Under California's predatory lending restrictions, which of the following loan features would be prohibited on a covered high-cost mortgage loan?
Correct Answer
C) A prepayment penalty that extends beyond 36 months
California's predatory lending law prohibits prepayment penalties that extend beyond 36 months on covered high-cost mortgage loans. Prepayment penalties beyond this period are considered predatory.
Why This Is the Correct Answer
A prepayment penalty that extends beyond 36 months is correct. California's predatory lending law prohibits prepayment penalties that extend beyond 36 months on covered high-cost mortgage loans. Prepayment penalties beyond this period are considered predatory. California's predatory lending law prohibits prepayment penalties that extend beyond 36 months on covered high-cost mortgage loans. Prepayment penalties beyond this period are considered predatory.
Why the Other Options Are Wrong
Option A: A 30-year fixed interest rate
A 30-year fixed interest rate is a standard, consumer-friendly loan feature that provides payment stability and is not prohibited under predatory lending laws.
Option B: An escrow account for taxes and insurance
Escrow accounts for taxes and insurance are actually encouraged as they help ensure property tax and insurance payments are made, protecting both borrower and lender interests.
Option D: A loan-to-value ratio of 80%
An 80% loan-to-value ratio is considered conservative and safe lending practice, well within acceptable risk parameters and not prohibited.
Memory Technique
CA -> ca-covered-loans-high-cost-consumer-protections
Exam Tip
Covered-loan questions often test the 8-point APR trigger, 6 percent points-and-fees trigger, principal-dwelling scope, Consumer Caution notice timing, ATR, prepayment penalty limits, prohibited loan terms, and remedies.
Common Mistakes to Avoid
- -Using a national baseline answer when California has agency-specific DFPI or DRE requirements
- -Confusing CFL, CRMLA, covered-loan, usury, servicing, and DRE endorsement rules
- -Relying on legacy California state-exam or education assumptions instead of current NMLS source pages
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