According to the 2007 interagency statement on subprime mortgage lending, what should an institution offering mortgage loans to subprime borrowers provide before submission of an application?
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A. B. C. D.B
The 2007 Interagency Statement on Subprime Mortgage Lending provided guidance for financial institutions that offer mortgage loans to subprime borrowers. This statement aimed to promote responsible lending practices and to address the risks associated with subprime lending.
One of the requirements outlined in the statement is that financial institutions should provide certain information to subprime borrowers before the submission of an application. This information includes:
C. Truth in Lending Disclosures: According to the statement, financial institutions should provide subprime borrowers with a Truth in Lending (TIL) disclosure. The TIL disclosure is a document that provides the borrower with information about the loan, including the annual percentage rate (APR), the finance charges, the amount financed, and the total payments required.
B. Payment Shock Information: The statement also requires financial institutions to provide subprime borrowers with information about payment shock. Payment shock refers to the increase in monthly mortgage payments that borrowers may experience when an adjustable-rate mortgage (ARM) adjusts to a higher interest rate. The financial institution should provide the borrower with an estimate of the maximum monthly payment that could result from an interest rate increase.
In summary, before submitting a mortgage loan application, financial institutions offering mortgage loans to subprime borrowers should provide a Truth in Lending disclosure and information about payment shock. This information is intended to help borrowers understand the costs and risks associated with the loan and to make an informed decision about whether to proceed with the application.