Dollars and Sense: Predatory Lending Quiz

By: Staff

4 Min Quiz

Image: refer to hsw

About This Quiz

Unfortunately, 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?

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.

Advertisement

In a predatory lending collusion, what is a kickback?

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.

Advertisement

What is the bait-and-switch tactic?

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.

Advertisement

What does it mean to flip a loan?

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.

Advertisement

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.

Advertisement

What is a common tactic in loan fraud?

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.

Advertisement

What does ARM stand for?

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.

Advertisement

What is a 2/28 or 3/27 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.

Advertisement

If an ARM rate increases by four or five percentage points, how much will the monthly mortgage payment increase?

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!

Advertisement

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.

Advertisement

Explore More Quizzes

About HowStuffWorks Play

How much do you know about dinosaurs? What is an octane rating? And how do you use a proper noun? Lucky for you, HowStuffWorks Play is here to help. Our award-winning website offers reliable, easy-to-understand explanations about how the world works. From fun quizzes that bring joy to your day, to compelling photography and fascinating lists, HowStuffWorks Play offers something for everyone. Sometimes we explain how stuff works, other times, we ask you, but we’re always exploring in the name of fun! Because learning is fun, so stick with us!