In a letter to HUD Secretary Shaun Donovan dated September 29, 2009, the Federal Reserve Board has reversed its position with respect to the prepayments on FHA loans. Prior to the date of this letter, the staff of the Division of Consumer and Community Affairs of the Federal Reserve Board (the group responsible for issuing official interpretations of Regulation Z) took the position that interest charged on an FHA loan for prepayments made other than on a regularly scheduled payment due date from the date of prepayment until the next installment due date should be treated as a prepayment penalty for disclosure purposes. In this letter, however, the staff takes the position (consistent with HUD's interpretation) that "(l)enders that engage in this [monthly interest accrual amortization] practice would not be required to treat the interest charged from the date of prepayment until the next installment due date as a prepayment penalty for any purpose under Regulation Z." The letter includes a statement that the letter may be relied upon as an official interpretation of Regulation Z that, under TILA, relieves creditors of liability for actions taken in good faith reliance upon the guidance set forth in the letter to the same extent as if set forth in the commentary to Regulation Z. Because of this definitional change, it is permissible for FHA loans to also be HPML loans. The audit described under the heading "HPML Regulations and FHA Loans" below has been removed. For more information on FHA prepayment disclosures, click here.
