Question 1

Laurel borrows $150,000 from Marketplace Mortgage Loans to buy a home.The financing documents require Laurel to maintain the property, obtain homeowners' insurance, and pay all property taxes and other assessments through the lender.With respect to these terms, a court is most likely to

Accepted Answer

These terms are typical requirements in a mortgage agreement and are therefore likely to be enforced by a court. They provide added security for the lender and help ensure that the property is well-maintained and adequately insured, which ultimately protects both the borrower and the lender.

Question 2

Milo borrows $125,000 from North State Bank to buy a home.To comply with applicable statutes (including the Statute of Frauds), the mortgage must be

Accepted Answer

The Statute of Frauds requires that contracts, including mortgages, be in writing to be legally enforceable. Therefore, the mortgage must be in writing to comply with the law. Choices A, B, and C are incorrect as they do not address the requirement of the Statute of Frauds.

Question 3

Duran applies to EZ Credit Mortgage Company for $100,000 to buy a home.EZ Credit steers Duran toward an adjustable-rate mortgage even though he qualifies for a fixed-rate mortgage.This is

Accepted Answer

This is an example of steering, where the mortgage company guides the applicant towards a particular type of mortgage, and targeting, where the company targets the applicant for a specific type of mortgage based on certain characteristics, such as credit score. It is not a short sale or a subprime mortgage, and it is unlikely to be loan flipping as there is no indication that the applicant is being encouraged to refinance repeatedly for the company's profit.

Question 4

Lorna borrows $175,000 from Mountainside Credit Union to buy a home.Among the terms that must be disclosed under federal law is the annual percentage rate.This is

Accepted Answer

The annual percentage rate (APR) is the actual cost of the loan on a yearly basis, including interest, fees, and other charges. It is designed to help borrowers compare the costs of different loans more easily. The other choices, average prime offer rate, interest rate, and loan principal, do not fully capture the overall cost of the loan and are not the same as the APR.

Question 5

Fact Pattern 15-2 
24-Hour Credit Corporation issues high-cost and high-fee mortgage products to people, including Benny, who could not easily obtain credit under other loan programs.

-Refer to Fact Pattern 15-2.Under federal law, if 24-Hour Credit fails to provide certain material disclosures with respect to the loan, Benny's right to rescind the loan

Accepted Answer

Under federal law, if certain material disclosures are not provided by the lender, the borrower's right to rescind the loan is extended for up to three years. This means that Benny would have the right to rescind the loan for up to three years if 24-Hour Credit failed to provide the required disclosures.

Question 6

Property Financial Corporation makes loans that qualify, under a Federal Reserve Board amendment to Regulation Z, as Higher-Priced Mortgage Loans (HPMLs).Quinn applies to Property Financial for an HPML.To make the loan, the lender must

Accepted Answer

Under the Federal Reserve Board amendment to Regulation Z, lenders making HPMLs are required to verify the borrower's ability to repay the loan. This means that they must analyze the borrower's income, assets, current debts, and credit history to ensure that they have the ability to make the loan payments. Lenders cannot inflate the property value or structure the loan to evade the HPML protections. While lenders may impose a prepayment penalty, it is not required for HPMLs.

Question 7

Dahlia borrows $125,000 from Clearview Credit Union to buy a home.The interest rate and other terms that are required to be disclosed under federal law must be

Accepted Answer

Under federal law, the interest rate and other terms must be based on uniform formulas of calculation. This ensures that borrowers can compare loans from different lenders in a standardized manner. The terms must also be expressed in clear and understandable language, rather than "legalese."

Question 8

Money Mortgage Mart makes a mortgage loan to Natalie to allow her to buy a home and establishes an escrow account.Most likely, this account holds payments for

Accepted Answer

An escrow account is typically used to hold funds for homeowners' insurance and property taxes, which are ongoing expenses related to the ownership of the home. This allows the lender to ensure that these expenses are paid on time and that the property remains adequately insured.

Question 9

Hubert borrows $100,000 from Integrity Mortgage Mart to buy a home.Soon after obtaining the mortgage, Integrity convinces Hubert to refinance.This is

Accepted Answer

Refinancing a mortgage shortly after obtaining it is known as loan flipping. It often results in higher fees and interest rates for the borrower and more profit for the lender.

Question 10

Rita borrows $30,000 from South State Credit Union.South State accepts Rita's equity in her home as collateral, which can be seized if the loan is not repaid on time.This is

Accepted Answer

This is a home equity loan because the loan is secured by the equity in Rita's home.

Question 11

Main Street Lenders, Inc., attempts to coerce Nolan-who specializes in determining the value of real and personal property-into misstating the value of a property on which a loan is to be issued.This is

Accepted Answer

Coercing someone into misstating the value of a property on which a loan is to be issued is considered fraud and is a violation of the law. It is illegal and unethical behavior that can lead to serious consequences for both the lender and the appraiser.

Question 12

Shade Tree Lending Corporation advertises loans as fixed-rate loans but, in fact, their rates or payment amounts will change.This is

Accepted Answer

The answer of Shade Tree Lending Corporation advertises loans as...

Question 13

Virgil borrows $175,000 from United Finance Bank to buy a home.Federal law regulates primarily

Accepted Answer

Federal law primarily regulates mortgage terms that must be disclosed in writing through the Truth in Lending Act and the Real Estate Settlement Procedures Act. These laws require lenders to disclose important information about the terms of the loan, such as interest rates, fees, and other charges that may be associated with the loan. The purpose of these laws is to ensure that borrowers are fully informed about the costs and risks associated with their mortgage loan before signing the documents.

Question 14

Violet negotiates with Urban Credit Corporation to obtain a loan for $85,000 to buy a home.During the negotiations, Urban Credit orally misrepresents the terms, but provides the required documents, which accurately state the terms.Violet does not read the documents.The party or parties most likely liable for a violation of the law is

Accepted Answer

The answer of Violet negotiates with Urban Credit Corporation to...

Question 15

Community Trust Bank provides Devlin with a mortgage to buy a home.The rate of interest is fixed for seven years.At the end of that period, a large payment for the entire balance of the mortgage loan is due.This is

Accepted Answer

The description fits that of a balloon mortgage, where a large payment (balloon payment) is due at the end of a fixed period of time. This type of mortgage is legal as long as it is disclosed to the borrower and both parties agree to the terms.

Question 16

Fact Pattern 15-2 
24-Hour Credit Corporation issues high-cost and high-fee mortgage products to people, including Benny, who could not easily obtain credit under other loan programs.

-Refer to Fact Pattern 15-2.Under federal law, disclosures with respect to one of 24-Hour Credit's loans must be provided

Accepted Answer

Under federal law, disclosures with respect to a loan must be provided a certain number of days before the loan is finalized.

Question 17

Hill & Dale Credit Corporation makes mortgage loans to consumers secured by their principal homes.For a Hill & Dale loan to qualify as a Higher-Priced Mortgage Loan (HPML), its annual percentage rate must exceed, by a certain amount,

Accepted Answer

A Higher-Priced Mortgage Loan (HPML) is defined as a mortgage loan with an annual percentage rate (APR) that exceeds the average prime offer rate by a certain amount, depending on the loan size. The other options listed (B, C, and D) are not related to the definition of an HPML.

Question 18

Riverview Bank makes a mortgage loan of $95,000 to Pomeroy to buy a home.Under federal law, if Riverview fails to provide certain material disclosures with respect to the loan, Pomeroy's right to rescind the loan

Accepted Answer

Under federal law, if certain material disclosures are not provided by the lender, the borrower's right to rescind the loan is extended for up to three years.

Question 19

Fact Pattern 15-1 
Northeast Bank makes mortgage loans to consumers, including Mai, to buy homes.
-Refer to Fact Pattern 15-1.For Mai's loan, Northeast provides all required disclosures.Mai has a right to rescind the mortgage

Accepted Answer

According to the Truth in Lending Act, borrowers have a right to rescind the mortgage within three business days of closing. Therefore, choice C is the best answer.

Question 20

Fact Pattern 15-1 
Northeast Bank makes mortgage loans to consumers, including Mai, to buy homes.

-Refer to Fact Pattern 15-1.Under federal law, disclosures with respect to one of Northeast's loans must be provided

Accepted Answer

Federal law requires disclosures to be provided a certain number of days before the loan is finalized.

Quiz 18: Mortgages Foreclosures After the Recession