How lenders can boost refis, prevent foreclosures

Dear Santa: Get rid of prepayment penalty

"We bailed out the banks, so why don’t the banks bail out consumers?"

For the past two years, the most difficult question to answer has been the one raised by homeowners who have toed the line. They have made their payments on time, regardless of declining values. They have seen other owners who are behind on their loans qualify for a loan modification, then default again. Still, those "who have done the right thing" have been offered no relief.

Many borrowers who would like to refinance at today’s lower interest rates face significant prepayment penalties for doing so. The typical prepayment penalty is six months’ interest on 80 percent of the loan balance. Lenders put the blame on secondary-market investors who refuse to budge on terms.