Which fee is not prohibited under Section 32 and/or Section 35 of the Truth-In-Lending Act?

The correct choice is the late fee of 4%. Under the Truth in Lending Act (TILA), particularly sections 32 and 35 which deal with high-cost mortgages, certain fees are scrutinized or prohibited to protect consumers. Section 32 specifically addresses high-cost mortgages, while Section 35 pertains to higher-priced mortgage loans, indicating that certain fees can be deemed excessive or abusive.

A late fee of 4% is typically considered a common and permissible charge compared to the overall loan obligation, as long as it aligns with state laws regarding maximum allowable late fees. These sections do not explicitly prohibit late fees, allowing lenders to charge reasonable penalties for missed payments.

In contrast, the other fees mentioned may fall under the prohibitive regulations outlined in these sections due to either the nature of the fee, the potential for abuse, or their relation to high-cost mortgage attributes. The payoff statement fee and loan modification fee could be considered excessive when they exceed typical market standards, and negative amortization creates a scenario where the borrower's loan balance increases rather than decreases, which is generally not allowed under TILA protections.