HOEPA Creates Headache for FHA Loans

Certain Federal Housing Administration loans could run afoul of a new HOEPA rule that prohibits prepayment penalties, and industry groups want the Federal Reserve Board to fix the problem. The problem stems from a Ginnie Mae payoff requirement that all interest on a loan must be paid for the full month. If the loan is paid off on September 5, the interest must be collected for the rest of the month. The Consumer Mortgage Coalition and other groups are concerned this extra interest is considered a prepayment penalty under the Home Owners and Equity Protection Act regulation that goes into effect October 1. HOEPA bans prepayment penalties on higher-priced loans if the interest rate changes during the first four years. On fixed-rate loans, HOEPA limits a prepayment penalty to the first two years. Too many FHA loans fall into the higher-priced category and the industry wants the Fed to clarify that payoff interest is not a prepayment penalty under HOEPA.