Ethics · 18% of the SAFE exammedium
Correct answer: Refinancing to lower the interest rate by 0.125% while rolling $8,500 in closing costs into a new 30-year loan, resetting the amortization schedule
A net tangible benefit requires that the refinance meaningfully improves the borrower's financial situation. Reducing the rate by only 0.125% while adding $8,500 to the loan balance and restarting a 30-year amortization clock results in the borrower paying substantially more over the life of the loan — this would fail a net tangible benefit analysis. The negligible rate improvement does not offset the additional debt and extended loan term. "Refinancing from a 30-year to a 15-year term at a lo..." (ARM to fixed) provides rate certainty and is generally accepted as a tangible benefit. "Refinancing from an adjustable-rate mortgage to a fi..." (accessing equity for a medical necessity) provides a clear, legitimate purpose. "Refinancing to lower the interest rate by 0.125% whi..." (shortening the term with a rate reduction) demonstrably benefits the borrower. HOEPA requires lenders to determine that a covered loan refinance provides a net tangible benefit before proceeding.
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