Final answer:
True, higher-priced mortgages typically cannot have a prepayment penalty, especially after regulations put in place following the 2008 financial crisis to prevent risky lending practices.
Step-by-step explanation:
The statement that higher-priced mortgages cannot have a prepayment penalty is true to a certain extent. The rules and regulations regarding prepayment penalties vary depending on the type of the loan, as well as other factors such as the size of the loan and the adherence to the Ability-to-Repay rule. It's important to note that some laws, like the Dodd-Frank Wall Street Reform and Consumer Protection Act, have been enacted to restrict or prohibit prepayment penalties on certain types of mortgages, particularly those considered to be 'higher-priced.'
Subsequently, the backdrop of the 2008 financial crisis saw a surge in housing demand that drove up housing prices, alongside banks getting flexible with their lending criteria. This flexibility often involved subprime mortgages with little to no down payment and adjustable rates that could drastically increase. In anticipation of continually rising house prices, borrowers were expected to refinance, avoiding higher payments. The financial crisis exposed the downside of these practices, leading to regulatory changes to encourage careful lending practices and protect consumers from risky financial products like mortgages with prepayment penalties.