West Virginia Mortgage Law Practice Test

Loan flipping occurs when:

1. A loan is repeatedly refinanced for the purpose of charging points and fees with no actual benefit to the borrower

2. A loan is repaid in full ahead of schedule

3. A mortgage property is sold and the buyer assumes the loan

4. None of the above

The correct answer is: A loan is repeatedly refinanced for the purpose of charging points and fees with no actual benefit to the borrower

The correct choice accurately describes loan flipping as a practice where a borrower is encouraged to refinance their loan multiple times, often to incur additional charges such as points and fees, without receiving any substantial benefit from those refinancings. This practice can be predatory, as it tends to exploit borrowers who may not fully understand the terms and effects of their decision to refinance repeatedly. Refinancing inherently involves costs, and if those costs outweigh the benefits—such as a lower interest rate or an improved loan structure—it can put the borrower in a worse financial position instead of helping them. The intention behind identifying loan flipping is to protect consumers from these deceptive practices that can lead to financial distress, especially for those who may already be in precarious financial situations. The other options do not capture the essence of loan flipping: - Repaying a loan in full ahead of schedule does not indicate any predatory behavior and can reflect a positive financial decision by a borrower. - Selling a property and having the buyer assume the loan is a standard practice and is not associated with loan flipping. - The selection of "none of the above" would be incorrect, as it does not recognize the specific characteristics of loan flipping that option A clearly identifies.