In an effort to improve the financial health of its mutual mortgage insurance fund, FHA previously increased both its upfront Mortgage Insurance Premium (1.75%) as well as its annual (or monthly) premiums for most borrowers. In addition, FHA effectively eliminated refunds of its upfront premiums for mortgages endorsed on or after December 8, 2004 and also ruled that borrowers must pay annual premiums over the life of the loan (for loans obtained after May 2013).
Now, in a rule announced yesterday (November 3, 2014), HUD/FHA has indicated that they will not be adopting CFPBs’ points and fees cure provisions for FHA borrowers. In this regard, the CFPB recently announced an amendment to its 3% points and fees limitation for QM loans. This would permit a creditor or assignee to cure an inadvertent excess over the qualified mortgage points and fees limit. In such cases, the creditor or assignee must refund to the consumer, within 210 days after consummation, the amount of money over the points and fees limit.
HUD’s reasons for not allowing FHA borrowers to obtain such refunds is that HUD codified its own QM definition (which differs from CFPB’s QM definition), that lenders should ensure all eligibility requirements prior to endorsement (which is typically within 30 days of closing). Also, if an FHA lender returns funds to a borrower, the amount returned could violate the borrower’s statutorily required minimum cash investment of 3.5% or other requirements relating to third-party contributions. However, closing costs and prepaids cannot be counted towards an FHA borrower’s 3.5% minimum investment requirement and all funds counted towards the FHA borrower’s minimum investment must come from their own funds.
So, the bottom line is no refunds for FHA borrowers! Advice to lenders is to perform more pre-closing reviews on FHA loan transactions in order to check on the accuracy of their points and fees calculations before the loan closes.