Friday, August 3, 2007

Prepayment Penalty Limits

Despite the fact that most states have set limits on prepayment penalties (1% for three year in Michigan), you've probably seen the occasional loan that has a penalty above and beyond this limit. I've asked several knowledgeable people in the industry how this can occur, but I've never received a clear answer. Until now. In an article published in the Detroit Free Press on 07/22/07, Real Estate expert Ilyce Glink explains that federally chartered lenders are permitted to circumvent state limits. This applies to "any lender that has established its charter as a federal savings bank or under federal law." For more information, you can visit Ilyce's website:
http://www.thinkglink.com/Prepayment_Penalties_Persist.htm

3 comments:

Renee said...

Very complicated subject, as you're likely aware of by now, Alex! I have to comment on the linked article - I found it unreasonably negative and 'hype-ish'. Nobody gets anything for nothing - the higher the risk to profit, the higher the price for the product, and that would hold for any product sold by any business that hoped to remain viable.

I did find a current, national listing of PPP limitations that you might find interesting:

http://www.docmagic.com/compliance/2003/jun-03/ots-says/

A.G.Y. said...

The media does over-simplify issues much of the time. Prepayment bad, fees bad. There are so many factors involved in determining the fair value of accepting a risk. That's one of the reasons I think it's so important for a signing agent to stay impartial at a loan signing. What may look like bad terms or fees may be in fact completely reasonable based on the risk.


Thanks for that list. I'd been searching for one like that.

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