An originator refinances a 9-month-old covered loan into another covered loan, adding $7,800 of costs and cutting the rate 0.15 points. Is the slight rate reduction alone enough to establish the benefit of this covered-loan refinance?
Correct Answer
A) Test the benefit: refinancing into another covered loan is scrutinized
Refinancing a covered loan into another covered loan is examined for whether the new loan benefits the borrower, and $7,800 of cost for fifteen basis points is the pattern the scrutiny exists for. Other choices: a lower rate alone is not the benefit test; different lenders do not remove it; and refinancing is not banned outright. Source: Cal. Fin. Code § 4973
Why This Is the Correct Answer
Refinancing a covered loan into another covered loan is examined for whether the new loan benefits the borrower, and $7,800 of cost for fifteen basis points is the pattern the scrutiny exists for. Other choices: a lower rate alone is not the benefit test; different lenders do not remove it; and refinancing is not banned outright. Source: Cal. Fin. Code § 4973
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