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If your firm services FHA insured loan transactions, you need to be aware of a substantive change in FHA policy being implemented, for loans that obtain their FHA case number on & after March 14, 2016, that involves the assessment of Late Charges.
HUD/FHA allows servicing lenders to assess a late charge on FHA-insured loan transactions if a borrower’s mortgage payment is received more than 15 days after the due date.
Before collecting any late charges, the mortgagee must provide the borrower with an advance written notice that will notify them of the due date of the payment, the amount of the regular payment, the date on which the late charge will be imposed and the amount of the late charge (or the full amount now due which consists of the regular monthly payment plus the late charge amount).
For loans that obtain their FHA case number on or after March 16, 2016, the Mortgagee will now be able to assess late charges not to exceed 4% of the overdue payment of Principal and Interest (P&I) and in accordance with applicable law.
Previously, Mortgagees were able to assess late charges based on overdue payments to Principal and Interest & Taxes & Insurance (PITI) if permitted under the terms of the mortgage note and under applicable law.
Although the percentage (4%) applied for late charges is not changing, the elimination of Taxes & Insurance from the late charge calculation will mean less revenue for servicing lenders – especially on loan transactions involving properties with high real estate taxes.
For example, a loan with a $1,000/month P&I and a $450/month escrow for taxes & insurance would result in a $58 late charge under current rules. Under the new Rule, this late charge will only be $40.
Loading ...In my opinion, FHA is treading on dangerous turf at the present time in making changes that negatively impact revenues for lenders. The cost of compliance with all of the new mandates and the negative publicity associated with huge settlements with some large FHA lenders for poor underwriting practices on older loan transactions have many firms looking for viable financing alternatives. Fannie Mae’s Home Ready initiative is just one such example as well as various State Housing Authority programs for first-time homebuyers.
There was no explanation provided by HUD/FHA in the Handbook in making this rule change on late charges. Perhaps, there will be no negative push-back from the servicing lenders? On the other hand, does FHA really want their competition to have yet another reason to promote alternative financing options?
Stay tuned!
