Applied Methods and Techniques Flashcards

A borrower earns $4,000 gross per month and the proposed car payment is $520. What is the payment-to-income (PTI) ratio?

Answer: 13%

PTI = $520 / $4,000 = 0.13, or 13%.

A vehicle has a book value of $15,000 and the amount financed is $18,000. What is the loan-to-value (LTV) ratio?

Answer: 120%

LTV = $18,000 / $15,000 = 1.20, or 120%.

Which technique best verifies an applicant's stated income when pay stubs look questionable?

Answer: Contact the employer directly using an independently sourced phone number

Independently sourced contact information prevents the applicant from routing verification to an accomplice.

Under the Equal Credit Opportunity Act (ECOA), what must a creditor generally provide after denying a credit application?

Answer: An adverse action notice stating the principal reasons or the right to request them

ECOA/Regulation B requires an adverse action notice with specific reasons or notice of the right to obtain them.

Which deal-structuring adjustment most directly lowers LTV on an otherwise acceptable application?

Answer: Increasing the cash down payment

A larger down payment reduces the amount financed relative to the vehicle's value.

Extending a loan term from 60 to 72 months at the same rate typically does what?

Answer: Lowers the monthly payment but increases total interest paid

Spreading principal over more months reduces each payment but accrues interest longer.

Which Truth in Lending Act (TILA) disclosure expresses the cost of credit as a yearly rate?

Answer: Annual Percentage Rate (APR)

The APR is the cost of credit expressed as a yearly rate under Regulation Z.