Banking Lending Practices 4

Question 1

What is the Community Reinvestment Act (CRA) designed to encourage?

Accepted Answer

Banks to meet the credit needs of all segments of their communities, including low- and moderate-income areas

Answer

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.

Question 2

What is a 'deficiency judgment' in lending?

Accepted Answer

A court judgment against a borrower for the remaining loan balance after foreclosure sale proceeds are insufficient to cover the debt

Answer

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.

Question 3

Which of the following best describes a 'recourse loan'?

Accepted Answer

A loan where the lender can pursue the borrower's other assets beyond the collateral if the borrower defaults

Answer

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.

Question 4

What is the primary purpose of an escrow account in a mortgage loan?

Accepted Answer

To collect and hold funds for property taxes and insurance so the lender can make payments on the borrower's behalf

Answer

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.

Question 5

A borrower with a debt-to-income (DTI) ratio of 50% would typically be considered:

Accepted Answer

A high-risk borrower who may struggle to repay additional debt obligations

Answer

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.

Banking Practice Test

Banking Practice Test

Banking Lending Practices 4