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Financial Services Law Insights and Observations

FHA Commissioner Issues Statement on Insurance Premiums and HPMLs

TILA FHA Qualified Mortgage Mortgagee Letters

Lending

On June 3, FHA Commissioner Carol Galante issued a statement in response to lenders’ concern that new monthly mortgage insurance premium requirements will increase the APR on FHA mortgages resulting in more mortgages exceeding Regulation Z’s high priced mortgage loan (HPML) threshold. Mortgagee Letter 2013-04 requires most borrowers to continue paying annual premiums for the life of their mortgage loan, reversing a policy adopted in 2001 under which the FHA cancelled premium requirements on loans when the outstanding principal balance reached 78 percent of the original principal balance. Commissioner Galante’s statement acknowledges the concern, but states that all lenders are expected to comply with existing Regulation Z requirement for HPMLs. Her statement provides guidance, based on consultation with the CFPB, as to how HPML requirements differ from FHA requirements related to escrow accounts, appraisals, ability to repay, and prepayment penalties. Commissioner Galante also stated that the FHA continues to work on defining an FHA qualified mortgage standard to address these issues.

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