Regulatory Alerts2003-12-15
Prepayment Penalties on First and Secondary Mortgage Loans
The Pennsylvania Department of Banking issued a letter clarifying that licensees under the MBBCEPA and SMLA are prohibited from charging prepayment penalties on residential first and secondary mortgage loans with original principal amounts of $50,000 or less. This determination supersedes prior interpretations that allowed such penalties for loans qualifying as alternative mortgage transactions under the AMTPA, as federal regulations no longer exempt non-depository housing creditors from state law restrictions. Consequently, while penalties remain permissible for loans exceeding $50,000, all mortgage contracts must strictly comply with the terms and restrictions mandated by applicable state and federal laws.
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