HUD/FHA has a long history of assisting first-time home buyers achieve their dream of home ownership as well as its numerous consumer-protection policies, yet it has had regulations in place for years that seemed contrary to its stated objectives.
Specifically, FHA lenders were authorized to charge a borrower interest through the end of the month when they paid off their mortgage before the end of the month. For example, if an FHA borrower prepaid his/her mortgage in full on December 2, 2014 – the lender could charge this borrower interest on the loan through December 31, 2014. As a result, the pay-off amount would be greater and the amount due to the borrower would be reduced accordingly. Many FHA borrowers have questioned the fairness of such a policy in light of the fact that it is an industry practice on most conventional loans to charge interest only through the date the mortgage is paid in full.
In response to these concerns, HUD/FHA published a Final Rule on August 26, 2014 that effectively eliminates post-payment interest charges for all FHA-insured single family mortgage products in which the loan closes on or after January 21, 2015. FHA Lenders will now only be authorized to charge interest through the date the mortgage is paid in full.
A revised “Important Notice to Homebuyers (HUD-92900-B)” Form reflecting this new policy has just been posted to the www.fha.gov website. Lenders can begin utilizing this Form immediately but it will become mandatory on all FHA loan transactions that close on or after January 21, 2015. Updated model mortgage documents as well as the “Informed Consumer Choice Disclosure” Form have also been posted to HUD’s website.
Now, if only HUD Senior Officials would give serious consideration to reducing the Mortgage Insurance Premium structure on FHA loans?