What Does an Annual Disclosure Notice to Mortgagors Mean?

Homebuyers receive several annual disclosure notices each year. Government regulations require lenders to send you these notices to inform you of important information about your loan, such as escrow accounts and interest rate changes, and advise you of your rights.

The Federal Housing Agency (FHA) enforces regulations requiring lenders to provide the document known as the “Annual Disclosure Notice to Mortgagors.” FHA insures mortgage loans made by approved lenders in the United States and its territories. The annual disclosure notice concerns the prepayment of FHA-insured mortgage loan and interest accrual after prepayment.

The Federal Housing Agency, an office the U.S. Department of Housing and Urban Development, backs loans that have relaxed underwriting guidelines for the purchase of single- and multi-family homes. Lenders have less risk in making the loans since FHA will pay the mortgage in the case of default. The cost of the mortgage insurance is usually included in the homebuyer’s monthly payment for about five years. The Annual Disclosure Notice to Mortgagors, or homebuyers, is required for DHS-insured single-family home loans.

Your lender sends you the Annual Disclosure Notice to Mortgagors, also called the prepayment disclosure statement, to inform you of requirements you must follow to prepay your mortgage and prevent the accrual of interest on your loan after the prepayment date. The FHA has required provision of the “Notice to Mortgagor at Loan Closing” on closings since August 21, 1991. The agency required the mailing of the first Annual Disclosure Notice to Mortgagors following those 1991 closings beginning December 31, 1992, an extension provided by the FHA to allow lenders more time to adapt to the changes. Your local U.S. Department of Housing and Urban Development, or HUD, office handles annual notice issues in the single-family loan management branch.

The FHA provides lenders with instruction for the format of the annual notice. Lenders must include in the notice the mortgagor name, address, loan number, FHA number and the date of the notice. The notice advises you that you may prepay your mortgage at any time. The notice includes the requirements for prepayment, lists the amount remaining on your loan for prepayment, the date through which that amount is valid and reasons the amount could change.

The format includes space to insert information for loans insured by the FHA prior to August 2, 1985, which requires the mortgagor to submit a written 30-day notice to prepay. The notice states that mortgagors must submit prepayment before the loan installment due date to continued avoid interest.

The annual notice informs you of the consequences for failing to submit your prepayment by your installment due date. The lender, or mortgagee, may choose to refuse the prepayment until the next installment due date and charge interest until that date, or the lender may choose to require you to pay interest on the prepayment amount through the end of the month. The lender also must include on the notice form a contact name, department and telephone number for you to contact them with questions.