The CFPB is quite comfortable in their real estate/mortgage police role. So comfy they are bumping bellies with HUD. HUD’s payoff calculations have found their way under the CFPB’s skin. Specifically, the interest FHA homeowners selling or refinancing out of their FHA home loan pay is in the CFPB radar.
How Does FHA Charge Interest?
The short answer – 1 full month at a time! All FHA homeowners pay 1 month’s worth of interest when paying off their FHA loan. In fact, 30 days of interest is paid regardless of when in a month the FHA loan is paid off. Yes, you read correctly. Go back and double check. Your eyes correctly read about FHA’s Old Western stick up like tactics. Essentially, FHA robs homeowners that don’t payoff their FHA home loan at month’s end.
On the other hand, every other Arizona mortgage loan type charges you the interest due on your mortgage up to your closing / payoff date. This is just as it should be. For example, lets look at how this impacts your finances. Assume that interest on a sample loan equals $20/day and that your payoff this loan on the 15th of a 30 day month.
Interest Added to Your Payoff
- FHA: $600
- All Other Loans: $300
FHA’s payoff policy costs you $300 more for doing the same exact thing on any other type of home loan. In addition, FHA’s payoff policy means you pay interest on a loan for 15 days that you did not have the loan for.
CFPB Putting a Stop to FHA’s Interest Payment Policy
Due to the fact that by definition, CFPB sees FHA’s interest payment policy FHA loans violate current Reg Z high cost loan provisions. The CFPB has cut FHA a break for all loans closed prior to Jan 1, 2015. Those loans will still be charged full month’s interest at payoff regardless of when they are paid. All loans closed on or after January 1, 2015 will be in direct violation of current industry regulations according to the CFPB (“the mortgage police”).
Who cares you? Based on the fact that the CFPB is the new mortgage police department it would be the same asking “why does it matter if you running through the mall parking lot at 10 am on Saturday in your birthday suit with a pitcher of beer sloshing around in your left hand?” Well, I don’t know where you live but I do know around here the police would not be smiling.
In all seriousness, if a loan violates CFPB rules it will not be originated and that cuts off a huge section of folks who could only buy a home using FHA financing. Look for FHA’s prepayment of interest at payoff to change next year. It’s about TIME!
By Jeremy House