[1]The Federal Housing Administration (FHA [2]) 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 [3], will prevent borrowers from having to pay post-settlement interest, which is defined by the Consumer Financial Protection Bureau (CFPB [4]) 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 [5] 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."