Did you know that FHA borrowers are suing banks for collecting post settlement interest?
May 6, 2016
Many of you have clients that have used FHA loans to purchase their homes. In our area, where the cost of housing is high, saving enough for a 20% or even a 10% down payment can be formidable. The low down payment requirement for FHA loans has enabled many in our area to become homeowners. While borrowers often understand that FHA loans come with built in PMI payments, few have known that FHA loans charge post settlement interest. Post settlement interest is the amount of interest charged from the date the loan is paid off (when one sells or refinances their loan) until the end of the month in which the loan was paid. On conventional loans and even VA loans, interest is charged only through the date that the payoff is received by the lender. The post settlement interest collected on FHA loans likely totals in the hundreds of millions each year. One of the lawsuits claims that borrowers paid an estimated $449 million in post settlement interest charges in 2012 alone.
Last year, the Consumer Financial Protection Bureau amended the rules for collecting post settlement interest. Specifically, 24 CFR 203.558 was amended to disallow post settlement interest charges for any FHA loan originated after January 21, 2015.
The cases that were filed are: Dorado v. Bank of America, No. 16-cv-21147, Smith v. U.S. Bank, No. 16-21146, and Miller v. Wells Fargo Bank, No. 16-21145, all in U.S. District Court in Florida’s Southern District, and Felix v. SunTrust Mortgage, U.S. District Court, Northern District of Georgia, No. 16-cv-1052.
If you have any questions regarding closings and FHA loans, please contact one of the attorneys listed below.
For more information regarding our Residential Real Estate Settlements Group or our general real estate transactions and litigation practice, please contact the Group Chair at 301-230-6574 or firstname.lastname@example.org.
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