Banking Lending Practices 2

Question 1

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

Accepted Answer

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

Answer

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

Question 2

A balloon payment loan requires the borrower to:

Accepted Answer

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

Answer

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

Question 3

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

Accepted Answer

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

Answer

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

Question 4

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

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

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

Answer

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.

Banking Practice Test

Banking Practice Test

Banking Lending Practices 2