Loan Officer Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

Regulation Z, which implements the Truth in Lending Act, outlines various criteria to classify a loan as a high-cost mortgage loan. These triggers are significant because they determine the applicability of additional consumer protections aimed at preventing predatory lending practices.

The correct answer indicates that excessive prepayment penalties are not one of the specific triggers for identifying a high-cost mortgage loan. Instead, the regulation focuses on aspects such as the annual percentage rate, points and fees, and total finance charges.

These triggers serve to protect consumers by ensuring they are informed about the cost of borrowing. For instance, an excessive annual percentage rate reflects that the loan's cost is significantly higher than that of a typical mortgage, which could lead to financial strain on the borrower. Similarly, excessive points and fees or total finance charges also highlight that a loan may impose unusually high costs, further justifying the high-cost designation.

While excessive prepayment penalties can be detrimental to borrowers by discouraging them from paying off their loans early, they are not explicitly categorized as a trigger under Regulation Z for determining if a mortgage loan is high-cost. This distinction emphasizes the regulation's focus on upfront costs and ongoing financial obligations rather than the penalties associated with loan early repayment.