Subprime borrowers with FICO scores below 620 obtain rates as much as 0.7%
lower than similar borrowers with fully prepayable mortgages and default at a lower rate (13% default rate) than comparable borrowers with no prepayment penalties (18% default rate). Our findings suggest that regulations banning re financing penalties might have the unintended consequence of raising interest rates, increasing mortgage default, and limiting available credit for the riskiest borrowers.
The paper does only look at fixed rate mortgages, and so it is not clear whether the argument applies to 2-28s. But the finding is well worth considering in light of the current policy debate.