Banking Lending Practices 3

Question 1

What does a loan-to-value (LTV) ratio of 90% indicate?

Accepted Answer

The loan amount is 90% of the property's appraised value

Answer

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.

Question 2

Which type of interest rate remains constant throughout the entire life of the loan?

Accepted Answer

Fixed rate

Answer

A fixed-rate loan has an interest rate that does not change over the loan term, providing the borrower with consistent monthly payments.

Question 3

What is the role of a loan servicer in mortgage lending?

Accepted Answer

To manage the ongoing administration of existing loans including collecting payments and handling escrow

Answer

A loan servicer handles the day-to-day management of a loan after origination, including collecting payments, managing escrow accounts, and handling delinquencies.

Question 4

Under the Home Mortgage Disclosure Act (HMDA), lenders are required to:

Accepted Answer

Collect and report data on mortgage loan applications and originations by borrower characteristics and geography

Answer

HMDA requires covered lenders to collect, record, report, and disclose data about their mortgage lending activity to promote fair lending and identify discriminatory patterns.

Question 5

What is a 'hard inquiry' in the context of credit evaluation?

Accepted Answer

A credit check initiated by a lender when a borrower applies for credit that can temporarily lower the credit score

Answer

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.

Banking Practice Test

Banking Practice Test

Banking Lending Practices 3