Representative Marcia L. Fudge  introduced a bill to ban pre-payment penalties in mortgages with owner occupied property.  Rep. Fudge's initiative, the Promoting Mortgage Responsibility Act of 2009 (HR 2794), is the companion to a bill introduced earlier this session by Senator Jeff Merkley (D-OR).

Currently, if homeowners pay their mortgage early to avoid high interest costs they may be required to pay an additional fee, known as a pre-payment penalty. This is especially problematic when refinancing. Many homeowners never know of its existence until it is too late. This was the case for West Lake resident, Amelia Ayad.

The interest rate on Ayad's current adjustable rate mortgage has risen to an astounding 10.5%. Her payments are almost unbearable and prompted her to investigate refinancing options. When she did so, she learned of the prepayment penalty in her mortgage.

"I still don't really know how much the penalty is. [The estimate] is 1%, so that's maybe about $30,000," said Ayad. "I've been trying to refinance since 2004."

Ayad's situation is not uncommon. Pre-payment penalties are regularly found within risky or sub-prime mortgages, such as Ayad's Adjustable Rate Mortgage.  Unfortunately, the large front-end fee all but ensures many homeowners will be unable to refinance at a more manageable interest rate. In cases where the borrower is unable to afford the current interest rate, the result may be detrimental.

"Pre-payment penalties can actually hasten foreclosure.  We have seen what the outcome is when homeowners are charged high fees to refinance a mortgage they have difficulty affording: families who lose their homes and communities are devastated," said Rep. Fudge. "I will fight to end these abusive pre-payment penalties."

Fortunately, Ayad is seeking foreclosure prevention counseling from Empowering and Strengthening Ohio's People. If she could do it over again, Ayad said she would have sought "better information, [and] a better lender who...knows the [implications] of pre-payment penalties."