Which act provides a specific definition of a nontraditional loan?

The Dodd-Frank Act provides a specific definition of a nontraditional loan. This legislation, enacted in response to the financial crisis of 2007-2008, aimed to improve regulations within the financial system, particularly regarding consumer protections in lending practices.

Under the Dodd-Frank Act, nontraditional loans are defined as loans that do not fit the typical standards for mortgage loans. This includes options like interest-only loans or loans with balloon payments where the borrower does not build up equity or may have significant risks associated with payment adjustments. The inclusion of these definitions was intended to ensure that consumers are aware of the risks involved with such loans and to impose stricter guidelines for lenders to follow when originating these types of loans.

This act thus plays a critical role in safeguarding consumers against potentially predatory and confusing lending practices associated with nontraditional loans.