| Of Interest

A&B Abstract:

On October 24, 2023, the U.S. Department of Housing and Urban Development (“HUD”) published, for public comment, a Federal Register Notice (“Proposed Notice”) to implement changes to the Federal housing Administration’s (“FHA”) Home Equity Conversion Mortgage (“HECM”) for Purchase program. The Proposed Notice expands the list of acceptable funding sources and permits additional interested party contributions to satisfy the borrower’s monetary investment requirement. Under the Proposed Notice, the FHA would also 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. HUD is seeking comment from interested members of the public on the Proposed Notice. The period for public comment ends on November 24, 2023.

Background

The HECM for Purchase program allows mortgagees to originate HECM for Purchase transactions to purchase a 1-to-4 family dwelling unit, one unit of which will serve as the borrower’s principal residence. The program requires borrowers to contribute substantial liquid assets to meet the negotiated contract sales price for the property plus standard origination fees and charges.

In 2009, the FHA published Mortgage Letter 2009-11 (“ML 2009-11”) which prohibited certain funding sources for the investment:

sweat equity;
trade equity;
rent credit; and
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.

In addition, ML 2009-11 prohibited seller contributions (or “seller concessions”) in any HECM for Purchase transaction. “Seller concessions” are the use of “loan 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 limits are meant to redirect expenses customarily paid by the seller or other interest parties to the borrower.

In 2017, the FHA codified the requirements for the HECM for Purchase program, and other program changes, and also codified three permitted funding sources for the borrower’s required money investment (the “Final Rule”):

Cash on hand;
Cash from the sale or liquidation of the borrower’s assets; and
HECM proceeds.

The Final Rule also changed the funding source restrictions to permit interested party contributions to pay for:

fees required to be paid by the seller under state or local law;
fees that are customarily paid by the seller in the locality of the subject property; and
purchase of the Home Warranty policy by the seller.

The Proposed Notice

The Proposed Notice would permit interested parties to contribute up to six percent of the sales price and expand the list of permitted interested party contributions.

Under the Proposed Notice, an “interested party contribution” would be defined to mean a payment by an interested party 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. “Interested Parties” refers to sellers, real estate agents, builders, developers, mortgagees, third-party originators, or other parties with an interest in the transaction.

Under the Proposed Notice, the six percent limit on interest party contributions may be applied towards but may not exceed the cost of:

origination fees;
other closing costs paid outside of closing (e.g., 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.

Additionally, the Proposed Notice would also permit the following additional funding sources to satisfy the borrower’s monetary investment:

premium pricing;
gifts;
disaster relief grants; and
employer assistance.

This would be the first time that premium pricing is permitted for use in the HECM for Purchase program. Under the Proposed Notice, borrowers would be able to receive a credit from the mortgagee or third-party originator to reduce their closing costs in exchange for a certain initial mortgage interest rate.

Premium pricing credits from the mortgagee or third-party originator would be excluded from the six percent limit if the mortgagee or third-party originator is not the seller, real estate agent, builder, or developer. The interested party contributions for the various fees permitted under 24 C.F.R. § 206.44(c)(1) will also be excluded from the six percent interested party contribution limit. The FHA will also 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.

Takeaway

The Proposed Notice is an effort by the FHA to more closely align the HECM for Purchase program with its forward mortgage programs. If implemented, the Proposed Notice would likely make it easier for borrowers to meet their monetary investment requirement by expanding the list of funding sources and permitting interested party contributions. Lenders participating in the HECM for Purchase program should review the Proposed Notice and consider submitting a comment.

A&B Abstract:

On April 20, 2020, Massachusetts Governor, Charlie Baker, signed into law HB 4647 (2020 Mass. Acts 65), an emergency measure, effective immediately, providing for mortgage forbearances and a moratorium on evictions and foreclosures during the COVID-19 emergency. This measure also waives the in-person counseling requirement for reverse mortgage loans. This law follows guidance issued by the Division of Banks on March 25, 2020, setting forth the Division’s expectations of mortgage servicers to provide relief to borrowers adversely impacted by the COVID-19 pandemic.

Forbearance

The emergency measure requires a creditor or mortgagee to grant a forbearance on a mortgage loan for residential property if the borrower submits a request to the servicer affirming that the borrower has experienced a COVID-19 hardship, subject to the following terms:

the forbearance shall not be for more than 180 days;
no fees, penalties or interest beyond the amounts scheduled and calculated as if the borrower made all contractual payments on time and in full under the mortgage contract shall accrue during the forbearance;
a payment subject to the forbearance shall be added to the end of the term of the loan, unless otherwise agreed to by the borrower and mortgagee;
a borrower and mortgagee are not prohibited from entering into an alternative payment agreement for the mortgage payments subject to forbearance;
the mortgagee must not furnish negative mortgage payment information to a consumer reporting agency related to forborne mortgage payments; and
a creditor or mortgagee is not required to grant this forbearance if the borrower’s request is made after the expiration of this provision of the emergency measure (the sooner of 120 days from its effective date or 45 days the Governor’s COVID-19 emergency declaration has been lifted).

For purposes of this section, “residential property” includes real property located in the commonwealth, on which there is a dwelling house with accommodations for 4 or fewer separate households that is the borrower’s principal residence; excluding investment property, property taken, in whole or in part, as collateral for a commercial loan, and property subject to condemnation or receivership.

This forbearance provision is similar to a federal Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) forbearance, with some notably differences. First, this provision is not limited to federally backed mortgage loans. Second, the forborne payments are to be tacked on to the end of the mortgage term unless otherwise agreed to by the parties. Last, the terms differ in two respects. First, unlike the CARES Act, Massachusetts does not require an additional 180 extension of the forbearance. Second, the requirement for a servicer to offer a forbearance will remain in effect until the Governor’s COVID-19 emergency declaration is lifted, which at this point is unknown.

Foreclosure

For purposes of foreclosure of “residential property,” as that term is defined above, the emergency measure imposes a foreclosure moratorium, meaning a mortgagee (or a person acting in the name of a mortgagee) is prohibited from:

causing a notice of foreclosure sale to be published;
exercising a power of sale;
initiating a judicial or nonjudicial foreclosure process; or
filing a complaint to determine the military status of the borrower under the federal Servicemembers Civil Relief Act.

Vacant or abandoned properties are expressly excluded from this foreclosure moratorium. The foreclosure moratorium became effective immediately and expires after the sooner of 120 days or 45 days after the COVID-19 emergency declaration has been lifted. This moratorium appears broader than the moratorium imposed under the CARES Act in that it likely will extend beyond the CARES Act’s moratorium of May 18, 2020 and that it is not limited to “federally backed” loans. Note, most residential mortgage foreclosures are nonjudicial in Massachusetts and begin by sending a delinquent borrower a notice of default and right to cure as required by Mass. General Laws chapter 244, Section 35A. It is likely that such notice could be viewed as initiating a foreclosure, and thus not allowed during this foreclosure moratorium.

Evictions

With respect to evictions, the emergency measure provides as follows:

notwithstanding any law, rule, regulation or order to the contrary, a landlord or owner of a property shall not, for purposes of a “non-essential eviction” for a residential dwelling unit, terminate a tenancy or send any notice requesting or demanding that a tenant vacate the premises;
a landlord shall not impose a late fee for non-payment of rent for a residential dwelling unit;
a landlord shall not furnish rental payment data to a consumer reporting agency related to the non-payment of rent if, not later than 30 days after the missed rent payment, the tenant provides notice and documentation to the landlord that the non-payment of rent was due to a COVID-19 financial impact;
subject to certain conditions, a lessor who received rent in advance for the last month of tenancy pursuant to Mass. Gen. Law chapter 186, § 15B, may access and utilize the funds received in advance for certain enumerated uses; and
nothing in the emergency measure shall be construed to relieve a tenant from the obligation to pay rent or restrict a landlord’s ability to recover rent.

Related to residential dwelling units, a “non-essential eviction” is an eviction: (i) for non-payment of rent, (ii) resulting from a foreclosure, (iii) for no fault or cause, or (iv) for cause that does not involve allegations of: (a) criminal activity that may impact the health and safety of other residents, health care workers, emergency personnel, persons lawfully on the property or general public, or (b) lease violations that may impact the health and safety of other residents, health care workers, emergency personal, persons lawfully on the subject property or the general public. The Massachusetts executive office of housing and economic development has authority to issue emergency regulations to implement this section and develop forms for notice and documentation to a landlord that the non-payment of rent was due to COVID. Also note that the measure contains similar restrictions for landlords of small business premises and limits the ability of a court, sheriff or others to process or enforce non-essential evictions.

Temporary waiver of In-Person Counseling for Reverse Mortgage

Massachusetts is temporarily waiving the in-person counseling requirement set forth in Mass. Gen. Law chapter 167E, § 7A and chapter 171, § 65C1/2 for reverse mortgage loans during the state-declared COVID-19 emergency and until such emergency has been lifted. In lieu of in-person counseling, the requirement is satisfied by a written certification from a counselor with a third-party organization indicating that a borrower has received counseling via a synchronous, real-time videoconferencing or telephone counseling, provided that the counselor is approved by the executive office of elder affairs for purposes of such counseling. The measure does not specifically address the reverse mortgage counseling regulation set forth in 209 CMR 55.04. However, given that the regulation is provided under the statutory authority cited above, there is reason to believe that it should also be covered by this temporary waiver.

Takeaway

In addition to ensuring compliance with the federal CARES Act, mortgage servicers need to monitor newly enacted state measures responding to the COVID-19 pandemic and develop policies and procedures to ensure compliance.

Reverse Mortgages