By the Division of Banks

Prepayment Penalties On Residential Mortgage Loans Originated In Massachusetts

Mass. Gen. Laws chapter 183, section 56 establishes limits on prepayment penalties for residential mortgage loans in the Commonwealth. If a lender seeks to impose a prepayment penalty on a borrower, it is the position of the Division of Banks that the loan documents themselves must include a prepayment penalty provision. The Division holds that a penalty imposed on a borrower when a borrower refinances with the original bank, after the resale of the loan to another investor, would not be permissible because the borrower has no control over sales of mortgage loans to secondary market investors. Thus, the provisions of M. G. L. ch. 183 § 56 do apply if the borrower refinance with the original bank. The provisions of section 56 are consumer protection measures. Violating such a statute constitute a violation of Mass. Gen. Laws chapter 93A, the Commonwealth's Omnibus Consumer Protection Act. That law is enforced and under the jurisdiction of the Attorney General and may subject violators to treble damages.