Predatory loan terms, namely prepayment penalties and balloon payments, increase the risk of mortgage foreclosure in subprime home loans, even after controlling for the borrower's credit score, loan terms and varying economic conditions, according to a report by the Center for Community Capitalism at The University of North Carolina at Chapel Hill. While previous studies have demonstrated a correlation between subprime lending and foreclosures, these findings show that specific abusive loan terms lead to additional home losses. "The study demonstrates that subprime prepayment penalties and balloon payments place Americans at substantially greater risk of losing their homes," said Dr. Michael A. Stegman, director of UNC's Center for Community Capitalism, part of the Frank Hawkins Kenan I...
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