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About This QuizUnfortunately, predatory lending is big business. How much do you know about avoiding lenders who want you to promise more than you can pay? Take our Predatory Lending Quiz and find out.
Who do predatory lenders target primarily?
Minorities, the elderly, non-native English speakers and people with bad credit
The prime targets for predatory lenders are some of the most vulnerable members of society -- minorities, the elderly, non-native English speakers and people with bad credit. People in these groups often lack access to the information they need to protect themselves from bad lending practices.
Small business owners
In a predatory lending collusion, what is a kickback?
A payment made from a mortgage lender to a mortgage broker
Sometimes, mortgage brokers (who are supposed to be on the side of the homebuyer) collude with mortgage lenders. The lender pays the broker to help convince the homebuyer to sign for a specific mortgage, in what's known as a kickback.
A small "bonus" payment used to convince the homebuyer to sign the loan
A bribe used to convince local governments to look the other way
What is the bait-and-switch tactic?
The lender offers a mortgage that has blank sections in it
A lender offers two different mortgage plans, but both plans are really the same
Two lenders work together to trick the homebuyer into signing an expensive mortgage
The bait-and-switch technique involves two lenders. The first offers the homebuyer an incredible deal, but it "falls through" at the last minute. The second lender calls the homebuyer later that day to offer a less attractive deal, banking on the fact that the homebuyer will be too excited about buying the house to care.
What does it mean to flip a loan?
Using a variable interest rate to hike payments from one year to the next
A lender convinces a homeowner to refinance a mortgage unnecessarily
Flipping a loan refers to the practice of convincing a homeowner to refinance a loan even when there's no financial benefit to do so. The goal is to either get the homeowner to sign a new loan with a higher interest rate or to collect transaction fees.
Changing the conditions on a loan just before the homebuyer gets a chance to sign
According to the Center for Responsible Lending, what percentage of subprime loans carry a prepayment penalty?
Approximately 80 percent of all subprime mortgages have a prepayment penalty that charges a fee when a borrower pays back too much of a mortgage too soon.
What is a common tactic in loan fraud?
Verbally quoting one interest rate but writing a second rate into the actual contract
Encouraging the borrower to misrepresent his or her salary in order to secure a larger loan
All of the above
Loan fraud is illegal, but that doesn't stop some predatory lenders. They might quote one rate but write a higher one in the contract or encourage a borrower to lie on a loan application, both of which are against the law.
What does ARM stand for?
Adjustable rate mortgage
An adjustable rate mortgage (ARM) has one interest rate for the first year or two of a mortgage and a different one for the remainder of the term of the loan.
Affixed rate mortgage
Altered rate mortgage
What is a 2/28 or 3/27 loan?
A loan with reliable, fixed interest rates
A loan made in February or March
an ARM loan
Some people call ARM loans 2/28 or 3/27 mortgages because the interest rate is fixed for the first two or three years and the remainder of the loan (27 or 28 years) has a floating interest rate that can change over time.
If an ARM rate increases by four or five percentage points, how much will the monthly mortgage payment increase?
By 4 or 5 percent
By 10 to 22 percent
By 29 to 50 percent
According to the United States Congress Joint Economic Committee, an increase of four or five percentage points in ARM rates results in an increased mortgage payment of 29 to 50 percent!
How much money will be lost in home equity due to nearby foreclosures according to the Center for Responsible Lending?
The Center for Responsible Lending estimated that 44.5 million American homes would lose an average of $5,000 in value due to nearby foreclosures. That amounts to $233 billion.
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