Loan Officer Practice Exam

What type of mortgage loan typically involves higher regulatory scrutiny?

1. Conventional loans

2. High-cost mortgage loans

3. FHA loans

4. VA loans

The correct answer is: High-cost mortgage loans

High-cost mortgage loans are typically subjected to higher regulatory scrutiny due to their potential to create significant financial burden for borrowers. These loans often feature higher interest rates and fees that exceed certain thresholds established by federal law. To protect consumers from predatory lending practices, regulatory bodies analyze these loans closely to ensure that lenders provide clear disclosures and comply with lending limits. The intent behind this scrutiny is to prevent exploitation of less financially savvy borrowers who might be drawn into unfavorable lending agreements. Other loan types, while they may have their own sets of regulations—like the guidelines set forth by the Federal Housing Administration for FHA loans or the Department of Veterans Affairs for VA loans—do not face the same level of oversight associated with high-cost mortgages. FHA and VA loans, for example, tend to have more structured benefits and protections designed to facilitate access to homeownership for certain populations, but they are not as heavily scrutinized in terms of their costs to borrowers, as high-cost loans are.