Question 1

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

Accepted Answer

The annual percentage rate (APR) is the total cost of a loan including any fees or charges, expressed as a percentage of the loan amount, over the course of a year. Therefore, it represents the actual cost of the loan on a yearly basis.

Question 2

Under a deed in lieu of foreclosure,the property is conveyed to the lender in satisfaction of the mortgage.

Accepted Answer

The definition of a deed in lieu of foreclosure includes the transfer of the property to the lender as a way to satisfy the mortgage debt without going through the foreclosure process.

Question 3

To refinance is to pay off an original mortgage and obtain a new one at more favorable terms.

Accepted Answer

To refinance is precisely defined as paying off the existing mortgage by obtaining a new one with preferable terms, such as lower interest rates, shorter repayment periods, or a change from an adjustable-rate mortgage to a fixed-rate mortgage.

Question 4

A lender can make a higher-priced mortgage loan based on the value of the consumer's home without verifying the consumer's ability to repay the loan.

Accepted Answer

This statement is false. Lenders are required to verify a consumer's ability to repay a higher-priced mortgage loan in accordance with the Ability-to-Repay (ATR) rule under the Truth in Lending Act (TILA). The value of the consumer's home alone cannot be used as the sole basis for making the loan.

Question 5

Forbearance is a process that allows a lender to legally repossess and auction off the property securing a loan.

Accepted Answer

Forbearance is actually a process where a lender agrees to temporarily suspend or reduce mortgage payments due to financial hardship from the borrower. It does not involve repossession or auctioning off the property.

Question 6

If a lender fails to provide certain material disclosures,a borrower has no more than seven days to rescind the mortgage.

Accepted Answer

The correct time frame for borrowers to rescind a mortgage due to non-disclosure is actually three years, not seven days. However, this may vary depending on the specific circumstances and laws in the borrower's state.

Question 7

A borrower has the right to purchase the property after default by paying the full amount of the debt,plus any interest and costs that have accrued.

Accepted Answer

This is known as the right of redemption, and it allows the borrower to regain ownership of the property by paying off the full debt amount, including interest and fees. However, this right is typically only available for a limited time period after default, as specified in the loan agreement or state law.

Question 8

Negative amortization occurs when the monthly payments are insufficient to cover the interest due on a loan.

Accepted Answer

Negative amortization occurs when the monthly payments are not enough to cover the interest due, causing the unpaid interest to be added to the principal balance of the loan. This results in the overall loan balance increasing instead of decreasing.

Question 9

If a loan is not paid within a reasonable time after a notice of default,the borrower will receive a notice of sale.

Accepted Answer

This is accurate and in line with standard loan and foreclosure procedures. Once a borrower has been notified of default and has failed to bring their payments current, they will receive a notice of sale which outlines the specific terms of the sale and sets a date for the auction of the property.

Question 10

The average prime offer rate is the rate offered to the least qualified borrowers as established by a survey of potential borrowers.

Accepted Answer

The average prime offer rate is actually the average interest rate offered to the most qualified borrowers. It is used as a benchmark for pricing other loans.

Question 11

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

Accepted Answer

The Statute of Frauds requires certain contracts, including mortgages, to be in writing to be enforceable.

Question 12

A recession is a written instrument that gives a creditor an interest in real property being acquired by a debtor as security for the debt's payment.

Accepted Answer

The answer of A recession is a written instrument that...

Question 13

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

The statement accurately describes an interest-only mortgage.

Question 14

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 helps protect their rights in the event of default or foreclosure.

Question 15

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

Accepted Answer

Loan flipping is a practice in which a lender convinces a borrower to refinance their mortgage soon after obtaining it, often by making false promises or offering unrealistic terms. This can result in the borrower paying unnecessary fees and interest, and can increase the risk of foreclosure.

Question 16

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

Accepted Answer

A subprime mortgage is specifically designed for borrowers who have a lower credit score or have difficulty meeting the income requirements for a standard mortgage.

Question 17

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

Accepted Answer

This is true. The Truth in Lending Act requires additional disclosures for loans with high rates or fees, to ensure that borrowers are fully informed and have the ability to compare loan offers.

Question 18

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

Accepted Answer

The answer of Lenders are required to charge prepayment penalties...

Question 19

When an owner is unable to make mortgage payments,a lender may agree to a short sale.

Accepted Answer

When an owner is unable to make mortgage payments, a lender may agree to a short sale where the property is sold for less than the remaining balance of the mortgage in order to avoid foreclosure.

Question 20

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 fluctuate periodically based on a specific index or market rate. The interest rate may change monthly, annually, or at other predetermined intervals.

Quiz 16: Mortgages Foreclosures After the Recession