West Virginia Mortgage Law Practice Test

What must a lender do if a borrower does not qualify for a loan but qualifies for a different product with materially different terms?

1. Inform the borrower to reapply

2. Refer the borrower to another lender

3. Decline the initial application and offer new terms and disclosures for the alternative product

4. Assist the borrower in qualifying for the original loan

The correct answer is: Inform the borrower to reapply

In this scenario, the lender's responsibility includes evaluating the borrower's qualifications and aligning them with suitable loan products. When a borrower does not qualify for the initially requested loan but qualifies for another product with materially different terms, the best course of action is to decline the initial application and offer new terms and disclosures for the alternative product. This ensures that the borrower is fully aware of their options and the differences in terms, enabling them to make an informed decision. Informing the borrower to reapply may create unnecessary delays and confusion, as the lender already has the necessary information to assess the borrower's eligibility for the alternative product. Referring the borrower to another lender does not fulfill the lender's duty to present suitable alternatives to the borrower and could result in the borrower missing out on beneficial options. Assisting the borrower in qualifying for the original loan may not be possible if they do not meet the required criteria, and it does not address the current eligibility for an alternative product. Providing the option that aligns best with the borrower's current financial situation and needs is essential in the lending process.