1. The purchase of a house or a multifamily dwelling such as a duplex, triplex or apartment building
is usually financed through the use of a______________________ loan.
2. A(n)______________________ loan is a short- or medium-term loan repayable in two or more
consecutive payments, usually monthly or quarterly.
3. Household borrowings tend to be ______________________. Consumers are more concerned
about the size of the debt repayments than the interest rate charged.
4. The fact that a consumer feels a strong moral and ethical responsibility to repay a loan on time
refers to the ______________________ of that individual. The loan officer must be assured that
the borrower is serious about repaying the loan before they are willing to make a loan.
5. When a borrower receives a loan at one lending institution to repay another it is called ________
___________________
6. The______________________ allows a bank to call a loan that is in default and seize any
checking or savings deposits the customer may hold with the bank in order to recover its funds.
7. ______________________ is a method to evaluate a large volume of consumer loans quickly
with minimum labor. This method is a statistical model which predicts whether the consumer
will repay the loan or not.
8. A(n)____________________________________________ is where the customer can use the
difference between some percentage of the appraised value of their home and the mortgage
remaining to secure a loan. This loan can be used to fund a college education, pay for a vacation
or pay for home improvements.
9. The law that requires the full disclosure of credit terms and which promotes the informed use of
credit is the ______________________. This law requires the bank to report the APR of the
loan, the dollar amount of all finance charges and, where appropriate, all fees.
10. The law that limits how far a creditor or credit collection agency can go in pressing a customer to
pay a past due debt is the ______________________. It does not allow a debt collector to
“harass” a debtor.
11. Short-term credit to finance the building of homes or other dwellings is called
______________________.
12. A(n)______________________ is a credit-rating agency that keeps records of borrowers’ loan
payment histories.
13. The____________________________________________ permits consumers to dispute billing
errors with a merchant or credit card company and receive a prompt investigation into any billing
errors.
14. The____________________________________________ prevents redlining out certain
neighborhoods and refusing to provide loans and other services in those areas.
15. ____________________________________________ is the granting of loans to weaker
borrowers and charging them excessive fees and interest rates, increasing their risk of default
16. The______________________ is the internal rate of return that equates present value of the
payments with the amount of the loan. It is the rate required to be reported under the Truth in
Lending Act.
17. The interest rate method which requires the interest on the loan to be paid in advance is called
the______________________ method.
18. The interest rate method that adds the interest owed to the principal is called the __________
method.
19. A rule of thumb used to determine how much interest income a bank is allowed to accrue at any
point in time from a consumer loan paid off in monthly installments is called the _____________.
20. A(n)____________________________________________ is an agreement drawn up by the
bank that gives the bank control of the property if the loan cannot be repaid as planned.
21. The interest rate on most consumer loans is based on the cost of loanable funds to the bank plus
nonfunding cost plus premiums for default and time to maturity and also includes the desired
profit margin on the loan. This method of pricing loans is known as______________________ .
22. ______________________ is a basic method for calculating the interest owed on a loan that
adjusts for declining balances and the time remaining on the loan.
23. A variable rate loan on a residential mortgage is called a(n)______________________.
24. Many home mortgage agreements include______________________ which is an additional
charge up front. Generally, each of these corresponds to one percent of the face value of the
amount borrowed.
25. A popular prepaid card used like a credit card, especially in Europe, is the _________ card.
26. A popular credit scoring system developed and sold by Fair Issac Corporation is known as
____________.
27. Traditional home equity loans are usually priced using ________-term interest rates while home
equity lines of credit are priced using __________-term interest rates.
28. are loans that families and individuals can draw upon for
immediate cash needs that are repayable in one lump sum. These loans often cover the cost of a
vacation, medical care, the purchase of a home appliance or home repairs.
29. Credit cards are the best example of a that offer consumers convenience
and flexibility. Consumers can access them whenever the need arises.
30. are plastic cards that can be used to pay for goods and services but where credit
is not extended. They are a convenient way to make deposits into and withdrawals from an
ATM.
31. Consumer loans tend to be . They tend to rise in periods of economic
expansion and tend to fall in periods of economic downturn.
32. In the case of a borrower without a credit record or a very poor track record, a may be
requested to support repayment. Technically if the borrower defaults on the payment, they are
obligated to repay the loan.
33. A bank generally prefers the borrower report rather than gross salary.
34. One of the three biggest credit bureaus includes .
35. The prohibits lenders from asking certain questions of a customer,
such as a customer’s age or race.
36. The fastest rising financial crime against individuals today is . This is the
deliberate attempt to take unauthorized use of someone else’s personal information in order to
fraudulently obtain money, credit or other property.
37. The Act provides consumers with the opportunity to order one free credit
report annually from each of the three nationwide credit bureaus.
38. is the granting of loans to borrowers with below-average credit records.
These loans tend to go to borrowers with a record of delinquent payments, previously charged-off
loans, bankruptcies or court judgments.
39. In real estate lending, the property must be . The value and condition of the
property are determined by an independent party. These must conform to industry and
government standards.
40. One new type of mortgage where no principal payments are made is called a(n) .
41. The dominant lender in the United States to households is the finance company with commercial
banks ranked second as consumer lenders.
42. Nonresidential consumer loans include credit to finance the purchase of home appliances.
43. Credit cards offer convenience to customers plus a revolving line of credit.
44. Consumer loans appear to have virtually no sensitivity to the business cycle, staying relatively
level through both recessions and expansions.
45. Households tend to be interest-inelastic borrowers.
46. Lenders in the consumer loan field prefer to measure a borrowing customer’s income by the
amount of take-home pay.
47. The “right of offset” allows a bank to sell a customer’s property to the highest bidder to repay a
customer’s loan if the loan is in default.
48. “Pyramiding of debt” refers to borrowing from one lender to repay another lender.
49. Credit-scoring systems tend to be valid over long periods of time (usually several years) and need
not be periodically retested.
50. The Truth-in–Lending Act of 1968 gave consumers access to the information from their credit
files kept at local and regional credit bureaus.
51. Small business owners with gross annual revenues of $1 million or less who apply for credit have
the right to receive a written notice if their loan request is turned down by a bank.
52. The symbol “SN” indicates that a bank has been judged to be an outstanding performer under the
terms of the Community Reinvestment Act.
53. Banks awarded top CRA marks usually get strong commitments from their boards of directors
and senior management to promote community involvement.
54. FNMA will buy home mortgages provided the borrower’s monthly house payment does not
exceed 35 percent of monthly gross income.
55. Under FNMA rules for buying home mortgages FNMA will not usually purchase a borrower’s
mortgage if the borrower’s credit report is more than 45 days old.
56. An installment loan is a loan in which the customer repays the loan in two or more consecutive
payments. These payments are often monthly or quarterly.
57. The Equal Credit Opportunity Act authorizes individuals and families to review their credit file
for accuracy and to demand an investigation and correction of any apparent inaccuracies.
58. The burden of proof is on the bank to demonstrate that its credit scoring system successfully
identifies quality loan applications at a statistically significant level.
59. Real estate loans are smaller in size and shorter in maturity than most other types of bank loans.
60. The Community Reinvestment Act is designed to prevent a lender from arbitrarily marking out
certain neighborhoods as undesirable and refusing to lend to people who live in those
neighborhoods.
61. There is usually a positive relationship between the interest rate a consumer is asked to pay and
the amount of deposits the consumer is willing to keep with the bank.
62. Competition for consumer loans tends to drive the interest rates on these loans down closer to
loan production costs.
63. Shorter term cash loans to consumers are normally secured, but longer-term consumer loans are
usually unsecured.
64. An auto loan usually carries with it a chattel mortgage, giving the bank a claim against the
property covered by the loan.
65. Most consumer loans are priced off some base or cost rate.
66. The APR is the internal rate of return on a loan that equates total payments with the amount of the
loan.
67. The quotation to customers of the APR on the loan they are requesting usually discourages
consumers from shopping around according to recent research findings.
68. Unlike the APR method for calculating consumer loan rates, the simple interest approach adjusts
for the length of time a borrower actually has use of credit.
69. Under the simple interest method the customer saves on interest as an installment loan approaches
maturity.
70. With the discount rate method interest is deducted first before the customer has use of the
proceeds of a loan.
71. The majority of installment and lump-sum payment loans to families and individuals are made
with floating interest rates.
72. Points on a home mortgage loan result in a lender earning a higher effective interest rate on the
loan than just the loan rate quoted to the borrower.
73. According to the table presented in the book personal loans tend to have lower rates than
automobile loans.
74. According to the table presented in the book credit card loans tend to have the highest interest
rates of all consumer loans.
75. According to the table presented in the book new car loans have a lower interest rate than used
car loans.
76. There are very little economies of scale (cost savings) in the credit card business.
77. Currently the debit card market is almost as large as the credit card market.
78. One of the elements used in the FICO credit scoring system is the borrower’s employment history
and salary.
79. The most important factor used in the FICO credit score is the borrower’s payment history.
80. Home mortgage real estate loans soared to record levels at the beginning of the 21st century.
81. Short-term to medium-term loans repayable in two or more consecutive payments are known as:
A) Noninstallment loans
B) Installment loans
C) Residential mortgage loans
D) Nonresidential cash loans
E) None of the above
82. Loans to individuals and families to finance the purchase of new homes are known as:
A) Noninstallment loans
B) Installment loans
C) Residential mortgage loans
D) Nonresidential cash loans
E) None of the above
83. Short-term loans drawn upon by individuals and families for immediate cash needs and repayable
in a lump sum when the borrower’s note matures are known as:
A) Noninstallment loans
B) Installment loans
C) Residential mortgage loans
D) Nonresidential cash loans
E) None of the above
84. The federal law that requires banks to notify their credit customers in writing when a loan request
is denied is known as the:
A) Equal Credit Opportunity Act
B) Competitive Equality in Banking Act
C) Truth-in-Lending Act
D) Community Reinvestment Act
E) None of the above.
85. Major laws and regulations which must be complied with in the mortgage lending area include
which of the following?
A) National Affordable Housing Act
B) Community Reinvestment Act
C) Financial Institution Reform Recovery and Enforcement Act
D) All of the above
E) B and C only
86. Which of the following factors have proven most important in credit scoring models?
A) Credit Bureau ratings
B) Income bracket
C) Number of loans the customer has had
D) All of the above
E) A and B only
87. The requirement that banks must provide their consumer loan customers with a statement of the
APR for the proposed loan was established by:
A) The Fair Credit Reporting Act.
B) The Equal Credit Opportunity Act.
C) The Truth-in–Lending Act.
D) The Community Reinvestment Act.
E) None of the above
88. Which of the following consumer loans has grown in popularity as a result of the passage of the
Tax Reform Act of 1986?
A) Credit card loans
B) Home equity loans
C) Long-term, noninstallment loans
D) Short-term, installment loans
E) All of the above
89. A bank that is judged by examiners as needing to improve under the performance requirements of
the Community Reinvestment Act will receive an examiner rating of:
A) 0
B) S
C) N
D) SN
E) None of the above
90. In order to be eligible for purchase by FNMA a home mortgage cannot have a maturity of less
than 10 years nor more than:
A) 25 years
B) 30 years
C) 35 years
D) 40 years
E) None of the above
91. FNMA will not purchase home mortgages in the secondary market if the borrower’s monthly debt
repayments (including housing costs) exceed _________ percent of the borrower’s monthly gross
income. The correct percentage figure to complete the sentence above is:
A) 28
B) 30
C) 36
D) 40
E) None of the above
92. How did the Tax Reform Act of 1986 increase the appeal of home equity loans?
A) It allowed customers to borrow up to 100 percent of the value of their home
B) It eliminated bank income taxes from this type of loan
C) It protected homes under Chapter 13 bankruptcy
D) It eliminated individuals’ tax deduction for interest payments on other types of loans
E) It required banks to lend on homes in the geographic area of their deposits
93. 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:
A) Fair Credit Reporting Act
B) Fair Credit Billing Act
C) Fair Debt Collection Practices Act
D) Truth in Lending Act
E) None of the above
94. The bank’s real estate loan officer should consider which of the following aspects of the
customer’s loan application carefully when making a home mortgage?
A) The amount and stability of the borrower’s income
B) The borrower’s available savings and where the down payment is coming from
C) The borrower’s track record in caring for and managing property.
D) The outlook for real estate sales in the local market area
E) All of the above are things that need to be looked at carefully
95. An abusive practice is 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:
A) Installment loans
B) Credit card loans
C) Predatory lending
D) Herbivore lending
E) None of the above
96. The law which was passed to reduce predatory lending is known as:
A) Community Reinvestment Act
B) Home Ownership and Equity Protection Act
C) Equal Credit Opportunity Act
D) Fair Debt Collection Practices Act
E) None of the above
97. Which of the following is true regarding credit card loans?
A) There is evidence that considerable economies of scale exist
B) Credit cards cannot act as installment loans
C) Credit cards are very inconvenient for consumers
D) Credit cards are very inflexible for consumers
E) All of the above are true
98. A loan officer asks a customer what race she belongs to. Which law prohibits the loan officer
from asking that question?
A) Truth in Lending Act
B) Equal Credit Opportunity Act
C) Community Reinvestment Act
D) Fair Debt Collection Practices Act
E) None of the above