Effective July 1, 2003, state-licensed mortgage creditors will no longer be able to rely on the Parity Act to preempt state limitations, restrictions or prohibitions of prepayment charges assessed in alternative mortgage transactions. Accordingly, state-licensed mortgage creditors wishing to impose prepayment charges in connection with alternative mortgage transactions made on or after July 1, 2003 must conform to the requirements of applicable state law. To assist DocMagic® software users in coping with this change, we have researched the applicable prepayment laws in all jurisdictions; this memorandum is the result of our research.

In this memorandum, we will describe the prepayment limitations, restrictions or prohibitions applicable to mortgage lending transactions in all jurisdictions. Links are provided to the language contained in the model prepayment charge note addenda and security instrument riders that we have created or revised based on our research and which will be available for transactions with scheduled closing dates on or after July 1, 2003.

Before proceeding with the substantive discussion of permissible prepayment charges, here are some important preliminary considerations:

1. Format; Default Selection Criteria: The model prepayment charge note addenda and security instrument riders that we have created are designed to modify Fannie Mae/Freddie Mac Uniform Fixed Rate Notes and Adjustable Rate Notes. The note addendum modifies the applicable prepayment provision of the note by requiring the payment of a prepayment charge, and setting forth the conditions under which a prepayment charge is assessed. The security instrument rider states that the note contains a prepayment charge provision and then quotes the prepayment language that appears in the note. The DocMagic software will: (a) subject to any limitations contained elsewhere in this memorandum, generally default to provide for the maximum prepayment allowable under applicable state law, and (b) include both the prepayment note addendum and the security instrument rider. DocMagic software users may request that only the prepayment note addendum be selected by contacting a DSI customer service representative at (800) 649-1362. For an explanation of DSI's approach with respect to the prepayment charge note addendum and security instrument rider defaults in states that generally do not restrict prepayment charges, see Section A under Discussion below.

2. Scope; Limitations: This memorandum describes rules of general applicability. Major exceptions to these generally applicable rules are usually noted; obscure, arcane or limited exceptions may or may not be separately noted. Furthermore, the discussion below generally ignores: (a) the provisions of the Uniform Consumer Credit Code (UCCC) as adopted in various jurisdictions regarding a creditor's right to collect statutory fees upon prepayment; (b) the circumstances under which a creditor may be obligated to refund finance charges upon prepayment; and (c) prepayments applicable to open-end lines of credit.

DISCUSSION:

1. No Restrictions on Prepayment Charge Time Period and Amount: The following states generally have no restrictions on either the time period within which a prepayment charge may be assessed or on the amount of the prepayment charge, regardless of lien position. Major exceptions, if any, are noted. In these states, DocMagic will default to the following multistate prepayment provisions (comparable to the California prepayment penalty of generally applicability - see the California discussion under Section C below). Please note, however, that because prepayment penalties in these states are largely unrestricted or unregulated, you may include a different prepayment charge formulation. If you wish to do so, please contact a DSI customer service representative at (800) 649-1362. States with prepayment charge restrictions and limitations applicable to high-cost loans are discussed in Section D below.

   • Arizona
   • Connecticut (first lien loans only)
   • Delaware
   • Florida (unless the loan is a Florida "high-cost home loan")
   • Hawaii (all first lien loans and junior lien loans of less than 12%)
   • Idaho (first lien loans only)
   • Indiana (first lien loans only)
   • Montana (first lien loans only)
   • Nebraska
   • Nevada
   • North Dakota
   • South Dakota
   • Tennessee (exception: Industrial Loan and Thrifts - no prepayment penalty allowed)
   • Utah (first lien loans only; excludes Utah "high-cost mortgages")
   • Washington (exception: junior loan with interest rate of 12% or more - no prepayment penalty allowed)

1. Prepayment Charges Prohibited: The following states generally prohibit the imposition of prepayment charges. Major exceptions, if any, are noted.

   • Alabama (unless exempt from the Mini-Code, in which case unrestricted)
   • Alaska (exception: federally-insured loans that require a prepayment charge)
   • Iowa
   • Kansas (exception: 1st lien loans with LTV of 100% or less)
   • New Jersey
   • New Mexico
   • South Carolina (all junior lien loans and first lien loans of $180,000 or less only)
   • Utah (junior lien loans only)
   • Vermont
   • West Virginia (junior lien loans only)
   • Wyoming (junior lien loans only)

1. States with Prepayment Charge Restrictions and Limitations - Not High Cost Loans: The following states have some form of restrictions or limitations on either the time period within which a prepayment charge may be assessed or on the amount of the prepayment charge, or both, other than restrictions and limitations applicable to high cost loans, however defined under applicable state law. Again, major exceptions, if any, are noted. States with prepayment charge restrictions and limitations applicable to high cost loans are discussed in Section D below.

   • Arkansas - The Arkansas Fair Mortgage Lending Act (the "AFMLA") prohibits the imposition of a prepayment charge if the prepayment is made after the expiration of the thirty-six-month period immediately following the date on which the loan was made. In addition, the AFMLA permits the imposition of a prepayment penalty for prepayments made within the thirty-six-month period, provided that the penalty for prepayment shall not exceed the greater of: (i) three percent (3%) of the principal loan amount remaining on the date of prepayment if the prepayment is made within the first twelve-month period immediately following the date the loan was made; two percent (2%) of the principal loan amount remaining on the date of prepayment if the prepayment is made within the second twelve-month period immediately following the date the loan was made; one percent (1%) of the principal loan amount remaining on the date of prepayment if the prepayment is made within the third twelve- month period immediately following the date the loan was made; or (ii) an amount equal to interest for six (6) months calculated on eighty percent (80%) of the remaining principal balance due on the mortgage loan as of the date the prepayment is made. Accordingly, with respect to loans not subject to the Arkansas high cost home loan statute, the DocMagic software will default to the prepayment charge permissible under the AFMLA.
   • California - California has a number of potentially applicable statutory prepayment provisions.
     • The DocMagic software will default to the prepayment charge provisions most generally applicable as set forth in California Civil Code Section 2954.9; these provisions are identical to the multistate prepayment provisions.
     • With respect to variable interest rate loans made to finance the purchase or construction of four or fewer residential units, the DocMagic software will default to the multistate prepayment provisions modified to permit prepayment in accordance with the provisions of California Civil Code Section 1916.5(a)(5) (full or partial prepayment without penalty permitted within 90 days after notice of an interest rate increase). (NOTE: the limitations in Section 1916.5 do not apply to loans made by "supervised financial organizations," a defined term that includes, among others, banks, savings associations, savings banks, credit unions, industrial loan companies and CFL and RMLA licensees, but does not include DRE licensees.)
     • Department of Real Estate-licensed brokers wishing to utilize the prepayment provisions under California Business and Professions Code Section 10242.6 (as modified with respect to variable interest loans made to finance the purchase or construction of four or fewer residential units to permit prepayment in accordance with the provisions of California Civil Code Section 1916.5(a)(5) (full or partial prepayment without penalty permitted within 90 days after notice of an interest rate increase)) should contact a DSI customer service representative at (800) 649-1362.
   • Colorado* - Generally, Colorado does not regulate prepayment charges with respect to either: (a) first lien purchase money loans and refinances of purchase money loans, or (b) junior lien loans where the rate of finance charge does not exceed 12%. With respect to these loans, the DocMagic software will default to the multistate prepayment provisions modified.
     • Prepayments are not permitted on (i) first lien loans where the finance charge exceeds 12% if the loan is neither a purchase money loan nor a refinance of a purchase money loan (e.g., a cash out loan transaction secured by property owned free and clear), and (ii) all junior lien loans where the rate of finance charge exceeds 12%.
   • Connecticut - Connecticut permits the imposition of a prepayment charge in connection with junior lien loans for prepayment made within three (3) in an amount not exceeding 5% of the balance prepaid.
   • District of Columbia - D.C. permits the imposition of a prepayment charge with respect to all loans for prepayments made within the first three (3) years in an amount not exceeding two (2) months' advance interest on the amount of all prepayments made in any 12-month period in excess of one-third (1/3) of the original loan amount.
   • Georgia - See discussion with respect to Georgia under Section D below.
   • Idaho - Idaho permits the imposition of a prepayment charge on junior lien loans for prepayments made within the first three (3) years in an amount generally equal to six (6) months' interest at the note rate on the average loan balance for the previous six (6) months.
   • Illinois* - Illinois extensively regulates the conditions under which a prepayment charge may be imposed, as follows:
     • With respect to investment properties, Illinois permits the imposition of a maximum hard prepayment charge during the first three (3) years in an amount not exceeding ____month's advance interest on the amount by which the total of my prepayments within any 12-month period exceeds 20% of the original principal amount of the loan.
     • With respect to loans secured by owner-occupied and second homes with an interest rate of 8% or less, Illinois permits the imposition of a prepayment penalty that is charged within the first three (3) years of the loan, provided that the penalty does not exceed 3% in the first year, 2% in the second year, and 1% in the third year. Note that if the fixed rate period of a variable rate mortgage is less than three (3) years, then a prepayment penalty cannot be charged beyond the fixed rate period.
     • Prepayment penalties are prohibited in connection with the sale or destruction of a dwelling secured by a "residential mortgage loan" and on loans having an interest rate greater than 8%.
   • Indiana - Indiana permits the imposition of a prepayment charge on junior lien loans for prepayments made within three (3) years not to exceed 2% of any amount prepaid within 60 days of the date of the full prepayment.
   • Kansas - Kansas permits the imposition of a prepayment charge on first lien loans if the loan's LTV is 100% or less for prepayments made within the first 6 months; the amount of the prepayment is unregulated. The DocMagic software will default to a prepayment charge of 5% of the amount of the prepayment; to change this default, please contact a DSI customer service representative at (800) 649-1362.
   • Kentucky - Kentucky permits the imposition of a prepayment charge for prepayments made within three (3) years or sixty (60) days prior to the date of the first interest rate reset, whichever is less.  No prepayment penalty shall exceed 3% for the first year, 2% for the second year, and 1% for the third year of the outstanding balance of the loan; but in no event shall a prepayment penalty be assessed against a borrower refinancing with the mortgage loan company that funded the mortgage.
   • Louisiana - Louisiana permits the imposition of a prepayment charge for full prepayments made within the first five (5) years of the loan, in declining percentages of 5% in year one, 4% in year two, 3% in year three, 2% in year four, and 1% in year 5.
   • Maine - Maine permits the imposition of a prepayment charge with respect to (i) first lien, closed-end, fixed rate loans, and (ii) junior lien, purchase money (and refinances of purchase money) loans. With respect to these loans, the DocMagic software will default to the multistate prepayment provisions.
     • Prepayments are not permitted on first lien, closed-end, alternative mortgage transactions (defined essentially as anything other than a fixed rate, fully amortizing loan).
     • Prepayments are not permitted with respect to junior lien loan if the loan is neither a purchase money loan nor a refinance of a purchase money loan (e.g., a cash out loan transaction secured by property owned free and clear).
   • Maryland - In Maryland, a lender may charge any rate of interest provided the loan does not impose a prepayment charge; a lender wishing to impose a prepayment charge may only do so if the loan is secured by a second home property or an investment property that is greater than $75,000. In those circumstances, Maryland permits the imposition of a prepayment charge for prepayments within the first 36 months in an amount not exceeding two (2) months' advance interest on the aggregate amount of all prepayments make within any 12-month period in excess of one-third (1/3) of the amount of the original loan.
   • Massachusetts - Massachusetts permits the imposition of a prepayment charge for prepayments made before the date fixed for payment in an amount equal to the lesser of the balance of the first year's interest or three (3) months interest. In addition, if the prepayment is made within the first 36 months for the purpose of refinancing with another financial institution, a lender may impose an additional prepayment charge of three (3) months interest.
   • Michigan - Michigan permits the imposition of a prepayment charge of 1% of the amount prepaid within the first three (3) years of the loan.
   • Minnesota - Minnesota permits the imposition of a prepayment charge for loans of $100,000 or more for full prepayment (other than upon the sale of the property) made within 42 months. No prepayment charge is permitted for loans of less than $100,000.
   • Mississippi - Mississippi permits the imposition of a prepayment charge for full prepayments made within the first five (5) years of the loan, in declining percentages of 5% in year one, 4% in year two, 3% in year three, 2% in year four, and 1% in year 5.
   • Missouri - Missouri permits the imposition of a prepayment charge for full prepayments made within the first five (5) years in an amount generally equal to 2% of the loan at the time of the prepayment.
   • Montana - Montana permits the imposition of a prepayment charge in connection with a junior lien loan for prepayments made within the first five (5) years in excess of 10% of the outstanding balance according to a prescribed formula.
   • New Hampshire - New Hampshire generally does not regulate prepayment charges for loans of any lien status, with the exception that prepayment charges on junior lien loans are limited to prepayments made within the first five (5) years. However, with respect to first lien loans, the prepayment provision must be printed in bold type in the note or addendum (the requirement with respect to junior lien loans is only that the prepayment provision must be clearly stated in the loan documents). With respect to all New Hampshire loans, the DocMagic software will default to the multistate prepayment provisions modified to appear in bold type. Please note: if you wish to use a different prepayment charge formulation, the language must appear in bold type.
   • New York* - New York extensively regulates the conditions under which a prepayment charge may be imposed:
     • New York generally does not regulate either (i) first lien, fixed rate loans with interest rates of 6% or less, or (ii) alternative mortgage transactions (loans other than fixed- rate, equal payment, self-amortizing loans) of $250,000 or more. With respect to these loans, the DocMagic software will default to the multistate prepayment provisions.
     • With respect to first lien, fixed rate loans secured by one-to six-family owner-occupied dwellings with interest rates greater than 6%, New York permits the imposition of a prepayment charge for prepayments made before one (1) year; no amount is specified. With respect to these loans, because the multistate prepayment charge provisions are generally not suitable for prepayment charge terms of less than 12 months, the DocMagic software will default to a prepayment charge created specifically for use for New York loans. The DocMagic software will default to a prepayment charge of 3% of the amount prepaid. If you wish to use a different prepayment charge formulation, please contact a DocMagic customer service representative at (800) 649-1362.
     • With respect to first lien, alternative mortgage loans secured by one-to four-family owner-occupied dwellings of less than $250,000, and junior lien mortgage loans secured by one-to four-family owner-occupied dwellings where the sum of all loans (including prior liens) is less than $250,000, a prepayment charge may be assessed for prepayments made before one (1) year but only if the interest rate is fixed for at least the first five (5) years; again, no amount is specified. With respect to these loans, the DocMagic software will default to the New York prepayment charge discussed above.
     • No prepayment penalties are permitted for junior lien loans originated by New York-licensed mortgage bankers.
   • North Carolina - North Carolina generally does not regulate prepayment charges for loans of $300,000 or more. With respect to these loans, the DocMagic software will default to the multistate prepayment provisions. However, for loans of less than $300,000, special rules apply depending upon a variety of factors, including but not limited to lien position, occupancy status and loan purpose.
     • With respect to first lien loans of $150,000 or less secured by 1-4 family, borrower-occupied properties, North Carolina prohibits the imposition of a prepayment charge; with respect to all other first lien, closed-end loans, the parties may agree as to the applicable prepayment charge, if any. (But see prohibition in connection with brokered mortgage loans below.)
     • With respect to all junior lien loans of $100,000 or less, North Carolina permits the imposition of a maximum prepayment charge or 2% of the outstanding balance at any time within three (3) years after the first payment of principal; above $100,000 the parties may agree as the applicable prepayment charge, if any. However, the imposition of a prepayment charge in connection with a junior lien construction loan is prohibited.
     • No prepayment penalties are permitted in connection with any brokered mortgage loan of $150,000.
     • For the North Carolina Commissioner of Bank's interpretation of permissible prepayment fees, click here.
     Because of the particular construction of North Carolina's high cost home loan provisions (see Section D below), in those circumstances where a prepayment penalty is permitted in connection with loans less than $300,000, the DocMagic software will default to the prepayment charge which is excludable from the definition of "points and fees" under North Carolina law, namely 1% of the amount prepaid within 30 months after loan closing. If you wish to charge an alternative prepayment penalty, please contact a DSI customer service representative at (800) 649-1362.
   • Ohio - Ohio permits the imposition of a prepayment charge in connection with both first and junior lien loans.
     • Ohio permits the imposition of a prepayment charge in connection with a first lien loan. For loans closed on or before December 31, 2008, a prepayment charge may be imposed for prepayments made within the first five (5) years not to exceed 1% of the original principal amount of the loan. For loans closed on or after January 1, 2009, a prepayment charge may be imposed for prepayments made within the first five (5) years not to exceed 1% of the original principal amount of the loan; provided however that no prepayment may be imposed for loans less than $81,170 if the loan is made or arranged by a mortgage broker, loan officer or nonbank mortgage lender. The $81,170 prepayment threshold is subject to annual adjustment on the first day of January based on changes in the consumer price index.
     • Ohio permits a lender to select between two (2) prepayment charge options in connection with junior lien loans:
       • Option A: A prepayment charge may be imposed for prepayments made within the first five (5) years not to exceed 1% of the original principal amount of the loan, provided the loan is prepaid by a loan made by a different licensee; and
       • Option B: If the loan is prepaid in full within two (2) years, a lender may impose a prepayment charge of 2% in year one and 1% in year two.
       • With respect to junior lien loans, the DocMagic software will default to Option B. If you wish the DocMagic software to default to Option A, please contact a DocMagic customer service representative.
   • Oklahoma* - Oklahoma generally does not regulate prepayment charges with respect to loans with APRs of 13% or less; prepayment penalties are generally prohibited for loans with APRs exceeding 13%. The DocMagic software will default to multistate prepayment provisions modified to accommodate this limitation.
   • Oregon - Oregon generally does not regulate the terms or circumstances under which a prepayment charge may be imposed. However, applicable law requires that a person making a loan containing a prepayment penalty "expressly and clearly state on the loan agreement and promissory note any maximum prepayment privilege penalty," which statement "shall include the maximum prepayment penalty applicable for prepayment during the first year of the loan period and for each year thereafter." It is unclear if the terms of the multistate prepayment charge provisions possess the requisite specificity. Accordingly, the DocMagic software will default to a prepayment charge that provides for up to a five (5) year prepayment penalty period, with a declining percentage (5% in year one, 4% in year two, 3% in year three, 2% in year four, and 1% in year five). Please note: if you wish to use a different prepayment charge formulation, please contact a DocMagic customer service representative at (800) 649-1362.
   • Pennsylvania - Pennsylvania generally does not regulate prepayment charges with respect to loans of more than $50,000; in this circumstance, the DocMagic software will default to the multistate prepayment provisions. Prepayment penalties are generally prohibited for loans of $50,000 or less.
   • Rhode Island - Rhode Island generally permits the imposition of a prepayment charge for prepayments made within the first year of the loan of 2% of the loan balance; however, if certain conditions are met (e.g., the terms and conditions of the penalty are prominently displayed, the borrower consents, and the lender has offered a prepayment option limited to one year and that otherwise complies with federal regulations), a prepayment penalty may be imposed for as much as 60 months.
   • South Carolina - Prepayment charges with respect to first lien loans of more than $180,000 are generally unregulated. Because of the particular construction of South Carolina's high cost home loan provisions (see Section D below), in connection with first lien loans of more than $180,000, the DocMagic software will default to the prepayment charge that is excludable from the definition of total points and fees under South Carolina law, namely 2% of the amount prepaid. If you wish to charge an alternative prepayment penalty, please contact a DSI customer service representative at (800) 649-1362.
   • Texas* - Texas generally permits the imposition of a prepayment charge with respect to first lien loans with interest rates of 12% or less, and junior lien loans of 10% or less. With respect to these loans, the DocMagic software will default to the multistate prepayment provisions modified to take these interest rate limitations into consideration. With respect to all other loans, including Texas home equity loans, prepayment charges are prohibited.
   • Virginia - Virginia extensively regulates the imposition of prepayment charges.
     • With respect to first lien loans secured by borrower occupied property, Virginia permits the imposition of a prepayment charge not to exceed 2% of the amount of the prepayment; no time period is specified.
     • With respect to first lien loans not secured by borrower occupied property of less than $75,000, Virginia permits the imposition of a prepayment charge not to exceed 1% of the unpaid principal amount; no time period is specified.
     • With respect to first lien loans not secured by borrower occupied property of $75,000 or more, Virginia generally does not regulate prepayment charges. With respect to these loans, the DocMagic software will default to the multistate prepayment provisions.
     • With respect to junior lien loans, Virginia permits the imposition of a prepayment charge, subject to certain limitations, upon a full prepayment in an amount not to exceed 2% of the principal amount prepaid; no time period is specified.
   • Wisconsin - Wisconsin extensively regulates the imposition of prepayment charges.
     • With respect to first lien, fixed rate loans, Wisconsin permits the imposition of a prepayment charge during the first five (5) years in an amount not exceeding 60 days' interest at the contract rate on the amount by which the aggregate prepayment in any 12-month period exceeds 20% of the original amount of the loan.
     • With respect to first lien, variable rate loans secured by an owner-occupied one-to-four family dwelling or mobile home, a lender may charge a prepayment penalty if all of the following conditions are satisfied: (a) the lender makes variable rate loans without prepayment penalties and provides the borrower with a written statement of the fact; (b) the borrower acknowledges in writing that he or she received the statement; (c) prepayment penalties are limited to the first three (3) years of the loan; and (d) prepayment penalties are not charged in connection with the sale of a home. With respect to these loans, the DocMagic software will default to the Wisconsin fixed rate prepayment charge modified to accommodate the requirement that a prepayment penalty may not be charged in connection with the sale of a home.
     • With respect to junior lien loans of $25,000 or less, no prepayment penalty is permitted.
     • With respect to junior lien loans greater than $25,000, Wisconsin generally does not regulate prepayment penalties. With respect to these loans, the DocMagic software will default to the prepayment charge generally applicable to Wisconsin first lien, fixed rate loans.
   • Wyoming* -Wyoming generally does not regulate prepayment charges for loans with finance charges of 18% or less; prepayment penalties are prohibited with respect to loans with finance charges exceeding 18%. The DocMagic software will default to the multistate prepayment provisions modified to accommodate this interest rate limitation.

   * In jurisdictions with an asterisk (*) appearing by their names, prepayment penalties are tied to a loan's interest rate or finance charge. For example, in Wyoming prepayment penalties are entirely unregulated for first-lien loans carrying a finance charge of 18% or less; however, prepayment penalties are altogether prohibited for first-lien loans with finance charges in excess of 18%. In other jurisdictions, the thresholds are generally much lower (e.g., New York: 6%; Illinois: 8%; Colorado: 12%). In these states, determining whether a prepayment penalty is permissible in variable rate transactions can be problematic. Specifically, if a loan is made with a start rate below which a prepayment penalty is authorized, but the rate later adjusts to a rate above which a prepayment penalty is prohibited, the legality of the prepayment penalty is unclear. To address this issue in these states, the language of the prepayment charge provisions have been modified to add a sentence to tie the assessment of prepayment penalties to interest rate or finance charge limits.

2. States with High Cost Loans: The following listed states have some high cost loan regulation, however defined. The impact that any such regulations may have on a lender's ability to impose prepayment charges as might otherwise be permitted by applicable law is discussed below.

   • Arkansas - The Arkansas Home Loan Protection Act (AHLPA) applies generally to all closed-end and open-end loans secured by one- to four-family owner occupied dwellings where the total loan amount is $150,000 or less. Loans excluded from coverage include reverse mortgages, construction loans, and first lien purchase money loans. Other exclusions under the AHLPA include loans that will be, or in good faith are intended to be, insured by, securitized for, or sold to HUD, VA, Fannie Mae, Freddie Mac, the Arkansas Development Finance Authority and the U.S. Department of Agriculture with 60 days after loan closing. The AHLPA does not expressly limit the imposition of a prepayment charge in connection with high-cost home loans. However, under the AHLPA high-cost home loan "points and fees" test, points and fees are defined to include, among other things, the maximum prepayment fees that may be charged under the terms of the loan documents but only if the prepayment fees exceed 3% of the principal loan amount remaining on the date of the prepayment, if the prepayment is made within the first 12-month period immediately following the date the loan was made; 2% if made within the second 12-month period, or 1% if made within the third 12-month period. In connection with the Arkansas high cost home loan determination performed within the DocMagic software, we assume that, if the loan provides for a prepayment penalty, the maximum prepayment fee is equal to the maximum excludable prepayment fee permitted under the AHLPA as set forth above. Accordingly, for all Arkansas loans with prepayment penalties that fall within the ambit of the AHLPA, the DocMagic software will default to the AHLPA prepayment charge limitations.
   • California - California's covered loan law limits the imposition of a prepayment charge in connection with covered loans to 36 months in an amount otherwise identical to the multistate prepayment provisions. With respect to variable interest rate loans made to finance the purchase or construction of four or fewer residential units, the DocMagic software will default to the multistate prepayment provisions modified to permit prepayment in accordance with the provisions of California Civil Code Section 1916.5(a)(5) (full or partial prepayment without penalty permitted within 90 days after notice of an interest rate increase).
   • Colorado - Colorado limits the imposition of a prepayment charge in connection with covered loans for full prepayments made within the first 36 months of the loan in an amount not exceeding six (6) months' advance interest, so long as the refinance loan is made with a different lender.
   • Connecticut - Connecticut prohibits the imposition of a prepayment charge in connection with a Connecticut high cost home loan.
   • District of Columbia - D.C.'s high cost home loan provisions do not have any effect on prepayment charges.
   • Florida - The Florida Fair Lending Act limits the imposition of a prepayment charge in connection with high cost home loans to 36 months; however, there remains no limit on the amount of the prepayment charge
   • Georgia - The Georgia Fair Lending Act (GFLA) limits the imposition of a prepayment charge to two years, and 2% of the loan amount prepaid in year one, and 1% of the loan amount prepaid in year two. Under the GFLA high cost home loan "points and fees" test, points and are defined to include, among other things, the maximum prepayment fees and penalties that may be charged or collected under the terms of the loan documents. In connection with the high cost home loan determination performed within the DocMagic software, we assume that, if the loan provides for a prepayment penalty, the maximum prepayment fee or penalty is equal to the maximum permissible prepayment fee or penalty permitted under the GFLA, namely two percent (2%) of the loan amount prepaid within the first 12 months after closing. Accordingly, for all Georgia loans with prepayment penalties, the DocMagic software will default to the GFLA prepayment charge limitations.
   • Illinois - Illinois limits the imposition of a prepayment charge with respect to high cost home loans to 36 months, and 3% of the "total loan amount" if prepaid in year one, 2% in year two, and 1% in year three. For all Illinois high cost home loans with prepayment penalties, the DocMagic software will default to the Illinois high cost home loan prepayment charge limitations.
   • Kentucky - Kentucky limits the imposition of a prepayment charge with respect to high cost home loans to 36 months, and 3% of the amount prepaid in year one, 2% in year two, and 1% in year three.
   • Maine - Maine limits the imposition of a prepayment charge with respect to high rate, high fee mortgages to five (5) years, provided, among other things, that the loan is not refinanced with the creditor or a creditor affiliate. The DocMagic software will default to the multistate prepayment provisions because they otherwise comply with the high cost mortgage loan requirements.
   • Maryland - Maryland's high cost home loan provisions do not have an effect on prepayment charges.
   • Michigan - Michigan's high cost home loan provisions do not have an effect on prepayment charges.
   • Massachusetts - Massachusetts limits the imposition of a prepayment charge with respect to high cost mortgage loans to the first three (3) years following consummation, provided, among other things, that the source of the prepayment funds is not a refinancing by the creditor or creditor affiliate; the amount of the prepayment is not regulated. The DocMagic software will default to the standard Massachusetts prepayment charge provisions because they comply with the high cost mortgage loan requirements.
   • New Jersey - New Jersey generally prohibits the assessment of prepayment penalties. Nevertheless, certain entities (e.g., federally chartered banks, state-chartered banks and federal savings associations) may in some circumstances be able to assess prepayment penalties. The New Jersey Home Ownership Security Act of 2002 (the "NJHOSA") neither expressly authorizes nor restricts prepayment fees. For purposes of calculating the "total points and fees threshold" under the NJHOSA, the maximum prepayment penalty that may be charged or collected under the terms of the loan documents must be included as a point and fee. However, the NJHOSA expressly permits a "conventional prepayment penalty" to be excluded from the total points and fees. A "conventional prepayment penalty" is defined as any prepayment penalty authorized by law other than the Act, and (i) the home loan's APR does not exceed by more than two percent (2%) the "conventional mortgage rate" (defined as the most recently published yield on conventional mortgages as published in the Federal Reserve's H-15 Statistical Release as of the 15th day of the month immediately preceding the month in which the application is received by the creditor), and (ii) the prepayment penalty does not exceed two percent (2%) of the amount prepaid. There is no express time limitation on the assessment or collection of prepayment penalties. Accordingly, for all New Jersey loans with prepayment penalties, the DocMagic software will default to a prepayment charge that meets the NJHOSA's definition of a "conventional prepayment penalty," namely two percent (2%) of the amount prepaid.
   • New Mexico - New Mexico generally prohibits the assessment of prepayment penalties. Nevertheless, certain entities (e.g., federally chartered banks, state-chartered banks and federal savings associations) may in some circumstances be able to assess prepayment penalties. The New Mexico Home Loan Protection Act (the "NMHLPA") neither expressly authorizes nor restricts prepayment fees. For purposes of calculating the "total points and fees threshold" under the NMHLPA, the maximum prepayment penalty that may be charged or collected under the terms of the loan documents must be included as a point and fee. However, the NMHLPA expressly permits a "conventional prepayment penalty" to be excluded from the total points and fees. A "conventional prepayment penalty" is defined as any prepayment penalty authorized by federal law, and (i) the home loan's APR does not exceed by more than two percent (2%) the "conventional mortgage rate" (defined as the most recently published yield on conventional mortgages as published by the board of governors of the federal reserve system as of the 15th day of the month immediately preceding the month in which the application is received by the creditor), and (ii) the prepayment penalty does not exceed two percent (2%) of the amount prepaid. There is no express time limitation on the assessment or collection of prepayment penalties. Accordingly, for all New Mexico loans with prepayment penalties, the DocMagic software will default to a prepayment charge that meets the NMHLPA's definition of a "conventional prepayment penalty," namely two percent (2%) of the amount prepaid.
   • New York - New York's high cost home loan provisions do not have any effect on prepayment charges.
   • North Carolina - The North Carolina high cost home loan provisions define a high cost home loan as a loan which, among other things, has a prepayment period of more than 30 months or a prepayment charge in an amount exceeding two percent (2%) of the amount paid. However, North Carolina law also permits a lender to exclude from the definition of "points and fees" prepayment charges if they do not exceed 1% of the amount prepaid and the prepayment period is not more than 30 months after loan closing. Accordingly, for all North Carolina loans with prepayment penalties, the DocMagic software will default to the North Carolina prepayment charge which is otherwise excludable from the definition of "points and fees."
   • Ohio - The Ohio high cost statute tracks the Federal HOEPA (Section 32) limitations on the assessment and collection of prepayment penalties in connection with high cost loans: a prepayment penalty may be assessed provided it is otherwise permitted by law, and provided further that: (i) the penalty can be exercised only for the first five years following consummation; (ii) the source of the prepayment funds is not a refinancing by the creditor or an affiliate of the creditor; and (iii) at consummation, the consumer's total monthly debts (including amounts owed under the mortgage) do not exceed 50 percent of the consumer's monthly gross income, as verified by the consumer's signed financial statement, a credit report, and payment records for employment income. There are no substantive limitations on the method by which the prepayment penalty is calculated, or on the amount of the prepayment charge. Accordingly, the DocMagic software will default to the prepayment charge provisions otherwise applicable in Ohio as described in Section C above.
   • Oklahoma - Oklahoma limits generally prohibits the imposition of a prepayment penalty in connection with what is defined as a "subsection 10 mortgage." However, a prepayment penalty may be assessed in connection with a subsection 10 mortgage so long as it is not prohibited under other applicable law and provided that at the time the subsection 10 mortgage is consummated, the consumer's monthly indebtedness, including amount extended or to be extended under the subsection 10 mortgage, are not greater than 50% of the consumer's monthly gross income of the consumer as verified by a financial statement signed by the consumer, or by a credit report, or by payment records or by verification from the employer of the consumer, which may be in the form of a copy of a pay stub or other payment record supplied by the consumer. A prepayment penalty may be assessed only to a prepayment made with amounts obtained by the consumer by means other than a refinancing by the creditor under the subsection 10 mortgage, or an affiliate of that creditor. A prepayment penalty may only be assessed for prepayments made within the 2-year period beginning on the date on which the subsection 10 mortgage is consummated, and may not exceed in the aggregate more than two percent (2%) of the loan amount prepaid in the first twelve (12) months after the subsection 10 mortgage is consummated, or one percent (1%) of the loan amount prepaid in the second twelve (12) months after the subsection 10 mortgage is consummated. Finally, a subsection 10 mortgage consummated with funds advanced directly or indirectly from a Federal Home Loan Bank may contain a prepayment penalty. Accordingly, for all Oklahoma subsection 10 mortgages with prepayment penalties, the DocMagic software will default to the Oklahoma subsection 10 mortgage prepayment charge limitations.
   • Pennsylvania - Pennsylvania's covered loan law applies to loans less than $100,000, and permits the imposition of a prepayment charge for prepayments made within the first 60 months provided, among other things, that the loan is prepaid with a loan made by a different lender. The DocMagic software will default to the multistate prepayment provisions because they comply with the covered loan requirements.
   • South Carolina - South Carolina generally prohibits the assessment of prepayment charges for all junior lien loans and first lien loans of $180,000 or less; prepayment charges with respect to first lien loans of more than $180,000 are generally unregulated. The South Carolina High-Cost and Consumer Home Loans Act (the "SCHCCHLA") neither expressly authorizes nor restricts prepayment fees. For purposes of calculating the points and fees threshold under the SCHCCHLA, the maximum prepayment penalty that may be charged or collected under the terms of the loan documents must be included as a point and fee. However, the SCHCCHLA expressly permits a "conventional prepayment penalty" to be excluded from the total points and fees. The SCHCCHLA defines a "conventional prepayment penalty" as a prepayment penalty or fee authorized by law other than by the SCHCCHLA, provided the loan (a) does not have an APR that exceeds the "conventional mortgage rate" (defined as the required net yield for a ninety-day standard mandatory delivery commitment for a reasonably comparable loan from either Fannie Mae or Freddie Mac, whichever is greater) by more than 2%; and (b) does not permit prepayment fees or penalties that exceed 2% of the amount prepaid. There is no express time limitation on the assessment or collection of prepayment penalties. Accordingly, for all South Carolina loans with prepayment penalties, the DocMagic software will default to a prepayment charge that meets the SCHCCHLA's definition of a "conventional prepayment penalty," namely two percent (2%) of the amount prepaid.
   • Texas - Texas prohibits the imposition of a prepayment charge in connection with a Texas high cost home loan.
   • Utah - The Utah High Cost Home Loan Act (the "Act") contains limitations on prepayment penalties applicable to "high-cost mortgages." A "prepayment" is defined as a payment to a lender that: (a) is more than the amount of the next scheduled payment due; (b) pays more than half of the principal balance of the high-cost mortgage; and (c) is paid more than 24 months before the last scheduled payment according to the terms of the high-cost mortgage when it is made. A high-cost home loan can provide for a prepayment penalty, but only if the prepayment penalty period does not exceed 36 months after the loan was originally made, and the amount of the penalty does not exceed the total amount of interest paid at 80% of the immediately preceding six (6) scheduled payments. Any method of computing a refund or unearned scheduled interest is a prepayment penalty if it is less favorable to the borrower than the actuarial method. Furthermore, a prepayment penalty may not be assessed if the high-cost mortgage is paid with the proceeds of a new loan by the same lender or an affiliate of that lender, or the penalty is prohibited under other applicable law (e.g., Utah's prohibition of prepayment penalties in connection with junior lien loans). Finally, if a prepayment does not pay the full amount owed on the high-cost mortgage when the prepayment is made, the penalty shall be reduced by a percentage equal to the percentage of the balance owed before the prepayment that remains unpaid. Accordingly, for all first-lien Utah high-cost mortgages with prepayment penalties, the DocMagic software will default to the Act's prepayment penalty limitations.
   • Virginia - Virginia's high cost home loan provisions do not have an effect on prepayment charges.

WHILE DSI STRIVES TO OFFER TIMELY AND ACCURATE INFORMATION, THE INFORMATION IN THIS MEMORANDUM IS OFFERED "AS IS" AND IS NOT GUARANTEED. THE INFORMATION IN THIS MEMORANDUM IS NOT INTENDED, NOR SHOULD IT BE UTILIZED, AS A SUBSTITUTE FOR LEGAL OR OTHER PROFESSIONAL ADVICE WITH RESPECT TO A PARTICULAR TRANSACTION.