HUD Proposes To Eliminate Post-Payment Interest On FHA Loans

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On March 13, HUD proposed a rule to prohibit mortgagees from charging post-payment interest under FHA’s single family mortgage insurance program. The proposal is responsive to the CFPB’s ATR/QM rule, under which post-payment interest charged in connection with FHA loans closed on or after January 21, 2015 will be considered a prepayment penalty. HUD’s proposal states that while some single-family FHA mortgages would meet the requirements under the ATR/QM rule permitting limited prepayment penalties during the first 36 months of the mortgage, others would not. The proposal seeks to achieve consistency among FHA single-family mortgage products and to provide the same protections for all borrowers. It would remove a provision that currently allows mortgagees to require payment of interest up to the next installment due date, and instead require mortgagees to accept a prepayment at any time and in any amount without charging a post-payment charge, notwithstanding the terms of the loan. Under the proposed rule, monthly interest on the debt would be calculated on the actual unpaid principal balance as of the date prepayment is received. Comments on the proposal are due by May 12, 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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