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Negative amortization on a California covered loan is:

Correct Answer

A) Allowed for a first mortgage if the required negative-amortization disclosure is provided

A California covered loan generally may not contain negative amortization, but section 4973 contains an exception for a first mortgage when the originator discloses that the loan contains a negative-amortization provision that may add principal to the loan balance.

Answer Options
A
Allowed for a first mortgage if the required negative-amortization disclosure is provided
B
Allowed for the first 5 years only
C
Prohibited in all circumstances
D
Allowed if the loan has a fixed rate

Why This Is the Correct Answer

A California covered loan generally may not contain negative amortization, but section 4973 contains an exception for a first mortgage when the originator discloses that the loan contains a negative-amortization provision that may add principal to the loan balance.

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