On April 26, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2024-06, announcing changes to the Home Equity Conversion Mortgages (HECMs) for purchases (H4P loans), a mortgage program designed for older homeowners who wish to buy a primary residence using a reverse mortgage. The program allowed allows seniors to purchase a new home that better suits their needs without the burden of monthly mortgage payments.

In Federal Housing Agency’s proposed guidance released October, the program allowed for the inclusion of an interested party contribution of up to 6% of the sales price. This provision was met by criticism advocacy groups like the AARP which objected to its allowing mortgagees and third-party originators to contribute to closing costs. Among the concerns raised by the AARP, since HECMs are negatively amortizing, accepting a higher interest rate in return for a closing credit is a costly trade off. 

HUD’s revised guidance prohibits premium pricing for H4P loans, as well as discount points and interested party payments for permanent and temporary interest rate buydowns. In addition, it provides that mortgagees and third party originators are not permitted to make any interested party contributions, but closing cost contributions by the property seller, the real estate agent, the builder or the developer will be permitted.

These revisions will be incorporated into a future update to HUD Handbook 4000.1 and were effective as of April 29. 

Putting it into Practice: Reverse mortgage lenders who participate in the H4P program will need to familiarize themselves with the changes set forth in the Mortgagee Letter, which do differ in material ways from the changes proposed by HUD last October.