Question 1

Forbearance is an agreement between the lender and the borrower to postpone,for a limited time,of part or all of the payments on a loan in jeopardy of foreclosure.

Accepted Answer

Forbearance is indeed an agreement between the lender and the borrower to delay or reduce payments temporarily to avoid foreclosure.

Question 2

Mortgage loans are NOT contracts.

Accepted Answer

Mortgage loans are contracts between a lender and a borrower in which the borrower pledges property (usually a home) as collateral for a loan.

Question 3

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

Accepted Answer

Steering and targeting are deceptive practices used by lenders to push borrowers into accepting a loan product that is not suitable for them, but benefits the lender. This practice can harm the borrower in the long run and is therefore illegal.

Question 4

Most creditors require mortgage insurance if the down payment is less than 20 percent of the purchase price.

Accepted Answer

This is a common requirement in the mortgage industry to protect the lender in case the borrower defaults on the loan. The mortgage insurance premium can be paid upfront or included in the monthly mortgage payment.

Question 5

Home equity refers to the portion of a home's value that is mortgaged.

Accepted Answer

Home equity refers to the portion of a home's value that is NOT mortgaged. It is calculated by subtracting the amount still owed on a mortgage from the current market value of the home. The resulting amount is the homeowner's equity in the property.

Question 6

The Truth-in-Lending Act requires lenders to disclose the terms of a loan in clear,readily understandable language.

Accepted Answer

The Truth-in-Lending Act, also known as TILA, was passed in 1968 and requires lenders to provide borrowers with clear and accurate information about the terms and costs of a loan, including the annual percentage rate (APR), finance charges, and repayment terms. This is to ensure that consumers understand the terms of the loan and can make informed decisions about borrowing money.

Question 7

An escrow account is a borrower's bank account.

Accepted Answer

An escrow account is actually a separate account set up by the lender to hold money for taxes and insurance payments related to the borrower's property. The borrower pays into the account as part of their monthly mortgage payment, and then the lender uses that money to pay the necessary bills when they come due.

Question 8

The payments on a fixed-rate mortgage remain the same for the duration of the mortgage.

Accepted Answer

The payments on a fixed-rate mortgage do not change, regardless of changes in interest rates or economic conditions, making them a predictable and stable mortgage option.

Question 9

The borrower receives the proceeds of a short sale.

Accepted Answer

In a short sale, the borrower does not receive the proceeds. The lender receives the proceeds from the sale to pay off the loan balance, with any remaining funds going to other parties with an interest in the property, such as second mortgage holders or the borrower in the form of deficiency judgments.

Question 10

Predatory lending occurs when borrowers take advantage of unsuspecting creditors.

Accepted Answer

Predatory lending occurs when lenders take advantage of unsuspecting borrowers, not the other way around.

Question 11

The simplest mortgage loan is an adjustable-rate mortgage.

Accepted Answer

An adjustable-rate mortgage (ARM) is not the simplest type of mortgage loan; a fixed-rate mortgage is generally considered simpler because it has a constant interest rate and predictable payments throughout the loan term.

Question 12

A mortgage is a written document that gives a creditor an interest in a debtor's real property such as security for a debt's payment.

Accepted Answer

This is the correct definition of a mortgage.

Question 13

A prepayment penalty clause requires the borrower to pay a penalty if the mortgage is repaid in full within a certain period.

Accepted Answer

A prepayment penalty clause does indeed require the borrower to pay a penalty if the mortgage is repaid in full before a certain period of time, usually a few years. This clause discourages borrowers from refinancing or selling their homes too soon after taking out the mortgage.

Question 14

The Home Ownership and Equity Protection Act of 1994 created a new category for low-cost and low-fee mortgages.

Accepted Answer

The Home Ownership and Equity Protection Act of 1994 aimed to protect consumers from predatory lending practices, but it did not create a new category for low-cost and low-fee mortgages.

Question 15

A borrower with an interest-only mortgage pays only the interest portion of the monthly payments for a specified period of time.

Accepted Answer

A borrower with an interest-only mortgage only pays the interest portion of the monthly payments for a specified period of time, usually 5-10 years, before they start making principal payments as well.

Question 16

The average prime offer rate is the rate offered to the best-qualified borrowers.

Accepted Answer

The average prime offer rate is typically the rate offered to borrowers with excellent credit scores and financial profiles, which indicates that they are the most qualified borrowers. Therefore, the statement is true.

Question 17

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

Accepted Answer

The annual percentage rate (APR) is the true cost of borrowing money on a yearly basis, including all fees and interest rates associated with the loan. It provides a standardized way to compare the costs of different loans by expressing the total cost as a percentage of the loan amount.

Question 18

Consumers can only obtain damages up to half the amount of all finance charges and fees paid if a lender violates the Home Ownership and Equity Protection Act.

Accepted Answer

Consumers can obtain up to three times the amount of all finance charges and fees paid if a lender violates the Home Ownership and Equity Protection Act.

Question 19

Loan flipping occurs when the lender manipulates a borrower into accepting a loan product that benefits the lender but is not the best loan for the borrower.

Accepted Answer

The answer of Loan flipping occurs when the lender manipulates...

Question 20

Lenders may advertise a loan as a fixed-rate loan even if its rate or payment amounts will change.

Accepted Answer

Lenders cannot advertise a loan as a fixed-rate loan if its rate or payment amounts will change, as this would be misleading to consumers.

Quiz 36: Morgages and Foreclosures