Many of the nation's largest mortgage lenders have begun to charge prepayment penalties to deter customers from refinancing their adjustable- rate mortgages.

The penalties are mostly being applied to mortgages to be held in the lenders' portfolios. They tend to have low or no fees or closing costs but may have higher-than-usual starting interest rates.

This allows lenders to cast the loans as attractive options to such customers as first-time homebuyers who can afford monthly mortgage payments but can't afford all the up-front fees and closing costs.

Leading the way are the thrifts in California, where prepayment penalties are legal, the housing market is volatile, and most of the biggest adjustable-rate mortgage lenders are based. Many other states restrict such penalties.

Great Western Financial Corp., Home Savings of America, and United Bank of Texas began during the past year to offer mortgages with reduced fees tied to prepayment penalties.

Other institutions, such as BankAmerica Corp. and American Savings Bank, had been offering such products for several years but have renewed their emphasis on them in the past six months.

Most impose prepayment penalties only through the first three years of the loan.

"There's definitely been a resurgence (in prepayment penalties) over the past year," said Tom Hamilton, senior vice president of the Western League of Savings Institutions, a trade organization based in El Segundo, Calif.

Great Western, a $43.5 billion-asset thrift based in Chatsworth, Calif., applies a prepayment penalty of six months' interest on 80% of the loan balance for the first three years of its loan, if the loan was originated with less than 0.5 points.

About one-third of the adjustable-rate mortgages originated in the past six months have included prepayment penalties, a Great Western official said.

"It's costly to originate and book a loan, and we're trying to figure out a way to keep the loans on the books for some period of time so we can recoup the cost of lending," said Sam Lyons, senior vice president of mortgage banking at Great Western.

Penalties "get to be a big focus when you're in a refinancing market," said Robert Barnum, president of American Savings Bank, a $19 billion-asset thrift based in Irvine, Calif.

At American Savings, borrowers who pay no points and no fees could get a 3.95% "teaser" rate with a prepayment penalty of 1.2% if they repay within three years. After three months, the interest rate would adjust to 260 basis points over the 11th District Cost of Funds Index.

A customer paying 1 point up-front would get the same teaser rate, but the adjustment margin charged after three months would be 25 basis points lower, and no prepayment penalty would apply.

Bank United of Texas, Houston, a $750 million-asset thrift that specializes in mortgage banking, offers no-fee and low-fee mortgages tied to penalties. The adjustment margins are the same for all borrowers, but the no-fee borrower pays a higher starting interest rate.

"This way, a person who plans to stay in his house for at least three years can save some closing costs," said Rick Pishalski, vice president of secondary marketing at Bank United.

Thrift officials said that, since ARMs have been popular until recently, the jury is still out on whether penalties will stem the tide of refinancings.

"So far, it has stemmed the turnover," said Mr. Lyons of Great Western. "But we haven't really been tested yet."

The use of prepayment penalties came out of the refinancing boom of 1993, when many loans were paid off or refinanced within days of being booked, Mr. Lyons said. The California market is particularly volatile, with its high real estate costs and transient population, he said.

Despite the renewed interest in prepayment penalties for adjustable-rate mortgages, bankers said they do not expect to employ similar penalties on fixed-rate loans. It is argued, however, that institutional investors, who buy securitized mortgage loans, also worry about refinancing booms and would like to see greater stability in the portfolios.

"There's a lot of sentiment for it," said Brian Kerry, an economist at the Mortgage Bankers Association in Washington, "but I've not heard of anyone implementing it."

"The people on Wall Street always talk about it," said Mr. Barnum of American Savings. "But the market builds (the risk of refinancing) into its yields" on securitized mortgage loans.

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