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What type of mortgage is considered a high-cost loan?
Anything over the conforming loan limit
Loans with interest rates significantly above the market rate
Any loan with mortgage insurance
Loans made to borrowers with poor credit
The correct answer is: Loans with interest rates significantly above the market rate
A high-cost loan is typically defined as a mortgage that has interest rates or fees that exceed certain thresholds set by federal law, particularly under the Home Ownership and Equity Protection Act (HOEPA). Option B addresses this by specifying loans with interest rates that are significantly above the market rate. These loans fall into the high-cost category because they tend to pose greater financial risks to borrowers, who may struggle with repayment due to high monthly payment amounts resulting from inflated interest rates. In terms of regulatory standards, loans that exceed the thresholds for interest rates or points also trigger specific requirements intended to protect consumers, highlighting the importance of understanding and identifying high-cost loans in the lending landscape. Recognizing such loans helps ensure borrowers are aware of their financial obligations and the potential dangers associated with high-cost borrowing. The other options do not align with the federal definitions of high-cost loans as clearly. For instance, a loan being over the conforming loan limit does not inherently make it high-cost; rather, it merely means it exceeds the threshold for loans that can be purchased by government-sponsored entities. Similarly, while borrowers with poor credit may indeed face higher interest rates, not all loans issued to such borrowers are classified as high-cost. The presence of mortgage insurance alone also does not qualify a