It’s an issue that bubbled up on Capitol Hill last week and pits Realtors against mortgage bankers: the Federal Housing Administration’s long-standing policy of forcing borrowers to pay a full month’s worth of interest at closing when they pay off their loans anytime before the end of the month.

An influential senator, Ben Cardin, D-Md., is sponsoring legislation that would require FHA to charge only per diem interest on prepayments of loans.

For instance, if an FHA mortgage were paid off on the sixth day of the month, whether in connection with a home sale or refinance, the borrower could only be asked to pay interest for those six days, rather than for the full remainder of the month, per the current rule.

Last week, Cardin offered his bill as an amendment to the Economic Development Revitalization Act of 2011, which was pending before the Senate.

That set off alarm bells at the Mortgage Bankers Association, which opposes any statutory change to the current practice, but drew strong support from the National Association of Realtors, which has advocated per diem collection of FHA payoffs for years.

Ultimately the floor debate on the big economic development bill was dominated by a controversy over ethanol subsidies, and Cardin’s amendment did not come up for a vote. But he says he intends to keep pressing for a change.

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