Tuesday, April 23, 2024

Richard Crammer
Home Equity Scams Quiz
by Richard Crammer
 
Richard Crammer served as the editor at DebtSmart.com for two years.

During 1998, subprime mortgage and home equity lenders originated $150 billion in loans, an increase of almost 58 percent over the prior year. While many subprime lenders are reputable, some unscrupulous subprime lenders make costly home-secured loans to consumers who are unable to repay them, subjecting such consumers to refinancing with additional high or unfair fees and charges and possible loss of their homes through foreclosure or forcing an undesired sale. Take the quiz to test your knowledge of Home-Equity Scams.
 
1. What is subprime lending?
Extending a loan whose rate is at least 2 points below prime.
Lending to high risk borrowers.
A loan that charges up-front fees before considering any applications.
All of the above.
I don't know!
2. What is a balloon-payment loan?
A loan in which the required payments do not exceed the interest charged, often resulting in a large payment of the entire principle at the end of the loan term.
The practice of adding extra charges, such as unemployment insurance, to the principle of a loan in order to increase the interest accrued.
A special offer where the lending institution gives out promotional balloons to your children every time you refinance a loan.
I don't know!
3. The Truth in Lending Act guarantees that the consumer has the “right to rescind” or “right to cancel” loans using your home as collateral. What does that mean?
A consumer retains the right to cancel a loan for 3 business days after the loan papers have been signed.
It guarantees that a consumer can refinance a loan at any time without penalty.
It allows consumers to cancel credit insurance after the first 90 days of a loan without charge.
None of the above.
I don't know!
4. Loan Flipping is the practice of…
The practice of using your home as collateral to pay off other debts, such as credit card debt.
The practice of lowering the interest rate on a loan.
The practice of repeatedly refinancing a loan, often in the favor of the lender.
I don't know!
5. Under the Home Ownership and Equity Protection Act (HOEPA) what must the lender of a home equity loan disclose to the borrower?
A notice that the consumer could lose his/her home and any money put into it, if he/she does not meet his/her obligations under the loan.
The APR and any other variable rate information.
The amount of payments to be made.
All of the above.
I don't know!
6. What is a prepayment penalty?
Extra fees that may be due if you pay off a loan early.
Extra fees charged to subprime loans before the loan is approved.
Another term for the points on a mortgage.
I don't know!
7. What is considered a high-rate, high-fee loan by Federal law?
A loan whose annual percentage rate (APR) exceeds by more than 15 percentage points the rates on Treasury securities of comparable maturity; or the total fees and points payable by the consumer at or before closing exceed the larger of $1001 or 12 percent of the total loan amount.
A loan whose annual percentage rate (APR) exceeds by more than 10 percentage points the rates on Treasury securities of comparable maturity; or the total fees and points payable by the consumer at or before closing exceed the larger of $451 or 8 percent of the total loan amount.
A loan whose annual percentage rate (APR) exceeds by more than 8 percentage points the rates on Treasury securities of comparable maturity; or the total fees and points payable by the consumer at or before closing exceed the larger of $201 or 5 percent of the total loan amount.
I don't know!
8. What is Equity Stripping? (This is a tricky one.)
Equity stripping is when a loan is taken out using a house as collateral, essentially stripping the equity in the property.
When a lender bases a loan amount on the equity in the property rather than the borrower's ability to repay.
When a lender purposefully misquotes the value of property in order to reduce the loan amount.
I don't know!
9. Which of these are warning signs of a predatory lending deal?
The lender tells you to misrepresent or falsify information on your loan application.
The lender pressures you into applying for more money than you need.
The lender fails to provide required loan disclosures, or tells you not to read them.
The lender says you can't have copies of documents that you've signed.
All of the above.
I don't know!
10. What is a reverse mortgage?
A mortgage which is designed to fail, usually with extra high minimum payments, so that the lender can acquire the borrower's home.
A loan in which the required payments do not exceed the interest charged, often resulting in a large payment of the entire principle at the end of the loan term.
A type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership.
None of the above.
I don't know!



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