Prepayment Penalty

Okay, I have searched the threads and found one pertaining to prepayment penalty disclosures however, my question a a little different than the one discussed from 01/07/03. I have a situation where a product disclosure states that there is no prepayment penalty but, the est. and final TIL show there may be one, and the note shows a prepayment penalty. It seems to me that since the ARM disclosure specifically stated that there is no prepayment the bank is incorrect in charging one. I know there is no specific requirement for this to be disclosed in the ARM disclosure, but since it is, do we have a violation of sorts or is this still a technical issue?

I think you are in realm of "unfair and deceptive" practices rather than a regulatory violation.

Thank you for the response "rl". So is it best to modify loan and delete the prepayment clause in the note or just notify the customer in writing that the penalty will not be in effect? I just want to do this right so there will be no issues going forward.

I would ask that question of your legal counsel.

If your loan is an FHA loan, there may be a prepayment penalty that is different from other prepayment penalties. If you do not give the lender 30 days notice of your payoff the lender may charge interest from the date of payoff through the end of the month. This is considered a prepayment penalty and is totally different from the "regular" definition of a prepayment penalty.

I am not sure I would go so far as legal counsel, however, I would first ask the lender (not necessarily the servicer) about the differences in the Note and the original ARM disclosure. Someone more than likely either grabbed the wrong Note or the wrong product disclosure. If this is the case, it is easily worked out. You need to know exactly what the prepayment penalty is all about. If you are not happy with your answers, then contact an attorney.

What kind of loan did you obtain?

The loan was a first mortgage loan on owner occupied residential single family. The loan came from a Broker, however the bank sent the product disclosure.

In talking with the closing department, I was informed that the product disclosure was incorrect. This does not seem to be the norm, and am certain it is a one time error. I just want to make sure it is handled correctly to avoid any ramifications. Thanks for your response Suwannee.