WASHINGTON – U.S. Senator Ben Cardin (D-MD) has introduced legislation that would prohibit banks and other lenders from charging interest payments through the end of the month on loans that have been paid off earlier. Currently, Federal Housing Administration (FHA) regulations allow lenders to collect interest from homeowners through the end of the month, even if the homeowner has paid off the loan earlier in the month.
“This is an issue of fairness,” said Senator Cardin, a member of the Senate Finance Committee. “Homeowners should not have to pay interest on loans that have been fully repaid and my bill will require lenders to treat FHA loans just like they treat conventional loans when a home is sold or refinanced.”
The Reduce Excessive Interest Payments (REIP) Act , S. 488, would require lenders to treat FHA-backed loans in the same manner as conventional loans. Currently, interest on FHA-insured mortgages is calculated on a monthly basis, while conventional loans conclude on the date that the principal and interest are fully repaid. The difference in calculations between FHA-backed loans and conventional loans means that FHA borrowers actually pay more for their loans while conventional borrowers pay the actual amount owed.
The FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes and it is the largest insurer of mortgages in the world, insuring more than 34 million properties since its inception in 1934.
In 2009, the FHA backed more than 9.3 million loans for new purchases and refinancing. FHA-backed loans accounted for 32.6 percent of all purchase loans and 14.8 percent of all refinance loans. The number of FHA-insured loans has continued to rise, reaching 40 percent of all purchase loans by the third quarter of 2010.