The


U.S.
Department
of
Housing
and
Urban
Development
(HUD)
on
Friday
announced
that
a
proposed
change
to
the
Home
Equity
Conversion
Mortgage
(HECM)
for
Purchase
(H4P)
program
has
been
modified
to
bar
the
practice
of
premium
pricing,
and
it
will
only
allow
interested
party
contributions
(IPCs)
on
H4P
closing
costs
from
property
sellers,
builders,
real
estate
agents
and
developers.

After
concerns
were
raised
in
the
public
comment
period
following
the
proposed
H4P
changes
announced
late
last
year
—
including
from


AARP
—
some
planned
updates
will
not
be
implemented,
according
to
a
statement
from
the


Federal
Housing
Administration
(FHA).
A
Mortgagee
Letter
(ML)
detailing
the
particulars
of
the
policy
changes
has
been
released
in
conjunction
with

a
new
entry
in
the
Federal
Register.

Changing
course

In
October,
FHA

published
proposed
guidance
for
the
H4P
program
in
the
Federal
Register.
In
certain
circumstances,
the
program
would
allow
for
inclusion
of
“an
‘interested
party
contribution’
[of]
up
to
six
percent
of
the
sales
price,”
according
to
the
original
plan.
After
concerns
during
the
proposal’s
comment
period
were
brought
to
the
attention
of
policymakers,
however,
HUD
and
FHA
have
decided
to
walk
back
some
of
these
plans.

“FHA
will
move
forward
with
its
proposal
that
permits
contributions
by
the
property
seller,
real
estate
agent,
builder,
or
developer
to
HECM
for
Purchase
borrowers’
closing
costs,”
the
update
said.
“However,
at
this
time,
FHA
will
not
allow
[lenders]
and
third-party
originators
(TPO)
to
make
such
IPCs,
nor
will
it
allow
premium
pricing
to
qualify
as
an
eligible
funding
source
to
meet
the
borrower’s
minimum
required
investment.”

The
new
guidance
as
published
in
the
Federal
Register
and
in
a
new
ML
“also
restores
FHA’s
previous
policy
that
discount
points
and
interest
rate
buydowns
are
not
allowable
closing
costs,”
FHA
explained.

The
original
effective
date
as
announced
last
fall
remains
in
effect,
which
will
be
April
29,
2024.

ML
2024-06
details
the
particulars
of
the
policy
revisions,
changes
to
particular
regulations
and
added
that
the
“model
HECM
fixed
and
adjustable
rate
mortgage
payment
plans
and
model
Exhibit
II
–
Schedule
of
Closing
Costs
have
been
modified
to
align
with
the
provisions
of
this
ML.”

Initial
concerns

In
a
letter
sent
to
FHA
Commissioner
Julia
Gordon
in
December,
David
Certner,
legislative
counsel
and
legislative
policy
director
in
the
government
affairs
division
at
AARP,
explained
why
the
group
opposed
the
initially
proposed
changes
to
the
H4P
program.

“We
oppose
the
permitting
of
mortgagee
and
third-party
originator
premium
pricing
credits
to
be
used
toward
the
down
payment,”
Certner
wrote
at
the
time.
“Premium
pricing
credits
are
discretionary
and
can
be
used
as
a
means
to
influence
a
borrower
to
engage
in
the
transaction.
These
credits
can
lead
to
fair
lending
violations.
In
the
forward
market,
there
have
been
cases
where
lenders
do
not
pass
on
the
full
amount
of
premium
pricing
credits
to
consumers,
resulting
in
an
enforcement
order
and
penalty
fines
to
the
lender.”

Additionally,
since
HECMs
are
negatively
amortizing,
then
accepting
a
higher
interest
rate
in
return
for
a
closing
credit
“is
a
very
costly
tradeoff
for
a
consumer,
and
even
more
costly
for
a
reverse
mortgage
transaction
since
interest
costs
are
added
to
the
loan
balance
each
month,”
the
letter
stated.

While
AARP
supported
IPCs
on
H4P
loans
from
the
seller,
real
estate
agent,
builder
or
developer,
the
group
opposed
“permitting
mortgagees
and
third-party
originators
to
contribute
to
closing
costs.
Historically,
mortgage
lenders
and
originators
have
been
prohibited
from
contributing
to
closing
costs
to
protect
borrowers.”

Reactions
to
the
changes

Steve
Irwin,
president
of
the


National
Reverse
Mortgage
Lenders
Association
(NRMLA),
told
RMD
that
the
association
is
disappointed
in
some
aspects
of
this
decision.

“NRMLA,
and
its
members,
are
disappointed
that
HUD
has
had
to
pull
back
on
certain
specific
H4P
features,
which
would
have better
aligned
the
product
with
the
way
things
are
done
on
the
forward
side
of
the
mortgage
business,”
he
said.
“We
also
understand
that
we
must
ensure
there
is
clarity
for
the
consumer
in
how
these
product
features
work,
and
the
[resulting]
consumer
impacts.
NRMLA
will
devote
itself
to
identifying
any
concerns
regarding
these
features
and
work
to
resolve
them.”

Reverse
mortgage
originator
Chris
Bruser
with


Mutual
of
Omaha
Mortgage
told
RMD
that
he
remains
excited
in
general
about
the
closing
cost
changes
and
builder
incentives,
but
the
discount
point
changes
are
discouraging
as
an
industry
professional
who
actively
sources
H4P
business.

“I’m
kind
of
a
little
bit
disappointed
in
that,”
he
said.
“It
would
be
nice
to
be
able
to
see
that,
especially
here
in
Florida,
where
our
closing
and
third-party
costs
are
quite
a
bit
higher.
Any
kind
of
extra
help
that
our
borrowers
could
obtain
to
lower
their
investment
would
be
a
welcome
change.

“But
I
think
at
least
allowing
the
credits
to
be
there
is
a
big
step.
Not
allowing
the
discount
points
doesn’t
necessarily
seem
like
a
game
changer
to
me,
though
it
would
be
nice
to
have
that
additional
help.
Still,
I’ll
take
what
we
got.”

The


National
Consumer
Law
Center
(NCLC)
quickly
lauded
the
development,
according
to
an
announcement
issued
by
the
organization.

“Reverse
mortgage
borrowers
take
on
a
complex
financial
product
to
reduce
housing
expenses
and
maintain
stable
shelter,”
said
Sarah
Mancini,
co-director
of
advocacy
at
NCLC.
“HUD’s
policy
announcement
today
will
remove
the
risk
that
these
older
homeowners
will
be
up-charged
on
their
interest
rate
in
ways
that
would
cost
them
more
and
eat
up
their
home
equity
faster.”

The
move
will
also
stabilize
housing
for
older
Americans,
according
to
Odette
Williamson,
a
senior
attorney
with
NCLC.

“HUD’s
actions
to
strengthen
the
HECM
program
are
extremely
important
steps
toward
increasing
stable
housing
for
older
adults,”
Williamson
said.
“We
look
forward
to
continuing
to
share
information
with
the
agency
as
it
bolsters
this
crucial
loan
program.”

Related