Deck 36: Morgages and Foreclosures

Question 1

Forbearance is an agreement between the lender and the borrower to postpone,for a limited time,of part or all of the payments on a loan in jeopardy of foreclosure.

Answer 1

True

Question 2

Mortgage loans are NOT contracts.

Answer 2

False

Question 3

Steering and targeting occurs when the lender manipulates a borrower into accepting a loan product that benefits the lender but is not the best loan for the borrower.

Answer 3

True

Question 4

Most creditors require mortgage insurance if the down payment is less than 20 percent of the purchase price.

Question 5

Home equity refers to the portion of a home's value that is mortgaged.

Question 6

The Truth-in-Lending Act requires lenders to disclose the terms of a loan in clear,readily understandable language.

Question 7

An escrow account is a borrower's bank account.

Question 8

The payments on a fixed-rate mortgage remain the same for the duration of the mortgage.

Question 9

The borrower receives the proceeds of a short sale.

Question 10

Predatory lending occurs when borrowers take advantage of unsuspecting creditors.

Question 11

The simplest mortgage loan is an adjustable-rate mortgage.

Question 12

A mortgage is a written document that gives a creditor an interest in a debtor's real property such as security for a debt's payment.

Question 13

A prepayment penalty clause requires the borrower to pay a penalty if the mortgage is repaid in full within a certain period.

Question 14

The Home Ownership and Equity Protection Act of 1994 created a new category for low-cost and low-fee mortgages.

Question 15

A borrower with an interest-only mortgage pays only the interest portion of the monthly payments for a specified period of time.

Question 16

The average prime offer rate is the rate offered to the best-qualified borrowers.

Question 17

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

Question 18

Consumers can only obtain damages up to half the amount of all finance charges and fees paid if a lender violates the Home Ownership and Equity Protection Act.

Question 19

Loan flipping occurs when the lender manipulates a borrower into accepting a loan product that benefits the lender but is not the best loan for the borrower.

Question 20

Lenders may advertise a loan as a fixed-rate loan even if its rate or payment amounts will change.

Question 21

An acceleration clause allows the lender to call the entire loan due if one payment is late or missed.

Question 22

If a borrower does not pay a loan within a reasonable time after receiving a notice of default,then the borrower will receive a notice of sale.

Question 23

In a judicial foreclosure,a court supervises the process.

Question 24

Wilson has an adjustable-rate mortgage.The rate of interest Wilson pays

A)cannot change.
B)will change periodically.
C)is determined by the Federal Reserve.
D)will decrease over time.

Question 25

In a friendly foreclosure,the property is conveyed to the lender in satisfaction of the mortgage.

Question 26

If equity remains after a foreclosed property is sold,the borrower often gets to keep the difference between the sale price and the mortgage amount.

Question 27

A notice of sale is usually published in a newspaper.

Question 28

Judicial foreclosure is available in all states.

Question 29

Sara has a fixed-rate mortgage.The index rate for her mortgage

A)is a government-determined rate.
B)can only be adjusted upward.
C)can only be adjusted downward.
D)cannot be adjusted.

Question 30

A power of sale foreclosure is supervised by a judge.

Question 31

To initiate a foreclosure,a lender must record a notice of default with the appropriate county office.

Question 32

All states allow power of sale foreclosures.

Question 33

Ted has a mortgage that requires low payments for seven years and then a large payment for the entire balance of the mortgage loan after the seven years have passed.Ted's mortgage is

A)a balloon mortgage.
B)an interest-only mortgage.
C)a subprime mortgage.
D)a fixed-rate mortgage.

Question 34

Rebecca has a fixed-rate mortgage that has a fixed interest rate for three years and then adjusts annually.Rebecca's mortgage is a

A)5/1 ARM.
B)3/1 ARM.
C)1/3 ARM.
D)3 ARM.

Question 35

A power of sale foreclosure gives a borrower more protection than a judicial foreclosure.

Question 36

A deficiency judgment is a judgment against a borrower for the amount of a debt remaining unpaid after the collateral is sold.

Question 37

Equitable redemption allows a defaulting borrower to gain title and regain possession of a property.

Question 38

Jason wants to apply for the simplest mortgage loan.He should apply for a(n)

A)fixed-rate mortgage.
B)adjustable-rate mortgage.
C)interest-only mortgage.
D)balloon mortgage.

Question 39

Foreclosures are initiated by the borrower.

Question 40

Bankruptcy does NOT allow a borrower to escape payment of debts.

Question 41

Kirsten applies for a mortgage loan with Secure Bank so she can buy a horse barn.After granting Kirsten a mortgage loan,Secure Bank should

A)record the mortgage with the appropriate office in the county where the horse barn is located.
B)do nothing.
C)record the mortgage in the courthouse in the county where Secure Bank is located.
D)publish the mortgage in a newspaper.

Question 42

Subprime mortgages

A)have lower interest rates than standard mortgages.
B)have higher interest rates than standard mortgages.
C)have a higher risk for the borrower than standard mortgages.
D)are the same thing as home equity loans.

Question 43

An important law protecting borrowers by requiring lenders to disclose the terms of a loan in clear,readily understandable language is the

A)Uniform Commercial Code.
B)Truth-in-Lending Act.
C)Statue of Frauds.
D)Borrower Protection Act.

Question 44

James obtains a mortgage loan from Willis Bank.If Willis Bank fails to record the mortgage

A)it could find itself in the position of an unsecured creditor.
B)nothing bad will happen.
C)James will not have to make payments.
D)it could be fined for violating lending regulations.

Question 45

Jared has a mortgage loan that has a prepayment penalty clause.If Jared repays his mortgage within the period specified in the clause he will

A)have to pay a penalty.
B)get money back from the lender.
C)be prevented from getting another mortgage for one year.
D)get a bad credit rating.

Question 46

Erica obtains a mortgage loan from Capital Bank.Because a mortgage loan involves the transfer of real property

A)it can be oral or written.
B)it must be oral.
C)it must be written.
D)it must be witnessed by a judge.

Question 47

Most creditors will require borrowers to purchase mortgage insurance if the borrower's down payment,in relation to the purchase price,is less than

A)50 percent.
B)60 percent.
C)30 percent.
D)20 percent.

Question 48

Gerald obtains a mortgage loan from State Bank to purchase a house for $600,000.Because Gerald makes a down payment of only $25,000,State Bank requires him to purchase mortgage insurance.After six months,Gerald defaults on the loan.State Bank can

A)repossess the house but not receive reimbursement from the insurer.
B)repossess the house and receive reimbursement from the insurer.
C)receive reimbursement from the insurer but not repossess the house.
D)do nothing.

Question 49

Albert wants to build a new house,but he needs to borrow money to do so.Albert should obtain

A)a balloon mortgage.
B)an interest-only mortgage.
C)a subprime mortgage.
D)a construction loan.

Question 50

Julia has a home valued at $150,000.She owes $100,000 on her mortgage.Julia can obtain a home equity loan for up to

A)$50,000.
B)$100,000.
C)$150,000.
D)$300,000.

Question 51

Mike applies for a mortgage loan at Quality Assured Bank.Mike qualifies for a fixed-rate loan,but the Quality Assured agent manipulates Mike into agreeing to an ARM even though the fixed-rate loan would be better for Mike.This is

A)an acceptable way to conduct business.
B)steering and targeting.
C)loan flipping.
D)unjustified lending.

Question 52

Jeannie has a mortgage that allows her to pay only the interest portion of the monthly payments for three years.After three years,Jeannie will have to make payments on both the principal and the interest.Jeannie's mortgage is

A)a balloon mortgage.
B)an interest-only mortgage.
C)a subprime mortgage.
D)a fixed-rate mortgage.

Question 53

Phyllis applies for a loan from Crystal Bank.Crystal Bank provides Phyllis with all of the appropriate documents required by the Truth-in-Lending Act.Phyllis does not read the documents.An agent from Crystal Bank orally misrepresents the terms of the loan to Phyllis.Phyllis can

A)claim fraud.
B)not claim fraud.
C)claim fraud if she can prove that the agent intended to deceive her.
D)claim fraud if she does so within three days of receiving the documents.

Question 54

Geoffrey does not qualify for a standard mortgage.He can apply for

A)a balloon mortgage.
B)an interest-only mortgage.
C)a subprime mortgage.
D)a construction loan.

Question 55

Harold applies for a mortgage loan.The fees for the loan are 10 percent of the loan amount.Harold's loan

A)can qualify for protection under the Home Ownership and Equity Protection Act.
B)cannot qualify for protection under the Home Ownership and Equity Protection Act.
C)is illegal in some states.
D)is illegal in all states.

Question 56

Alan applies for a mortgage loan at Class Act Bank.Class Act Bank does not fully disclose all terms of the loan to Alan.This is

A)commercial lending.
B)false lending.
C)predatory lending.
D)an acceptable way of doing business.

Question 57

Karen obtains a mortgage loan from First Class Bank so that she can purchase a new house.The house costs $100,000.Karen makes a down payment of $10,000.First Class Bank will

A)probably require Karen to purchase mortgage insurance.
B)not require Karen to purchase mortgage insurance.
C)not charge Karen interest for at least a year because she made a down payment that was 10 percent of the purchase price.
D)require Karen to make another $10,000 payment within one year.

Question 58

Loan flipping

A)may result in prepayment penalties for the borrower.
B)is always a good idea for a homeowner.
C)rarely benefits the lender.
D)usually benefits both the borrower and the lender.

Question 59

Typically,the terms of a mortgage loan require that the

A)borrower maintains the property in such a way that the lender's investment is protected.
B)lender pays the property taxes.
C)lender is responsible for purchasing mortgage insurance.
D)borrower makes a down payment of at least 50 percent of the purchase price.

Question 60

Jill has a mortgage loan from All Star Bank.Shortly after obtaining her mortgage,an agent from All Star convinces Jill to refinance,even though refinancing will not benefit Jill.This is

A)an acceptable way to conduct business.
B)steering and targeting.
C)loan flipping.
D)unjustified lending.

Question 61

Humberto 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 Humberto 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?

Question 62

Helen misses several payments on her mortgage loan and Big Town Bank,Helen's lender,decides to initiate a foreclosure on Helen's property.Big Town Bank must first

A)record a notice of default.
B)record a notice of sale.
C)request a deficiency judgment.
D)record an acceleration clause.

Question 63

Colin's home declines substantially in value.Colin gets his lender's permission to sell his home for less than the balance due on his mortgage loan.Colin still owes the balance of his debt to his lender.This is

A)forbearance.
B)a short sale.
C)foreclosure.
D)deed in lieu of foreclosure.

Question 64

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?

Question 65

Margery defaults on her mortgage loan and her lender proceeds to foreclosure.Before the foreclosure sale occurs,Margery's aunt dies and leaves Margery a large inheritance.Margery buys back her property by paying the full amount of the debt,plus all interest and costs that have accrued.Margery has exercised her

A)right to forbearance.
B)equitable right of redemption.
C)right to short sale.
D)equitable right of foreclosure.

Question 66

Harrison applies for a mortgage loan from Hill Top Bank that has an APR that is 1.5 percent more than the average prime offer rate for a comparable transaction.This loan is Harrison's first mortgage.Before giving Harrison the loan,Hill Top Bank must

A)verify Harrison's ability to repay the loan only.
B)establish an escrow account for Harrison's payments for homeowners' insurance and property taxes only.
C)establish an escrow account for Harrison's payments for homeowners' insurance and property taxes and verify Harrison's ability to repay the loan.
D)present all the loan documents to a judge for review.

Question 67

Jillian has a mortgage loan for $50,000 with Midtown Bank.Jillian misses one payment.Midtown Bank forecloses on the entire amount of the loan.Midtown Bank can do this if the loan documents include

A)a notice of default.
B)a notice of sale.
C)an acceleration clause.
D)a deficiency judgment.

Question 68

Janet defaults on her mortgage for her house.Real Deal Bank,as Janet's lender,has

A)the right to foreclose on Janet's house.
B)no right to foreclose on Janet's house.
C)an obligation to help Janet find a way to make her payments.
D)the right to foreclose on Janet's house only if Janet has not purchased mortgage insurance.

Question 69

David owns a house worth $100,000.He has an outstanding loan principal of $98,000.David defaults on his mortgage payments.To avoid foreclosure proceedings,David conveys his house to his lender in satisfaction of the mortgage.This is

A)a short sale.
B)forbearance.
C)illegal.
D)a deed in lieu of foreclosure.

Question 70

Ron defaults on his mortgage from Acting Bank.Acting Bank proceeds to foreclosure.There is no court supervision of the foreclosure process.This is

A)forbearance.
B)judicial foreclosure.
C)prepackaged bankruptcy.
D)power of sale foreclosure.

Question 71

Tabitha defaults on her mortgage loan and her lender,Top Bank,proceeds to foreclosure.A court supervises the foreclosure process.This is

A)forbearance.
B)judicial foreclosure.
C)prepackaged bankruptcy.
D)power of sale foreclosure.

Question 72

Allison is a nurse.She loses her job and defaults on the mortgage on her home.Because there is a high demand for nurses in the town where Allison lives,Cash Bank,Allison's lender,believes that Allison will be able to find a new job quickly.Cash Bank agrees to postpone Allison's payments on her loan for three months rather than foreclosing.This is

A)forbearance.
B)mercy lending.
C)foreclosure.
D)predatory lending.