Today, the Federal Housing Administration announced changes to the HECM for Purchase program by expanding the list of acceptable funding sources, including premium pricing, and permitting additional interested party contributions to satisfy a HECM borrower’s monetary investment requirement.
The changes were published as a Federal Register Notice [Docket No. FR-6382-N-01] and invites interested stakeholders to submit public comments by November 24, 2023. NRMLA’s HUD Issues Committee will be reviewing the Notice and submitting comments by the deadline.
The FR Notice creates closer alignment between HECM for Purchase and forward mortgages with regard to interested party contributions. This permits HECM for Purchase borrowers to now accept up to six percent of the sales price from an interested party, such as a seller, builder, developer, real estate agent, mortgagee, third-party originator, or other parties with an interest in the transaction.
FHA describes an “interested party contribution” as a payment by an interested party or combination of parties toward the borrower’s origination fees, and other closing costs, including any items paid outside of closing, prepaid items, and discount points. Under this FR Notice, interested party contributions of up to six percent of the sales price may be used to satisfy the borrower’s monetary investment.
This is the first time FHA will permit the use of premium pricing in the HECM program. Under this FR Notice, HECM for Purchase borrowers may be able to take advantage of premium pricing and receive a credit from the mortgagee, or third-party originator, to reduce their actual closing costs in exchange for a certain initial mortgage interest rate.
Federal disclosures currently require the amount of the credit and the interest rate to be disclosed to the borrower through the Good Faith Estimate, Loan Comparison Chart, and other closing documents. FHA will review files to make sure all federal requirements are met with respect to the use of premium pricing.