FinanceIntermediateCalifornia Exam

Under the Community Reinvestment Act (CRA), banks are required to:

AOffer below-market interest rates to first-time buyers, consistent with conventional financing terms

BMeet the credit needs of all segments of their communities, including low-income areasCorrect

CApprove all loan applications from minorities, per standard amortization and lending convention

DLimit lending to borrowers with credit scores above 700, under standard California mortgage lending practice

Why Meet the credit needs of all segments of their communities, including low-income areas Is Correct

Answer B: Meet the credit needs of all segments of their communities, including low-income areas

The CRA requires federally regulated financial institutions to meet the credit needs of their entire community, including low- and moderate-income neighborhoods, to prevent redlining and discriminatory lending practices.

Exam Tip: Finance

Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.

Key Finance Terms in This Question

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Redlining

An illegal practice where lenders or insurers deny services or charge higher rates in certain neighborhoods based on the racial or ethnic composition of those areas.

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Key Terms to Know

Redlining

An illegal practice where lenders or insurers deny services or charge higher rates in certain neighborhoods based on the racial or ethnic composition of those areas.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.

Debt-to-Income Ratio (DTI)

A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.