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
What does a loan-to-value (LTV) ratio of 90% indicate?
Answer: The loan amount is 90% of the property's appraised value
LTV ratio compares the loan amount to the property's appraised value; a 90% LTV means the borrower financed 90% and made a 10% down payment.
Which type of interest rate remains constant throughout the entire life of the loan?
Answer: Fixed rate
A fixed-rate loan has an interest rate that does not change over the loan term, providing the borrower with consistent monthly payments.
What is the role of a loan servicer in mortgage lending?
Answer: To manage the ongoing administration of existing loans including collecting payments and handling escrow
A loan servicer handles the day-to-day management of a loan after origination, including collecting payments, managing escrow accounts, and handling delinquencies.
Under the Home Mortgage Disclosure Act (HMDA), lenders are required to:
Answer: Collect and report data on mortgage loan applications and originations by borrower characteristics and geography
HMDA requires covered lenders to collect, record, report, and disclose data about their mortgage lending activity to promote fair lending and identify discriminatory patterns.
What is a 'hard inquiry' in the context of credit evaluation?
Answer: A credit check initiated by a lender when a borrower applies for credit that can temporarily lower the credit score
A hard inquiry occurs when a lender pulls a borrower's credit report during an application review and can reduce the credit score by a few points temporarily.
Which of the following is an example of predatory lending?
Answer: Charging excessive fees and using deceptive practices to trap borrowers in high-cost loans
Predatory lending involves unfair, deceptive, or abusive loan terms that exploit borrowers, often through hidden fees, excessive interest rates, or misleading disclosures.
What does 'underwriting' involve in the loan approval process?
Answer: Evaluating the borrower's creditworthiness, income, assets, and collateral to determine loan approval
Underwriting is the process of assessing a borrower's risk profile by analyzing credit history, income, assets, and the value of the collateral to make an approval decision.