A transaction meets the applicable high-cost mortgage coverage tests. Which statement is accurate?
Correct Answer
C) The loan is subject to additional disclosures and restrictions on specified terms and practices
Why this is correct: Under the Home Ownership and Equity Protection Act (HOEPA), a loan classified as a high-cost mortgage triggers specific consumer protections. These include additional disclosures (e.g., a special notice provided three days before closing) and substantive restrictions on certain terms and practices, such as bans on prepayment penalties and balloon payments in most cases. Why the other choices are wrong: Stating that high-cost status has no effect once the borrower signs is incorrect; the protections are statutory and cannot be waived by signing. Claiming the creditor may encourage default on an existing loan is wrong; such loan flipping is a prohibited practice under high-cost rules. Asserting that all federal mortgage disclosures are waived is false; high-cost loans require more disclosures, not fewer. Exam tip: Remember HOEPA's purpose: to curb predatory lending. If a loan meets the high-cost triggers, it automatically gets enhanced disclosures and restricted terms.
Why This Is the Correct Answer
Why this is correct: Under the Home Ownership and Equity Protection Act (HOEPA), a loan classified as a high-cost mortgage triggers specific consumer protections. These include additional disclosures (e.g., a special notice provided three days before closing) and substantive restrictions on certain terms and practices, such as bans on prepayment penalties and balloon payments in most cases. Why the other choices are wrong: Stating that high-cost status has no effect once the borrower signs is incorrect; the protections are statutory and cannot be waived by signing. Claiming the creditor may encourage default on an existing loan is wrong; such loan flipping is a prohibited practice under high-cost rules. Asserting that all federal mortgage disclosures are waived is false; high-cost loans require more disclosures, not fewer. Exam tip: Remember HOEPA's purpose: to curb predatory lending. If a loan meets the high-cost triggers, it automatically gets enhanced disclosures and restricted terms.
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