General Mortgage Knowledge Test Questions

Question 1

Which of the following is not essential in a deed?

A) Legal Description
B) Grantor
C) Grantee’s Signature
D) Consideration

Answer 1

C) Grantee’s Signature

Deeds do not require the grantee’s signature because of the process of acceptance. The grantor must deliver the deed to the grantee (or his or her attorney), and either actual or implied voluntary acceptance must occur.

Question 2

A borrower with a HOEPA loan wants to refinance into a new lower cost mortgage. HOEPA Servicer Limitations tell the servicer of their loan that They must provide the payoff statement within a reasonable amount of time and can charge a fee for the service and payoff statement.

False
True

Answer 2

FALSE

Servicer Limitations: Prohibits certain servicing practices, such as failing to credit a payment to a consumer’s account when the servicer receives it, failing to provide a payoff statement within a reasonable period of time, and ‘pyramiding’ late fees. As a note, HELOCs are excluded from this regulation.

Question 3

Improved disclosure of closing costs and origination charges to facilitate loan shopping, has been an overriding goal of integrating the TILA and RESPA disclosures.

False
True

Answer 3

TRUE

The purpose is to facilitate borrower’s effort to shop for the best loan, and it reminds the borrower to shop around.

Question 4

TILA rules are generally enforced by The Federal Housing Administration.

False
True

Answer 4

FALSE

TILA rules are generally enforced by the Federal Trade Commission (FTC).

Question 5

Requirements of HOEPA Higher Priced Mortgages with regards to “Loose Lending” regulation includes that:

A) Lenders need to verify the income of borrowers inclusive of property taxes
B) Lenders need to verify the income of borrowers inclusive of future inheritance
C) Lenders need to verify the income of borrowers inclusive of future likely medical obligations
D) Lenders need to rely on stated income if necessary

Answer 5

A) Lenders need to verify the income of borrowers inclusive of property taxes

Loose” Lending is a part of the Section 35 Protections. Lenders must consider the borrower’s ability to repay the loan and cannot rely on unverified income or assets. More specifically, ‘Loose’ Lending. Prohibits a lender from engaging in a pattern or practice of lending without considering the borrowers’ ability to repay the loans from sources other than the home’s value. It also prohibits a lender from making a loan by relying on income or assets that are not verified.

Question 6

A credit report contains which of the following information?

1) Spending patterns
2) Account history
3) Public records
4) Credit inquiries

Answer 6

2) Account history
4) Credit inquiries

Spending patterns are not captured or reported in a credit report. Public records of financial matters, creditor inquiries, and account history is maintained and reported.

Question 7

A creditor delivers the Loan Estimate and aims to close the loan immediately. One constraint the creditor will have in closing the loan is:

A) Closing the loan in less than 7 business days without making a mistake in processing the loan
B) Receiving authorization from an applicant to close the loan by the coming Saturday
C) Waiting a minimum of 7 business days before closing
D) Coordinating a lawyer to perform closing 7 days after delivery

Answer 7

C) Waiting a minimum of 7 business days before closing

The Mortgage Disclosure Improvement Act (an amendment to TILA - enacted in July 2008, effective from July 30, 2009) requires that creditors wait 7 business days after they provide the early TIL disclosures (either in person, electronically or by mail, fax etc.) to the borrower before closing the loan.

Question 8

Which of the following is a violation of the Section 8 rules on kickbacks?

A) A borrower completes an application on Monday and receives mandated disclosures on Wednesday.
B) An MLO with empty space in his office allows a real estate agent to use it since the agent refers customers to him.
C) The owner of a mortgage company hosts an annual pool party for his employees.
D) An attorney provides advice to a seller in a transaction.

Answer 8

B) An MLO with empty space in his office allows a real estate agent to use it since the agent refers customers to him.

The free rent is a “thing of value” and the MLO very clearly provides a settlement service for a mortgage loan. Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any item of value in exchange for referrals of settlement service business. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

Question 9

A consumer is applying for a loan to purchase a home. They wonder if their loan originator must follow the rules on loan originator compensation. Who is covered under these rules?

A) Only loan originators who work as a mortgage broker
B) Only loan originators employed by a large bank
C) All loan originators
D) Only loan originators originating less than 5 loans per year.

Answer 9

C) All loan originators

Section 1026.36(a)(1) states that the regulation applies to all persons who originate loans, including mortgage brokers and their employees, as well as mortgage loan officers employed by depository institutions and other lenders.

Question 10

Lenders are encouraged to make improvements in their communications to borrowers regarding the risks inherent in high risk, non-conforming loan products. Which one would NOT be helpful regarding the payment option ARM?

A) Expert predictions of where interest rate and housing prices are headed
B) Monthly statements that clearly explain the cost of each payment option
C) Plain language in product descriptions regarding risks
D) Use realistic examples to explain the danger of negative amortization

Answer 10

A) Expert predictions of where interest rate and housing prices are headed

Making predictions about future interest rates or pricing levels is strongly discouraged. The regulators strongly recommend speaking clearly and realistically about the risks and dangers of negative amortization and the implications of various payment options.

Question 11

Which of the following is true about USDA guaranteed loans?

1) Farmers have no maximum income limitations
2) Private, for-profit lenders participate in the program
3) Not every property is eligible
4) The program’s debt ratios resemble the FHA program

Answer 11

2) Private, for-profit lenders participate in the program
3) Not every property is eligible
4) The program’s debt ratios resemble the FHA program

The USDA loan program is very similar to the FHA program and use the 29% housing expense ratio and 41% total debt ratio. To qualify, every applicant must meet income limits. Like FHA, private, for profit lenders underwrite and fund the loans.

Question 12

Which interest rate must appear on the Loan Estimate for an ARM?

A) Maximum 5 year interest rate
B) Maximum lifetime interest rate
C) Initial interest rate
D) Expected long term interest rate

Answer 12

A) Maximum 5 year interest rate

According to MDIA the payment summary is to be disclosed in a tabular format. This summary must identify: (1) Introductory interest rate including period of time until first adjustment may occur and monthly payment labeled as the “introductory rate and monthly payment” (2) Maximum interest rate and monthly payment in the first five years and the earliest date that may occur even if that’s not the first adjustment (3) Maximum lifetime interest rate and monthly payment and the earliest date that may occur labeled as “monthly ever”

Question 13

An applicant learns that an originator violated Section 8 in originating his loan and wants to file charges against the MLO. Is this allowed?

Answer 13

Yes, for up to one year after the settlement if the borrower provides documented proof of the violation.

Individuals have one year from the date of a violation to bring a private lawsuit to enforce violations of Section 2607 or 2608.

Question 14

a quit claim deed contains granting of all property rights held.

False
True

Answer 14

TRUE

A quit claim deed conveys the property rights held by the grantor, with no guarantees whatsoever.

Question 15

An MLO who asks an appraiser to value a home inappropriately is likely pursuing Asset Based Lending.

False
True

Answer 15

FALSE

One type of predatory lending is Inflated Appraisals. This includes coercing or encouraging an appraiser to misrepresent the value of a home. This practice may include telling the appraiser a minimum reported value needed to approve the loan, conditioning appraiser’s compensation on loan closing or suggesting that the appraiser will be excluded from future transactions.

Question 16

______ is the dollar amount used to calculate the APR.

Answer 16

Finance Charge

The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. A higher finance charge leads to a higher APR. The interest paid by the borrower on an on-going basis, mostly with each monthly payment, would be one clear finance charge. The loan origination fee charged by the mortgage loan originator upfront is also a key part of all finance charges.

Question 17

Related to Fannie Mae, maximum LTV is 100% with private mortgage insurance.

False
True

Answer 17

False

Maximum LTV is 95% with private mortgage insurance.

Question 18

Which of the following is NOT one of the five essential elements (COLIC) for a valid real estate contract?

A) Witnessed or acknowledged
B) In writing and signed
C) Complete agreement (offer and acceptance)
D) Consideration

Answer 18

A) Witnessed or acknowledged

A real estate contract does not need to be witnessed or acknowledged by a notary to be valid in a court of law. It does have to show consideration (valuable or good), be in writing and signed by all parties, have an offer and acceptance (complete agreement, or meeting of the minds), competent parties, and meet all legal requirements.

Question 19

Which of the following is NOT a specific requirement for Higher Priced Mortgages?

A) Must abide by “Loose Lending” restrictions
B) Home equity installment loans are not allowed for most Higher Priced Mortgages
C) Escrow account needs to be maintained for at least five years
D) Restrictions of situations when prepayment penalties can be imposed

Answer 19

B) Home equity installment loans are not allowed for most Higher Priced Mortgages

HOEPA Section 35 includes four (4) key protections: (a) “Loose” Lending; (b) Prepayment Penalties; (c) Escrow Creation; and (d) Regulation Evasion.

Question 20

The Veteran’s Affairs loan program provides:

A) Low cost financing for homes on a military base
B) Financing for eligible veterans to purchase a principal residence
C) A portion of the sales price to be paid by the federal government
D) Subsidized interest rates for eligible veterans

Answer 20

B) Financing for eligible veterans to purchase a principal residence

The VA provides low/no down payment loans on principal residences based upon the veteran’s eligibility status.

Question 21

Definition of a “business day” as it pertains to the loan estimate, means

Answer 21

Business day is a day on which the creditor’s offices are open to the public for carrying out substantially all of its business functions.

Question 22

For delivery of the Closing Disclosure business day means:

Answer 22

All calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a)

Question 23

A borrower threatens to sue because the MLO understated the finance charge by $200. What is one possible outcome of this situation?

A) The finance charge is recalculated and any remaining balance is funded by the lender
B) Legal damages are incurred of $200
C) It is determined that there is no violation because the understatement is less than $500
D) Legal damages are incurred of $400

Answer 23

D) Legal damages are incurred of $400

Mortgages secured by a dwelling (closed-end credit only): The disclosed finance charge is considered accurate if it is not understated versus the actual finance charge by more than $100 (see Regulation Z §§1026.18(d)(1)(i) . If inaccurate, the MLO must re-disclose at least 3 days before consummation of the transaction.

Question 24

The following mortgage loans are exempt from HOEPA Section 35 appraisal requirements:

A) FHA Insured loan
B) Reverse mortgage
C) Construction loan
D) HELOC

Answer 24

D) HELOC

HELOCs are not covered in Section 35. The following transactions are exempt from the appraisal and escrow requirements: A reverse mortgage transaction, A transaction to finance the initial construction of a dwelling, A transaction originated by a Housing Finance Agency, where the Housing Finance Agency is the creditor for the transaction, A transaction originated pursuant to the United States Department of Agriculture’s Rural Development Section 502 Direct Loan Program.

Question 25

____________ refers to the process of combining various valuation results into a single, final value estimate.

Answer 25

Reconciliation

Question 26

The _________________ approach to valuation is most commonly used for houses occupied by single-families.

Answer 26

Sales comparison

Question 27

Each year, a consumer must receive notice of the entity’s privacy practices, for as long as the customer relationship lasts, under which federal law?

Answer 27

Gramm-Leach Bliley Act

Question 28

This mortgage lending regulation does NOT fall under the Federal Reserve Act?

Answer 28

Real Estate Settlement Procedures Act

Question 29

During underwriting, a lender is most interested in ________________.

Answer 29

Market Value

Question 30

Which of the following is NOT one of the unique covenants included in a general warranty deed?

A) Quiet enjoyment
B) Right to prevent unlawful trespass
C) Further assurance
D) Warranty forever

Answer 30

B) Right to prevent unlawful trespass

The right to prevent unlawful trespass is not one of the three unique covenants provided in a general warranty deed. They are quiet enjoyment, warranty forever and further assurance.

Question 31

The following activity does NOT exempt a person from required mortgage loan originator licensing:

A) Activities by real estate licensees
B) Family members who negotiate mortgage loans with other family members
C) Compensation paid to a real estate licensee for referring a borrower to a licensed mortgage loan originator
D) Activities related to extending credit to timeshare buyers

Answer 31

C) Compensation paid to a real estate licensee for referring a borrower to a licensed mortgage loan originator

Compensation received in any manner for performing loan origination activities, such as referring a borrower to a mortgage loan originator requires licensing through NMLS. The other activities mentioned are excluded from the definition of a mortgage loan originator so licensing is not required.

Question 32

A credit report contains which of the following information?

1) Credit inquiries
2) Spending patterns
3) Account history .
4) Public records

Answer 32

1) Credit inquiries
3) Account history .
4) Public records

Spending patterns are not captured or reported in a credit report. Public records of financial matters, creditor inquiries, and account history is maintained and reported.

Question 33

One highly unethical practice in subprime lending where mortgage loan originators placed unsuspecting prime-rate-eligible borrowers into more costly subprime loans is known as

Answer 33

Steering

Steering is the term used to place creditworthy borrowers into subprime loans because it generated more profits and commissions.