Chapter 12—The Loan and the Consumer
MULTIPLE CHOICE
1. The Truth in Lending Act covers credit extended for a
a.
business or commercial transaction.
b.
large apartment building.
c.
mobile home which is used as a residence.
d.
loan secured by a car valued at $30,000.
2. Truth in lending laws were created primarily to protect
a.
consumers.
b.
lenders.
c.
beneficiaries.
d.
mortgagees.
3. Regulation Z deals with
a.
annual percentage rates.
b.
escrow fees.
c.
truth-in-lending.
d.
statue of frauds.
4. According to regulation Z, which of the following would be allowed without further disclosure in an
advertisement to sell a residence?
a.
Easy 11% mortgage assumption
b.
Take over an 11% loan
c.
Assume an 11% annual percentage rate mortgage
d.
Assumable 11% loan
5. Which of the following loans would be exempt from the disclosure requirements of the truth–in–
lending laws?
a.
Commercial loans
b.
Personal property loans in excess of $25,000
c.
Financing extended to corporations
d.
Consumer loans to natural persons
6. When advertising, a lender must disclose the
a.
cost of appraisal.
b.
annual percentage rate.
c.
closing costs.
d.
cost of the title search and title insurance.
7. Which of the following loans would be exempt from the disclosure requirements of the truth–in–
lending laws?
a.
An unsecured personal loan of $3,000
b.
An educational loan from a commercial bank
c.
A second mortgage loan on a residence
d.
A $30,000 loan for the purchase of a $40,000 automobile
8. Truth in lending laws require a lender to provide figures for all EXCEPT
a.
loan amount.
b.
interest rates.
c.
maintenance costs.
d.
annual percentage rate.
9. Regulation Z requires a lender to disclose
a.
interest charges expressed as dollars and percent.
b.
dollar amount of any finance charge.
c.
APR as a dollar amount.
d.
all charges only as a percent.
10. Penalties for violation of the truth-in-lending laws include
a.
a fine of up to $5,000 and/or imprisonment for up to 1 year.
b.
penalties up to twice the amount of the finance charge up to a maximum of $1,000.
c.
Court costs, attorney fees, and actual damages.
d.
all of the above.
11. With regard to truth in lending laws, which of the following is legally permissible to advertise, without
further explanation?
a.
Only $1,000 down payment
b.
Less than $500 per month
c.
11% interest loan
d.
APR 10% assumable
12. Under the truth in lending act, the cost of credit extended must be expressed as an
a.
actual percentage rate.
b.
approximate percentage rate.
c.
annual percentage rate.
d.
average percentage rate.
13. Which of the following contains a trigger term under Regulation Z and requires further disclosure?
a.
“Assumable VA loan”
b.
“Buy for less than $600 a month”
c.
“Cash price, only $79,500”
d.
“Rent for only $499 per month”
14. A borrower does not have the right, under the truth-in-lending laws, to rescind a credit transaction
a.
for a consumer loan on personal property.
b.
for the acquisition of the borrower’s principal dwelling.
c.
both a and b.
d.
neither a nor b.
15. When borrowing money to buy a home, the borrower has the right of rescission
a.
within three business days, including Saturday.
b.
within three business days, not counting Saturday.
c.
within three years.
d.
at no time.
16. In analyzing a mortgage loan application, a lender considers all EXCEPT
a.
job stability.
b.
income adequacy.
c.
credit rating.
d.
sales price.
17. Which of the following would be most important to a lender qualifying an individual for a residential
mortgage loan?
a.
Borrower’s regular income
b.
Overtime income
c.
Spouse’s part-time income
d.
Pest and dry rot report
18. All of the following are important to a mortgage lender when determining whether or not to make a
real estate loan EXCEPT
a.
the needs of the borrower.
b.
the borrower’s income.
c.
the appraisal.
d.
child support payments.
19. Generally, before a lender will approve a loan, the borrower must
a.
have sufficient funds for the down payment.
b.
sign a statement if the borrower intends to occupy the property.
c.
both a and b.
d.
neither a nor b.
20. Which of the following do lenders of home loans consider the most important in their analysis of a
loan application?
a.
Age, sex, race, and marital status of the borrower
b.
Location and age of the collateral
c.
Job stability, income adequacy and credit rating of the borrower
d.
Ethnic and business balance of collateral’s neighborhood
21. Which of the following ratios of monthly payment to monthly income would be preferred by a
residential lender?
a.
25%
b.
55%
c.
65%
d.
75%
22. In analyzing a mortgage loan application, it is illegal for a lender to consider
a.
job stability.
b.
marital status.
c.
income adequacy.
d.
credit rating.
23. Which of the following is given consideration in evaluation of a loan application?
a.
Race
b.
Marital status
c.
Sex
d.
Income adequacy
24. When making a mortgage loan application, borrowers are protected from discrimination based on
marital status by the
a.
Fair Credit Reporting Act.
b.
Fair Housing laws.
c.
Equal Credit Opportunity Act.
d.
Real Estate Settlement Procedures Act.
25. A lender can legally discriminate in loan terms based on the applicant’s
a.
religion.
b.
marital status.
c.
race or skin color.
d.
intention to occupy (or not occupy) the mortgaged property.
26. The Federal Equal Credit Opportunity Act protects borrowers from discrimination based on
a.
handicap status.
b.
familial status.
c.
sexual preference.
d.
marital status.
27. The right of individuals to inspect their file at a credit bureau is found in the
a.
Truth-in-Lending Act.
b.
Fair Credit Reporting Act.
c.
Regulation Z.
d.
Federal Consumer Credit Protection Act.
28. The Fair Credit Reporting Act gives individuals several rights EXCEPT
a.
correct any errors on their report.
b.
inspect their file at a credit bureau.
c.
delete any reference to bankruptcy.
d.
make explanatory statements to supplement the file.
29. When considering loan applications, lenders like to see
a.
very little use of credit cards.
b.
good repayment records.
c.
derogatory information.
d.
information at least seven years old.
30. The APR is
a.
usually lower than the interest rate.
b.
made up of the interest rate combined with the other costs of the loan.
c.
both a and b.
d.
neither a nor b.
TRUE/FALSE
1. The Truth in Lending Act covers credit extended for a loan secured by a car valued at $30,000.
2. Truth-in-lending laws were created primarily to protect lenders.
3. Regulation Z deals with annual percentage rates.
4. According to regulation Z, easy 11% mortgage assumption would be allowed without further
disclosure in an advertisement to sell a residence.
5. When advertising, a lender must disclose the closing costs.
6. Truth in lending laws require a lender to provide figures for loan amount, interest rates, and annual
percentage rate.
7. Regulation Z requires a lender to disclose the dollar amount of any finance charge.
8. With regard to truth in lending laws, “Only $1,000 down payment” is legally permissible to advertise,
without further explanation.
9. Under the truth in lending act, the cost of credit extended must be expressed as an actual percentage
rate.
10. “Buy for less than $600 a month” contains a trigger term under Regulation Z and requires further
disclosure.
11. When borrowing money to buy a home, the borrower has the right of rescission.
12. In analyzing a mortgage loan application, a lender considers job stability, income adequacy and sales
price.
13. Borrower’s regular income would be most important to a lender qualifying an individual for a
residential mortgage loan.
14. The borrower’s income, the appraisal, and the needs of the borrower are important to a mortgage
lender when determining whether or not to make a real estate loan.
15. Job stability, income adequacy and credit rating of the borrower are the most important factors that a
lender considers in analyzing a loan application.
16. A residential lender would prefer the lowest possible payment to income ratio.
17. In analyzing a mortgage loan application, it is illegal for a lender to consider marital status.
18. When making a mortgage loan application, borrowers are protected from discrimination based on
marital status by the Fair Credit Reporting Act.
19. The Federal Equal Credit Opportunity Act protects borrowers from discrimination based on sexual
preference.
20. The Fair Credit Reporting Act gives individuals the right to correct any errors on their report, inspect
their file at a credit bureau and delete any reference to bankruptcy.
COMPLETION
1. When considering loan applications, lenders like to see good ____________________ records.
2. The _________________________ is the total dollar amount the credit will cost the borrower over the
life of the loan.
3. A borrower has a limited right of ____________________ in a credit transaction.
4. The borrower’s assets that are in cash or readily convertible into cash are called
____________________ assets.
5. The practice of lenders to refuse to make loans in certain areas regardless of the quality of the structure
or the borrower’s ability to repay the loan is called ____________________.
6. The federal Equal Credit Opportunity Act prohibits discrimination based on age, sex, marital status
and ____________________.
7. As well as a borrower’s assets, the lender will evaluate the borrower’s ____________________.
8. In evaluating the borrower’s life insurance, the ____________________ is the amount of money the
policy holder would receive if the policy were surrendered to the insurance company.
9. If an applicant is purchasing a home as a(n) ____________________, the lender will be more cautious
because, during periods of high vacancy, the property may not generate enough income.
10. ____________________ loans have risk-based pricing and rates are not quoted.
MATCHING
Choose the one most appropriate answer for each.
a.
APR
k.
liquid assets
b.
cash value
l.
loan-to-value ratio
c.
credit report
m.
redlining
d.
credit scoring
n.
Regulation Z
e.
equity
o.
right to rescission
f.
exempt transactions
p.
settlement funds
g.
Fair Credit Reporting Act
q.
subprime loans
h.
Federal Consumer Credit Protection Act
r.
Truth-in-Lending Act
i.
finance charge
s.
TILSRA
j.
illiquid assets
t.
trigger term
1. federal regulations that implement the enforcement of the Truth-in–Lending Act
2. a report reflecting the creditworthiness of a borrower by showing past credit history
3. the market value of a property less the debt against it
4. refusal to make a real estate loan based solely on the location of the property
5. assets that may require months to sell and convert to cash
6. assets that are in cash or are readily convertible to cash in a few days
7. credit information used in advertising that requires additional credit disclosures
8. a federal law that requires certain disclosures when extending or advertising credit
9. the total amount the credit will cost over the life of the loan
10. the annual percentage rate as calculated under the federal Truth-in-Lending Act by combining the
interest rate with other costs of the loan
11. federal law giving an individual the right to inspect his or her file with the credit bureau and correct
any errors
12. Truth-in-Lending Simplification and Reform Act
13. popularly known as the Truth-in–Lending Act
14. transactions that are exempt from the lending disclosure requirement
15. the right that gives borrowers three days to back out after signing loan papers
16. funds that are presently in the borrower’s checking or savings accounts or available from the sale of
the borrower’s present property
17. the amount of money the policyholder would receive if the policy was surrendered to the insurance
company
18. the ratio of the amount of the loan to the appraised value of the property
19. scoring system applied to a list of subjective factors that are relative in evaluating credit risks
20. loans that have risk-based pricing and are typically categorized from “A” to “F”