Origination Channel, Prepayment Penalties, and Default

Real Estate Economics, Forthcoming

Posted: 11 Aug 2011

See all articles by Morgan J. Rose

Morgan J. Rose

University of Maryland, Baltimore County; Office of the Comptroller of the Currency

Multiple version iconThere are 2 versions of this paper

Date Written: August 11, 2011


This paper presents evidence that non-bank-originated sub-prime mortgages have a higher probability of default than bank-originated sub-prime mortgages, but only for loans with prepayment penalties. Evidence also indicates that non-banks price prepayment penalties less favorably to borrowers than banks do, and non-banks originate disproportionately more loans with prepayment penalties in locales with less financially sophisticated borrowers. State anti-predatory lending law provisions restricting the use of prepayment penalties eliminate the elevated default risk of non-bank origination's relative to bank origination's. These findings are consistent with incentives generated by non-bank compensation via yield spread premiums on loans with prepayment penalties.

Keywords: foreclosure, prepayment penalties, yield spread premiums, mortgage brokers, financial regulation

JEL Classification: G21, G28, G01, D18, L85

Suggested Citation

Rose, Morgan J., Origination Channel, Prepayment Penalties, and Default (August 11, 2011). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1908375

Morgan J. Rose (Contact Author)

University of Maryland, Baltimore County ( email )

1000 Hilltop Circle
Baltimore, MD 21250
United States
410-455-8485 (Phone)

Office of the Comptroller of the Currency

400 7th Street SW
Washington, DC 20219
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics