Housing Counselor Certification (HUD) Practice Exam

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Prepare for the Housing Counselor Certification (HUD) Exam. Use flashcards and multiple choice questions with hints and explanations. Ace your exam!

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Practice this question and more.

The terms Ability to Repay and Qualified Mortgage were defined in regulations implemented by the Consumer Finance Protection Bureau (CFPB) because of what industry-wide problem?

The rise of adjustable-rate mortgages.
Subprime lending.
The decline in property values.
Foreclosure rates increasing.

The correct answer is: Subprime lending.

The terms "Ability to Repay" and "Qualified Mortgage" were established in response to the widespread issues associated with subprime lending practices that contributed to the 2008 financial crisis. Subprime lending involved providing loans to borrowers with poor credit histories or insufficient income to support the debt, often resulting in high default rates. This practice led to a significant number of borrowers becoming unable to make their mortgage payments, consequently fueling a rise in foreclosures and a broader economic downturn. The Ability to Repay rule requires lenders to evaluate borrowers' financial situations comprehensively, ensuring they can handle the mortgage without undue risk of default. Qualified Mortgages are designed to include certain protections and features, limiting risky lending practices. Together, these regulations aim to prevent the kinds of irresponsible lending that characterized the subprime market and ultimately destabilized the housing market and the economy.