Which of the following is a prohibited clause in secondary mortgage agreements?

In secondary mortgage agreements, acceleration clauses are designed to allow the lender to demand immediate repayment of the entire loan amount if certain conditions are met, typically after a default by the borrower. However, an acceleration clause that is invoked without any matured balances—that is, without the loan being due in full—is considered prohibited. Such a clause can create undue pressure on borrowers, potentially leading to unjust foreclosure processes or financial hardship. It undermines the intended protections in the lending regulations, which aim to provide a fair process for borrowers and ensure that lenders have clear, justified reasons before accelerating repayment.

Grace periods for payments, late payment provisions, and prepayment options are generally permissible in secondary mortgage agreements. These clauses offer flexibility and clarity for both borrowers and lenders, allowing for reasonable timeframes to correct late payments or giving options for borrowers to pay off loans early without penalties. Thus, the presence of an acceleration clause without matured balances is a clear violation of the standards set forth in lending agreements and is rightly identified as a prohibited clause.