FHA to Eliminate Phantom Interest Charges for Future Borrowers

Historically, loans insured by the Federal Housing Administration (“FHA”) that were paid before maturity were subject to interest charges for the full final month in which they were repaid.  Not surprisingly, home sellers with closing dates early in the month have long complained about this practice, which increases their transaction costs. In arguing against the charge, the National Association of Realtors has reported that the excess interest charged by the FHA on already repaid loans totaled almost $600 million in 2003.  In contrast, Fannie Mae, Freddie Mac and the Department of Veterans Affairs only charge interest up to the date of payoff.

Under mandate from the Consumer Financial Protection Bureau, the FHA has agreed to end this practice for future (but not existing) loans once the new rules go into effect.

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