A borrower refinances from a 30-year loan with 22 years remaining to a new 30-year loan, extending their payment period and increasing total interest paid by $45,000, while receiving only $8,000 in cash and paying $5,500 in fees. The MLO emphasized 'lower monthly payments' without discussing the extended term impact. This scenario demonstrates:
Correct Answer
C) Equity stripping through term extension
This represents equity stripping where the borrower's equity is accessed through loan term manipulation that significantly increases their total cost while providing minimal immediate benefit. The focus on lower payments while concealing the substantial long-term cost increase is characteristic of predatory lending.
Why This Is the Correct Answer
This represents equity stripping where the borrower's equity is accessed through loan term manipulation that significantly increases their total cost while providing minimal immediate benefit. The focus on lower payments while concealing the substantial long-term cost increase is characteristic of predatory lending.
More Ethics & Fraud Questions
A lender's mobile app prominently displays a 'pre-qualification' feature that asks for minimal information but generates loan amount estimates that are consistently 20-30% higher than what borrowers actually qualify for when they complete full applications. The app includes a disclaimer that estimates are 'subject to full underwriting.' This practice is most likely:
An MLO discovers that multiple loan applications from different borrowers contain identical handwriting in the signature sections, despite different purported signers. The applications were submitted by different real estate agents. What is the most appropriate immediate action?
A mortgage loan originator receives a lead from a real estate agent about a potential borrower. Before calling this consumer, the MLO must:
An MLO tells Asian applicants that they need larger down payments 'because that's what investors prefer for your type of loan,' while telling similarly qualified white applicants that standard down payments are acceptable. This practice represents:
A mortgage company advertises 'Guaranteed approval for all credit types!' but internally has minimum credit score requirements of 580. This advertisement is problematic because it:
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Previous Question
A lender's policy automatically requires additional verification for any applicant whose primary income comes from sources common in certain ethnic communities (such as cash-based small businesses prevalent among recent immigrants). While the policy doesn't mention ethnicity, it results in 45% longer processing times for these applicants. This scenario represents:
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A borrower applies for a loan on a property they intend to flip but marks it as owner-occupied to get better loan terms. However, due to market conditions, they end up living in the property for two years before selling. This situation is: