America, and especially Pennsylvania, is facing a crisis in housing affordability. Mortgage financing costs are escalated and are deterring real estate investors from purchasing investment properties. Local property owners are being priced-out by hedge funds and Wall Street speculators who are cash buyers and gobble-up homes in the Commonwealth just to “flip” them.
 
Pennsylvania is one of just twelve states to limit or prohibit mortgage lenders from offering competitive mortgage financing terms on investment properties such as prepayment penalty provisions. These prepayment penalty provisions provide discounted pricing to the real estate investor which results in thousands of dollars saved on closing costs or a lower interest rate. Prepayment penalties deter real estate speculators from obtaining business purpose loans to flip residential homes. One of the main causes of inflated home values is the practice of “house flipping”, where real estate investors buy up properties to “fix up” and flip for a higher price. These short-term flips result in higher prices for consumers and take up the inventory of houses that are available for them.
 
For this reason, I will be introducing legislation that will allow mortgage lenders to offer real estate investors the option of choosing mortgage financing terms with or without a prepayment penalty. This legislation protects mortgages for primary residences and second homes and will not allow mortgage lenders to include prepayment penalties for personal, family, or household purposes.
 
By allowing mortgage lenders to offer competitive mortgage financing terms and attaching reasonable and limited prepayment penalty provisions, we will allow lenders to offer better pricing and lower interest rates, while disincentivizing home flipping. This will incentivize long-term real estate investments and positively affect housing affordability in this Commonwealth.
 
In the current real estate market, the biggest concern is affordability for both buyers looking to purchase a home and families looking to rent a home. My proposal to allow prepayment penalties on business purpose loans is a way to expand affordable access for both groups of consumers.
 
Please join us in co-sponsoring this important legislation to promote affordable housing and responsible long-term real estate investments in Pennsylvania.