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I was surprised to see a Senate bill was introduced this year to change the payoff calculation on FHA loans to per diem interest. Article below.
The statement below charges the extra interest is, in effect, a prepayment penalty and a potential TILA violation so if the practice is not changed then full disclosure should be implemented. The problem with that is no one knows the exact date they will sell or refinance their loan. In other words, if someone paid their loan off on the 25TH of the month they would be paying an extra 5 days interest in a 30 day month compared to paying an extra 25 days interest if paid off on the 5th. How do you disclose the extra days on the TIL when the loan is originated if you cant see into the future to know the exact date of payoff?
In a letter to acting FHA commissioner Carol Galante, NAR President Ron Phipps said that besides playing "unreasonable and often unexpected burdens on FHA consumers who already face high housing and closing costs," the fees appear to violate the Truth in Lending Act (TILA), as amended by Dodd-Frank.
That law bars prepayment penalties or requires them to be phased out over the next three years. The Federal Reserve's proposed regulations implementing the TILA changes clearly cover fees like FHA's, said Phipps, which force borrowers "to pay interest charges based on an outstanding principal loan amount that has already been fully paid."
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