Guidelines for National Banks to Guard against Predatory and Abusive Lending Practices""AL-2003-2 says that refusing to purchase the following types of loans can reduce the possibility of purchasing abusive mortgage loans EXCEPT:
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A. B. C. D.D
Sure, I'd be happy to provide an explanation for this question.
The context of the question is a set of guidelines for national banks to guard against predatory and abusive lending practices, as outlined in AL-2003-2. These guidelines aim to help banks avoid purchasing abusive mortgage loans, which can be harmful to borrowers and create risks for the bank.
The question asks which of the following types of loans is NOT recommended for banks to refuse to purchase as a way of reducing the possibility of purchasing abusive mortgage loans.
Let's examine each answer choice in turn:
A. Loans in which the lender has not adequately determined the borrower's ability to repay the debt
This answer choice is consistent with the guidelines in AL-2003-2, which recommend that banks should only purchase loans where the borrower's ability to repay has been adequately determined. This is because loans that are made to borrowers who cannot afford them are more likely to result in default, foreclosure, and other negative outcomes.
Therefore, refusing to purchase loans in which the lender has not adequately determined the borrower's ability to repay the debt is a recommended strategy for reducing the possibility of purchasing abusive mortgage loans.
B. Loans subject to the Home Ownership and Equity Protection Act (HOEPA)
HOEPA is a federal law that provides additional protections for borrowers in high-cost mortgage transactions. These protections include requirements for disclosures, limitations on loan terms, and restrictions on certain loan features.
Refusing to purchase loans subject to HOEPA is consistent with the guidelines in AL-2003-2, which recommend that banks should avoid purchasing loans with features that are likely to result in predatory or abusive lending practices. However, the question specifically asks which type of loan is NOT recommended to refuse, so this answer choice is incorrect.
C. Loans with points and fees in excess of 5 percent of the loan amount, except in cases where the higher amount was to prevent the loan from being unprofitable
Points and fees are charges that are associated with a mortgage loan and are typically paid by the borrower at closing. Examples of points and fees include origination fees, discount points, and certain third-party fees.
AL-2003-2 recommends that banks should avoid purchasing loans with points and fees in excess of 5 percent of the loan amount, as such loans are more likely to be abusive or predatory. However, there are some exceptions to this rule, such as cases where the higher points and fees are necessary to make the loan profitable for the lender.
Therefore, refusing to purchase loans with points and fees in excess of 5 percent of the loan amount is generally a recommended strategy for reducing the possibility of purchasing abusive mortgage loans, but there are some exceptions.
D. Loans in which a prepaid multiple-premium credit insurance policy was included in the amount financed
Credit insurance is a type of insurance that pays off a borrower's debt in the event of death, disability, or job loss. Prepaid multiple-premium credit insurance is a type of credit insurance where the entire premium is paid up front and added to the loan amount.
AL-2003-2 recommends that banks should avoid purchasing loans with credit insurance that is not required by law and is not in the borrower's best interest. This is because such insurance can increase the cost of the loan and provide little or no benefit to the borrower.
Therefore, refusing to purchase loans in which a prepaid multiple-premium credit insurance policy was included in the amount financed is a recommended strategy for reducing the possibility of purchasing abusive mortgage loans.
In summary, based on the guidelines in AL-2003-2, the types of loans that banks should generally refuse to purchase as a way of reducing the possibility of purchasing abusive mortgage loans are loans in which the lender has not adequately determined the borrower's ability to repay the debt, loans with points