It has been suggested that the bank charge a mortgage customer a fee if they make a substantial principal payment and want to reset the P&I payment based on the remaining balance and term. To me this smacks as a prepayment penalty which is prohibited in the State of PA.

Would anyone see this any differently?

I reviewed my resources. Where do you see that a prepayment penalty is not legal in PA? Just curious.

It sounds to me as though they are asking for a modification of their current loan, if that is the case I would not view a fee charged to be a prepayment penalty. Perhaps Randy has additional thoughts on it.

You would seem to be not charging a prepayment fee but rather, you are charging loan modification fee.

If they paid down over time and wanted to reset the P&I payment and you charged a loan modification fee, same thing here.

So here is where my thinking lies....

CFPB definition of a pre payment penalty: a fee charged for the early payment of all or part of your mortgage early.

PA prohibition of fee: Title 10. Chapter 7. code 7.8

My concern is the fee would be charged in the case of early prepayment on a portion of the loan IF the customer wishes to have the P&I recast. The way things have been going with fees and the regulators, I just want to make sure that this would be interpreted as a modification fee, rather than a pre payment penalty.

Thanks all!

Also found in the Loan Interest and Protection Law Act of Jan 30, 1974 Section 405.

You need to talk to legal counsel, but it would appear that those laws only apply to residential mortgage transaction of $50K and less: https://www.dobs.pa.gov/Documents/I...20and%20secondary%20mortgage%20loans.pdf

What sort of fee are you talking about - as in amount? I am sure your notes indictee that any prepayment does not impact their requirement to continue to make the monthly installment payments. If they are asking to have their loan re-amortized rather than refinancing the transaction in order to lower their monthly obligation, then they are requesting a loan modification. Charging a reasonable fee to agree to this modification and do the paperwork and required servicing changes does not seem inappropriate.

This was coming from legal counsel. But I had seen what you have referred to.

I guess as long as it is safely considered a modification, then it's not an issue at this point in time. I don't see us moving toward pre payment penalties in this fee environment. I will jump off that bridge when the time comes!