Prepayment Disclosure Statement is statement on the amount outstanding on a FHA insured mortgage loan and the requirements that the borrower must fulfill to meet upon prepayment to prevent accrual of interest after the date of prepayment.
The outstanding amount identified in the Prepayment Disclosure Statement is good through the date mentioned in the disclosure. If identified in the disclosure, the balance amount may also include penalties, late charges, advances, any other charges related to the loan, and any foreclosure or bankruptcy expenses incurred to date under the mortgage.
The mortgage servicer provides the statement to the borrower on an annual basis for all FHA insured forward mortgage loans. The requirement for sending the disclosure is prescribed in the FHA Single Family Housing Policy Handbook under 4000.1 Part III (A) (1) (m).
The key information contained in Prepayment Disclosure Statement is:
The disclosure helps you to understand the current unpaid principal balance amount on the mortgage loan and the conditions that you must meet to prevent accrual of interest after the date of prepayment. No action is required if you do not plan on prepaying the loan.
If you plan on prepaying the loan, then you should review the statement and understand the conditions for prepayment. In addition to relying on the information in the Prepayment Disclosure Statement, you should contact the servicer and obtain a payoff disclosure statement. The payoff disclosure statement will provide the specific payment amount that is required to be paid on a particular date to fully payoff the loan, which includes payments for unpaid principal balance, penalties, advances, and fees associated with payoff. This will avoid any surprises due to accounting adjustments, reconveyance fees, or other fees.
As a mortgage servicer or lender that is servicing the FHA insured loan, you should review the 4000.1 Part III (A) (1) (m) Disclosures section of the HUD FHA Single Family Housing Policy Handbook to fully understand the requirements related to Prepayment Disclosure Statement. The handbook implements 24 CFR 203.9
The mortgage servicer or lender that is servicing the loan must retain a copy of the annual Prepayment Disclosure Statement in the servicing file.
The disclosure must be provided to the borrower on an annual basis.
HUD has developed a model disclosure that you should use when sending the disclosure.
Updated: Nov 24, 2018