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Markets Closed; Veteran’s Day; Brutal Early Pay Off Penalties

We are repeating a blog from May b/c we continue to incur so many Early Pay Off penalties, and b/c a Realtor asked about them yesterday.

… a borrower informed us that she intended to pay off her mortgage soon after we close b/c she was expecting a windfall from the sale of another property. The borrower also wants a “no points” loan. In light of this, we’d rather not close the loan at all b/c we must pay a substantial penalty.

Almost all mortgage lenders are subject to Early Pay Off or “EPO” penalties. This is b/c almost all mortgages are sold for a “premium.” In other words, a lender might sell a $500,000 mortgage for $510,000 to another investor soon after the mortgage closes (this is how mortgage banking works in general, and how mortgage banks make money).

The investor however will not buy that loan for a premium unless it knows it can hold the loan long enough to recoup some of the premium. So, investors require mortgage banks to agree to 180 day EPO penalties. If a loan does pay off early, the mortgage bank and/or loan officer must repay the entire premium to the investor.

Therefore, we encourage borrowers not to refinance until 6 months after close, and it is also why will we not refinance a borrower who just closed with another lender too (we don’t want our competitors to incur the large penalties either).

Happy Veterans Day!

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646