Question 1

To purchase a house for $600,000, Grant applies for a mortgage loan at Home Bank. The bank requires a 20-percent down payment. Grant agrees to pay $60,000 and obtain insurance to cover the remaining 10 percent. Later, Grant defaults on the loan. The insurer must reimburse

Accepted Answer

The insurer must reimburse Home Bank because the insurance is meant to protect the lender (Home Bank) against the risk of Grant defaulting on the loan.

Question 2

In the context of mortgage loans, an appraiser

Accepted Answer

An appraiser specializes in estimating property values, which is crucial for determining the value of a property in a mortgage loan.

Question 3

Lenders are required to disclose the terms of a loan in clear, readily understandable language under

Accepted Answer

The Truth-in-Lending Act requires lenders to disclose the terms of a loan in clear and understandable language to ensure consumers are informed about the costs and terms of credit.

Question 4

Louis applies for a mortgage loan at Market Lending LLC. The lender does not disclose all terms of the loan. This is

Accepted Answer

Predatory lending involves unfair, deceptive, or fraudulent practices by a lender during the loan origination process, including failing to disclose all terms of the loan.

Question 5

To protect the lender's investment, a mortgage typically requires the borrower to

Accepted Answer

Maintaining the property helps protect the lender's investment by ensuring the property's value does not decrease due to neglect or damage.

Question 6

Kelly applies for a mortgage loan at Lakeside Bank. Kelly qualifies for a fixed-rate mortgage, but the bank convinces her to take an ARM. This is

Accepted Answer

Steering and targeting occur when a lender directs a borrower towards a specific loan product that may not be in the borrower's best interest, often for the lender's benefit.

Question 7

Kevin applies for a mortgage loan from Liberty Bank. The bank provides all of the required disclosures, but orally misrepresents the terms of the loan. Kevin does not read the documents. Later, Kevin can

Accepted Answer

The answer of Kevin applies for a mortgage loan from...

Question 8

Fact Pattern 33-1 To buy a house, Mary obtains a thirty-year mortgage with an interest rate that is fixed for three years and then adjusts annually.
Refer to Fact Pattern 33-1. Mary's mortgage can be described best as

Accepted Answer

Mary's mortgage is a 3/1 Adjustable Rate Mortgage (ARM), where the interest rate is fixed for the first three years and then adjusts annually.

Question 9

To purchase a house, Dan obtains a mortgage loan from Equity Bank. Dan loses his job. He is likely to find a new job soon but meanwhile defaults on the payments on the loan. The bank agrees to postpone the payments for a limited time. This is

Accepted Answer

Forbearance is an agreement between the lender and borrower to temporarily postpone or reduce payments, allowing the borrower time to improve their financial situation.

Question 10

To purchase a house, Ed obtains a mortgage loan from Farmland Loans Inc. Farmland does not record the mortgage. The most likely consequence is that the lender will

Accepted Answer

If Farmland Loans Inc. does not record the mortgage, it may not have priority over other creditors and could be treated as an unsecured creditor if Ed defaults.

Question 11

Because a mortgage loan involves the transfer of real property, it

Accepted Answer

A mortgage loan must be in writing to be enforceable because it involves the transfer of an interest in real property, which falls under the Statute of Frauds.

Question 12

To buy a home, Lois pays part of the purchase price up front in cash and borrows the rest of the funds from Members Credit Union. The part of the purchase price paid up front is

Accepted Answer

The part of the purchase price paid up front in cash is known as a down payment.

Question 13

Bev applies for a mortgage loan at Credit Bank. Shortly after obtaining her mortgage, the bank convinces Bev to refinance. This does not benefit Bev and results in prepayment penalties on the previous mortgage. This is

Accepted Answer

Loan flipping is when a lender encourages a borrower to refinance a loan repeatedly, often resulting in fees and penalties that benefit the lender but not the borrower.

Question 14

Fact Pattern 33-1 To buy a house, Mary obtains a thirty-year mortgage with an interest rate that is fixed for three years and then adjusts annually.
Refer to Fact Pattern 33-1. Mary's mortgage is

Accepted Answer

Mary's mortgage is an adjustable-rate mortgage because the interest rate is fixed only for the first three years and then adjusts annually thereafter.

Question 15

Ridgeline Mortgage Company fails to provide Sam, a mortgage loan applicant, with the required disclosures. Under the applicable statute, Sam has the right to cancel the mortgage

Accepted Answer

Under the Truth in Lending Act (TILA), if a lender fails to provide the required disclosures, the borrower has the right to rescind the mortgage transaction within three years.

Question 16

To purchase a house, Nora obtains a mortgage loan from Oak Tree Loans LLC. Later, Nora informs Oak Tree that she may default on the payments. The lender agrees to delay taking possession of the property and selling it. The parties negotiate a payment plan for the amount due on the loan. This is

Accepted Answer

A workout agreement is a negotiated plan between a borrower and lender to restructure the terms of a loan to avoid default, which is what Nora and Oak Tree Loans LLC have done.

Question 17

Galen has a mortgage loan with Eagle Bank that includes a prepayment penalty clause. If Galen repays his mortgage in full within the period specified in the clause, he most likely will be

Accepted Answer

A prepayment penalty clause means that if Galen repays his mortgage early, he will be required to pay a penalty to the bank.

Question 18

Art obtains a mortgage loan from Bayside Bank so that he can purchase a house. The house costs $200,000. Art makes a down payment of $20,000. Based on the amount of the price paid up front, Bayside will likely require Art to

Accepted Answer

Art's down payment is 10% of the house price, which is below the typical 20% threshold, so Bayside Bank will likely require him to purchase mortgage insurance to protect the lender against default.

Question 19

To purchase a house, Clyde obtains a mortgage loan from Debit Bank. Clyde defaults on the payments on the loan. The bank has

Accepted Answer

When a borrower defaults on a mortgage loan, the lender (in this case, Debit Bank) has the right to foreclose on the property, which means they can take possession of it and sell it in order to recover the unpaid debt.

Question 20

To purchase a house, Becky obtains a mortgage loan from Countywide Bank. The lender should record the mortgage to

Accepted Answer

The lender should record the mortgage to be officially on record as holding an interest in the property. This protects the lender's priority position in case the property is sold or foreclosed upon.

Quiz 33: Mortgages