Knowledge Tree
prepayment penalties
Facts (10)
Sources
Predatory Lending Practices - House.gov commdocs.house.gov 8 facts
claimMr. Bartlett asserts that prepayment penalties are the critical factor enabling 'steering' in mortgage lending, as they prevent borrowers from refinancing to escape high-rate loans.
claimThe legislative bill discussed in the hearing prohibits prepayment penalties on all home loans, but restricts this prohibition to loans of $150,000 or smaller.
perspectivePrepayment penalties are unjustifiable because they penalize borrowers for paying off their debt, which is a behavior that lenders typically encourage.
perspectiveThe lending industry argues that charging prepayment penalties to borrowers who pay off loans early is fairer than increasing interest rates for all borrowers to cover the lender's upfront costs.
perspectiveMr. Bartlett argues that the prohibition on prepayment penalties should apply to loans up to the conforming loan level for Fannie Mae and Freddie Mac (approximately $200,000) rather than the $150,000 limit included in the bill.
claimMr. Bartlett explains that without prepayment penalties, the marketplace would discipline 'steering' because lenders would not pay premiums (referred to as 'kickbacks' by consumer advocates) for placing borrowers in higher-rate loans if the borrower could easily refinance.
claimPrepayment penalties can lower the overall cost of a loan for most borrowers.
claimPrepayment penalties facilitate 'racial steering,' a practice where brokers sell higher-interest loans to unsophisticated borrowers to earn a premium.
Regulatory - American Predatory Lending predatorylending.duke.edu 1 fact
claimThe Home Ownership and Equity Protection Act (HOEPA) established interest rate and fee thresholds that triggered disclosure requirements and prohibitions on certain loan terms, including prepayment penalties.
New study estimates the effect of predatory-lending law ushakrisna.com 1 fact
claimThe pilot program resulted in a reduction of loans featuring negative amortization, prepayment penalties, low documentation requirements, and low down-payment requirements.