www.hudclips.org 


U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

August 23, 1991
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
MORTGAGEE LETTER 91-40
   TO:  ALL APPROVED MORTGAGEES
   ATTENTION:  SINGLE FAMILY SERVICING MANAGERS
   SUBJECT:  Prepayment Disclosure Statements
 
        These are revised instructions for the Prepayment Disclosure
   Statements discussed in Mortgagee Letter (ML) 91-32, dated
   July 24, 1991.  Based on a further review, we have concluded that
   the disclosure statements as set out in ML 91-32 could be
   misinterpreted.
 
        The disclosure statements attached to ML 91-32 indicated
   that the prepayment must be received on or before the installment
   due date (the first day of the month).  This statement implies
   that the mortgagor could avoid paying interest to the end of the
   month if the prepayment is received prior to that date (for
   example, on the 15th of the month).  This, of course, is not
   correct.  Therefore, this mortgagee letter provides the new
   statements to be used.
 
        Since many mortgagees have already developed or purchased
   the disclosure statements as provided in ML 91-32, mortgagees may
   use any existing supply of the forms by deleting the words "or
   before" in the last sentence of the second paragraph of the
   Notice at Loan Closing and in the "inserted" third paragraphs of
   the Annual Disclosure Notice.  When your existing stock is
   depleted, use the new forms.
 
        Finally, since we have had a number of requests, we have
   decided to allow mortgagees to combine the lender options of the
   Notice at Loan Closing onto one form and the inserts and lender
   options contained in the Annual Disclosure Notice onto one form
   in a checklist arrangement.  If lenders choose to use such
   combined forms, they must be certain to check the appropriate
   boxes to avoid any confusion on the part of the mortgagor.
 
_____________________________________________________________________
                                                               2
 
     We expect to publish these new disclosure statements in a
notice in the Federal Register in the near future.
 
     Any questions regarding this matter should be directed to
the local HUD Office Single Family Loan Management Branch.
 
                         Very sincerely yours,
 
                         Arthur J. Hill
                         Assistant Secretary for
                           Housing-Federal Housing Commissioner
 
Attachments
 
_____________________________________________________________________
                                                   Attachment 1
 
                       DISCLOSURE STATEMENT
               Notice to Mortgagor at Loan Closing
                       Regarding Prepayment
 
Mortgagor: _________________________     Date: _________________
Address: ___________________________     Loan#: ________________
         ___________________________     FHA#: _________________
 
     This notice is to advise you of the requirements that must
be followed to accomplish a prepayment of your mortgage, and to
prevent accrual of any interest after the date of prepayment.
 
     You may prepay any or all of the outstanding indebtedness
due under your mortgage at any time, without penalty.  However,
to avoid the accrual of interest on any prepayment after the date
of the prepayment, the prepayment must be received on the
installment due date (the first day of the month).
 
      Instructions:  Lender may use either of these options in
     its notice.
 
     (1)  Otherwise, your payment will be refused until the next
          installment due date and interest will be charged to
          that date.
 
     (2)  Otherwise, you may be required to pay interest on the
          amount prepaid through the end of the month.
 
                                   __________________________
                                   Mortgagee
 
_____________________________________________________________________
                                                   Attachment 2
 
                       DISCLOSURE STATEMENT
              Annual Disclosure Notice to Mortgagor
 
Mortgagor: ________________________      Date: __________________
Address: __________________________      Loan#: _________________
         __________________________      FHA#: __________________
 
     This notice is to advise you of requirements that must be
followed to accomplish a prepayment of your mortgage, and to
advise you of requirements you must fulfill upon prepayment to
prevent accrual of any interest after the date of prepayment.
 
     The amount listed below is the amount outstanding for
prepayment of the indebtedness due under your mortgage.  This
amount is good through ___(date)___.  (Any mortgage payments
received or advances made by us before the stated expiration date
will change the prepayment amount.)
 
$_________ (amount)
 
      For A Mortgage Insured Before August 2, 1985, Insert:
 
     You may prepay your mortgage at any time without penalty.
However, you are required to provide a written 30-day advance
notice of prepayment.  In order to avoid the accrual of interest
on any prepayment after the date of the prepayment, the prepayment
must be received on the installment due date (the first day
of the month).
 
    For A Mortgage Insured On or After August 2, 1985, Insert:
 
     You may prepay your mortgage at any time without penalty.
However, in order to avoid the accrual of interest on any
prepayment after the date of the prepayment, the prepayment must
be received on the installment due date (the first day of the
month).
 
      Instructions:  Lender may use either of these options in
     its notice.
 
     (1)  Otherwise, your prepayment will be refused until the
          next installment due date and interest will be charged
          to that date.
 
_____________________________________________________________________
                                                           2
 
     (2)  Otherwise, you may be required to pay interest on the
          amount prepaid through the end of the month.
 
     If you have any questions regarding this notice, please
contact  (name and/or department)  at  (telephone number).
 
                                   ________________________
                                   Mortgagee