A borrower with limited financial literacy is placed in a 30-year mortgage with low monthly payments, but the loan contract contains a clause requiring the entire remaining principal balance to be paid in full after 5 years. The borrower was not clearly informed of this feature. Which predatory lending practice does this scenario illustrate?

Correct answer: Balloon payment trap

A balloon payment trap occurs when a borrower is placed into a loan structured with low periodic payments but a large lump-sum payment due at a specified future date. Predatory lenders exploit this by obscuring the balloon feature, leaving borrowers unable to make the large payment and forcing them into another loan or foreclosure. Prepayment penalty abuse (A) involves charging excessive fees when a borrower pays off a loan early — not the same as a mandatory lump-sum payment. Excessive fee packing (B) refers to loading a loan with unnecessary charges at origination. Steering to subprime products (D) involves directing borrowers who qualify for better loans into higher-cost products — that may overlap but does not specifically define the balloon feature described here.