The only mortgage that Lucille's lender would give her is a high-cost loan that defers interest payments for the first two years. However, a high-cost loan that results in negative amortization is illegal under what law?

The scenario centers around high-cost loans and their regulation under federal law. The correct answer relates to HOEPA, the Home Ownership and Equity Protection Act. HOEPA was enacted to protect consumers from abusive lending practices, specifically concerning high-cost loans. One of the significant protections provided under HOEPA is the prohibition of certain loan features that are deemed predatory, including those that lead to negative amortization.

Negative amortization occurs when the amount owed on a loan increases over time instead of decreasing, primarily because payments made do not cover the accruing interest. This situation can lead borrowers into deeper financial distress, which is why HOEPA explicitly prohibits high-cost loans that result in negative amortization.

The other laws mentioned, such as FACTA (Fair and Accurate Credit Transactions Act), RESPA (Real Estate Settlement Procedures Act), and SAFE (Secure and Fair Enforcement for Mortgage Licensing Act), address different aspects of consumer protection and mortgage regulation but do not specifically outlaw the practice of negative amortization within the context of high-cost loans. Understanding HOEPA's role in protecting borrowers against high-cost loans that can lead to financial difficulty is crucial for Mortgage Loan Originators to ensure compliance with federal lending laws.