Which of the following is not a prohibited loan term for a high-cost loan?

The correct answer is that a mandatory escrow account is not a prohibited loan term for a high-cost loan. This means that lenders can require borrowers to maintain an escrow account for property taxes and insurance as part of the loan agreement, which is standard in many mortgage transactions.

High-cost loans, as defined by the Home Ownership and Equity Protection Act (HOEPA), have specific prohibitions against certain loan features that may be considered predatory or harmful to borrowers. For example, negative amortization, where the loan balance increases instead of decreases, is prohibited because it can trap borrowers in a cycle of debt. Similarly, monthly payoff statement fees are seen as a burden to the borrower and are thus prohibited. Prepayment penalties, especially those applicable within the first five years of the loan, can also lead to significant financial consequences for borrowers, which is why they are restricted under certain circumstances.

In contrast, requiring a mandatory escrow account is not deemed predatory and is a common practice aimed at protecting both the lender and the borrower by ensuring that taxes and insurance are paid on time. This requirement helps maintain the property and reduces risk for the lender, making it an acceptable loan term in high-cost lending scenarios.