My institution originates residential mortgage loans with prepayment fees out to five years. Are these loans eligible collateral under the Banks APL policy?
These loans may be eligible collateral if the prepayment fee is permissible under applicable law. The second paragraph of the APL policy states that “The Bank requires that residential mortgage collateral…compl[y] with applicable federal, state, and local anti-predatory lending laws and other similar credit-related consumer-protection laws, regulations, and orders designed to prevent or regulate abusive or deceptive lending practices.” Therefore, if a loan does not comply with applicable law for any reason, including prepayment fees, such a loan is not eligible as collateral. The Bank acknowledges that there is uncertainty in some jurisdictions regarding the acceptable prepayment fees in accordance with applicable APL laws. The Bank is not able to provide definitive guidance in situations that involve legal interpretations. The Bank does make available a list of some current APL laws that apply to “high cost loans” and “covered loans” as defined by the Bank. This list is included in
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