Lending & Credit Products Flashcards

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

Answer: The applicant's marital status

ECOA prohibits lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.

A bank is required to provide an Adverse Action Notice when it denies a credit application. Which law mandates this notice?

Answer: Equal Credit Opportunity Act (ECOA)

ECOA requires lenders to notify applicants of adverse credit decisions within 30 days, stating specific reasons for the denial so applicants can understand and potentially address deficiencies.

What is the primary purpose of the Home Mortgage Disclosure Act (HMDA)?

Answer: To require lenders to collect and disclose data on mortgage lending patterns

HMDA requires financial institutions to collect, report, and disclose data about mortgage loan applications and originations to help identify discriminatory lending patterns and fair housing law violations.

Which credit scoring model is most widely used by mortgage lenders in the United States?

Answer: FICO Score

FICO (Fair Isaac Corporation) scores are the dominant credit scoring model used by U.S. mortgage lenders; Fannie Mae and Freddie Mac require FICO scores for conforming loans.

A retail banker identifies a pattern where a lender charges significantly higher interest rates and fees to borrowers in minority neighborhoods regardless of creditworthiness. This is an example of:

Answer: Predatory lending

Predatory lending involves imposing unfair, deceptive, or abusive loan terms on borrowers, including charging excessive rates or fees not justified by risk — often targeting vulnerable populations.

What does the 'Capital' component of the Five Cs of Credit refer to?

Answer: The borrower's assets and net worth that could be used to repay debt

Capital refers to the borrower's accumulated assets and net worth — savings, investments, and property — that provide an additional cushion for repaying debt if income is disrupted.

A homeowner has built up $80,000 in home equity and wants to access it for home renovations. They prefer a fixed disbursement rather than a revolving line. Which product is MOST appropriate?

Answer: Home Equity Loan (second mortgage)

A home equity loan (second mortgage) provides a lump-sum disbursement secured by home equity with a fixed interest rate and fixed monthly payments, making it ideal for a defined project cost.