In relation to High-Cost loans, what option is not permitted?

The option indicating that using an appraisal waiver is not permitted in relation to High-Cost loans is correct because high-cost loans are subject to more stringent regulations to protect borrowers. An appraisal waiver can bypass important evaluations of the property value, which is critical in establishing that the terms of the loan are fair and that the borrower is not overpaying. This is particularly crucial with high-cost loans, which often have fees and interest rates exceeding certain thresholds, as defined under the Home Ownership and Equity Protection Act (HOEPA).

The regulation seeks to ensure transparency and that borrowers are accurately informed about the value of the asset they are encumbering. Consequently, using an appraisal waiver can create risk for both the lender and the borrower by omitting vital assessments of property value and loan terms.

In contrast, annual income limits, interest-only payments, and prepayment penalties can have allowances or restrictions under certain conditions in high-cost loans, so they might be permitted under specific regulations or guidelines. It’s essential for originators to fully understand these regulations to responsibly serve their clients and ensure compliance with the law.