Certified Regulatory Compliance Manager (CRCM) — Question 27

Examples of unfair practices mentioned in guidelines against Predatory and Abusive Lending includes loan flipping and loan equity stripping. It is said that:

Answer options

• A. Loan flipping may be unfair because it increases the chances of foreclosure by decreasing home equity and increasing debt burden
• B. Equity stripping is the practice of making loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home
• C. Loan flipping is the practice of making loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home
• D. Equity stripping may be unfair because it increases the chances of foreclosure by decreasing home equity and increasing debt burden

Correct answer: A, B

Explanation

Option A is correct as it accurately describes how loan flipping can lead to increased foreclosure risk through reduced equity and added debt. Option B correctly defines equity stripping, but does not address unfairness. Option C inaccurately describes loan flipping, which is not its definition. Option D, while discussing equity stripping's risks, incorrectly focuses on it rather than loan flipping.