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The Costs of Subprime Prepayment Penalties: A Response to "Call Protection in Mortgage Contracts"

March 1, 2006
Mortgage Lending

In a new working paper "Call Protection in Mortgage Contracts" Michael LaCour-Little concludes that prepayment penalties reduce the cost of credit to borrowers. However, there are several shortcomings in his analysis: inadequate data, inconsistent results, and neglect of the negative effects of prepayment penalties.