Last month, the U.S. Department of Housing and Urban Development (HUD) issued two final rulings involving adjustable mortgage rates (ARMS). The final rulings will 1) revise ARM notification requirements and, 2) eliminate post-payment interest charges on Federal Housing Administration (FHA) loans.
ARMs can be both a reward and a risk. An ARM is a loan with an interest rate that changes. Generally, an ARM will begin with a lower monthly payment that is very appealing to borrowers. The risk is the ARM can increase significantly even though interest rates remain the same. There can also be penalties for paying off an ARM early. Borrowers need to consider what they could later end up paying monthly and decide whether the risk will be worth it. An ARM can remain the same for limited periods, ranging from 1 month to 5 years or more.
One of HUD’s final rulings is in reference to disclosures. The final rule will align HUD rules governing FHA-insured ARMs with the new Consumer Financial Protection Bureau (CFPB) rules of Truth in Lending (Regulation Z).
This final rule will amend 24 C.F.R.§203.49(d)(2) requiring FHA-insured mortgages to use the most recent index figure available 45 days before the interest rate change becomes effective. The final rule also amends 24 C.F.R.§203.49(h) that will align directly with ARM Rules under Regulation Z. This will help ensure HUDs codified regulations remain current if the CFPB amends Regulation Z.
When the interest rate adjusts, based on the index movements, the lender will be required to notify the borrower of the upcoming payment change. This notification must be given between 60 and 120 days before the new payment is due. In cases where the rate adjustment is every 2 months or less, or originated before January 10, 2015, and have look-back periods for the index value of less than 45 days, the notice may be given between 25 and 120 days before the payment change.
The second final rule is in regard to prepayment penalties. The final rule will allow FHA-approved lenders to only charge FHA loan borrowers interest through the date the loan is prepaid – the lender will be prohibited from charging any interest beyond that date.
If an FHA loan is prepaid on a date that’s not the regular payment date, the borrower had to pay interest through the end of the month – even though the loan had been paid off. With this final ruling, on FHA insured mortgages closed on or after January 21, 2015, the lender has to accept a prepayment at any time and in any amount. The borrower does not have to give the lender 30 days advance notice – even if the mortgage contract requires a 30-day notice.
The monthly interest on the loan will have to be calculated on the actual unpaid principal balance of the loan as of the date the prepayment is received and not as the next payment due date.
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Keith Gantenbein is a Colorado foreclosure defense attorney with the Gantenbein Law Firm. His Colorado foreclosure defense practice includes Colorado foreclosure help, such as foreclosure prevention, Rule 120 Hearings evictions, judicial foreclosure, , loan modifications, cash for keys, foreclosure settlement, short sale assistance, foreclosure assistance, foreclosure deficiencies, HOA foreclosures, foreclosure help in Denver, post-foreclosure litigation, foreclosure set-aside, Colorado foreclosure help, and all other foreclosure defense legal assistance. His real estate practice includes quiet title actions, real estate litigation, real estate closings, lien issues, title issues, real estate contracts, bankruptcies, mortgage negotiations, lender liability, evictions, contracts and landlord/tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Denver foreclosure defense attorney Keith Gantenbein at 303-618-2122 for a one-hour consultation, where he will discuss your situation and go over all your options with you.
Keith Gantenbein also practices homeowner defense against HOAS– including HOA foreclosures, HOA lawsuits, HOA liens, and wrongful covenant enforcement.
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