Industry News

Subprime borrowers at higher risk of prepayment penalties

Costs jeopardize home equity, refinance

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People with subprime home loans who live in minority neighborhoods face 35 percent greater odds of being saddled with prepayment penalties than borrowers living in predominantly white neighborhoods, according to new research from the Center for Responsible Lending. Also today, CRL reports findings – in direct contradiction to subprime mortgage industry claims of homeowner savings – that borrowers burdened with prepayment penalties actually pay higher interest rates on subprime home-purchase loans, and receive no meaningful interest-rate reduction when they choose to refinance. "These findings are shocking," said CRL President Mark Pearce. "Not only do prepayment penalties lock borrowers into the higher-cost subprime market or force them to give up the wealth they have built through home ownership, but they also turn out to offer no benefit to borrowers in the form of lower interest rates, as the subprime industry has claimed. These abusive prepayment penalties operate as...