Final answer:
The Home Ownership and Equity Protection Act (HOEPA) of 1994 was designed to protect consumers from predatory high-cost lending practices. HOEPA amended the Truth in Lending Act to provide additional protections such as requiring lenders to disclose key terms and prohibiting certain loan features. The correct answer to the student's question is Option D) Home Ownership and Equity Protection Act (HOEPA).
Step-by-step explanation:
The legislation called the Home Ownership and Equity Protection Act (HOEPA) was passed in 1994 to protect borrowers from high-cost lending practices. This act was a response to certain predatory lending practices that had been identified as contributing to the high rates of foreclosures and defaults, particularly in the subprime mortgage market. HOEPA set forth federal guidelines for high-cost loans that amended the Truth in Lending Act (TILA) enforced by the Federal Reserve.
HOEPA targeted abusive practices related to the refinancing of existing mortgages with high fees, frequently leading homeowners into a debt cycle that could result in the loss of equity or home foreclosure. Key provisions of HOEPA include the requirement for additional disclosures to consumers, the prohibition of certain loan terms such as balloon payments in some circumstances, and the establishment of criteria for determining whether a borrower can repay a high-cost mortgage. Financial institutions are required to comply with these regulations to ensure fair treatment of consumers and prevent discrimination in lending.
It should be noted that the Home Owners' Loan Corporation Act of June 13 also played a significant role by providing refinancing for home mortgages during a critical period in American history. However, it was HOEPA that specifically addressed the issues regarding high-cost lending in 1994, and as such, the correct answer to the student's question is Option D) Home Ownership and Equity Protection Act (HOEPA).