A Louisiana lender originates a high-cost home loan that includes a provision requiring the borrower to pay a substantial prepayment penalty if the loan is paid off within the first five years. Under Louisiana's Predatory Lending Law (La. R.S. 9:3578.1 et seq.), which of the following best describes how this provision would be treated?
Correct Answer
B) The prepayment penalty may be restricted or prohibited under the statute's limitations on high-cost loan terms
Louisiana's Predatory Lending Law (La. R.S. 9:3578.1 et seq.) restricts certain abusive loan terms in high-cost home loans, including limitations on prepayment penalties. The statute is modeled on federal HOEPA principles and applies state-specific restrictions to loan terms that could trap borrowers in high-cost loans. A prepayment penalty of the type described — extending five years — would likely be subject to restriction or prohibition under the statute's provisions governing high-cost loans.
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Related Topics & Key Terms
Key Terms:
Related Concepts
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
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