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 is the Community Reinvestment Act (CRA) designed to encourage?
Answer: Banks to meet the credit needs of all segments of their communities, including low- and moderate-income areas
The CRA requires federal financial regulators to assess how well banks serve the credit needs of their entire communities, particularly low- and moderate-income neighborhoods.
What is a 'deficiency judgment' in lending?
Answer: A court judgment against a borrower for the remaining loan balance after foreclosure sale proceeds are insufficient to cover the debt
A deficiency judgment allows a lender to pursue the borrower personally for any remaining loan balance after the collateral is sold at foreclosure for less than the outstanding debt.
Which of the following best describes a 'recourse loan'?
Answer: A loan where the lender can pursue the borrower's other assets beyond the collateral if the borrower defaults
In a recourse loan, if the collateral's value does not cover the outstanding debt upon default, the lender can seek repayment from the borrower's other personal assets.
What is the primary purpose of an escrow account in a mortgage loan?
Answer: To collect and hold funds for property taxes and insurance so the lender can make payments on the borrower's behalf
An escrow account held by the servicer collects portions of the monthly mortgage payment to cover property taxes and homeowners insurance when they come due.
A borrower with a debt-to-income (DTI) ratio of 50% would typically be considered:
Answer: A high-risk borrower who may struggle to repay additional debt obligations
A DTI of 50% means half of the borrower's gross monthly income goes to debt payments, which exceeds typical qualifying thresholds and indicates elevated repayment risk.
What is the 'right of rescission' under TILA for certain home loans?
Answer: The borrower's right to cancel a refinance or home equity loan within three business days of closing
TILA grants borrowers three business days after closing to rescind (cancel) certain refinance or home equity loans without penalty.
What is 'redlining' in the context of discriminatory lending practices?
Answer: The illegal practice of denying credit or services to residents of certain geographic areas based on racial or ethnic composition
Redlining is an unlawful practice where lenders refuse to offer loans or insurance in certain neighborhoods based on their racial or ethnic demographics rather than individual creditworthiness.