Ethics · 18% of the SAFE exameasy
Correct answer: Borrowers are not adequately informed that a large lump-sum payment will be due at the end of the loan term, and the lender knows the borrower cannot afford it
Balloon payment mortgages become predatory when lenders place borrowers into loans knowing the borrower will be unable to make the large lump-sum payment due at loan maturity, or when the balloon feature is not clearly disclosed. The predatory intent is to force the borrower to refinance (generating more fees) or face foreclosure. Disclosure on both the LE and CD (A) is actually proper compliance, not predatory. Loan terms exceeding 30 years (C) is uncommon but not automatically predatory. The balloon equaling original principal (D) describes a common structure (interest-only loan) but is not inherently predatory if properly disclosed and the borrower can afford it.
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