An 80-year-old homeowner with a home worth $300,000 and no existing mortgage is offered a $250,000 cash-out refinance loan with payments of $2,100 monthly against their $1,800 monthly Social Security income. The lender focuses on the home's value rather than payment ability. This primarily represents:
Correct Answer
B) Equity stripping
Equity stripping targets borrowers with significant home equity by making loans based primarily on the property's value rather than the borrower's ability to repay. The loan payment exceeding the borrower's income and the lender's focus on home value rather than repayment ability are hallmarks of equity stripping, which often leads to foreclosure and loss of the borrower's equity.
Why This Is the Correct Answer
Equity stripping targets borrowers with significant home equity by making loans based primarily on the property's value rather than the borrower's ability to repay. The loan payment exceeding the borrower's income and the lender's focus on home value rather than repayment ability are hallmarks of equity stripping, which often leads to foreclosure and loss of the borrower's equity.
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 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:
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A bank's loan committee consistently approves white applicants at a 90% rate but only approves Black applicants at a 60% rate, despite similar credit profiles. When questioned, committee members deny any racial bias and claim decisions are based solely on credit factors. This pattern suggests: