Final answer:
A first-lien mortgage is considered a Section 32 loan if the APR exceeds the APOR on a comparable transaction by more than 6%. The correct answer to the question is B) 6%. Understanding such classifications can help borrowers recognize the risks of high-interest loans.
Step-by-step explanation:
A first-lien mortgage is a primary loan that has priority over all other liens or claims on a property in the event of default. When comparing the Annual Percentage Rate (APR) of such a mortgage to the Average Prime Offer Rate (APOR) on a comparable transaction, a significant difference can classify the loan under a specific section of the law. Specifically, a first-lien mortgage is considered a Section 32 loan if the APR exceeds the APOR by more than a certain percentage.
According to the question, the correct answer is: B) 6% This means that a first-lien mortgage secured by a Single-Family Residence (SFR) with an APR that exceeds the APOR on a comparable transaction by more than 6% would be classified as a Section 32 loan.
Adjustable Rate Mortgages (ARMs) can be risky, as they may start with a low introductory rate that can significantly increase over time, leading to higher monthly payments for the homeowners. This situation can lead to defaults when homeowners are unable to manage the higher costs. Knowing the definition of a Section 32 loan can help borrowers understand the potential risks and costs associated with high-interest loans.