dreampak

There really isn’t much call protection in residential MBS. I’m pretty sure it’s illegal to have prepayment penalties on consumer loans in most states.
However, commercial loans are a different story. There are no laws protecting commercial borrowers so you will see prepayment penalties in a lot of commercial loans.
For instance, call protection can come in the form that if someone pays early, they owe an extra 5% of the balance due. Or there can be a stipulation that says if the commercial borrower pays early, he needs to pay all the interest that would have been paid over the life of the loan. There is also the one where any prepayments have to be invested in Treasuries so that additional interest is paid to the investors.