Due to the Clarks' loan being classified as a higher-priced mortgage loan, what additional requirements are imposed?

When a loan is classified as a higher-priced mortgage loan (HPML), it triggers specific regulatory requirements designed to protect consumers by ensuring they are not subject to predatory lending practices. One of the key requirements associated with HPMLs pertains to appraisals and escrow accounts.

For higher-priced mortgage loans, lenders are obligated to obtain a second appraisal for certain transactions, such as those involving a borrower’s principal dwelling, when the property is being resold within a short period (often referred to as "flipping"). This helps to ensure that the value of the property is accurately assessed and that the borrower is not overpaying based on misleading appraisal values.

Additionally, HPMLs typically require lenders to establish an escrow account for property taxes and insurance premiums, enhancing borrower protection by ensuring these critical payments are made on time. This requirement helps reduce the risk of default due to missed payments on taxes or insurance, which can lead to foreclosure.

These provisions are put in place to foster fairness and transparency in lending, particularly for loans that can carry higher interest rates and potentially more financial risk for the borrower.