For years, subprime lenders have defended prepayment penalties by claiming that borrowers with penalties get a lower interest rate. Now, groundbreaking research by CRL shows that borrowers get no rate benefits with subprime prepayment penalties -- and that residents in minority neighborhoods have much greater odds of receiving such penalties.
Prepayment penalties (fees for paying off mortgage loans early) are almost nonexistent in the prime mortgage market, but occur in up to 80% of subprime mortgages. The costs of these fees can prevent refinancing or strip equity, widening an already vast wealth and homeownership gap between white families and African-American and Latino families.
Borrowers in Higher Minority Areas More Likely to Receive Prepayment Penalties on Subprime Loans
Contributing Organization(s): Center for Responsible Lending
Author(s)/Creator(s): Debbie Gruenstein Bocian; Richard Zhai
Publishing Date: 2005-01-01
Issue Areas: Economic Development; Housing and Homelessness
Ownership/Rights Info: Copyright 2005 Center for Responsible Lending
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