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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 [www.gpo.gov]
[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 [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. 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:
     Contract sales price is $491,974.00;
     Borrower's Closing Costs are $20,300.00;
     Appraised Value is $492,000.00; and
     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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