FHA to Eliminate “Post Payment” Interest Charges
Agency will also ensure borrowers of adjustable-rate mortgages receive earlier notice of rate changes
The Federal Housing Administration (FHA) recently announced that borrowers who prepay their FHA-insured mortgages will not have to make interest payments beyond the date their mortgage is paid in full. FHA’s rule, Handling Prepayments: Eliminating Post-Payment Interest Charges, applies for FHA-insured mortgages closed on or after January 21, 2015. This rule explicitly prohibits lenders from charging borrowers post settlement interest, which is broadly defined as a “prepayment penalty” by the Consumer Financial Protection Bureau (CFPB), for all FHA Single Family mortgage products and programs.
In addition, FHA announced a new rule to ensure borrowers have early access to information when making decisions about their FHA mortgages. Effective for FHA-insured Adjustable Rate Mortgages (ARMs) originated on or after January 10, 2015, this rule makes two revisions to FHA’s ARM Program. It requires lenders:
To provide borrowers of FHA-insured ARMs with at least a 60-day but no more than 120-day advance notice of an adjustment to their monthly payment. FHA currently requires a 25-day advance notice.
To base an interest rate adjustment that results in a corresponding change to the borrower’s monthly payment on the most recent index value available 45 days before the date of the rate adjustment (commonly referred to as a “look back period”). FHA currently requires a 30-day look-back period.
Read FHA’s rule: Adjustable Rate Mortgage Notification Requirements and Look-back Period for FHA-insured Single Family Mortgages.
Together, these new rules are responsive to the regulations implementing the Truth-in-Lending Act (Regulation Z) as revised last year by the CFPB. These policies provide consistent protections for borrowers with FHA-insured mortgages, while ensuring borrowers have early access to information when making decisions about their FHA mortgages.
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