Final answer:
Equity stripping is the scam where homeowners refinance their homes to the point of losing most or all of their equity, often associated with broader practices of mortgage fraud and predatory lending.
Step-by-step explanation:
The type of scam by the homeowner who attempts to refinance their property over and over until little to no equity remains is known as Equity stripping. In such cases, homeowners may be persuaded to repeatedly refinance their homes with the promise of financial benefits, often receiving loans with unfavorable terms that lead to the gradual loss of their home's equity. This practice can be part of larger schemes that involve mortgage fraud and predatory lending, where unsuspecting individuals are taken advantage of by unscrupulous lenders or financial operatives.
Equity stripping is often associated with the broader issue of risky financial practices in the housing market, such as the case with zero-equity home loans combined with adjustable-rate mortgages (ARMs). Uninformed buyers were enticed into taking loans that they could not afford in the long term, especially when the market does not perform as expected. These activities contribute to financial instability and can lead to significant personal and economic consequences.