### Key Findings
– Title: Lenders and third-party originators (TPOs) are prohibited from contributing to Home Equity Conversion Mortgage (HECM)-for-Purchase contributions.
– Reason: This is to mitigate risks and ensure that HECM-for-Purchase borrowers have sufficient funds for closing costs, property taxes, and insurance.
– Impact: Lenders and TPOs must fully explain to borrowers the prohibition and ensure that they have sufficient funds to cover all HECM-for-Purchase costs.
Details
The Federal Housing Administration (FHA) has issued a mortgage letter prohibiting lenders and TPOs from contributing to HECM-for-Purchase contributions. This prohibition is intended to mitigate risks associated with HECM-for-Purchase loans and ensure that borrowers have sufficient funds to cover closing costs, property taxes, and insurance.
The prohibition is effective for all HECM-for-Purchase applications submitted on or after January 1, 2024. Lenders and TPOs must fully explain the prohibition to borrowers and ensure that they have sufficient funds to cover all HECM-for-Purchase costs.
Reasons for the Prohibition
The FHA has identified several risks associated with HECM-for-Purchase loans, including:
- Borrowers may not have sufficient funds to cover closing costs, property taxes, and insurance.
- Lenders may be more likely to approve HECM-for-Purchase loans to borrowers who do not have sufficient funds.
- HECM-for-Purchase loans may be more likely to default if borrowers do not have sufficient funds to cover ongoing costs.
The prohibition on contributions is intended to mitigate these risks and ensure that HECM-for-Purchase borrowers have sufficient funds to cover all costs associated with the loan.
Impact on Lenders and TPOs
The prohibition on contributions will have a significant impact on lenders and TPOs. Lenders will need to ensure that they have procedures in place to fully explain the prohibition to borrowers and to ensure that borrowers have sufficient funds to cover all HECM-for-Purchase costs. TPOs will need to ensure that they are not contributing to HECM-for-Purchase contributions.
Impact on Borrowers
The prohibition on contributions will have a limited impact on borrowers. Borrowers will need to ensure that they have sufficient funds to cover all HECM-for-Purchase costs. Borrowers who do not have sufficient funds may not be able to obtain a HECM-for-Purchase loan.
### Conclusion
The FHA’s prohibition on contributions to HECM-for-Purchase contributions is a significant change that will have a major impact on lenders, TPOs, and borrowers. Lenders and TPOs will need to ensure that they have procedures in place to comply with the prohibition. Borrowers will need to ensure that they have sufficient funds to cover all HECM-for-Purchase costs.
Kind regards J. Ross.
