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View Diary: Bankruptcy's Bastard Brother - Time to Take Action (92 comments)

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  •  What's wrong part 4 (4.00)
    The other major item that must be included in the points and fees trigger if it is to be meaningful is the prepayment penalty. Most people who get prime mortgages in this country can't imagine a loan having a prepayment penalty, in spite of the fact that prime loans are refinanced much more frequently that subprime loans are. Over 2/3 of all subprime loans on the other hand have prepayment penalties.

    A prepayment penalty traps a borrower in a bad loan, because even if they find a better deal they can't refinance out of their current loan without incurring huge costs. These costs not only have to be counted in the points and fees triggers, but they should also be restricted to last for no more than 2 years.  

    Some of the state bills which would be superceded by this bill have clauses that incorporate better consumer protections on the prepayment penalty and the yield spread premium issues.

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