Chapter 16b Clear Lake Credit That She Will Soon

1. 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.

1. To refinance is to pay off an original mortgage and obtain a new

one at more favorable terms.

1. An adjustable-rate mortgage is a standard mortgage with an

unchanging rate of interest.

1. 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.

1. A subprime mortgage is a loan made to a borrower who does not

qualify for a standard mortgage.

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

1. Recording a mortgage protects the creditor’s security interest in the

property.

1. Lenders are required to charge prepayment penalties on most subprime

mortgages and home equity loans.

1. Loan flipping occurs when a lender convinces a homeowner to

refinance soon after obtaining a mortgage.

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

yearly basis.

1. If a lender fails to provide certain material disclosures, a borrower has

no more than seven days to rescind the mortgage.

1. There are additional disclosure requirements for a loan that carries a

high rate of interest or entails high fees for the borrower.

1. Negative amortization occurs when the monthly payments are

insufficient to cover the interest due on a loan.

1. 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.

1. The average prime offer rate is the rate offered to the least

qualified borrowers as established by a survey of potential borrowers.

1. Forbearance is a process that allows a lender to legally repossess

and auction off the property securing a loan.

1. When an owner is unable to make mortgage payments, a lender may

agree to a short sale.

1. Under a deed in lieu of foreclosure, the property is conveyed to

the lender in satisfaction of the mortgage.

1. If a loan is not paid within a reasonable time after a notice of default,

the borrower will receive a notice of sale.

1. 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.

1. Abner borrows funds from Boomtown Credit Union (BCU) to buy real

property. Abner signs a written instrument that gives BCU an interest in

the property as security for the debt’s payment. This instrument is

a. a mortgage.

b. a Treasury security.

c. a workout agreement.

d. homeowners’ insurance.

1. Liberty Bank provides Michelle with a standard mortgage with an

unchanging rate of interest to buy a home. Payments on the loan

remain the same for the duration of the mortgage. This is

a. a fixed-rate mortgage.

b. an adjustable-rate mortgage.

c. an interest-only mortgage.

d. a violation of the law.

1. Franz asks Gateway Mortgage Credit for a loan to pay for the

purchase of a home. With a poor credit score and a high current debt–

to-income ratio, Franz does not qualify for a standard mortgage.

Gateway is most likely to provide

a. a deed in lieu of foreclosure.

b. a reverse mortgage.

c. a subprime mortgage.

d. a workout agreement.

1. Community Trust Bank provides Devlin with a mortgage to buy a home.

The rate of interest is fixed for seven years. At the end of that period,

a large payment for the entire balance of the mortgage loan is due.

This is

a. a balloon mortgage.

b. a hybrid mortgage.

c. a reverse mortgage.

d. a violation of the law.

1. Tracy borrows $30,000 from Secure State Bank. The lender accepts

Tracy’s equity in her home as collateral, which can be seized if the

loan is not repaid on time. With respect to any proceeding that occurs

if Tracy fails to make the payments, this loan is subordinated. This

means that it

a. takes a higher priority.

b. takes a lower priority.

c. has the same priority as the primary mortgage.

d. fluctuates with the market value of the property.

1. Laurel borrows $150,000 from Marketplace Mortgage Loans to buy a

home. The financing documents require Laurel to maintain the property,

obtain homeowners’ insurance, and pay all property taxes and other

assessments through the lender. With respect to these terms, a court is

most likely to

a. enforce them.

b. refuse to enforce them.

c. rescind them.

d. rewrite them.

1. Duran applies to EZ Credit Mortgage Company for $100,000 to buy a

home. EZ Credit steers Duran toward an adjustable-rate mortgage even

though he qualifies for a fixed-rate mortgage. This is

a. a short sale.

b a subprime mortgage.

c. loan flipping.

d. steering and targeting.

1. Dahlia borrows $125,000 from Clearview Credit Union to buy a home.

The interest rate and other terms that are required to be disclosed

under federal law must be

a. based on uniform formulas of calculation.

b. expressed in lenders’ language.

c. set out in a formula unique to each loan.

d. stated in “legalese.”

1. Virgil borrows $175,000 from United Finance Bank to buy a home.

Federal law regulates primarily

a. mortgage terms that must be disclosed in writing.

b. oral representations with respect to the terms of a loan.

c. the lowest prices for which real property can be sold.

d. who can buy real property, where they can buy it, and why.

1. Northeast Bank makes mortgage loans to consumers, including Mai, to

buy homes.Refer to Fact Pattern 16-1B. Under federal law, disclosures

with respect to one of Northeast’s loans must be provided

a. a certain number of days after the loan is finalized.

b. a certain number of days before the loan is finalized.

c. at the same time at which the loan is finalized.

d. at whatever time is most rational and appropriate.

1. Northeast Bank makes mortgage loans to consumers, including Mai, to

buy homes.Refer to Fact Pattern 16-1B. For Mai’s loan, Northeast

provides all required disclosures. Mai has a right to rescind the

mortgage

a. at any time.

b. under no circumstances.

c. within three business days.

d. within whatever period is most rational and appropriate.

1. Riverview Bank makes a mortgage loan of $95,000 to Pomeroy to buy

a home. Under federal law, if Riverview fails to provide certain material

disclosures with respect to the loan, Pomeroy’s right to rescind the loan

a. expires at midnight on the day the loan is finalized.

b. is canceled immediately.

c. is extended for up to three years.

d. is tolled for the duration of the mortgage payments.

1. Shade Tree Lending Corporation advertises loans as fixed–rate loans

but, in fact, their rates or payment amounts will change. This is

a. a legal and ethical—but morally arguable—financial ruse.

b. a legal—but unethical—business practice.

c. a necessary tactic to generate a profitable loan in today’s market.

d. a violation of the law.

1. Violet negotiates with Urban Credit Corporation to obtain a loan for

$85,000 to buy a home. During the negotiations, Urban Credit orally

misrepresents the terms, but provides the required documents, which

accurately state the terms. Violet does not read the documents. The

party or parties most likely liable for a violation of the law is

a. neither party.

b. Urban Credit.

c. Urban Credit and Violet.

d. Violet.

1. Hill & Dale Credit Corporation makes mortgage loans to consumers

secured by their principal homes. For a Hill & Dale loan to qualify as a

Higher-Priced Mortgage Loan (HPML), its annual percentage rate must

exceed, by a certain amount,

a. the average prime offer rate for a comparable transaction.

b. the consumer’s income–to-debt ratio.

c. the percentage of income that a consumer can devote to its

payment.

d. the projected increase in market value of the consumer’s home.

1. Denise borrows $90,000 from Clear Lake Credit Union to buy a home.

Denise loses her job and fails to make payments on the mortgage, but

assures Clear Lake Credit that she will soon secure a new job. The

lender agrees to postpone the payments. This is

a. a bridge loan.

b. forbearance.

c. a reamortization.

d. a restructure.

1. Erin and Dooley, a married couple, borrow $120,000 from Capital &

Credit Bank to buy a home. When Erin and Dooley divorce, they are

unable to make payments on the mortgage. The market value of the

home has declined to less than the balance of the loan. Capital &

Credit agrees to a sale of the property for this amount. This is

a. a deed in lieu of foreclosure.

b. a home equity loan.

c. a reverse mortgage.

d. a short sale.

1. Agnes borrows $110,000 from Bay Harbor Bank to buy a home under

a mortgage with an acceleration clause. After eighteen payments,

Agnes stops making payments on the mortgage. Bay Harbor

a. can foreclose once on the entire amount of the loan.

b. may seek only the amount of the missed payments, not the

entire loan.

c. must foreclose on small amounts over time as each payment

comes due.

d must notify Agnes to accelerate the steps to cure the default.

1. Upton borrows $150,000 from Valley Credit Union to buy a home,

which secures the loan. Three years into the term, Upton stops making

payments on it. Valley Credit repossesses and auctions off the property

to Wesley. The sale proceeds are not enough to cover the unpaid

amount of the loan. In most states, Valley Credit can ask a court for

a. a deficiency judgment.

b. a reverse mortgage.

c. a short sale.

d. nothing.

1. Gena borrows $350,000 from Fish Island Bank to buy a home, which

secures the mortgage. In the seventh year of the loan, Gena stops

making payments. After the bank repossesses the property but before

it is sold, Gena may buy it by paying

a. an amount that equals the potential proceeds from the property’s

sale.

b an amount that exceeds the potential proceeds from the

property’s sale.

c. the amount of the missed payments, but not more.

d. the full amount of the debt, plus any interest and costs.

1. Sierra borrows $175,000 from Regional Home Finance Corporation to

buy a home. The loan is a twenty-year, 3/1, adjustable-rate mortgage,

with an initial interest rate of 4.0 percent for three years and potential

increases of up to 3.0 percent to a cap of 11.0 percent. Before the

loan is completed, the lender discloses the amount of the loan

principal, the initial interest rate, the initial annual percentage rate, and

associated fees and costs. Not disclosed are material details about the

amounts of the payments when the interest rate changes. Before the

first increase takes effect, Sierra decides that she wants to rescind the

loan. What is a “twenty-year, 3/1, adjustable–rate mortgage”? Can Sierra

rescind this loan? Why or why not?

1. Umberto and Tiara, who are married, borrow $110,000 from Sterling

Credit Union to buy a home. The loan is a fixed-rate mortgage at 5.25

percent with a thirty-year term, subject to an acceleration clause, and

secured by the home, which is their principal residence. When Umberto

and Tiara have paid off $10,000 of the mortgage—still owing $100,000—

they lose their jobs and stop making payments. Sterling Credit makes

numerous attempts to contact the couple, but they do not respond.

Meanwhile, the market value of their home has declined to $85,000.

After six months, Sterling Credit decides to take steps to recover the

unpaid amount of the loan. What are the lender’s options? Which

option seems most likely? Why? What are the steps are involved?

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