Deck 18: Consumer Loans, Credit Cards, and Real Estate Lending

Question 1

When a borrower receives a loan at one lending institution to repay another,it is called ___________________________ of debt.

Answer 1

pyramiding

Question 2

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 that is being paid off in monthly installments is known as the ____________.

Answer 2

Rule of 78s

Question 3

The ________________________________ Act permits consumers to dispute billing errors with a merchant or credit card company and receive a prompt investigation into any such disputes.

Answer 3

Fair Credit Billing

Question 4

The law that requires full disclosure of credit terms and which promotes the informed use of credit is the ______________________ Act.This law requires banks to report the APR of the loan,the dollar amount of all finance charges and,where appropriate,all fees.

Question 5

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.

Question 6

A(n)______________________ loan is a short-term or a medium-term loan repayable in two or more consecutive payments,usually monthly or quarterly.

Question 7

The fact that a consumer feels a strong moral and ethical responsibility to repay a loan on time refers to the ______________________ of the borrower.The loan officer must be assured that the borrower is serious about repaying the loan before the lending institution makes a loan.

Question 8

The interest rate method that adds the interest amount owed to the principal before calculating required installment payments is called the __________ method.

Question 9

The right of ______________________ 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.

Question 10

Household borrowings tend to be relatively interest ______________________ by nature,that is,consumers are more concerned about the size of the debt repayments than the interest rate charged.

Question 11

Short-term credit to finance the building of homes or other dwellings is called a _____________________.

Question 12

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 ______________________ Act.It does not allow a debt collector to "harass" a debtor.

Question 13

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.

Question 14

A(n)__________________________ loan is one where a customer can use the difference between the appraised value of their home and the amount of mortgage remaining against it to secure a loan.

Question 15

The interest rate method which requires the interest amount on a loan to be paid upfront is called the ______________________ method.

Question 16

A(n)____________________________________________ mortgage is an agreement drawn up by a bank that gives the bank control of the property if the loan cannot be repaid as planned.

Question 17

______________________________________ is a practice of granting loans to weaker borrowers and charging them excessive fees and interest rates,increasing their risk of default.

Question 18

A(n)______________________ is a credit-rating agency that keeps records of borrowers' loan payment histories.

Question 19

The ___________________________________ Act prevents banks from redlining of certain neighborhoods and refusing to provide loans and other services in those areas.

Question 20

______________________ is a method to evaluate a large volume of consumer loans quickly with minimum labor.It is a statistical model which predicts whether the ability of a consumer to repay the loan.

Question 21

The fastest rising financial crime against individuals today is __________________ theft.This is a deliberate attempt to take unauthorized use of someone else's personal information in order to fraudulently obtain money,credit,or other property.

Question 22

Consumer loans tend to be _____________________ sensitive.They tend to rise in periods of economic expansion and tend to fall in periods of economic downturn.

Question 23

______________________ is a basic method for calculating the interest owed on a loan that adjusts for declining balances and the time remaining on the loan.

Question 24

Credit cards are the best example of ______________________ that offer consumers convenience and flexibility.Consumers can access them whenever the need arises.

Question 25

One new type of mortgage where no principal payments are made for an initial period is called a(n)_______________.

Question 26

While considering an individual's income levels,a bank generally prefers the borrower report ______________________ rather than gross salary.

Question 27

Many home mortgage agreements include an additional charge levied up front called _____________________.Generally,each of these corresponds to one percent of the face value of the amount borrowed.

Question 28

The ___________________________ Act prohibits lenders from asking certain questions to a customer,such as a customer's age or race.

Question 29

In real estate lending,competent property __________________ is vitally important to a loan decision.The value and condition of the property are determined by an independent party.These must conform to industry and government standards.

Question 30

The ________________________ Act provides consumers with an opportunity to order one free credit report annually from each of the three nationwide credit bureaus.

Question 31

A variable rate loan on a residential mortgage is known as a(n)______________________.

Question 32

_________________________ loans are ones that families and individuals can draw upon for immediate cash needs and are repayable in a lump sum.These loans often cover the cost of a vacation,medical care,the purchase of a home appliance,or home repairs.

Question 33

A popular prepaid card which carry balances that can be spent electronically in stores until the balance entered on the card is fully used up,often used like a credit card,especially popular in Europe,is known as a _________ card.

Question 34

Equifax,Transunion,and _________________ are the three biggest credit bureaus in the United States.

Question 35

A popular credit scoring system developed and sold by Fair Isaac Corporation is known as ___________.

Question 36

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 _____________________.

Question 37

________________________ 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.

Question 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.

Question 39

Traditional home equity loans are usually priced using _______-term interest rates while home equity lines of credit are priced using _________-term interest rates.

Question 40

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.

Question 41

Finance companies are the most dominant lenders of credit to households in the United States with commercial banks ranked second as consumer lenders.

Question 42

Under FNMA rules for buying home mortgages,FNMA does not purchase a borrower's mortgage if the borrower's credit report is more than 45 days old.

Question 43

Nonresidential consumer loans include credit to finance the purchase of home appliances.

Question 44

Consumer loans appear to have virtually no sensitivity to the business cycle,staying relatively stable through both recessions and expansions.

Question 45

The Truth-in-Lending Act of 1968 gave consumers the right to access the information from their credit files kept at local and regional credit bureaus.

Question 46

The symbol "SN" assigned as a rating indicates that a bank has been judged to be an outstanding performer under the terms of the Community Reinvestment Act.

Question 47

Real estate loans are smaller in size and shorter in maturity than most other types of bank loans.

Question 48

"Pyramiding of debt" refers to borrowing from one lender to repay another lender.

Question 49

Lenders in the consumer loan field prefer to measure a borrowing customer's income by the amount of take-home pay.

Question 50

Credit-scoring systems tend to be valid over long periods of time (usually several years)and need not be periodically retested.

Question 51

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.

Question 52

Credit cards offer convenience to customers plus a revolving line of credit.

Question 53

The board of directors and senior management of the banks that are awarded top CRA ratings are often committed to promote community involvement.

Question 54

An installment loan is one where the customer repays the loan in two or more consecutive payments.These payments are often made monthly or quarterly.

Question 55

Households tend to be interest-inelastic borrowers.

Question 56

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.

Question 57

The burden of proof is on a bank to demonstrate that its credit scoring system successfully identifies quality loan applications at a statistically significant level.

Question 58

The "right of offset" allows a bank to auction a customer's property to the highest bidder to recover a loan in default.

Question 59

FNMA purchases home mortgages only if the borrower's monthly house payment does not exceed 35 percent of his monthly gross income.

Question 60

Customers who apply for credit have the right to receive a written notice along with the reasons for denial if their loan request is turned down by a bank.

Question 61

Under the discount rate method,interest amount is required to be paid upfront and the customer receives the loan amount net of any interest owed.

Question 62

According to recent research findings,the quotation of the APR to customers on the loan they are requesting usually discourages consumers from shopping around.

Question 63

The APR is the internal rate of return on a loan that equates total payments with the amount of the loan.

Question 64

A majority of installment and lump-sum payment loans to families and individuals are made on floating interest rates.

Question 65

Shorter-term cash loans to consumers are normally secured,but longer-term consumer loans are usually unsecured.

Question 66

Home mortgage real estate loans soared to record levels at the beginning of the 21^st century.

Question 67

Points on a home mortgage loan results in a lender earning a higher effective interest rate on the loan than just the loan rate quoted to the borrower.

Question 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 the credit.

Question 69

There are very little economies of scale (cost savings)in the credit card business.

Question 70

According to the textbook,personal loans tend to have lower interest rates than automobile loans.

Question 71

Most consumer loans are priced off some base or cost rate.

Question 72

The most important factor used in the FICO credit score appears to be the borrower's payment history.

Question 73

Under the simple interest method,a customer saves on interest as an installment loan approaches maturity.

Question 74

Competition for consumer loans tends to drive the interest rates on these loans down closer to loan production costs.

Question 75

Currently the debit card market is one of the fastest growing of all household financial services,substantially exceeding the recent growth of credit cards.

Question 76

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 options is correct.

Question 77

An auto loan usually carries with it a chattel mortgage,giving the bank a claim against the property covered by the loan.

Question 78

According to the textbook,credit card loans tend to have the highest interest rates of all consumer loans.

Question 79

One of the elements used in the FICO credit scoring system is the borrower's employment history and salary.

Question 80

According to the textbook,new car loans have a lower interest rate than used car loans.