We welcome the California Escrow Association – Education Committee to our blog today with a discussion of the new CFPB regulations in California.

HUD announced in a bulletin dated August 26, 2014 (see link below), in response to new CFPB regulations, that the requirement for collection of “Post Pay-off Interest” on FHA loans has been removed. The change has recently become a topic of discussion because it applies to loans that are “closed” after January 21, 2015. Keep in mind the word “closed” does not mean the same thing to HUD as it does to those of us in the escrow/settlement world.

In a nutshell, the revision to interest collection applies only to loans that are originated (or “closed”) after January 21, 2015. If the loan being paid off originated (or “closed”) prior to January 21, 2015, it will be subject to interest collection for the entire month regardless of what time during the month the loan is paid off.

Bulletin link: http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_FHA_INFO_14-50.pdf

Here are two examples that should help make sense of the new rule and how it will affect FHA payoffs in the future.

Scenario #1:
Borrower applies for an FHA mortgage and the loan originated in 2014. In 2015 the borrower applies for a refinance and intends to pay off the existing mortgage that was originated/closed in 2014. The existing FHA mortgage to be paid off will be subject to interest collection for the entire month regardless of what time during the month the payoff is being made. This is because the existing loan originated/closed before January 21st, 2015.

Scenario #2:
Borrower obtains an FHA mortgage and the loan is originated after January 21st, 2015. Several months after the loan was originated/closed, the borrower decides to refinance the mortgage to reduce the interest rate. Since the existing loan originated/closed after January 21st, 2015, the loan will not be subject to interest collection for the entire month.

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