Were FHA Loan Regulations Violated by Regions Bank?

Regions Bank may have been in violation of FHA loan regulations when it allegedly charged a prepayment penalty to borrowers who paid off their mortgages early.

Before 2015, home buyers who took out mortgages through the Federal Housing Administration were typically charged a “prepayment fee” equal to an entire month’s interest, regardless of the time of the month the loan was retired. However, since 2015, lenders have been prohibited from assessing such fees.

Currently, law firms are investigating Regions Bank for alleged abuses. If you sold or refinanced your home or paid off your mortgage during or after the new regulations took effect and were charged a penalty, you may qualify to join a class action lawsuit investigation.

About FHA Loan Regulations and Prepayment Penalties

The Federal Housing Administration was created under the Franklin D. Roosevelt Administration as part of the restructuring of the federal banking system under the National Housing Act of 1934. The purpose was to regulate interest rates and terms of government-insured mortgages. This allowed more Americans to afford down payments and monthly interest on mortgages, thus revitalizing the housing market, which had languished in the wake of the collapse of Wall Street in October 1929.

Although FHA loans never had prepayment penalties, there were no rules preventing banks from charging such fees. Prior to Jan. 21, 2015, lending institutions underwriting FHA loans were able to charge prepayment penalties to borrowers who refinanced their mortgages or paid them off early. This penalty varies from one lender to another but can be as much as 2 percent of the balance outstanding, or the equivalent of six months’ interest.

Since then, FHA loan regulations put in place by the Consumer Financial Protection Bureau has prohibited this practice on FHA loans; the lender may assess a fee only for the amount of interest accrued through the day of payoff. Thus, if a borrower pays off the mortgage on the 10^th of the month, the lender cannot add more than ten days’ worth of interest to the payment.

Violations Allegedly Continue

Despite the new rules, many lending institutions have allegedly been charging unauthorized prepayment fees in violation of FHA loan regulations. The purpose of these fees is to discourage borrowers from paying off mortgages early as this deprives lenders of massive amounts of interest they could otherwise have received over the lifetime of the loan. In most cases, the fee is based on the number of years that the borrower has been paying on the loan.

Under the Truth in Lending Act, a lender is required to provide the borrower with a disclosure form that indicates whether or not a prepayment penalty will be assessed. The disclosure typically says that a fee “may” be assessed, which can be confusing.

Regions’ History of Violations

In 2016, Regions Financial admitted to certifying mortgages that failed to meet creditworthiness standards established by the U.S. Department of Housing and Urban Development (HUD). When such a loan is approved by a lender and the borrower subsequently defaults, the lender is able to file an insurance claim with HUD in order to cover the loss. In order to settle allegations of this violation of FHA loan regulations, Regions paid $52.4 million to the Department of Justice.

Join a Regions Bank FHA Mortgage Class Action Lawsuit Investigation

If you had an FHA mortgage loan with Regions Bank, and you sold, refinanced or paid off your mortgage early, you may have been charged a post-payment interest fee. If so, you may be owed money.

Learn More

This article is not legal advice. It is presented
for informational purposes only.