Do the Agencies Assess Early Pay Off Penalties?

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There are Plenty of stories from LOs who had loans pay off a few days early, or were financed elsewhere, and were assessed the penalty, or suggesting alternatives.   I think any of us LOs understand that if we refinance a loan prior to the six-month deadline, we would incur a penalty. The problem with the current EPO arrangement is that there are a multitude of events outside our control which can trigger the penalty. I personally had two this year, both from clients who had job transfers out of town that were not on the horizon when we refinanced their loans. The penalties on these loans were over $10,000 just to me, and additional funds to my company. I have heard, but not experienced personally, of an EPO being triggered when a client was solicited by their new servicer. This is another case where the broker should not be held accountable for the payoff. I believe the EPO contracts should have exceptions for cases like this. The word 'Investment' implies that there are risks to the proposition, and one of the risks in lending is that the borrower's life could change in six months, and the loan could pay off. As a loan officer, I can't control that, and I should not bear the risk of the 'investment.'"

 

According to Freddie Mac 8.13: For any Mortgage that is paid off (whether because of a refinance, a prepay or any other reason) within 120 days of the Freddie Mac Funding Date or Settlement Date, Freddie Mac may at its sole discretion require the Seller/Servicer to reimburse Freddie Mac for: With respect to a Mortgage delivery through the Cash program, any premium paid for the Mortgage calculated as the amount by which the purchase price exceeded the par price, multiplied by the outstanding unpaid principal balance (UPB) of the particular Mortgage on the Funding Date. With respect to a Mortgage delivery through the Guarantor or MultiLender Swap program, any premium (expressed as a percentage) that was or would have been applicable to the PC Pool comprising the particular Mortgage, based on market conditions existing on the Settlement Date of such Mortgage as determined by Freddie Mac, multiplied by the outstanding UPB of the particular Mortgage on the date of the pay off. Any buyup proceeds paid by Freddie Mac to the Seller in connection with the delivery of a Mortgage through the Guarantor or Multi Lender Swap program, and/or any loss, damage or expense, including court costs and reasonable attorney fees, as incurred by Freddie Mac in connection with its purchase, ownership and/or resale to the Seller of its participation interest in the Mortgage. The amount of any such premiums and/or buyup proceeds will appear on the Seller account activity statement described in Section 17.2(e) and will be drafted from the Seller's Automated Clearing House Account (ACH) account in accordance with Section 17.2(g)."

 

Fannie Mae has a similar clause. "Fannie Mae Pricing Recapture. With respect to any mortgage loan that pays off within 120 days from the whole loan purchase date or the MBS issue date, Fannie Mae in its sole discretion may require reimbursement by the lender for any premium paid in connection with the purchase of the mortgage loan. For a whole loan, the premium is the amount that the purchase price exceeded the par price (100% of the face value) multiplied by the unpaid principal balance of the mortgage loan at the time of purchase.  . In the case of a mortgage delivered for MBS, the premium is the percentage amount above a par price that would have been applicable to the related MBS on the actual settlement date multiplied by the unpaid principal balance of the mortgage loan on the issue date. For mortgage loans repurchased by a lender, Fannie Mae in its sole discretion may require reimbursement by the lender for any premium paid in connection with the purchase of the related repurchased mortgage loan without regard to the 120-day limitation. Note: Fannie Mae may require this reimbursement on a mortgage loan in an MBS regardless of the MBS investor."

 **** On the first day, God created the dog and said, "Sit all day by the door of your house and bark at anyone who comes in or walks past. For this I will give you a life span of twenty years."
The dog said, "That's a long time to be barking. How about only ten years and I'll give you back the other ten?"
And God said that it was good.
On the second day, God created the monkey and said, "Entertain people, do tricks, and make them laugh. For this, I'll give you a twenty-year life span."
The monkey said, "Monkey tricks for twenty years? That's a pretty long time to perform. How about I give you back ten like the dog did?"
And God again said that it was good.
On the third day, God created the cow and said, "You must go into the field with the farmer all day long and suffer under the sun, have calves and give milk to support the farmer's family. For this, I will give you a life span of sixty years."

The cow said, "That's kind of a tough life you want me to live for sixty years. How about twenty and I'll give back the other forty?"
And God agreed it was good.
On the fourth day, God created humans and said, "Eat, sleep, play, marry and enjoy your life. For this, I'll give you twenty years."
But the human said, "Only twenty years? Could you possibly give me my twenty, the forty the cow gave back, the ten the monkey gave back, and the ten the dog gave back; that makes eighty, okay?"
"Okay," said God, "You asked for it."
So that is why for our first twenty years, we eat, sleep, play and enjoy ourselves. For the next forty years, we slave in the sun to support our family. For the next ten years, we do monkey tricks to entertain the grandchildren. And for the last ten years, we sit on the front porch and bark at everyone.   

 

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