A borrower with a 5% fixed-rate mortgage that has been current on payments for 2 years is contacted by a loan originator who suggests refinancing to a 7% adjustable-rate mortgage with higher fees. The loan originator emphasizes the lower initial payment without explaining the rate adjustment. This scenario most likely represents:
Correct Answer
B) Loan flipping
Loan flipping occurs when a lender repeatedly refinances a borrower's loan within a short period, typically resulting in higher costs and no tangible benefit to the borrower. In this case, the borrower is being steered from a better fixed-rate loan to a worse adjustable-rate loan with higher costs, which is a classic example of predatory loan flipping.
Why This Is the Correct Answer
Loan flipping occurs when a lender repeatedly refinances a borrower's loan within a short period, typically resulting in higher costs and no tangible benefit to the borrower. In this case, the borrower is being steered from a better fixed-rate loan to a worse adjustable-rate loan with higher costs, which is a classic example of predatory loan flipping.
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?
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Previous Question
An MLO works for a bank that offers special employee pricing on loans. The MLO's neighbor, who is a bank employee in a different department, asks the MLO to help them get a mortgage using the employee discount. What potential issue exists?
Next Question
A real estate agent, mortgage broker, and appraiser coordinate to help a first-time homebuyer qualify for a loan by slightly inflating the property value and the buyer's income. The buyer is unaware of these modifications and genuinely needs housing. This scenario represents: