Regions Bank Customers May Have Paid Too Much in the Early Mortgage Payoff Process

If you took out an FHA mortgage loan through Regions Bank and were charged a post-payment interest fee when you sold, refinanced, or paid off your loan early within the last for yours, you may have been charged too much in the mortgage payoff process.

Can an FHA loan through Regions Bank be paid off early?

Borrowers who took out an FHA loan through their bank, like Regions Bank, should be able to pay off this loan early. But excess interest fees make the mortgage payoff process more difficult and costly than it should be. Regions Bank is suspected of charging post-payment interest fees on FHA loans, in violation of federal law.

What are FHA post-payment interest fees?

On traditional mortgage loans, lenders can charge a penalty if a borrower pays off their loan early. This is done because if a borrower does pay off their loan early, the lender loses money on the interest they couldn’t charge for the duration of the loan.

Loans backed by the FHA (Federal Housing Administration) are attractive to many borrowers because the FHA does not charge penalties for paying off a loan early.

US News and World Report outlines the differences between an FHA loan and a traditional home loan, noting that having a home loan insured by the FHA “provides the security that qualified lenders need in order to take on a risker loan.” So, an FHA loan can give home loan access to people who might not otherwise be approved. 

However, lenders reportedly found another way to make money off of borrowers who paid off their mortgage loan early. This was done by charging a borrower an interest payment through the end of the month that they paid off their mortgage, even if the borrower paid off the loan in full at the beginning of the month.

This practice can lead borrowers to pay hundreds of dollars in interest after they paid off their loan in full. The Los Angeles Times reported that in 2003, borrowers paid around $587.4 million in “excess interest fees” on FHA loans because of this practice.

Some borrowers may be hit especially hard by these post-payment fees if they did not know about the fees and had to pay hundreds of dollars over what they budgeted for their loan payments.

Happily, the Consumer Financial Protection Bureau largely did away with post-payment interest fees on FHA loans, in an attempt to protect borrowers. The law prohibiting banks from charging interest fees after a loan has been paid off in full was passed in 2015.

However, some banks may still be engaging in this practice in an attempt to squeeze the largest possible profit out of FHA borrowers during the mortgage payoff process. Regions Bank may be one such bank.

How can borrowers fight back against post-payment interest charges?

Joining an FHA early mortgage payoff fee lawsuit can be one way in which borrowers can fight back against the now-illegal practice of charging interest after a borrower has paid off their home loan.

Wells Fargo. according to Bloomberg Law, has been hit with multiple lawsuits over this issue — borrowers claimed that the financial giant failed to notify them that they might be charged interest payments after they have paid off their FHA home loans.

Allegedly, Wells Fargo failed to use notices approved by the Department of Housing and Urban Development to notify customers of interest policies. The bank faced a $30 million settlement in 2018 in an FHA mortgage class action lawsuit.

Update

According to Law360, JPMorgan Chase Bank NA was ordered to pay over $11.2 million in 2018 to resolve a proposed class action lawsuit that alleged the bank had required customers to pay unnecessary interest fees after paying off their Federal Housing Administration mortgages.

United States District Judge Stephanie M. Rose described the deal as “fair, reasonable, and adequate,” which reportedly satisfied the terms of the settlement. The proposed class consisted of customers who had over 376,000 FHA backed loans in which Chase reportedly charged post-payment interest.

These fees occurred when the borrower completely paid off a loan before the next monthly payment was due, which, according to the FHA allows lenders to charge interest for that whole month.

This is true even if there is no longer any principal remaining on the loan, which, under old FHA rules, allowed Chase to charge under certain circumstances before these practices were prohibited in 2015.

The lead plaintiffs were an Iowa couple and California man, who alleged Chase had failed to follow FHA regulations and had allegedly charged post-payment interest without providing sufficient disclosure.

The proposed class action lawsuit dates back to 2016, surviving a previous bid of dismissal from Chase in 2017 which caused both sides to agree to mediation.

A tentative deal was reportedly reached not long after, with the plaintiffs requesting preliminary approval not long after. The settlement reportedly distributed an average of $230 per post-payment interest.

According to court documents, plaintiff counsel reportedly requested up to 28 percent of the settlement fund, which was approximately $3.1 million and an additional $40,000 to reimburse for expenses.

The Chase Class Action Lawsuit is Case No. 4:16-cv-00631, in the U.S. District Court for the Southern District of Iowa.

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.

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