Fannie Mae said because it can't effectively gauge the risks that loans with prepayment penalties bring to homeowners it has decided to limit the acceptance of those mortgages to those that are delivered under negotiated commitments.

Mortgage loans with prepayment penalties had grown in popularity over the last few years as investors sought refuge against the rapid runoff associated with the fast refinancing pace set by 25-year low interest rates. Although many states prohibit the use of such penalties, some, such as California, allowed the practice. And many lenders, such as San Francisco-based Bank of America, made extensive use of such instruments.

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