An elderly homeowner with significant equity is offered a loan that requires no income documentation and has monthly payments that exceed 60% of their fixed income. The loan originator assures them they can refinance before any payment issues arise. This practice is primarily an example of:
Correct Answer
C) Equity stripping
Equity stripping involves making loans based primarily on the equity in a borrower's home rather than their ability to repay, often targeting vulnerable borrowers like the elderly. The lender's focus on the home's equity rather than the borrower's ability to make payments that consume 60% of income is a classic equity stripping scenario designed to eventually foreclose and capture the home's equity.
Why This Is the Correct Answer
Equity stripping involves making loans based primarily on the equity in a borrower's home rather than their ability to repay, often targeting vulnerable borrowers like the elderly. The lender's focus on the home's equity rather than the borrower's ability to make payments that consume 60% of income is a classic equity stripping scenario designed to eventually foreclose and capture the home's equity.
More Ethics & Fraud Questions
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Previous Question
An MLO markets a 'government-backed' loan program to elderly borrowers, emphasizing government backing while downplaying that it's actually a reverse mortgage with significant fees and potential loss of home equity. The MLO provides all legally required reverse mortgage disclosures. Under UDAAP analysis, this marketing approach is:
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An applicant provides paystubs showing gross monthly income of $7,200, but their W-2 from the same employer shows annual wages of $52,000. Assuming the paystubs represent bi-weekly pay, what discrepancy exists?