Under the Equal Credit Opportunity Act (ECOA), which of the following is a LAWFUL basis for a lender to deny a mortgage application?
Correct Answer
C) The applicant's debt-to-income ratio exceeds the lender's qualifying threshold
A debt-to-income ratio that exceeds a lender's qualifying threshold is a legitimate, financially based underwriting criterion. ECOA (15 U.S.C. § 1691) prohibits discrimination based on protected characteristics but expressly permits lenders to evaluate creditworthiness using objective financial factors such as income, debt obligations, and repayment capacity.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
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