Loan Officer Practice Exam

According to the Home Ownership and Equity Protection Act, after how many months may a lender refinance a higher-priced loan without it being in the borrower's best interest?

1. 24 months

2. 60 months

3. 12 months

4. 36 months

The correct answer is: 12 months

The Home Ownership and Equity Protection Act (HOEPA) establishes certain protections for consumers in high-cost mortgage transactions. One of the key provisions addresses refinancing of higher-priced loans. Under HOEPA guidelines, a lender may refinance a higher-priced loan without it being in the borrower's best interest after 12 months. This regulation is designed to prevent lenders from engaging in practices that could harm borrowers, such as encouraging unnecessary refinancing that could lead to higher fees and an extension of the borrower's debt. By establishing a 12-month period, the law aims to safeguard consumers immediately following the initial loan, ensuring that any refinancing genuinely benefits the borrower, rather than serves the lender’s interests. The intention is to encourage both lenders and borrowers to carefully evaluate the terms and necessity of refinancing within that timeframe. In contrast to the choices reflecting longer periods, the correct timeframe reinforces the concept of consumer protection immediately following a loan, acknowledging that longer intervals may risk potential exploitation of borrowers.