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
D) 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:
A mortgage loan originator receives a lead from a real estate agent about a potential borrower. Before calling this consumer, the MLO must:
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:
A borrower admits to an MLO that they inflated their income on the initial application but wants to provide correct information now. What should the MLO do?
An MLO's family member works as an appraiser and occasionally appraises properties for the MLO's borrowers through the normal appraisal management company rotation. The MLO never requests this appraiser specifically. Is this arrangement problematic?
A lender offers a mortgage product with a temporary introductory rate that is prominently advertised, but the subsequent rate increase is disclosed only in fine print at the bottom of marketing materials. The lender argues this practice is acceptable because all required disclosures are technically present. Under UDAAP standards, this practice is most likely:
A borrower submits a rental agreement showing $2,500 monthly income from a property they claim to own. Which of the following would be the MOST significant red flag indicating potential rental income fraud?
A borrower inflates their income on a loan application for a vacation home they plan to rent out occasionally but also use personally. The primary motivation is investment return. This scenario constitutes:
An appraisal comes back significantly higher than the contract price with no reasonable explanation. The loan officer should:
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:
People Also Study
Federal Mortgage-Related Laws
23% of exam
General Mortgage Knowledge
23% of exam
Mortgage Loan Origination Activities
25% of exam
Uniform State Test Content
12% of exam
Related Study Resources
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:
Next Question
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: