Question 1

Lenders are required to charge prepayment penalties on most subprime mortgages and home equity loans.

Accepted Answer

False

Question 2

A fixed-rate mortgage is a standard mortgage with a rate of interest that changes periodically.

Accepted Answer

A fixed-rate mortgage has a rate of interest that remains the same throughout the entire term of the loan. It does not change periodically.

Question 3

Lenders can require balloon payments for loans with terms of five years or less.

Accepted Answer

False

Question 4

A subprime mortgage is a loan made to a borrower who does not qualify for a standard mortgage.

Accepted Answer

This statement is true. Subprime mortgages are typically given to borrowers with a low credit score, a history of late payments, or other financial challenges that make them ineligible for a traditional mortgage. The terms of subprime mortgages typically involve higher interest rates and fees to compensate for the greater risk involved in lending to these borrowers.

Question 5

A mortgage must be in writing to comply with the Statute of Frauds.

Accepted Answer

The Statute of Frauds requires contracts related to real estate, including mortgages, to be in writing to be enforceable.

Question 6

The annual percentage rate is the actual cost of a loan on a yearly basis.

Accepted Answer

The annual percentage rate reflects the total cost of a loan, including any fees or charges, expressed as a percentage of the loan amount on an annual basis.

Question 7

Loan flipping occurs when a lender convinces a homeowner to refinance soon after obtaining a mortgage.

Accepted Answer

Loan flipping is a fraudulent practice by lenders where they convince a borrower to repeatedly refinance their mortgage in a short period of time, often resulting in high fees and interest charges for the borrower.

Question 8

An adjustable-rate mortgage is a standard mortgage with an unchanging rate of interest.

Accepted Answer

An adjustable-rate mortgage (ARM) is a mortgage where the interest rate can change periodically based on market conditions and other factors. This is in contrast to a fixed-rate mortgage where the interest rate remains the same throughout the term of the loan.

Question 9

Steering and targeting occur when a lender manipulates a borrower into accepting a loan product that benefits the lender but is not the best loan for the borrower.

Accepted Answer

This is the definition of steering and targeting in lending.

Question 10

Federal mortgage disclosure requirements apply to the written materials that a lender provides and to any oral representations.

Accepted Answer

The answer of Federal mortgage disclosure requirements apply to the...

Question 11

There are additional disclosure requirements for a loan that carries a high rate of interest or entails high fees for the borrower.

Accepted Answer

Truth in Lending Act requires additional disclosures for loans with high interest rates or fees to protect borrowers from high costs and hidden fees.

Question 12

If a lender fails to provide certain material disclosures,a borrower has up to seven years to rescind the mortgage.

Accepted Answer

The correct time frame for rescinding a mortgage due to lack of material disclosures is three years, not seven.

Question 13

The initial interest rate is the part of a purchase price that is paid up front in cash.

Accepted Answer

The initial interest rate refers to the interest rate charged on a loan or credit card balance, not a part of the purchase price that is paid in cash.

Question 14

Home equity is the portion of a home's value that is "paid off."

Accepted Answer

Home equity is the difference between the current market value of a home and the amount still owed on the mortgage. It represents the portion of a home's value that the homeowner owns outright, without any debt owed to the lender.

Question 15

The loan that a lender provides to enable a borrower to purchase real property is a mortgage.

Accepted Answer

A mortgage is a loan specifically for purchasing real estate or property.

Question 16

A reverse mortgage starts as a fixed-rate mortgage and then converts into an adjustable-rate mortgage.

Accepted Answer

The answer of A reverse mortgage starts as a fixed-rate...

Question 17

Recording a mortgage protects the creditor's security interest in the property.

Accepted Answer

Recording a mortgage creates a public record of the creditor's security interest in the property, which provides notice to the world of the creditor's claim. This helps protect the creditor's interest in the property in the event of a sale, foreclosure, or other legal action involving the property.

Question 18

A borrower has a right to rescind a mortgage within three business days.

Accepted Answer

The Truth in Lending Act (TILA) grants borrowers the right to rescind certain types of mortgage transactions within three business days of closing.

Question 19

A lender's failure to comply with federal mortgage disclosure requirements extends the borrower's right to rescind the loan to no more than seven days.

Accepted Answer

A lender's failure to comply with federal mortgage disclosure requirements extends the borrower's right to rescind the loan to three years rather than seven days.

Question 20

With an interest-only mortgage,the borrower can choose to pay only the interest portion of the monthly payment for a specified period of time.

Accepted Answer

This statement is true.

Quiz 13: Mortgages Foreclosures After the Recession