Proposed Elimination of FHA “Prepayment Penalty”

On March 13, 2014, the Department of Housing and Urban Development (HUD) issued a proposed rule to eliminate Federal Housing Administration (FHA) post-payment interest charges. The policy change would prohibit mortgagees from charging borrowers interest on their home mortgages for days or weeks after a principal balance pay-off. The proposed rule will align HUD policy with the Consumer Financial Protection Bureau’s Final Qualified Mortgage Rule.

The National Association of REALTORS® (NAR) has urged FHA and Ginnie Mae to remove this prepayment penalty for more than ten years. Conventional loans, as well as loans from the Veterans Administration’s Loan Guaranty Program and the U.S. Department of Agriculture’s Rural Housing Service loan program, do not have post-payment interest charges. FHA’s antiquated policy has placed an unreasonable and often unexpected burden on FHA consumers who already face high housing and closing costs.

NAR will provide a comment letter to HUD on the proposed rule by the comment due date of May 12, 2014.

Proposed Rule