West Virginia Mortgage Law Practice Test

Under West Virginia law, which of the following is considered a prohibited act for mortgage lenders?

1. Charging a prepayment penalty

2. Failing to provide a Good Faith Estimate

3. Offering a loan to a high-risk borrower

4. Providing a borrower with multiple loan options

The correct answer is: Charging a prepayment penalty

Charging a prepayment penalty is deemed a prohibited act under West Virginia mortgage law. Prepayment penalties are fees imposed on borrowers when they pay off their loans early, which can discourage borrowers from refinancing or paying off high-interest loans. Due to the potential for these penalties to exploit borrowers and reduce consumer protections, legislation has been established to prevent lenders from imposing such fees in most circumstances, thereby protecting borrowers from unexpected costs and ensuring fair lending practices. While the other options reflect practices that may be regulated or scrutinized, they are not outright prohibited acts under the same legislative protections afforded to borrowers regarding prepayment penalties. For instance, failing to provide a Good Faith Estimate could be considered a violation of transparency requirements, and offering a loan to a high-risk borrower, while potentially risky, is allowed as long as proper disclosures and assessments are made. Providing multiple loan options is generally seen as good practice as it allows borrowers to make informed decisions regarding their financing.