What is a red flag mortgage?
A red flag mortgage refers to a predatory home loan structure, deceptive lending practice, or suspicious loan term agreement that exposes a borrower to extreme financial vulnerability, hidden fees, and severe foreclosure risks. Warning signs include lenders who push adjustable-rate mortgages with explosive teaser rates, charge exorbitant origination fees that are rolled secretly into the principal balance, or fail to provide transparent Good Faith Estimates and Closing Disclosures. Other major red flags involve lenders encouraging borrowers to falsify income or asset documentation on loan applications, or including aggressive prepayment penalties that trap consumers in unfavorable financing contracts.
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