Question 1

The federal law that requires banks to notify in writing to their credit customers when a loan request is denied is known as the:

Accepted Answer

The Equal Credit Opportunity Act (ECOA), enacted in 1974, is a federal law that prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, or age. One of the requirements of the ECOA is that banks must notify their credit customers in writing when a loan request is denied. This notification must include the specific reasons for the denial and the customer's right to obtain a free copy of their credit report within 60 days. Therefore, option A is the correct answer.

Question 2

The federal law that permits consumers to dispute billing errors with a merchant or credit card company and receive a prompt investigation of any billing disputes is the:

Accepted Answer

The Fair Credit Billing Act allows for consumers to dispute billing errors with merchants or credit card companies and receive prompt investigations. The other options listed do not pertain to this specific regulation.

Question 3

The method for figuring out the loan rate wherein the interest amount owed on a loan is added to the principal amount of the loan to determine a borrowing customer's required installment payments is known as:

Accepted Answer

The method described is known as the add-on rate. It results in higher overall interest paid on the loan compared to simple interest or APR.

Question 4

Which of the following aspects of a customer's loan application should a bank's real estate loan officer consider carefully when making a home mortgage?

Accepted Answer

All of the options listed are factors that a real estate loan officer should consider carefully when making a home mortgage. The amount and stability of the borrower's income is important for ensuring that they can make regular loan payments, while the borrower's available savings and down payment source can impact their ability to afford the home. The borrower's track record in caring for and managing property may provide insights into their ability to maintain the property and make necessary repairs, and the outlook for real estate sales in the local market area can impact the value of the property over time. Therefore, all options listed should be carefully considered.

Question 5

In lending,ARM is an abbreviation used for:

Accepted Answer

ARM stands for Adjustable Rate Mortgage, which is a type of loan where the interest rate can fluctuate over the life of the loan based on market conditions. This is different from a fixed rate mortgage, where the interest rate stays the same. Option A and D are not commonly used in the lending industry, and option B does not accurately describe the concept of an ARM.

Question 6

FNMA does not purchase home mortgages in the secondary market if the borrower's monthly total debt repayments (including housing costs)exceed _________ percent of the borrower's monthly gross income.

Accepted Answer

FNMA follows the guidelines of the Qualified Mortgage (QM) rule, which states that a borrower's monthly debt-to-income ratio should not exceed 43%. However, the maximum debt-to-income ratio for loans eligible for purchase by FNMA is 36%. Therefore, choice C (36) is the correct answer.

Question 7

An abusive practice in which lenders grant loans to weak borrowers and charge them high fees and interest rates,which may cause the borrower to default on the loan is known as:

Accepted Answer

Predatory lending refers to the practice of charging high fees and interest rates to weaker borrowers who may not have the ability to repay the loan. This can lead to a cycle of debt and ultimately, default. It is considered an abusive practice that takes advantage of vulnerable individuals or communities. Option A, installment loaning, and option B, credit card loaning, do not capture the exploitative and deceptive nature of predatory lending. Option D, herbivore lending, is incorrect as it is not a recognized term in finance or lending.

Question 8

Regulations under which of the following law(s)must be complied with by the banks dealing in mortgage lending?

Accepted Answer

All of these laws apply to banks dealing in mortgage lending. The National Affordable Housing Act aims to increase the availability of affordable housing and directs regulatory agencies to promote affordable lending. The Community Reinvestment Act requires banks to serve the credit needs of their communities, including low- and moderate-income neighborhoods. The Financial Institutions Reform, Recovery, and Enforcement Act established new regulatory agencies and standards for banks after the savings and loan crisis in the 1980s. The Truth-in-Lending Act requires lenders to disclose the terms and costs of loans to borrowers.

Question 9

The requirement that banks must provide their consumer loan customers with a statement of the APR for the proposed loan was established by the:

Accepted Answer

The requirement for banks to provide the consumer loan customers with a statement of the APR (Annual Percentage Rate) for the proposed loan was established by the Truth-in-Lending Act (TILA) of 1968. The purpose of TILA is to give consumers accurate and uniform information about the cost of credit, making it easier for them to compare loans from different lenders.

Question 10

A bank that is judged as needing to improve under the performance requirements of the Community Reinvestment Act will receive an examiner rating of:

Accepted Answer

The rating "N" stands for "Needs to Improve" under the Community Reinvestment Act performance evaluation.

Question 11

How did the Tax Reform Act of 1986 increase the appeal of home equity loans?

Accepted Answer

The Tax Reform Act of 1986 allowed the difference between the market value and amount of loans against a mortgage to be used as a borrowing base. This made home equity loans more appealing as borrowers could access more funds based on the equity in their home.

Question 12

Loans to individuals and families to finance the purchase of new homes are known as:

Accepted Answer

Residential mortgage loans are specifically designed to provide financial assistance to individuals and families who want to buy a new home. These loans are also called home loans or mortgages and are repaid in regular installments over a long-term period, typically 15 to 30 years.

Question 13

A loan officer asks a customer what race she belongs to.Which law prohibits the loan officer from asking such question?

Accepted Answer

The Equal Credit Opportunity Act prohibits lenders from discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or whether the person receives public assistance. This includes prohibiting lenders from asking about the borrower's race.

Question 14

Which of the following consumer loans has grown in popularity as a result of the passage of the Tax Reform Act of 1986?

Accepted Answer

The Tax Reform Act of 1986 eliminated tax deductions for most consumer loans, except for home equity loans. As a result, home equity loans grew in popularity as consumers saw them as a way to borrow money and still receive tax benefits.

Question 15

Which of the following is true regarding credit card loans?

Accepted Answer

There is evidence that considerable economies of scale exist in credit card loans, meaning that the cost per dollar of credit decreases as the size of the loan increases. This is due in part to the fact that credit card loans are unsecured, which means that higher balances increase the risk for the lender. As a result, lenders often charge higher interest rates for smaller balances, and lower rates for larger balances.

Question 16

Which of the following has(have)proven to be important factor(s)in credit scoring models?

Accepted Answer

The answer of Which of the following has(have)proven to be...

Question 17

Which of the following is not a factor considered in the evaluation process of an installment loan?

Accepted Answer

While evidence of caring for and maintaining property may be a factor considered for other types of loans, such as a mortgage, it is not typically a factor for the evaluation of an installment loan. The other options listed are commonly evaluated factors for determining someone's eligibility for an installment loan.

Question 18

Which of the following is an advantage of a credit scoring model?

Accepted Answer

Credit scoring models can process a large number of credit applications quickly and efficiently, allowing lenders to make decisions in a timely manner. This results in faster processing times and ultimately benefits both the lender and the applicant. While credit scoring models are not immune to errors, they are generally regarded as being more objective and consistent than human judgement. However, they are not totally immune to charges of discrimination, as they may be influenced by factors such as credit history, income, and other socio-demographic variables that may be correlated with race, ethnicity, or other protected characteristics.

Question 19

Short-term loans drawn upon by individuals and families for immediate cash needs and repayable in a lump sum are known as:

Accepted Answer

Noninstallment loans are loans that are repaid in one lump sum instead of installments over time, making them a suitable option for short-term cash needs. Examples include payday loans, cash advances, and tax refund anticipation loans.

Question 20

The law which was passed to curtail predatory lending is known as the:

Accepted Answer

The Home Ownership and Equity Protection Act (HOEPA) was passed in 1994 to provide greater protections for consumers against predatory lending practices in high-cost mortgage loans. This law requires lenders to disclose certain terms and fees, restricts the use of balloon payments, and mandates a cooling-off period to give borrowers time to consider loan terms before finalizing the agreement.

Quiz 18: Consumer Loans, Credit Cards, and Real Estate Lending