New FHA Rules

FHA Unveils Rules on Post Payment Charges, ARM Adjustments

From 8/26/14
The Federal Housing Administration (FHA) announced on Tuesday the passing of two new rules—one that prohibits lenders from charging interest on FHA-insured mortgages after the date they’re paid in full and one that requires lenders to give borrowers earlier access to information regarding FHA-insured adjustable-rate mortgages (ARM).

One of the rules, entitled Handling Prepayments: Eliminating Post-Payment Interest Charges, will prevent borrowers from having to pay post-settlement interest, which is defined by the Consumer Financial Protection Bureau (CFPB) as a “prepayment penalty.” The rule applies to FHA-insured mortgages that will close on or after January 21, 2015.

FHA also announced two new requirements for lenders in a rule known as Adjustable Rate Mortgage Notification Requirements and Look-back Period for FHA-insured Single Family Mortgages that will be applied to FHA-insured ARMs that originate on or after January 10, 2015. Lenders must now notify borrowers on FHA-insured ARMs at least 60 days in advance (but not more than 120 days) of an adjustment on their mortgage payment. The current rule requires lenders to provide a minimum of 25 days’ notice.

The second requirement of the ARM rule involves the “look-back period,” or the number of days a lender “looks back” to the index value in order to determine the new interest rate on a reset loan. Lenders must now base interest rate adjustments for reset mortgage loans on the index value available 45 days before the rate adjustment date. The current look-back period is 25 days.

“Together, these new rules are responsive to the regulations implementing the Truth-in-Lending Act (Regulation Z) as revised last year by the CFPB,” FHA said in a release. “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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