Final answer:
Certain terms, such as increasing the interest rate after a default, are not allowed in a high-cost home loan. The correct answer is A) Default. This regulation helps protect consumers, especially subprime borrowers, from escalating payment risks associated with adjustable-rate mortgages.
Step-by-step explanation:
To answer the question, certain terms may not be included in a high-cost home loan, including: An increase in the interest rate after default. Therefore, the correct option is A) Default.
After the financial crisis, which was largely triggered by problematic lending practices like adjustable-rate mortgages (ARM) with increased interest rates after introductory periods, regulations have become stricter. These adjustments were particularly problematic for 'subprime' borrowers, who often defaulted once their mortgage payments increased dramatically. In response to the economic fallout, loan products are now scrutinized to ensure they do not pose undue risk to consumers, including the prohibition of interest rate increases after a borrower defaults on a high-cost mortgage. High-cost home loans may not include an increase in the interest rate after consummation, which refers to the time when the borrower becomes legally obligated to the loan.
After the consummation of the loan, the interest rate remains fixed or may decrease but cannot increase. This is to protect borrowers from unexpected increases in their monthly mortgage payments.
For example, if a borrower signs the loan agreement on a specific date with a fixed interest rate, the rate cannot go up during the term of the loan.