Quiz about Test bank NHTM- CHAP 18

Question 1

The dominant lender in the United States to households is the finance company with commercial banks ranked second as consumer lenders.

Accepted Answer

False

Answer

True

Question 2

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

Accepted Answer

T

Answer

F

Question 3

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

Accepted Answer

T

Answer

F

Question 4

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

Accepted Answer

F

Answer

T

Question 5

Households tend to be interest-inelastic borrowers.

Accepted Answer

T

Answer

F

Question 6

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

Accepted Answer

F

Answer

T

Question 7

The "right of offset" allows a bank to sell a customer's property to the highest bidder to repay a customer's loan if the loan is in default.

Accepted Answer

F

Answer

T

Question 8

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

Accepted Answer

F

Answer

T

Question 9

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

Accepted Answer

F

Answer

T

Question 10

Small business owners with gross annual revenues of $1 million or less who apply for credit have the right to receive a written notice if their loan request is turned down by a bank.

Accepted Answer

T

Answer

F

Question 11

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

Accepted Answer

F

Answer

T

Question 12

Banks awarded top CRA marks usually get strong commitments from their boards of directors and senior management to promote community involvement

Accepted Answer

T

Answer

F

Question 13

FNMA will buy home mortgages provided the borrower's monthly house payment does not exceed 35 percent of monthly gross income.

Accepted Answer

F

Answer

T

Question 14

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

Accepted Answer

F

Answer

T

Question 15

An installment loan is a loan in which the customer repays the loan in two or more consecutive payments. These payments are often monthly or quarterly.

Accepted Answer

T

Answer

F

Question 16

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.

Accepted Answer

F

Answer

T

Question 17

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

Accepted Answer

T

Answer

F

Question 18

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

Accepted Answer

F

Answer

T

Question 19

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.

Accepted Answer

T

Answer

F

Question 20

There is usually a positive relationship between the interest rate a consumer is asked to pay and the amount of deposits the consumer is willing to keep with the bank.

Accepted Answer

F

Answer

T

Question 21

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

Accepted Answer

T

Answer

F

Question 22

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

Accepted Answer

F

Answer

T

Question 23

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

Accepted Answer

T

Answer

F

Question 24

Most consumer loans are priced off some base or cost rate

Accepted Answer

T

Answer

F

Question 25

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

Accepted Answer

T

Answer

F

Question 26

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

Accepted Answer

F

Answer

T

Question 27

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 credit.

Accepted Answer

F

Answer

T

Question 28

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

Accepted Answer

T

Answer

F

Question 29

With the discount rate method interest is deducted first before the customer has use of the proceeds of a loan.

Accepted Answer

T

Answer

F

Question 30

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

Accepted Answer

F

Answer

T

Question 31

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

Accepted Answer

T

Answer

F

Question 32

According to the table presented in the book personal loans tend to have lower rates than automobile loans.

Accepted Answer

F

Answer

T

Question 33

According to the table presented in the book credit card loans tend to have the highest interest rates of all consumer loans.

Accepted Answer

T

Answer

F

Question 34

According to the table presented in the book new car loans have a lower interest rate than used car loans.

Accepted Answer

T

Answer

F

Question 35

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

Accepted Answer

F

Answer

T

Question 36

Currently the debit card market is almost as large as the credit card market.

Accepted Answer

F

Answer

T

Question 37

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

Accepted Answer

F

Answer

T

Question 38

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

Accepted Answer

T

Answer

F

Question 39

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

Accepted Answer

T

Answer

F

Question 40

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 above

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Answer

E

Question 41

Loans to individuals and families to finance the purchase of new homes are known as:

A) Noninstallment loans

B) Installment loans

C) Residential mortgage loans

D) Nonresidential cash loans

E) None of the above

Accepted Answer

C

Answer

A

Answer

B

Answer

D

Answer

E

Question 42

Short-term loans drawn upon by individuals and families for immediate cash needs and repayable in a lump sum when the borrower's note matures are known as:

A) Noninstallment loans

B) Installment loans

C) Residential mortgage loans

D) Nonresidential cash loans

E) None of the above

Accepted Answer

A

Answer

B

Answer

C

Answer

D

Answer

E

Question 43

The federal law that requires banks to notify their credit customers in writing when a loan request is denied is known as the:

A) Equal Credit Opportunity Act

B) Competitive Equality in Banking Act

C) Truth-in-Lending Act

D) Community Reinvestment Act

E) None of the above.

Accepted Answer

A

Answer

B

Answer

C

Answer

D

Answer

E

Question 44

Major laws and regulations which must be complied with in the mortgage lending area include which of the following?

A) National Affordable Housing Act

B) Community Reinvestment Act

C) Financial Institution Reform Recovery and Enforcement Act

D) All of the above

E) B and C only

Accepted Answer

D

Answer

A

Answer

B

Answer

C

Answer

E

Question 45

Which of the following factors have proven most important in credit scoring models?

A) Credit Bureau ratings

B) Income bracket

C) Number of loans the customer has had

D) All of the above

E) A and B only

Accepted Answer

E

Answer

A

Answer

B

Answer

C

Answer

D

Question 46

The requirement that banks must provide their consumer loan customers with a statement of the APR for the proposed loan was established by:

A) The Fair Credit Reporting Act.

B) The Equal Credit Opportunity Act.

C) The Truth-in-Lending Act.

D) The Community Reinvestment Act.

E) None of the above

Accepted Answer

C

Answer

A

Answer

B

Answer

D

Answer

E

Question 47

Which of the following consumer loans has grown in popularity as a result of the passage of the Tax Reform Act of 1986?

A) Credit card loans

B) Home equity loans

C) Long-term, noninstallment loans

D) Short-term, installment loans

E) All of the above

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Answer

E

Question 48

A bank that is judged by examiners as needing to improve under the performance requirements of the Community Reinvestment Act will receive an examiner rating of:

A) 0

B) S

C) N

D) SN

E) None of the above

Accepted Answer

C

Answer

A

Answer

B

Answer

D

Answer

E

Question 49

In order to be eligible for purchase by FNMA a home mortgage cannot have a maturity of less than 10 years nor more than:

A) 25 years

B) 30 years

C) 35 years

D) 40 years

E) None of the above

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Answer

E

Question 50

FNMA will not purchase home mortgages in the secondary market if the borrower's monthly debt repayments (including housing costs) exceed _________ percent of the borrower's monthly gross income. The correct percentage figure to complete the sentence above is:

A) 28

B) 30

C) 36

D) 40

E) None of the above

Accepted Answer

C

Answer

A

Answer

B

Answer

D

Answer

E

Question 51

How did the Tax Reform Act of 1986 increase the appeal of home equity loans?

A) It allowed customers to borrow up to 100 percent of the value of their home

B) It eliminated bank income taxes from this type of loan

C) It protected homes under Chapter 13 bankruptcy

D) It eliminated individuals' tax deduction for interest payments on other types of loans

E) It required banks to lend on homes in the geographic area of their deposits

Accepted Answer

D

Answer

A

Answer

B

Answer

C

Answer

E

Question 52

The federal law that permits consumers to dispute billing errors with a merchant or credit card company and receive a prompt investigation of any billing disputes is the:

A) Fair Credit Reporting Act

B) Fair Credit Billing Act

C) Fair Debt Collection Practices Act

D) Truth in Lending Act

E) None of the above

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Answer

E

Question 53

The bank's real estate loan officer should consider which of the following aspects of the customer's loan application carefully when making a home mortgage?

A) The amount and stability of the borrower's income

B) The borrower's available savings and where the down payment is coming from

C) The borrower's track record in caring for and managing property.

D) The outlook for real estate sales in the local market area

E) All of the above are things that need to be looked at carefully

Accepted Answer

E

Answer

A

Answer

B

Answer

C

Answer

D

Question 54

An abusive practice is which lenders grant loans to weak borrowers and charge them high fees and interest rates which may cause the borrower to default on the loan is known as:

A) Installment loans

B) Credit card loans

C) Predatory lending

D) Herbivore lending

E) None of the above

Accepted Answer

C

Answer

A

Answer

B

Answer

D

Answer

E

Question 55

The law which was passed to reduce predatory lending is known as:

A) Community Reinvestment Act

B) Home Ownership and Equity Protection Act

C) Equal Credit Opportunity Act

D) Fair Debt Collection Practices Act

E) None of the above

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Answer

E

Question 56

Which of the following is true regarding credit card loans?

A) There is evidence that considerable economies of scale exist

B) Credit cards cannot act as installment loans

C) Credit cards are very inconvenient for consumers

D) Credit cards are very inflexible for consumers

E) All of the above are true

Accepted Answer

A

Answer

B

Answer

C

Answer

D

Answer

E

Question 57

A loan officer asks a customer what race she belongs to. Which law prohibits the loan officer from asking that question?

A) Truth in Lending Act

B) Equal Credit Opportunity Act

C) Community Reinvestment Act

D) Fair Debt Collection Practices Act

E) None of the above

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Answer

E

Question 58

Which of the following is not part of the evaluation of an installment loan?

A) The borrower's track record in caring for and maintaining property

B) Evidence of stable employment

C) Evidence of residence stability

D) Evidence of income stability

E) All of the above are part of the evaluation of an installment loan

Accepted Answer

A

Answer

B

Answer

C

Answer

D

Answer

E

Question 59

Which of the following is an advantage of a credit scoring model?

A) Credit scoring models rely on the evaluation of an experienced credit officer

B) Credit scoring models are immune from charges of discrimination

C) Credit scoring models never make mistakes

D) Credit scoring models can handle a large volume of applications in a short period of time

E) All of the above are advantages of credit scoring models

Accepted Answer

D

Answer

A

Answer

B

Answer

C

Answer

E

Question 60

When interest owed on a loan is added to the principal amount of the loan to determine a borrowing customer's required installment payments, this is known as the _________method for figuring a customer's loan rate. Fill in the blank with an appropriate response below.

A) Simple interest

B) APR

C) Discount

D) Add-on

E) None of the above

Accepted Answer

D

Answer

A

Answer

B

Answer

C

Answer

E

Question 61

102. The symbols ARM in lending means:

A) Automatic rate modulation

B) Amortization rate method

C) Adjustable rate mortgage

D) Adaptable readjusted mortgage

E) None of the above.

Accepted Answer

C

Answer

A

Answer

B

Answer

D

Answer

E

Question 62

The charge on a home mortgage loan that a borrower may be asked to pay up front is referred to as:

A) Loan Interest Owed

B) Points

C) Loading

D) Tax equity

E) None of the above.

Accepted Answer

B

Answer

A

Answer

C

Answer

D

Answer

E

Question 63

Which of the following has the highest interest rate according to the book?

A) New automobile loan

B) Used automobile loan

C) Personal loan

D) Credit card loan

E) All of these have the same interest rate

Accepted Answer

D

Answer

A

Answer

B

Answer

C

Answer

E

Question 64

Which of the following has the lowest interest rate according to the book?

A) New automobile loan

B) Used automobile loan

C) Personal loan

D) Credit card loan

E) All of these have the same interest rate

Accepted Answer

A

Answer

B

Answer

C

Answer

D

Answer

E

Test bank NHTM- CHAP 18

89 questions

The dominant lender in the United States to households is the finance company with commercial banks ranked second as consumer lenders.

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

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

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

Households tend to be interest-inelastic borrowers.

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

The "right of offset" allows a bank to sell a customer's property to the highest bidder to repay a customer's loan if the loan is in default.

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

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

Small business owners with gross annual revenues of $1 million or less who apply for credit have the right to receive a written notice if their loan request is turned down by a bank.

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