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FHA Revises Rules Regarding Prepayments, ARMs

financesThe Federal Housing Administration (FHA) announced on Tuesday the passing of two new rules—one that prohibits lenders from charging interest on FHA-insured mortgages that are paid in full and one that requires lenders to give borrowers earlier access to information regarding FHA-insured ARMs.

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.

The 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 adjustable-rate mortgages (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," the 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."

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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