West Virginia Mortgage Law Practice Test

What action is described by the term "loan flipping"?

1. A loan is repaid in full ahead of schedule

2. A mortgage lender sells the loan to another lender

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

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

The correct answer is: A loan is repaid in full ahead of schedule

The correct understanding of "loan flipping" refers specifically to the action where a loan is repeatedly refinanced for the purpose of charging points and fees with no actual benefit to the borrower. This practice often leads to borrowers incurring additional costs and can put them in a worse financial position, without gaining any significant advantages from the repeated refinancing. The other choices describe different actions related to loans and mortgages but do not capture the essence of loan flipping. For instance, repaying a loan in full ahead of schedule indicates a straightforward repayment rather than a cycle of refinancing. Selling a mortgage loan to another lender pertains to the transfer of loan ownership, which is also separate from the concept of loan flipping. Lastly, a property being sold with an assumption of the existing loan involves a change in ownership and responsibility for the loan, which again does not relate to the exploitative nature of loan flipping.