CRB Lending & Credit Products 1 — Questions and Answers
Question 1: What is the primary purpose of a Home Equity Line of Credit (HELOC)?
- To provide a lump-sum loan secured by the borrower's home equity
- To offer a revolving credit line secured by the borrower's home equity (Correct answer)
- To consolidate unsecured debt into a single monthly payment
- To finance the purchase of a new primary residence
Correct answer: To offer a revolving credit line secured by the borrower's home equity
A HELOC is a revolving credit line that allows homeowners to borrow against their home equity up to a set limit, draw funds as needed, and repay repeatedly during the draw period.
Question 2: Which loan type features fixed monthly payments of equal amounts that fully repay principal and interest by the end of the term?
- Interest-only loan
- Balloon payment loan
- Fully amortizing loan (Correct answer)
- Adjustable-rate loan
Correct answer: Fully amortizing loan
A fully amortizing loan has scheduled payments that cover both interest and principal so that the loan balance reaches zero at the end of the term.
Question 3: What does the Loan-to-Value (LTV) ratio measure in mortgage lending?
- The ratio of the borrower's monthly debt payments to gross monthly income
- The ratio of the loan amount to the appraised value of the collateral (Correct answer)
- The ratio of the down payment to the borrower's liquid assets
- The ratio of the interest rate to the loan origination fee
Correct answer: The ratio of the loan amount to the appraised value of the collateral
LTV compares the mortgage loan amount to the appraised value of the property, helping lenders assess collateral risk — a higher LTV signals more lender risk.
Question 4: A retail banker is explaining auto loans to a customer. Which statement about auto loans is MOST accurate?
- Auto loans are unsecured because the lender cannot repossess the vehicle
- Auto loans are secured by the vehicle, which serves as collateral (Correct answer)
- Auto loans always carry lower interest rates than mortgage loans
- Auto loans require private mortgage insurance once LTV exceeds 80%
Correct answer: Auto loans are secured by the vehicle, which serves as collateral
Auto loans are secured loans in which the vehicle itself serves as collateral, allowing the lender to repossess the car if the borrower defaults.
Question 5: Which federal law requires lenders to disclose the Annual Percentage Rate (APR) and total finance charges to borrowers?
- Community Reinvestment Act (CRA)
- Equal Credit Opportunity Act (ECOA)
- Truth in Lending Act (TILA) (Correct answer)
- Fair Credit Reporting Act (FCRA)
Correct answer: Truth in Lending Act (TILA)
TILA mandates that lenders disclose the APR, finance charges, and other loan terms so consumers can compare credit offers on an equal basis.
Question 6: A customer applies for a personal loan with no collateral requirement. What type of loan is this?
- Secured loan
- Collateralized loan
- Unsecured loan (Correct answer)
- Subordinated loan
Correct answer: Unsecured loan
An unsecured loan is not backed by collateral; approval is based on creditworthiness alone, typically resulting in higher interest rates than secured loans.
Question 7: What distinguishes a subsidized federal student loan from an unsubsidized federal student loan?
- Subsidized loans accrue interest during in-school and grace periods; unsubsidized loans do not
- The federal government pays interest on subsidized loans while the student is enrolled at least half-time (Correct answer)
- Unsubsidized loans are only available to graduate students, not undergraduates
- Subsidized loans have higher borrowing limits than unsubsidized loans
Correct answer: The federal government pays interest on subsidized loans while the student is enrolled at least half-time
For subsidized federal student loans, the U.S. Department of Education pays the accruing interest while the borrower is in school at least half-time, during the grace period, and during deferment.
CRB Lending & Credit Products 1
What is the primary purpose of a Home Equity Line of Credit (HELOC)?