Question 1

Kirsten applies for a mortgage loan with Secure Bank so she can buy a horse barn.After granting Kirsten a mortgage loan,Secure Bank should

Accepted Answer

Recording the mortgage with the appropriate office in the county where the horse barn is located will establish a legal claim on the property for Secure Bank and protect their interest in case of default by Kirsten.

Question 2

Subprime mortgages

Accepted Answer

Subprime mortgages have higher interest rates than standard mortgages because they are targeted towards borrowers with poor credit histories or low incomes who are considered high-risk borrowers. These higher interest rates compensate lenders for the increased risk of default.

Question 3

An important law protecting borrowers by requiring lenders to disclose the terms of a loan in clear,readily understandable language is the

Accepted Answer

The law described in the question is the Truth-in-Lending Act, which requires lenders to disclose the terms and costs of a loan in a clear and understandable way. The Uniform Commercial Code governs commercial transactions and contracts, but does not specifically address borrower protections. The Statue of Frauds requires certain contracts to be in writing, but does not relate to loan disclosure requirements. There is no law called the Borrower Protection Act, although there may be state-specific regulations or guidelines that fall under this umbrella.

Question 4

James obtains a mortgage loan from Willis Bank.If Willis Bank fails to record the mortgage

Accepted Answer

If Willis Bank fails to record the mortgage, it may not have secured its interest in the property and could find itself in the position of an unsecured creditor. This means that if James fails to make payments on the loan, other creditors may have priority over Willis Bank in recovering assets.

Question 5

Jared has a mortgage loan that has a prepayment penalty clause.If Jared repays his mortgage within the period specified in the clause he will

Accepted Answer

The prepayment penalty clause means that if Jared repays his mortgage within the specified period, he will have to pay a penalty. This penalty is typically a percentage of the outstanding balance, so it can be a significant amount of money. Therefore, option A is the correct answer.

Question 6

Erica obtains a mortgage loan from Capital Bank.Because a mortgage loan involves the transfer of real property

Accepted Answer

According to the Statute of Frauds, all contracts involving the transfer of real property must be in writing to be enforceable, including mortgage loans. Therefore, a mortgage loan must be in writing to be valid.

Question 7

Most creditors will require borrowers to purchase mortgage insurance if the borrower's down payment,in relation to the purchase price,is less than

Accepted Answer

Most creditors require borrowers to purchase mortgage insurance if their down payment is less than 20 percent of the purchase price. This is because a down payment of less than 20 percent is considered a high-risk loan by lenders, and mortgage insurance protects lenders in case the borrower defaults on the loan.

Question 8

Gerald obtains a mortgage loan from State Bank to purchase a house for $600,000.Because Gerald makes a down payment of only $25,000,State Bank requires him to purchase mortgage insurance.After six months,Gerald defaults on the loan.State Bank can

Accepted Answer

Since Gerald defaulted on the loan, State Bank has the right to repossess the house as collateral. Since Gerald had mortgage insurance, the insurer will reimburse State Bank for any losses incurred due to the default. Therefore, State Bank can repossess the house and receive reimbursement from the insurer.

Question 9

Albert wants to build a new house,but he needs to borrow money to do so.Albert should obtain

Accepted Answer

Based on the scenario provided, the best choice for Albert would be a construction loan, which is specifically designed for financing the construction of a new home. A balloon mortgage and an interest-only mortgage may offer lower initial payments but come with higher risks and costs in the long run, while a subprime mortgage is typically for borrowers with poor credit, which isn't mentioned in the scenario.

Question 10

Julia has a home valued at $150,000.She owes $100,000 on her mortgage.Julia can obtain a home equity loan for up to

Accepted Answer

A home equity loan is typically based on the equity in the home, which is the difference between the home's value and the amount owed on the mortgage. Julia's equity is $150,000 - $100,000 = $50,000.

Question 11

Mike applies for a mortgage loan at Quality Assured Bank.Mike qualifies for a fixed-rate loan,but the Quality Assured agent manipulates Mike into agreeing to an ARM even though the fixed-rate loan would be better for Mike.This is

Accepted Answer

Steering and targeting involve directing a borrower towards a specific loan product that may not be in their best interest, often for the benefit of the lender or agent.

Question 12

Jeannie has a mortgage that allows her to pay only the interest portion of the monthly payments for three years.After three years,Jeannie will have to make payments on both the principal and the interest.Jeannie's mortgage is

Accepted Answer

An interest-only mortgage allows the borrower to pay only the interest for a set period, after which they must start paying both principal and interest.

Question 13

Phyllis applies for a loan from Crystal Bank.Crystal Bank provides Phyllis with all of the appropriate documents required by the Truth-in-Lending Act.Phyllis does not read the documents.An agent from Crystal Bank orally misrepresents the terms of the loan to Phyllis.Phyllis can

Accepted Answer

The answer of Phyllis applies for a loan from Crystal...

Question 14

Geoffrey does not qualify for a standard mortgage.He can apply for

Accepted Answer

Since Geoffrey does not qualify for a standard mortgage, his best option would be to apply for a subprime mortgage. Subprime mortgages are designed for borrowers with poor credit or little to no credit history. However, it is important to be cautious of these types of loans as they often come with higher interest rates and fees. Balloon and construction loans are typically for specific purposes (such as short-term financing for construction projects) and interest-only mortgages are generally risky and can lead to financial instability in the long run.

Question 15

Harold applies for a mortgage loan.The fees for the loan are 10 percent of the loan amount.Harold's loan

Accepted Answer

The Home Ownership and Equity Protection Act (HOEPA) provides protections for high-cost loans, which are defined by certain thresholds, including fees that exceed a certain percentage of the loan amount. A fee of 10 percent would likely qualify the loan for HOEPA protections.

Question 16

Alan applies for a mortgage loan at Class Act Bank.Class Act Bank does not fully disclose all terms of the loan to Alan.This is

Accepted Answer

This is an example of predatory lending where the lender does not fully disclose all terms of the loan to the borrower, potentially leading to financial harm for the borrower.

Question 17

Karen obtains a mortgage loan from First Class Bank so that she can purchase a new house.The house costs $100,000.Karen makes a down payment of $10,000.First Class Bank will

Accepted Answer

Since Karen made a down payment of only 10%, she does not have 20% equity in the house, which means she is considered a higher risk borrower. First Class Bank may require her to purchase mortgage insurance to protect themselves in case she defaults on the loan.

Question 18

Loan flipping

Accepted Answer

Loan flipping is the practice of refinancing a loan multiple times to generate fees for the lender. This can result in prepayment penalties for the borrower, which would make it a disadvantageous practice for them. It may not always benefit the lender either, as the process could result in the borrower defaulting on the loan with each refinancing. Therefore, option A is the correct answer.

Question 19

Typically,the terms of a mortgage loan require that the

Accepted Answer

The terms of a mortgage loan require that the borrower maintains the property in such a way that the lender's investment is protected. This is because the lender has a financial interest in the property and wants to ensure that its value is maintained. The borrower may be required to maintain the property in a certain condition, such as keeping it clean and free of debris, making necessary repairs, and not engaging in any activities that would damage the property.

Question 20

Jill has a mortgage loan from All Star Bank.Shortly after obtaining her mortgage,an agent from All Star convinces Jill to refinance,even though refinancing will not benefit Jill.This is

Accepted Answer

This is a case of loan flipping, which is an unethical and illegal practice where a lender convinces a borrower to refinance their loan repeatedly, with little or no economic benefit to the borrower, in order to generate fees and commissions for the lender. This practice can trap borrowers in a cycle of debt, and is considered predatory lending.

Quiz 36: Morgages and Foreclosures