FHA Commissioner authority to permit additional funding sources for 
a borrower's monetary investment and interested party contributions for 
HECM for Purchase transactions through notice in the Federal Register. 
HUD relied on these authorities in making the proposed changes 
described in HUD's October FR Notice published on October 24, 2023, at 
88 FR 73040. The changes proposed in that October FR Notice also were 
prospectively included in an update to HUD's Single Family Housing 
Policy Handbook, published October 31, 2023, and becoming effective on 
April 29, 2024.
    FHA received two public comments in response to the October FR 
Notice. One commenter was broadly supportive of the proposed changes to 
the HECM for Purchase program. The commenter supported HUD's effort to 
align the HECM for Purchase program with FHA's

[[Page 32456]]

forward mortgage programs by permitting the interested party 
contributions explained in HUD's October FR Notice up to six percent of 
the sales price. The commenter stated that these changes would help 
more seniors qualify for and receive the benefits of the HECM for 
Purchase program, especially in downsizing or otherwise changing the 
size of their current homes before and during retirement. The commenter 
concluded that the changes would improve and strengthen seniors' 
financial status.
    The other commenter raised significant concerns about allowing HECM 
for Purchase borrowers to use lender credits, including premium 
pricing, to satisfy the monetary investment requirement for a HECM for 
Purchase. The commenter noted that, because HECMs are negative 
amortization loans where the loan balance increases over time and 
interest costs are added to the loan balance each month, accepting a 
higher interest rate in return for a credit at closing would be very 
costly for the borrower. The use of premium pricing may result in HECM 
for Purchase borrowers being steered into more expensive products that 
do not meet their long-term financial needs.
    The commenter further noted that HECM for Purchase borrowers are 
not likely to understand the true, long-term cost of the higher 
interest rate nor are they likely to receive a credit at closing that 
will fully compensate them for paying the higher interest rate because 
the termination date of a HECM loan is unknown at the time of 
origination, so the cost calculation can only be an estimate. 
Additionally, in light of recent enforcement actions by state 
authorities against mortgage lenders in the forward mortgage market 
that failed to refund surplus lender credits to borrowers, the 
commenter also raised concerns that HECM for Purchase borrowers may not 
receive the full benefit of premium pricing credits.
    Finally, the commenter disagreed that FHA should allow mortgagees 
and third-party originators (TPOs) to contribute to closing costs. The 
commenter noted that allowing mortgagees and TPOs to contribute toward 
closing costs would increase the chances of undue influence, fraud, and 
unaffordable loans for HECM for Purchase borrowers.

II. This Notice

    HUD has carefully considered the comments received and has 
determined that the potential harms to borrowers are significant enough 
that it would be imprudent to make these changes at this time. Thus, 
pursuant to the abovementioned authorities, HUD will remove the 
following changes from HUD's Single Family Housing Policy Handbook 
4000.1: (1) permitting premium pricing as an additional funding source 
used to satisfy a HECM for Purchase borrower's monetary investment; (2) 
including discount points in the definition of ``interested party 
contribution''; (3) permitting interested party payment for permanent 
and temporary interest rate buydowns as an interested party 
contribution; (4) allowing mortgagees and third parties to make any 
interested party contributions; and (5) allowing discount points and 
interest rate buydowns as permissible closing costs for HECM for 
Purchase transactions. Removing these changes means that the use of 
premium pricing to help satisfy the borrower's monetary investment and 
including discount points and permanent and temporary interest rate 
buydowns as interested party contributions for a HECM for Purchase will 
not be permissible, that mortgagees and third party originators (TPOs) 
will be prohibited from making interested party contributions, and that 
discount points and interest rate buydowns as permissible closing costs 
will not be allowed after the effective date of HUD's Mortgagee Letter 
or update to the Single Family Housing Policy Handbook.

Julia R. Gordon,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2024-08819 Filed 4-25-24; 8:45 am]
BILLING CODE 4210-67-P