Practice Test GeeksBanking Practice Test
← All Banking Flashcard Decks

Lending Practices Flashcards

7 cards from real Banking practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Lending Practices flashcards as text

  1. What is the purpose of the Truth in Lending Act (TILA)?

    Answer: To require lenders to disclose loan terms and costs clearly to borrowers

    TILA requires lenders to provide standardized disclosure of credit terms, including APR and finance charges, so borrowers can compare loan offers.

  2. A balloon payment loan requires the borrower to:

    Answer: Make a large lump-sum payment at the end of the loan term

    A balloon payment loan has lower periodic payments but requires a large final payment that covers the remaining principal balance.

  3. What does the term 'amortization' mean in the context of a mortgage loan?

    Answer: The gradual repayment of a loan through scheduled periodic payments of principal and interest

    Amortization is the systematic reduction of loan principal through regular payments that cover both interest and principal over the loan's life.

  4. Under the Equal Credit Opportunity Act (ECOA), a lender may NOT deny credit based on:

    Answer: The applicant's race, color, religion, national origin, or sex

    ECOA prohibits credit discrimination based on protected characteristics including race, color, religion, national origin, sex, marital status, and age.

  5. What is a 'jumbo loan' in U.S. mortgage lending?

    Answer: A mortgage that exceeds the conforming loan limits set by the FHFA

    A jumbo loan exceeds the conforming loan limits established by the Federal Housing Finance Agency and cannot be purchased by Fannie Mae or Freddie Mac.

  6. What is the primary function of private mortgage insurance (PMI)?

    Answer: To protect the lender if the borrower defaults on a loan with less than 20% down payment

    PMI protects the lender against losses if the borrower defaults when the loan-to-value ratio exceeds 80%, requiring less than a 20% down payment.

  7. A lender that uses 'steering' as a discriminatory practice is guilty of directing borrowers toward:

    Answer: Less favorable loan products based on protected class characteristics rather than creditworthiness

    Steering is an illegal practice where lenders direct borrowers to certain loan products—often less favorable—based on protected characteristics rather than their actual qualifications.