A borrower's mortgage broker suggests refinancing their current 5.5% loan to access equity for home improvements. The new loan has a 5.75% rate but includes a prepayment penalty, higher fees than disclosed initially, and the cash-out amount is $15,000 less than promised due to 'additional required reserves.' This situation best exemplifies:
Correct Answer
B) Equity stripping through deceptive terms
This demonstrates equity stripping where the borrower is deceived about loan terms and the actual benefit they'll receive. The combination of undisclosed prepayment penalties, higher fees, and reduced cash proceeds shows predatory practices designed to access borrower equity while providing minimal benefit.
Why This Is the Correct Answer
This demonstrates equity stripping where the borrower is deceived about loan terms and the actual benefit they'll receive. The combination of undisclosed prepayment penalties, higher fees, and reduced cash proceeds shows predatory practices designed to access borrower equity while providing minimal benefit.
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 requires borrowers to purchase credit insurance from a specific company as a condition of loan approval, but fails to disclose that the lender receives a commission from the insurance sales. This practice would most likely be considered:
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An MLO notices that a real estate agent has been consistently referring clients who provide similar documentation patterns that appear suspicious, but no individual transaction clearly meets the SAR threshold. How should the MLO handle this pattern recognition?