Under the Dodd-Frank Act's Ability-to-Repay rule, which practice would most likely be considered evidence of predatory lending?
Correct Answer
B) Making loans primarily based on collateral value without considering repayment ability
The Ability-to-Repay (ATR) rule under Dodd-Frank requires lenders to make a reasonable determination of a borrower's ability to repay before making a mortgage loan. Making loans based primarily on collateral value without considering repayment ability violates the ATR rule and is a form of equity stripping that the regulation was specifically designed to prevent.
Why This Is the Correct Answer
The Ability-to-Repay (ATR) rule under Dodd-Frank requires lenders to make a reasonable determination of a borrower's ability to repay before making a mortgage loan. Making loans based primarily on collateral value without considering repayment ability violates the ATR rule and is a form of equity stripping that the regulation was specifically designed to prevent.
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Previous Question
A borrower with a 4.5% mortgage rate and $40,000 in equity is contacted monthly by the same lender offering to 'unlock your home's value.' After the fourth contact, the borrower refinances to a 6.25% rate, extracting $30,000 cash but paying $6,500 in fees. Six months later, the lender contacts them again about another refinance. The lender's primary violation involves:
Next Question
A loan originator includes credit life insurance, debt protection insurance, and extended warranty coverage in a borrower's loan without clearly explaining these products or obtaining proper consent. The borrower discovers these charges only at closing. This practice is known as: