Susan is a good friend and escrow officer who I have done business with for years. We were just discussing an idiosyncrasy pertaining to a transaction that we are working on. This deal is a refinance that will pay-off an FHA insured loan.
Paying off a FHA loan is a special case in lending, because it is the only loan in which the lender who is being paid off gets to collect interest until the end of the calendar month (and keep it), regardless of when they are paid.
For example… if an FHA loan is paid-off on April 1st, the old lender is entitled to collect interest for the full month of April, collecting money that they have not earned. The new lender will also collect interest for the month (but they earn it).
I know of no other case where this can be done. However, FHA loans ALWAYS allow the lenders to benefit in this way at the expense of the borrower.
While there is no question that the FHA has done a good thing in opening the door to homeownership for many families, I still can not get past two glaring questions…
Isn’t the FHA supposed to be doing things to help the PEOPLE, rather than favoring huge banks?
How much unearned revenues are collected from Americans each year as a result of this unfair practice?