Ethics · 18% of the SAFE exammedium
Correct answer: Equity stripping — making a loan based on equity rather than the borrower's ability to repay, often leading to foreclosure
Equity stripping is a predatory lending practice where a lender makes a loan based primarily on the property's equity rather than the borrower's ability to repay. The lender profits because if the borrower defaults (which is likely given the unaffordable payment), the lender forecloses and recovers the equity. Loan flipping involves repeated refinancing to generate origination fees — that's not what's happening here since this is a single origination. Predatory servicing involves manipulating payment processing, not the origination decision. Redlining is geographic discrimination in lending, which is unrelated to this scenario. On the exam, look for the pattern: high equity + low income + no ability-to-repay analysis = equity stripping.
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