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ABA CRCM Exam Practice Questions (P. 3)

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Question #21
______________ is frequent refinancing that do not benefit the borrower. This practice can result in borrower injury from the fees imposed and from the fact that it decreases home equity and increases the consumer's debt burden, thus increasing the chance of foreclosure.
  1. A
    Loan flipping
  2. B
    Loan refinancing
  3. C
    Securitization
  4. D
    Subprime loans

Correct Answer:
A

Question #22
Guidelines for National Banks to Guard against Predatory and Abusive Lending Practices""AL-2003-2 says that refusing to purchase the following types of loans can reduce the possibility of purchasing abusive mortgage loans EXCEPT:
  1. A
    Loans in which the lender has not adequately determined the borrower's ability to repay the debt
  2. B
    Loans subject to the Home Ownership and Equity Protection Act (HOEPA)
  3. C
    Loans with points and fees in excess of 5 percent of the loan amount, except in cases where the higher amount was to prevent the loan from being unprofitable
  4. D
    Loans in which a prepaid multiple-premium credit insurance policy was included in the amount financed

Correct Answer:
D

Question #23
Predatory lending practices can adversely affect:
  1. A
    A bank's CRA rating
  2. B
    Equity shipping
  3. C
    Loan quality control reviews
  4. D
    Truth in Lending Act

Correct Answer:
A

Question #24
The purpose of advisory letter in Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans- AL-2003-3 is to:
  1. A
    Adopt sound credit underwriting policies
  2. B
    Alert national banks to the risks they take if they make loans through brokers or purchase loans that contain or reflect abusive or predatory terms or practices
  3. C
    Adopt policies that address the circumstances under which the bank would make loans that have features associated with abusive lending practices
  4. D
    Make loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home

Correct Answer:
B

Question #25
Examples of unfair practices mentioned in guidelines against Predatory and Abusive Lending includes loan flipping and loan equity stripping. It is said that:
  1. A
    Loan flipping may be unfair because it increases the chances of foreclosure by decreasing home equity and increasing debt burden
  2. B
    Equity stripping is the practice of making loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home
  3. C
    Loan flipping is the practice of making loans secured by the consumer's home but with high, up-front fees that are financed and secured by the home
  4. D
    Equity stripping may be unfair because it increases the chances of foreclosure by decreasing home equity and increasing debt burden

Correct Answer:
AB

Question #26
Which of the following are recommended practices in Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans""AL-2003-3?
  1. A
    Have written agreements with third-party brokers that specifically and clearly address the rights and responsibilities of each party. Written agreements should 1. Ensure that no inappropriate compensation exists 2. Provide for indemnification to the bank 3. Enable banks to exit the arrangement through a termination procedure 4. Provide for the bank's and the OCC's ability to access all records of the third party and to audit the third party's operations
  2. B
    Verify that brokers and originators have established policies to ensure that loans will comply with all applicable laws
  3. C
    Establish an effective management information system to monitor the performance of third-party brokers and originators
  4. D
    All of the above

Correct Answer:
D

Question #27
Below mentioned list shows the significant risks of _______________.
Borrowers with cash-flow difficulties
Borrowers with no lower-cost credit alternatives
Minimal analysis of borrower's ability to repay the loan
Minimal review of borrower's credit history

Credit is usually unsecured -
  1. A
    Payday lending
  2. B
    Loan flipping
  3. C
    Equity stripping
  4. D
    None of these

Correct Answer:
A

Question #28
Banks must maintain an ____________ adequate to absorb estimated credit losses from payday loans. Banks should evaluate the collectability of accrued fees and finance charges on payday loans and ensure that this income is appropriately measured.
  1. A
    TILA
  2. B
    FCRA
  3. C
    ALLL
  4. D
    A and B both

Correct Answer:
C

Question #29
Safety and soundness concerns in FDIC Payday Lending Guidance clearly mention that there should be adequate capital as Minimum capital requirements are not enough to offset the risks of payday loans. Banks should hold capital against its subprime portfolio in amounts:
  1. A
    That are 1½ to 5 times greater than normal
  2. B
    That are 1½ to 3 times greater than normal
  3. C
    That are 1½ to 3 times lower than normal
  4. D
    That should be between 2-5 in comparison to normal

Correct Answer:
B

Question #30
Compliance issues related to payday lending are all of the following EXCEPT:
  1. A
    Payday lending may adversely affect a bank's CRA rating. Any illegal or questionable practices will negatively affect a bank's CRA performance. A payday lending program may be inconsistent with helping to meet the community's credit needs
  2. B
    The bank (or its third-party partner) must properly disclose all finance charges and fees to payday lending customers. Advertisements of the program are also subject to Truth-in-Lending requirements
  3. C
    Adverse action disclosures must be provided to applicants of payday loans that are denied if a consumer report (including check tracking services) was used in the credit decision
  4. D
    The bank may be subject to the FOC's unfair or deceptive practices rules.

Correct Answer:
D

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