Final answer:
The scam where homeowners are encouraged to repeatedly refinance their property until no equity remains is known as loan flipping or equity stripping. This was a prevalent practice before the global financial crisis and led many homeowners to be underwater on their mortgages once housing values stopped increasing.
Step-by-step explanation:
The type of scam that entails homeowners being encouraged to refinance their property over and over until little or no equity remains is known as a loan flipping or equity stripping scam. This predatory lending practice was rampant during the lead-up to the global financial crisis, particularly with the growing popularity of zero-equity home loans and adjustable-rate mortgages (ARMs).
Many of these high-risk loans were marketed to unsuspecting homebuyers, often those with limited financial literacy, convincing them to purchase homes with no money down and vague terms that were rarely fully explained. Over time, as homeowners refinanced repeatedly, usually to skirt the inflating payments of ARMs, they depleted their home equity.
Eventually, when home values stopped rising, this left many homeowners with properties underwater, owing more than they were worth, and the banks with assets significantly devalued from their loan amounts.