Subprime Loans Are More Likely to Have Prepayment Penalties
Jan. 14--Homeowners in minority neighborhoods are 35 percent more likely to deal with prepayment penalties on subprime home loans than those in mostly white neighborhoods, according to a study released yesterday by a consumer-advocacy group in Durham.
A second study by the Center for Responsible Lending found that homeowners with subprime loans didn't receive "a meaningful interest-rate reduction" from paying a prepayment penalty to refinance their mortgage. The studies were conducted between January 2000 and July 2004.
Subprime loans are directed at individuals who do not qualify for lower interest rates through traditional banks or mortgage groups. About 20 percent of mortgage loans are subprime, the center said.
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A prepayment penalty is applied when a mortgage is paid off before the due date and can cost thousands of dollars depending on the amount of the loan. Some subprime lenders require prepayment penalties in exchange for a lower interest rate.
The studies found that the penalties act as a deterrent to families whose financial situation has improved enough that they can qualify for a prime mortgage loan, but they can't afford the prepayment fee. Nearly 80 percent of subprime mortgage loans included in the study contain prepayment penalties compared with 2 percent of prime mortgage loans.
Officials with the Durham center said that prepayment penalties are harmful to minority households because "two thirds of the net wealth held by African-Americans and Latinos consists of home equity."
"The evidence is now clear. Prepayment penalties in subprime loans are locking African-American families out of the prime mortgage market and rolling back hard-earned economic progress," said Hilary Shelton, the director of the Washington bureau of the NAACP.
The studies are the latest in a series of reports by the Center for Responsible Lending focused on subprime loans' role in cases of predatory-mortgage lending.
State officials and consumer advocates said that predatory loans strip homeowners of equity in their home through excessive fees and unnecessary refinancings, with some loans eventually being forced into foreclosure.
Consumer advocates say that low- to moderate-income residents, the elderly, the disabled, immigrants and people with poor credit ratings are vulnerable to predatory lending.
Since the N.C. Predatory Lending Act took effect July 1, 2000, it has saved state homeowners more than $100 million by limiting or prohibiting predatory terms for subprime mortgage loans, according to a report by the center. An U.S. House bill was introduced in March that would use North Carolina's predatory-lending law as the model for a federal standard.
Mitchell Feinstein, the chairman of the National Home Equity Mortgage Association, said that most subprime lenders adequately match the credit risk of potential borrowers. He said that some states' predatory-lending laws are too restrictive.
"We're talking about a $400-billion industry and the number of people who are duped by people with bad intentions is small," Feinstein said.
For competitive mortgage information visit http://www.mortgagesort.com
A second study by the Center for Responsible Lending found that homeowners with subprime loans didn't receive "a meaningful interest-rate reduction" from paying a prepayment penalty to refinance their mortgage. The studies were conducted between January 2000 and July 2004.
Subprime loans are directed at individuals who do not qualify for lower interest rates through traditional banks or mortgage groups. About 20 percent of mortgage loans are subprime, the center said.
Site Sponsor
A prepayment penalty is applied when a mortgage is paid off before the due date and can cost thousands of dollars depending on the amount of the loan. Some subprime lenders require prepayment penalties in exchange for a lower interest rate.
The studies found that the penalties act as a deterrent to families whose financial situation has improved enough that they can qualify for a prime mortgage loan, but they can't afford the prepayment fee. Nearly 80 percent of subprime mortgage loans included in the study contain prepayment penalties compared with 2 percent of prime mortgage loans.
Officials with the Durham center said that prepayment penalties are harmful to minority households because "two thirds of the net wealth held by African-Americans and Latinos consists of home equity."
"The evidence is now clear. Prepayment penalties in subprime loans are locking African-American families out of the prime mortgage market and rolling back hard-earned economic progress," said Hilary Shelton, the director of the Washington bureau of the NAACP.
The studies are the latest in a series of reports by the Center for Responsible Lending focused on subprime loans' role in cases of predatory-mortgage lending.
State officials and consumer advocates said that predatory loans strip homeowners of equity in their home through excessive fees and unnecessary refinancings, with some loans eventually being forced into foreclosure.
Consumer advocates say that low- to moderate-income residents, the elderly, the disabled, immigrants and people with poor credit ratings are vulnerable to predatory lending.
Since the N.C. Predatory Lending Act took effect July 1, 2000, it has saved state homeowners more than $100 million by limiting or prohibiting predatory terms for subprime mortgage loans, according to a report by the center. An U.S. House bill was introduced in March that would use North Carolina's predatory-lending law as the model for a federal standard.
Mitchell Feinstein, the chairman of the National Home Equity Mortgage Association, said that most subprime lenders adequately match the credit risk of potential borrowers. He said that some states' predatory-lending laws are too restrictive.
"We're talking about a $400-billion industry and the number of people who are duped by people with bad intentions is small," Feinstein said.
For competitive mortgage information visit http://www.mortgagesort.com
posted by Kirby P at 11:20 AM
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