A homeowner is encouraged to refinance for the third time in 18 months. Each loan generates new points and fees, while the borrower's payment and rate do not improve. Which practice is most strongly indicated?
Correct Answer
A) Loan flipping
Why this is correct: The scenario describes 'loan flipping,' which is the abusive practice of repeatedly refinancing a loan in a short period primarily to generate fees (points, closing costs) for the originator, without providing a tangible net benefit to the borrower. The lack of payment or rate improvement and the short timeframe (18 months) are key indicators. Why the other choices are wrong: Permissible loan seasoning refers to the time a loan must be on the books before it can be sold or refinanced under certain guidelines, not an abusive pattern. A servicing transfer is the sale of the right to collect payments, not the origination of new loans. A construction conversion is a specific type of loan that transitions from construction to permanent financing, not repeated refinances. Exam tip: When you see 'repeated refinances,' 'new fees each time,' and 'no borrower benefit,' think 'loan flipping' as the predatory practice.
Why This Is the Correct Answer
Why this is correct: The scenario describes 'loan flipping,' which is the abusive practice of repeatedly refinancing a loan in a short period primarily to generate fees (points, closing costs) for the originator, without providing a tangible net benefit to the borrower. The lack of payment or rate improvement and the short timeframe (18 months) are key indicators. Why the other choices are wrong: Permissible loan seasoning refers to the time a loan must be on the books before it can be sold or refinanced under certain guidelines, not an abusive pattern. A servicing transfer is the sale of the right to collect payments, not the origination of new loans. A construction conversion is a specific type of loan that transitions from construction to permanent financing, not repeated refinances. Exam tip: When you see 'repeated refinances,' 'new fees each time,' and 'no borrower benefit,' think 'loan flipping' as the predatory practice.
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