Final Exam Review Flashcards by Antonio Rullo

Federal Mortgage Related Laws:
The ______ within the GLB Act governs the collection and disclosure of nonpublic personal information to third parties.
A. Safeguards Rule
B. Financial Privacy Rule

CORRECT ANSWER: Financial Privacy Rule
RATIONALE
Within the Gramm-Leach-Bliley Act, the Financial Privacy Rule governs the collection and disclosure of customers’ personal financial information, known as nonpublic personal information, by restricting when and under what circumstances such information may be disclosed to affiliates and to nonaffiliated third parties.

How well did you know this?

Not at all

Perfectly

Federal Mortgage Related Laws:
At the time that Dan applied for a mortgage with MMM and received an initial Loan Estimate (LE), he did not lock an interest rate. Two weeks later, Dan decides to pay the fee and lock the rate with MMM. While preparing the revised LE to reflect the new rate lock fee, the MMM underwriter notices that received appraisal and title fee invoices are slightly higher than originally disclosed. MMM sends Dan a revised LE that reflects new fees. For good faith calculation purposes, which of the following fees paid at consummation will be compared to the REVISED Loan Estimate?
A. Appraisal Fee
B. Rate lock extension fee

CORRECT ANSWER: rate lock extension fee
RATIONALE
For good faith calculation purposes, the rate lock extension fee disclosed on the revised Loan Estimate will be compared to actual costs charged at consummation because the change was a valid change circumstance. MMM should disclose the higher title and appraisal fees since it is the best information reasonably available; however, the disclosure of those fees is for informational purposes only and good faith will still be determined based on the fees disclosed in the initial Loan Estimate.

How well did you know this?

Not at all

Perfectly

Federal Mortgage Related Laws:
Which is NOT a trigger used to define a high-cost mortgage loan under the Home Ownership and Equity Protection Act?
A. excessive prepayment penalty
E. excessive annual percentage rate

CORRECT ANSWER: excessive prepayment penalty
RATIONALE
Although prepayment penalties with high-cost loans are generally prohibited by HOEPA, the prepayment penalty is not one of the triggers used to identify a high-cost loan.

How well did you know this?

Not at all

Perfectly

Federal Mortgage Related Laws:
Which of the following is NOT exempt from the restrictions set forth by Section 32 of Regulation Z for high-cost mortgage loans?
A. a two-unit dwelling where one unit is a residential investment property
B. reverse mortgage
C. a transaction originated by a Housing Finance Agency, where the Housing Finance Agency is the creditor for the transaction
D. a transaction originated pursuant to the United States Department of Agriculture’s Rural Development Section 502 Direct Loan Program

CORRECT ANSWER: a two-unit dwelling where one unit is a residential investment property
RATIONALE
Section 32 applies to consumer credit transactions that are secured by the consumer’s principal dwelling. Exemptions from Section 32 apply to a reverse mortgage transaction subject to § 1026.33; 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; or a transaction originated pursuant to the United States Department of Agriculture’s Rural Development Section 502 Direct Loan Program. Note that if the borrower occupies even one of the units then the property is usually treated as a primary residence even if the other units are used for investment purposes.

How well did you know this?

Not at all

Perfectly

Federal Mortgage Related Laws:
TRID sets forth that MLO Lucy must deliver or place in the mail the Closing Disclosure no later than ____ business day(s) before consummation.
A. 7
B. 4
C. 3
D. 5

CORRECT ANSWER: 3
RATIONALE
Generally, the creditor is responsible for ensuring that the consumer receives the Closing Disclosure form no later than three business days before consummation. If the Closing Disclosure is provided in person, it is considered received by the consumer on the day it is provided. If it is mailed or delivered electronically, the consumer is considered to have received the Closing Disclosure three business days after it is delivered or placed in the mail.

How well did you know this?

Not at all

Perfectly

Federal Mortgage Related Laws:
Section 326 of the USA PATRIOT Act amended the Bank Secrecy Act to require financial institutions to establish written a customer identification program (CIP). Which statement is FALSE as it relates to an institution establishing a CIP program?
A. The term financial institution includes a mortgage broker and loan originator.
B. An individual must provide a residential or business street address; no other address is acceptable.

CORRECT ANSWER: An individual must provide a residential or business street address; no other address is acceptable.
RATIONALE
The definition of “financial institutions” includes a mortgage broker, brokerage, and loan originator. The CIP program must include verification of: (1) Name; (2) date of birth; (3) address, that can be a residential/business street address, an APO/FPO box number, or the residential/business street address of next of kin or of another contact individual; and (4) identification number, that can be for a U.S. person, a taxpayer identification number; or for a non-U.S. person, one or more of the following: a taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.

How well did you know this?

Not at all

Perfectly

Federal Mortgage Related Laws:
As set forth by the Bank Secrecy/Anti-Money Laundering Act, which of the following is NOT a transaction that requires a suspicious activity report (SAR) to be filed for an electronic funds transfer transaction?
A. $5,000 or more when a suspect is identified
B. $5,000 or more when it is all cash

CORRECT ANSWER: $5,000 or more when it is all cash
RATIONALE
A SAR must be filed in the following circumstances for electronic (not cash) transactions: Insider abuse involving any amount; transactions aggregating $5,000 or more where a suspect can be identified; transactions aggregating $25,000 or more regardless of potential suspects; and transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act. Cash transactions require a SAR filing if in excess of $10,000.

How well did you know this?

Not at all

Perfectly

Federal Mortgage Related Laws:
When preparing a Loan Estimate, commissions of real estate brokers or agents are listed in what subsection?
A. Origination Charges
B. Prepaids
C. Other

CORRECT ANSWER: Other
RATIONALE
Example of items that go in the Other section of the LE include commissions of real estate brokers or agents, additional payments to the seller to purchase personal property pursuant to the contract of sale, homeowner’s association and condominium charges associated with the transfer of ownership, and fees for inspections not required by the creditor but paid by the consumer pursuant to the contract of sale.

How well did you know this?

Not at all

Perfectly

General Mortgage Knowledge:
_____interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments.
A. Accrued
B. Simple

CORRECT ANSWER: Simple
RATIONALE
A mortgage based on the calculation of interest daily is called a simple-interest mortgage. This mortgage is different from a traditional mortgage where interest calculations happen on a monthly basis. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments.

How well did you know this?

Not at all

Perfectly

General Mortgage Knowledge:
The annual percentage rate (APR) is also referred to as _________.
A. nominal rate of interest.
B. effective rate of interest.

CORRECT ANSWER: effective rate of interest.
RATIONALE
The APR or effective rate of interest is the total cost of the loan as an annual percentage of the loan amount and includes the loan fees, discount points, and other charges that must be paid by the borrower. Nominal = Note Rate. Effective = APR.
NOTE: The nominal interest rate does NOT take into account the COMPOUNDING period. The effective interest rate DOES take the COMPOUNDING period into account and thus is a MORE accurate measure of interest charges.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
A(n) ____clause is a clause in a contract that obligates a creditor to release property from a lien and conveys title to that part back to the debtor once certain provisions of the note or mortgage have been satisfied.
A. reconveyance
B. defeasance
C. alienation

CORRECT ANSWER: reconveyance
RATIONALE
A reconveyance clause is a clause in a contract that obligates a creditor to release a property from a lien and conveys title to that part back to the debtor once certain provisions of the note or mortgage have been satisfied. A reconveyance clause may also be referred to as a partial release or satisfaction clause.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
What form shows the income of a self-employed applicant that is part of a company that is a partnership?
A. K-1
B. Schedule C

CORRECT ANSWER: K-1 or Form: 1065
RATIONALE
A partnership files a Schedule K-1 (Form 1065) with the IRS to report each partner’s share of the partnership’s earnings, losses, deductions, and credit.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
In the “About Your Finances” section of the URLA, the borrower is to identify if she has conveyed title to any property in lieu of foreclosure in the past ___ years.
A. 7
B. 10
C. Indefinitely

CORRECT ANSWER: seven
RATIONALE
In the “About Your Finances” section of the URLA, the borrower is to identify if she has conveyed title to any property in lieu of foreclosure in the past seven years.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
Assets are typically classified as liquid or not liquid. Which of the following is NOT a liquid asset?
A. secured borrowed funds
B. unsecured borrowed funds
C. mutual funds

CORRECT ANSWER: secured borrowed funds
RATIONALE
Secured borrowed funds are a form of non-liquid asset. The following are considered liquid when evaluating a borrower’s assets: Checking and savings accounts, certificates of deposit, money market funds, mutual funds, stocks and bonds, retirement accounts, trust funds, if the borrower is the beneficiary, trustee, co-trustee and the trust is an Inter Vivos Revocable Trust, and cash value of life insurance.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
If Bob pays $695.20 for principal and interest every month for 30 years on his $110,000 loan, how much interest will he pay over the life of the loan?
A. $250,272
B. $140,272

CORRECT ANSWER: $140,272
RATIONALE
Bob will pay $140,272 in interest for that 30-year loan: 695.20 x 12 months = $8,342.40; $8,342.40 X 30 years = $250,272 total payment; $250,272 minus $110,000 principal = $140,272 interest.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
Lender Lou needs to record on the URLA two full years of employment for a potential borrower. The borrower must provide an explanation for any gaps in employment that are ____ days or more.
A. 90
B. 30
C. 120
D. 45

CORRECT ANSWER: 30
RATIONALE
Two full years of employment are required on the loan application, with an explanation of any gaps of 30 days or more.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
Trey takes out a $230,000 loan at 4.5%. What is the per diem interest charge (rounded)?
A. $28.36
B. $10,350

CORRECT ANSWER: $28.36
RATIONALE
Multiply the whole, which is the principal amount of the loan, by the rate, which is the percentage rate of 4.5% or 0.045: $230,000 x 0.045 = $10,350 annual interest on this loan balance. $10,350 / 365 = $28.3561644 (or $28.36 rounded) per diem interest rate.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
The ____ indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments.
A. mortgage note
B. closing disclosure
C. loan estimate

CORRECT ANSWER: mortgage note
RATIONALE
The mortgage note states the promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
For which situation is the market appraisal approach best suited?
A. A condo in a complex with high turnover
B. A recently constructed building with custom features.

CORRECT ANSWER: a condo in a complex with high turnover
RATIONALE
The market approach, also called the sales comparison approach, is most suitable in situations where abundant data is available on comparable transactions. It is not suitable for special purpose properties and other unusual or unique properties for which there are no recent sales data to analyze.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
A(n) _____ is defined as any claim, lien, charge, or liability that affects or limits the fee simple title to real property.
A. encumbrance
B. easement

CORRECT ANSWER: encumbrance
RATIONALE
An encumbrance is defined as any claim, lien, charge, or liability that affects or limits the fee simple title to real property.

How well did you know this?

Not at all

Perfectly

Mortgage Loan Origination Activities:
The tolerance for change for transfer taxes as provided on the Loan Estimate and Closing Disclosure is: ________
A. Limited
B. Unlimited
C. Zero

CORRECT ANSWER: zero.
RATIONALE
Lenders are expected to know the exact amount of the transfer tax as provided on the Loan Estimate, Section E. There is zero tolerance for change as it appears on the Loan Estimate and again on the Closing Disclosure.

How well did you know this?

Not at all

Perfectly

Ethics:
The primary purpose of the FACT Act is to protect consumers from
A. Credit Agency Fraud
B. Identity Theft

CORRECT ANSWER: identity theft.
RATIONALE
The primary purpose of the Fair and Accurate Credit Transactions Act (FACTA or FACT Act) is to protect consumers from identity theft by ensuring that consumers’ credit information is securely maintained and disposed of.

How well did you know this?

Not at all

Perfectly

Ethics:
Which is an example of steering?
A. Property manager Amy suggests Jake would be happier in a more diverse building.
B. Agent Tom tells homeowners that their property values will drop when a Puerto Rican family moves in.

CORRECT ANSWER: Property manager Amy suggests Jake would be happier in a more diverse building.
RATIONALE
Steering as prohibited by the Fair Housing Act is the discriminatory practice of channeling buyers to or away from certain neighborhoods based on their race, religion, or national origin. Amy is committing the illegal act of steering.

How well did you know this?

Not at all

Perfectly

Ethics:
According to the Gramm-Leach-Bliley Act, what item is NOT considered nonpublic personal information and, therefore, is not protected?
A. employment history
B. recorded mortgages

CORRECT ANSWER: recorded mortgages
RATIONALE
A mortgage that has been recorded is public information and is, therefore, not covered by the privacy provisions of the Gramm-Leach-Bliley Act.

How well did you know this?

Not at all

Perfectly

Uniform State Content: George is starting his own business in this state. Previously, George was a director, employed by a mortgage lending company in another state whose principal's lending license was revoked for violations associated with making improper disclosures and misleading statements to borrowers. George was not personally convicted. Will George likely be granted a mortgage lender license in this state? A. It is likely he will be granted a probationary license, since Jorge was not personally convicted of the crime in another state. B. It is not likely that he will be granted a license since George served as a director for a mortgage lending company whose license was revoked in another state.

CORRECT ANSWER: It is not likely that he will be granted a license since George served as a director for a mortgage lending company whose license was revoked in another state. RATIONALE George was involved in a disqualifying association with a mortgage lender whose license was revoked. The state regulatory authority may refuse to issue a license finding that the applicant had been a director, partner, or substantial stockholder of an originating entity that had a registration or license revoked by the state regulatory authority or of another state.

CORRECT ANSWER: committing a prohibited act due to being unregistered or unlicensed as an MLO. RATIONALE A person not licensed as an MLO who is engaging solely in loan processor or underwriter activities is not permitted to represent to the public, through advertising or other means of communicating or providing information, including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items, that he or she can or will perform any of the activities of a mortgage loan originator.

Federal Mortgage-Related Laws: Which Act was implemented to identify and prevent money laundering and terrorist financing? A. Dodd-Frank Act B. USA PATRIOT Act

CORRECT ANSWER: USA PATRIOT Act RATIONALE The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act amended the Bank Secrecy Act to better identify and prevent money laundering and terrorist activities

Federal Mortgage-Related Laws: The Office of Housing within HUD oversees what entity? A. Federal Housing Administration B. Consumer Financial Protection Bureau

CORRECT ANSWER: Federal Housing Administration RATIONALE The Office of Housing within the Department of Housing and Urban Development (HUD) provides vital public services through its nationally administered programs. It oversees the Federal Housing Administration (FHA), the largest mortgage insurer in the world, as well as regulates housing industry business.

Federal Mortgage-Related Laws: A servicer must submit an initial escrow account statement to the borrower at settlement or within ___ calendar days of settlement for escrow accounts that are established as a condition of the loan. A. 10 B. 45 C. 30

CORRECT ANSWER: 45 RATIONALE RESPA requires that before establishing an escrow account, the servicer must conduct an escrow account analysis to determine the amount the borrower must deposit into the escrow account and the amount of the borrower's periodic payments into the escrow account. Upon completing the initial escrow account analysis, the servicer must prepare and deliver an initial escrow account statement to the borrower. The servicer must submit an initial escrow account statement to the borrower at settlement or within 45 calendar days of settlement for escrow accounts that are established as a condition of the loan.

General Mortgage Knowledge: For VA-guaranteed loans, which statement is TRUE? A. The funding fee can be financed. B. No discount points are allowed.

CORRECT ANSWER: The funding fee can be financed. RATIONALE The variable funding fee may be financed and all closing costs may not be financed. Reasonable discount points are allowed. Because VA mortgage loans can be for the full reasonable value of the property, generally, no down payment is required by the VA.

General Mortgage Knowledge: Gavin has a FICO score of 572. What is the minimum cash investment required for him to obtain an FHA-insured loan? A. 10% B. 3.5% C. 20%

CORRECT ANSWER: 10% RATIONALE The minimum investment for an FHA loan when the FICO score is between 500 and 579 is 10%.

General Mortgage Knowledge: The portion of the ARM that cannot change and is used to compute the interest rate on an adjustable-rate mortgage is known as the A. Index B. Margin.

CORRECT ANSWER: margin RATIONALE The margin, which is also sometimes referred to as a spread, is added to the selected index to determine the fully indexed rate on an ARM.

Mortgage Loan Origination Activities: What type of appraisal has a value based upon the property as it stands, with no completed repairs calculated into the value? A. “subject to” appraisal B. "as is" appraisal

CORRECT ANSWER: "as is" appraisal RATIONALE An "as is" appraisal is an appraisal that has a value listed with no repairs included.

CORRECT ANSWER: retirement accounts RATIONALE A retirement account is a type of liquid asset that can be used for a cash down payment. The following are considered non-liquid assets: Cash deposits on the sales contract (earnest money), proceeds from the sale of a non-real estate asset, proceeds from a property being sold on or before closing of the subject property, sweat equity, employer assistance, rent credit, secured borrowed funds, trade equity, and unsecured borrowed funds.

Mortgage Loan Origination Activities: A borrower is purchasing a new home and would like to close the mortgage loan financing the purchase as fast as possible. According to the applicable rules and guidelines under Regulation Z, if the borrower closes his loan on Monday, January 8th, when can the loan fund? A. January 11th B. January 8 C. January 12

CORRECT ANSWER: January 8 RATIONALE As this is a purchase, there is no rescission period so the loan can fund on the same day it closes. The right of rescission set forth by Regulation Z does not apply to the following: Purchase loans; construction loans; commercial loans; loans on vacation or second homes; refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling unless the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the transaction; and transactions in which a state agency is a creditor.

Mortgage Loan Origination Activities: What document would a mortgage lender provide for an adjustable-rate loan that shows a final, detailed accounting of the real estate transaction? A. Loan Estimate B. Closing Disclosure C. ARM Accounting Disclosure

CORRECT ANSWER: Closing Disclosure RATIONALE The Closing Disclosure is a form that clearly shows all charges imposed on borrowers and sellers in connection with the settlement.

Mortgage Loan Origination Activities: The income approach is most often used to appraise the following property type? A. investment Property B. commercial property C. property serving as secondary residences

CORRECT ANSWER: commercial property RATIONALE The income approach, sometimes called the capitalization approach, estimates the value of real estate by analyzing the revenue or income the property currently generates, or could generate, often comparing it to other similar properties. This approach is most widely used with commercial or investment properties.

Mortgage Loan Origination Activities: A buyer of a house with a sales price of $100,000 is paying a $10,000 down payment as well as 2 discount points and 2 points for loan origination fees. What is the total cost of the points? A. $3,600 B. $4,000 C. $4,300

CORRECT ANSWER: $3,600 RATIONALE The points are figured as 1% of the total loan amount ($90,000), not the sales price. Each point costs the borrower $900. Four points cost the borrower $900 x 4 for a total of $3,600.

Mortgage Loan Origination Activities: The seller accepts a buyer's offer of $200,000 to buy a home. The appraisal on the property comes in at $118,000. If the lender requires an LTV of 80%, how much is the lender willing to lend? A. $100,000 B. $94,400 C. $160,000

CORRECT ANSWER: $94,400 RATIONALE The lender will use the appraisal value of $118,000 to consider the loan because it is less than the sales price. Use the formula: LTV x Lesser of Sale Price or Appraised Value = Proposed Loan Amount. With an LTV of 80%, the buyer could borrow $94,400: $118,000 x .80 = $94,400.

Mortgage Loan Origination Activities: A(n) ____ by agreement is expressly created by a written document, such as a deed or other contractual agreement. It is very important to have this agreement in writing when the property is shared. A. Title B. Deed C. Easement D. Ownership

CORRECT ANSWER: easement RATIONALE An easement by agreement is an easement expressly created by a written document, such as a deed or other contractual agreement. It is very important to have the agreement in writing when the property is shared. Creditors typically must review this document as part of the approval process.

Mortgage Loan Origination Activities: Which of the following is the formula for calculating per diem interest? A. note interest rate / days per year x Loan amount B. Loan amount x note interest rate / days per year C. note interest rate x Loan amount / days per year

CORRECT ANSWER: Loan amount x note interest rate / days per year RATIONALE To calculate periodic or per diem (per paid) interest, determine the annual interest amount by: Loan amount x note interest rate = annual interest amount; then divide the annual interest amount by 365 = per diem interest rate.

Mortgage Loan Origination Activities: How many days after being provided with a Loan Estimate does a consumer have to proceed with a mortgage loan before a lender may revise the Loan Estimate to change a settlement charge? A. 10 business days B. 3 business days C. 7 business days

CORRECT ANSWER: 10 business days RATIONALE If a mortgage loan applicant does not express her intent to proceed with a particular loan offer within 10 business days from the day the lender provided the Loan Estimate, the lender can revise the terms and estimated costs and provide the consumer with a new Loan Estimate.

Mortgage Loan Origination Activities: Borrower Cade signs the note and mortgage for a refinance on his principal residence on Thursday, December 31. What is the earliest day the funds for his loan can be disbursed (assuming no bona fide financial hardship)? A. Thursday, Jan.7 B. Tuesday, Jan. 5 C. Wednesday, Jan. 6 D. Monday, Jan.4

CORRECT ANSWER: Wednesday, Jan. 6 RATIONALE For transactions subject to the Regulation Z right of recession, consumers can exercise the right to rescind until midnight of the third business day following loan consummation, delivery of the required rescission notice, or delivery of all material disclosures, whichever occurs last. Federal holidays and Sundays do not count toward the three business-day rescission period. In this scenario, the borrower has until midnight Tuesday to rescind the transaction. The earliest funds can be disbursed is Wednesday the 6th. When taking the National Pre-licensing Test, make sure you notice if the question is asking when the rescission expires (day 3) or the money moves (day 4).

Mortgage Loan Origination Activities: Ann will make a 20% down payment on her $85,000 purchase. Her loan amount will be: A. $68,000 B. $17,000

CORRECT ANSWER: $68,000 RATIONALE The loan amount is 80% of the purchase price or $68,000.

Mortgage Loan Origination Activities: Joan has an adjustable-rate mortgage (ARM). It has an initial interest rate of 7% adjusted annually with a 2/5 interest rate cap. If interest rates go up, what is the highest interest rate Joan could pay in the second year? A. 9%. B. 15% C. 12%.

RATIONALE With a 2/5 interest rate cap, even if the interest rate increase according to the standard index is greater than 2%, the interest rate adjustment for Joan is capped at 2%. The highest interest rate possible would be 9% (7% + 2% = 9%).

Ethics: Which is an example of steering? A. Agent Tom tells homeowners that their property values will drop when a Puerto Rican family moves in. B. Property manager Amy suggests Jake would be happier in a more diverse building.

CORRECT ANSWER: Property manager Amy suggests Jake would be happier in a more diverse building. RATIONALE Steering as prohibited by the Fair Housing Act is the discriminatory practice of channeling buyers to or away from certain neighborhoods based on their race, religion, or national origin. Amy is committing the illegal act of steering.

Ethics: What is the maximum penalty for committing the federal crime of mortgage fraud? A. 30 years in prison and $1,000,000 fine B. 5 years in prison and $500,000 fine

CORRECT ANSWER: 30 years in prison and $1,000,000 fine RATIONALE Each conviction for mortgage fraud carries a maximum penalty of 30 years in prison, a $1 million fine, or both.

Ethics: When using the sales comparison approach, an appraiser has a responsibility to use a minimum of _____ comparables to ensure the appraisal provides an accurate value based on sufficient data. A. Five B. Three C. Four

CORRECT ANSWER: three RATIONALE A minimum of three comparables is required by most secondary market lenders to ensure an accurate appraisal from sufficient data.

Ethics: What federal legislation requires that all printed advertising include the Equal Housing Opportunity logo? A. Fair Housing Act B. Equal Credit Opportunity Act

CORRECT ANSWER: Fair Housing Act RATIONALE The Fair Housing Act requires that the Equal Housing Opportunity logo be displayed in all printed material and the term "equal housing lender" must be used when broadcasting over the airwaves.

Ethics: What federal legislation requires the term "equal housing lender" to be used in any advertisement that is broadcast over the airwaves? A. Dodd-Frank Act B. Fair Housing Act C. Equal Credit Opportunity Act

CORRECT ANSWER: Fair Housing Act RATIONALE The Fair Housing Act requires the use of the phrase "equal housing lender" in all broadcast advertising and the use of the Equal Housing Opportunity logo in all print ads

Mortgage Loan Origination Activities: A servicer must deliver to a borrower or place in the mail a written notice requesting the borrower provide hazard insurance information for the borrower's property at least ___ days before a servicer assesses the borrower a fee for force-placed insurance. A. 90 B. 45 C. 30 D. 60

CORRECT ANSWER: 45 Days RATIONALE Force-placed insurance is hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the property securing such loan. A servicer must deliver to a borrower or place in the mail a written notice requesting the borrower provide hazard insurance information for the borrower's property at least 45 days before a servicer assesses on a borrower a fee for force-placed insurance.

Mortgage Loan Origination Activities: The lender must determine whether or not the property is located in a Special Flood Hazard Area by using the Standard Flood Hazard Determination form endorsed by FEMA. No flood insurance is required in areas labeled A. Zone A or Zone X. B. Zone A or Zone V. C. Zone B or Zone V. D. Zone C or Zone X.

CORRECT ANSWER: Zone C or Zone X. RATIONALE The areas of minimal flood hazard, which are the areas outside a Special Flood Hazard Area (SFHA) and higher than the elevation of the **0.2**-percent-annual-chance flood, are labeled Zone C or Zone X. No flood insurance is required in these areas. All flood zones beginning with the letter A or V are considered a SFHA.

Mortgage Loan Origination Activities: With an FHA-insured loan, the Mortgage Insurance Premium (MIP) will remain: A. until the LTV is less than 80%. B. until the LTV is less than 78%. C. for the life of the loan if the LTV ratio at loan consummation is greater than 90%. D. for the life of the loan unless the loan is for a fixed term of less than 30 years.

CORRECT ANSWER: for the life of the loan if the LTV ratio at loan consummation is greater than 90%. RATIONALE With an FHA-insured loan, the borrower/lender may not remove the MIP throughout the life of the loan if the beginning mortgage loan-to-value ratio is higher than 90%.

Mortgage Loan Origination Activities: In explaining fees to a borrower, which of the following is NOT a prepaid fee that is subject to an unlimited tolerance for change when compared to the same fees on the Loan Estimate? A. homeowner's insurance premium B. property taxes C. mortgage insurance premium D. transfer taxes

CORRECT ANSWER: D. transfer taxes RATIONALE Transfer taxes are recorded in Section E of the Loan Estimate and Closing Disclosure and have a zero tolerance for change. Prepaid fees, such as homeowner's insurance premiums, mortgage insurance premiums, and property taxes are to be recorded in Section F of the Closing Disclosure and have an unlimited tolerance for change when compared to the Loan Estimate.

Mortgage Loan Origination Activities: What document indicates the AMOUNT and TERMS of the LOAN and what the LENDER can do if the borrower FAILS to make payments? A. title report B. loan application C. Closing Disclosure D. mortgage note

CORRECT ANSWER: D. mortgage note RATIONALE The mortgage note states the promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments.

Mortgage Loan Origination Activities: Which of the following will ALWAYS appear in Section B of both the Loan Estimate and Closing Disclosure as a service a borrower cannot/did not shop for? A. lender's title insurance policy B. title search fee C. settlement agent fee D. borrower's title insurance policy

CORRECT ANSWER A. lender's title insurance policy RATIONALE A lender's title insurance policy is a service the borrower cannot shop for; thus, it always goes in Section B of the Loan Estimate (LE) and Section B of the Closing Disclosure (CD) and is subject to a zero tolerance for change.

Mortgage Loan Origination Activities: When title insurance is requested to protect the lender's interest in a subject property, it is generally called a(n) A. leasehold policy. B. owner's policy. C. easement policy. D. mortgagee's policy.

CORRECT ANSWER: D. mortgagee's policy. RATIONALE The lender receives a mortgagee's insurance policy from the title company to protect the lender's interest in the title. The lender's/mortgagee's title insurance policy is usually based on the dollar amount of the loan. It only protects the lender's interests in the property should a problem with the title arise. It does not protect the buyer.

Mortgage Loan Origination Activities: A borrower signs the note and mortgage for a refinance on his principal residence on Thursday, Dec. 31. What is the earliest day the funds for this loan can be disbursed (assuming no bona fide financial hardship)? A. Monday, Jan.4 B. Tuesday, Jan. 5 C. Wednesday Jan. 6 D. Saturday, Jan. 2

CORRECT ANSWER: Wednesday Jan. 6 RATIONALE For transactions subject to the Regulation Z right of recession, consumers can exercise the right to rescind until midnight of the third business day following loan consummation, delivery of the required rescission notice, or delivery of all material disclosures, whichever occurs last. Federal holidays and Sundays do not count toward the three business-day rescission period. In this scenario, the borrower has until midnight Tuesday to rescind the credit transaction. The earliest the funds could be disbursed would be Wednesday the 6th. When taking the National Pre-licensing Test, make sure you notice if the question is asking when the rescission expires (day 3) or the money moves (day 4).

Mortgage Loan Origination Activities: At mortgage loan settlement or at least ___ days from settlement, the borrower must receive an Initial Escrow Statement that itemizes the estimated taxes, insurance premiums, and other charges anticipated to be paid from the escrow account during the first 12 months of the loan. A. 45 B. 5 C. 30 D. 15

CORRECT ANSWER: A. 45 RATIONALE At mortgage loan settlement, the borrower must receive an Initial Escrow Statement that itemizes the estimated taxes, insurance premiums, and other charges anticipated to be paid from the escrow account during the first 12 months of the loan. It lists the escrow payment amount and any required impound account cushion. Although the statement is usually given at settlement, the lender has 45 days from settlement to deliver it.

Mortgage Loan Origination Activities: You are pre-qualifying Amy for a purchase loan. She has debt equaling $950 each month and gross monthly income totaling $5,200 each month. The lender you will place the loan with allows debt ratios of 28% for housing ratio and 36% total debt to income. What is the maximum house payment, including principal, interest, taxes, and insurance that Amy qualifies for? A. $1,456 B. $1,000 C. $590 D. $922

CORRECT ANSWER: $922 RATIONALE Two calculations need to be done: $5,200 x 28% = $1,456, then $5,200.00 x 36% = $1,872 - $950 = $922. Lenders require the lower of the two calculations.

Mortgage Loan Origination Activities: A borrower's stable monthly income is $3,000. He has three monthly debts: $350 car payment, $50 personal loan payment, and $50 credit card payment. What is the maximum monthly mortgage payment he would qualify for using the total debt-to-income ratio of 36% for a conventional loan? A. $1,080 B. $390 C. $630 D. $840

CORRECT ANSWER: C. $630 RATIONALE Total DTI ratio is calculated as: $3,000 (income) multiplied by 0.36, which equals $1,080. From the $1,080, subtract monthly debts ($350 + $50 + $50), which totals $630.

Mortgage Loan Origination Activities: Lisa is applying for a loan to purchase a home. Under the terms of Reg Z, how long will Lisa have to rescind the loan after she signs the loan closing documents? A. 24 hours B. 0 days; there is no right of rescission C. 30 days D. 3 business days

CORRECT ANSWER: B. 0 days; there is no right of rescission. RATIONALE As this is a purchase loan, there is no rescission period so the loan can fund on the same day it closes. The right of rescission set forth by Regulation Z does not apply to the following: Purchase loans; construction loans; commercial loans; loans on vacation or second homes; refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling unless the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the transaction; and transactions in which a state agency is a creditor.

Mortgage Loan Origination Activities: Rodney's stable monthly income is $7,200 and he has the following monthly bills: credit card, $150; car payment, $325; and child support, $500. How much can he afford for a house payment (including PITI), if qualifying ratios are 28%/36%? A. $1,743 B. $1,617 C. $2,241 D. $2,016

CORRECT ANSWER: B. $1,617 RATIONALE Using the front-end housing expense ratio: $7,200 X 28% = $2,016 is the maximum mortgage PITI payment. Using the back-end DTI ratio: $7,200 X 36% = $2,592 is the maximum debt allowed. $2,592 maximum debt minus $975 debt = $1,617 maximum mortgage PITI payment. When both ratios are used, Rodney must qualify under both ratios, so the lower figure ($1,617) is the maximum monthly mortgage PITI payment he can afford.

Ethics: The _____ specifically prohibits the free exchange of nonpublic information between consumers' creditors A. Fair Credit Reporting Act B. Equal Credit Opportunity Act C. Truth in Lending Act D. Gramm-Leach-Bliley Act

CORRECT ANSWER: D. Gramm-Leach-Bliley Act RATIONALE Within the Gramm-Leach-Bliley Act, the Financial Privacy Rule governs the collection and disclosure of customers' personal financial information, known as nonpublic personal information, by restricting when and under what circumstances such information may be disclosed to affiliates and nonaffiliated third parties.

Random Quiz: What is the minimum number of business days before a mortgage loan can be consummated and remain in compliance with TILA? A. 5 B. 7 C. 3 D. 10

B. 7

Random Quiz: According to FNMA Guidelines, what is the maximum total gross adjustment to the sales price of a comparable property that should NOT be EXCEEDED in order for the comparable to be considered a GOOD comparable property? A. 20% B. 15% C. 25% D. 10%

C. 25%

Random Quiz: The Sales Comparison Approach to value is considered the most accurate of the appraisal methods for residential properties. What is it also known as? A. The Income Approach B. The Market Data Approach C. The Cost Approach D. The Appreciation Approach

D. The Appreciation Approach

Random Quiz: Jose and Mary wish to purchase a home and want to get pre-approved before they start searching for their property. Jose was a Military Policeman in the Army for 6 years prior to being hired by the Sheriff's Department as a Deputy Sheriff. His gross pay is $1,812.50 every 2 weeks. Mary, his wife, is a Dental Hygienist. She has been employed for 3 years with her current employer and earns $1,463.00 per pay period and gets paid twice a month. They have a new car payment of $328 per month, student loans with payments of $181 per month and credit card payments of $89 per month. They are going to put 20% down. What is the maximum monthly mortgage payment, PITI, they can qualify for? A. $1,918.86 B. $2,108.95 C. $1,700.77 D. $3,061.38

A. $1,918.86 RATIONALE • Jose: $1,812.50 x 26 paychecks = $47,125 per year / 12 months = $3,927.08 per month. • Mary: $1,463 x 24 = $35,112 per year / 12 months = 2,926 per month. • $3,927.08 + $2,926.00 = $6,803.08 Gross Monthly Qualifying Income. • $6,803.08 x .28 (28%) = $1,918.86 PITI

Random Quiz: George is buying a house and the seller has agreed to pay 3% of the closing costs toward his closing costs. He would like to use XYZ Title Company to provide his Title Insurance. The seller insists he use ABC Title or they will not close the transaction. This is a violation of which Federal Law? A. Section 32 of the Truth in Lending Act. B. Section 9 of the Real Estate Settlement Procedures Act. C. Title 8 of the Civil Rights Act of 1968. D. Section 16 of the Equal Credit Opportunity Act.

B. Section 9 of the Real Estate Settlement Procedures Act.

Random Quiz: A borrower has completed an application and has been provided with their initial disclosures, including a Good Faith Estimate. How long is the loan originator bound after providing the GFE to the borrower? A. 3 business days. B. 7 business days C. 10 business days D. Until the loan closes

C. 10 business days

Random Quiz: How long after closing on the purchase of a home does the borrower have to move in and occupy the home when they use an FHA mortgage to finance the purchase? A. 15 days B. 45 days C. 30 days D. 60 days

D. 60 days

Random Quiz: Which federal law requires that the Good Faith Estimate be provided to the borrower within three business days of the time a loan application is taken? A. RESPA B. TILA C. HMDA D. ECOA

A. RESPA

Random Quiz: A borrower is buying a house for $180,000. He provides a down payment of $40,000. If he pays three discount points, what is the total cost of the points? A. $4,200 B. $6,000 C. $5,400 D. $4,667

A. $4,200

Which is NOT a purpose for the Mortgage Servicing Disclosure Statement? A. to inform the consumer the likelihood that the mortgage could be sold B. to inform the consumer the likelihood that the servicing of the mortgage will be sold C. to explain the resolution of servicing complaints required by law D. to disclose the percentages of the loan closings this lender has serviced in the last three years

A. to inform the consumer the likelihood that the mortgage could be sold

Which regulation encourages financial institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices? A. CRA B. HOEPA C. RESPA D. TILA

A. CRA

Random Quiz: According to ECOA, a borrower can request a copy of the appraisal report used in the decision process within ___ days of a credit decision. A. 30 B. 60 C. 90 D. 120

C. 90

Ethics: The Fresh Start Company is anxious to work with homeowner, Julia, to obtain a loan modification that will help her avoid foreclosure. Fresh Start asks Julia for an advance fee to start the process. Fresh Start has violated the _____ with this advance fees request. A. Ability to Repay Rule B. MARS Rule C. Loan Originator's Compensation Rule D. Red Flags Rule

CORRECT ANSWER: MARS Rule RATIONALE The Federal Trade Commission (FTC), the nation's consumer protection agency, issued Mortgage Assistance Relief Services (MARS) Rule. The MARS Rule prohibits the collection of money from a customer unless the customer has received and agreed to a written offer of mortgage relief from the consumer's lender or servicer.

Mortgage Loan Origination Activities: Which of the following documents will need to be provided by the seller's lender at the closing meeting? A. bill of sale B. discharge of mortgage C. property inspection report D. mortgage note

CORRECT ANSWER: discharge of mortgage RATIONALE The seller's lender will need to provide the discharge of mortgage at the closing meeting.

Mortgage Loan Origination Activities: The acquisition cost of a property is $220,000 (sale price is $215,000 and the closing costs are $5,000) and the loan amount is $200,000. The seller is paying $2,000 of the closing costs. What is the total amount the borrower will need to bring to closing if the earnest money is $1,000 and is being credited on the Closing Disclosure at closing? A. $17,000 B. $18,000 C. $20,000 D. $5,000

CORRECT ANSWER: $17,000 RATIONALE $220,000 - $200,000 - $2,000 - $1,000 = $17,000.

Mortgage Loan Origination Activities: In a month with 30 days and a purchase closing on the 15th day of the month, how many days of interest would the title agent be required to collect? A. 30 B. 15 C. None D. 16

CORRECT ANSWER: 16 RATIONALE Interest must be collected for the number of days left in the month INCLUDING the DAY the loan was FUNDED.

Mortgage Loan Origination Activities: Joe has a property that appraises for $189,000. His first mortgage rate is 4.75% and his second mortgage rate is 15%. He has decided that he wants to leave his $53,000 first mortgage alone and only refinance the second. He qualifies for an 85% CLTV. His second mortgage is for $25,000 but he wants cash to finish his basement. How much cash is available if his closing costs are $1,500? A. $81,150 B. $109,500 C. $134,150 D. $100,000

CORRECT ANSWER: $81,150 RATIONALE $189,000 x 85% = $160,650 - $53,000 - $1,500 - $25,000 = $81,150. Even though Joe wants to leave his first mortgage alone, it must be subtracted. If it isn't, you are giving the customer too much cash: $134,150 added to the first mortgage leaves an LTV of 99%; the maximum is 85%.

Mortgage Loan Origination Activities: A borrower is buying a house for $150,000 at 6.5%. He provides a down payment of $15,000. How much would he have to pay for three discount points? A. $3,000 B. $2,925 C. $4,050 D. $4,500

CORRECT ANSWER: $4,050 RATIONALE A point is 1% of the loan amount, so $135,000 x .01 = $1,350 per point. Three points is $1,350 x 3 = $4,050.

Mortgage Loan Origination Activities: Marylou obtains a $300,000 mortgage loan a 5/1 interest-only ARM with a 10 year balloon at a 3% start rate, a 2% margin, and 2/6 caps. The initial monthly payment for the loan is $750. On the anniversary date of the loan, the index being used adjusts as follows: Year 1: 2.50% (initial year); Year 2: 2.75%; Year 3: 3.25%; Year 4: 3.50%; Year 5: 3.75%; Year 6: 3.00%; Year 7: 2.80%; Year 8: 5.00%; Year 9: 6.50%; Year 10: 7.50%. What is the highest monthly payment attainable during the life of Marylou's loan? $2,250 $1,800 $2,000 $2,500

CORRECT ANSWER: $2,250 RATIONALE The LIFETIME CAP for this loan is 6%. [EXAMPLE : 2/**6**] Add the LIFETIME CAP of 6% to the START RATE of 3% = 9.00% MAXIMUM interest rate. $300,000 [LOAN AMOUNT] x .09 [MAX INTEREST RATE] / 12 [MONTHS] = $2,250 monthly payment maximum.

Mortgage Loan Origination Activities: A loan with a 2/1 buydown, a current market rate of 6.5%, and a start rate of 4.5% would have a payment based on what rate in month 30? A. 4.50% B. 6.50% C. 7.50% D. 5.50%

CORRECT ANSWER: 6.50% RATIONALE This 2/1 buydown STARTS at 2% BELOW the end rate for YEAR ONE. Then ADJUSTS in YEAR TWO Lastly it REVERTS to the END RATE for years 3 through 30 Calculation: 4.5% + 2% = 6.5%

Mortgage Loan Origination Activities: Thomas is applying to refinance his mortgage. His first mortgage is $25,000 at a 9% rate. He plans to get cash out, up to $40,000. He qualifies for an 80% LTV and his house appraises for $100,000. Shortly before closing, the title exam shows $23,000 in mechanics liens. Closing costs total $6,000. How much cash will he receive at closing? A. $46,000 B. $9,000 C. $49,000 D. $26,000

CORRECT ANSWER: D. $26,000 RATIONALE REFINANCING IS TAKING THE APPRAISED VALUE MULTIPLYING IT BY THE LOAN TO VALUE AND SUBTRACTING ALL OF THE DEBTS TO DETERMINE THE CASH RECEIVED AT CLOSING. Calculation: $100,000 [Appraisal Value] X 80% [LTV] = $80,000 - $25,000 [1st Mortgage] - $23,000 [Mechanic’s Lien] - $6,000 [Closing Costs] = $26,000 [CASH GIVEN TO BORROWER AFTER REFINANCE.

Mortgage Loan Origination Activities: For the purposes of a VA-guaranteed loan, what is not subtracted to determine residual income? A. taxes B. housing expenses C. recurring debt D. W-2 income

CORRECT ANSWER: W-2 income RATIONALE Residual income is the amount of income remaining after subtracting taxes, housing expenses, and all recurring debts and obligations from W-2 income.

Mortgage Loan Origination Activities: A borrower is purchasing a home for $120,000 and closing costs total 4% of the loan amount. The seller has agreed to contribute half of the buyer's closing costs. How much cash does the borrower need at closing in order to obtain an LTV of 85%? A. $20,040 B. $20,800 C. $18,360 D. $20,400

CORRECT ANSWER: $20,040 RATIONALE The borrower needs 15% of the $120,000 purchase price, which EQUALS $18,000 plus the ADDITIONAL **2%** (half of the 4% closing costs) of the loan AMOUNT (120,000 - **18,000** = 102,000) which EQUALS $102,000, which EQUALS $2,040 for closing costs that the SELLER is NOT providing. $18,000 + **$2,040** = $20,040.

Mortgage Loan Origination Activities: A loan program that has a single ratio of 45% would allow a borrower with $65,000 in annual income and $490 in monthly consumer debt payments to qualify for what principal and interest payment on a home with escrow requirements of $360 monthly? A. $1,587 B. $1,947 C. $2,077 D. $2,437

CORRECT ANSWER: $1,587 RATIONALE FIRST determine the GROSS monthly income > $65,000 / 12 = $5,416 MONTHLY GROSS INCOME THEN, determine the MAXIMUM DEBT RATIO allowed > $5,416 x 45% = $2,437 LAST, SUBTRACT the current DEBT to determine what MONTHLY payment for which the borrower would QUALIFY $2,437 Max Payment Allowed - $490 Debts - $360 Escrow = $1,587.

Mortgage Loan Origination Activities: Johnny obtains a $300,000 mortgage loan a 5/1 interest-only ARM with a 10 year balloon at a 3% start rate, a 2% margin, and 2/6 caps. The initial monthly payment for the loan is $750. On the anniversary date of the loan, the index being used adjusts as follows: Year 1: 2.50% (initial year); Year 2: 2.75%; Year 3: 3.25%; Year 4: 3.50%; Year 5: 3.75%; Year 6: 3.00%; Year 7: 2.80%; and Year 8: 5.00%. What will be Johnny's monthly payment in year 8? A. $1,250 B. $1,700 C. $1,500 D. $1,750

CORRECT ANSWER: $1,700 RATIONALE NORMALLY the interest rate would be calculated by adding the margin to the index rate. In this case that would result in an interest rate of 7.00% (2% + 5%). HOWEVER, since the PERIODIC cap is 2% [2/6] and the interest RATE in year **7** is 4.80% (2% MARGIN + 2.80% YEAR 7 INTEREST RATE), the interest rate in year 8 CANNOT adjust HIGHER than **6.80%** DUE to the PERIODIC RATE CAPS; $300,000 (Loan Amount) x .068 (Periodic Rate Cap) / 12 (Months In Year 7) = $1,700 monthly payment

Federal Mortgage-Related Laws: What entity has supervisory authority over nonbank mortgage originators and servicers, payday lenders, and private student lenders of all sizes? CORRECT ANSWER: Consumer Financial Protection Bureau YOUR ANSWER: The Federal Trade Commission RATIONALE The Consumer Financial Protection Bureau (CFPB) has supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates. In addition, the CFPB has supervisory authority over nonbank mortgage originators and servicers, payday lenders, and private student lenders of all sizes. The CFPB also supervises the larger participants of other consumer financial markets as defined by Bureau rules, including consumer reporting, consumer debt collection, student loan servicing, international money transfer, and automobile financing.

Federal Mortgage-Related Laws: Which of the following is NOT a function performed by the Consumer Financial Protection Bureau? CORRECT ANSWER: maintain competition to promote a marketplace free from anticompetitive mergers, business practices, or public policy outcomes YOUR ANSWER: make consumer financial markets work for consumers, responsible providers, and the economy as a whole RATIONALE The Consumer Financial Protection Bureau (CFPB) aims to make consumer financial markets work for consumers, responsible providers, and the economy as a whole and arm consumers with the information, steps, and tools that they need to make smart financial decisions. The CFPB also works to protect consumers from unfair, deceptive, or abusive practices and will take action against companies that break the law. Maintaining competition to promote a marketplace free from anticompetitive mergers, business practices, or public policy outcomes is a goal of the Federal Trade Commission.

Federal Mortgage-Related Laws: Which of the following is NOT a requirement for providing a revised Loan Estimate (LE) to a borrower? CORRECT ANSWER: A lender is prohibited from providing revised LE disclosures for informational purposes only. YOUR ANSWER: A revised LE must include all changes to fees and charges of which the lender is aware. RATIONALE Lenders are not prohibited from providing revised disclosures, as a courtesy, for informational purposes at any time to keep the consumer updated on any changes in fees. However, such a practice may lead to confusion of both the borrower and the lender if it is not made clear that such disclosures do not impact good faith analysis. All the other statements are requirements for providing a revised Loan Estimate.

Federal Mortgage-Related Laws: Regulation B requires that applicants must be made aware of their right to receive an appraisal report created as the result of their mortgage loan application. This disclosure must be mailed or delivered to applicants not later than CORRECT ANSWER: 3 business days after the lender receives a complete application. YOUR ANSWER: 4 business days prior to consummation. RATIONALE As set forth by Regulation B, a creditor must provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. The creditor must mail or deliver to an applicant, not later than the third business day after the creditor receives an application for credit that is to be secured by a first lien on a dwelling, a notice in writing of the applicant's right to receive a copy of all written appraisals developed in connection with the application.

General Mortgage Knowledge: A borrower who has a FICO score above 580 is required to make a minimum down payment of at least _____% for an FHA-insured loan. CORRECT ANSWER: 3.5% YOUR ANSWER: 10% RATIONALE For credit scores greater than 580 on an FHA loan, the standard minimum investment is 3.5%. FHA requires that the borrower contribute a minimum of 10% into the mortgage transaction for FICO scores below 580.

General Mortgage Knowledge: A borrower is more likely to consider an adjustable-rate mortgage (ARM) when CORRECT ANSWER: interest rates are high. YOUR ANSWER: interest rates are low. RATIONALE Generally, as interest rates rise, so does the popularity of ARMs. The initial rate of an ARM tends to be lower than with a fixed-rate mortgage.

Mortgage Loan Origination Activities: When lenders evaluate assets, they are specifically interested in identifying if there are sufficient liquid assets to make the cash down payment and pay the closing costs and other expenses incidental to the purchase of the property. Which of the following is an acceptable form of a liquid asset that a lender will accept as a source to make a cash down payment? CORRECT ANSWER: retirement accounts YOUR ANSWER: secured borrowed funds RATIONALE A retirement account is a type of liquid asset that can be used for a cash down payment. The following are considered non-liquid assets: Cash deposits on the sales contract (earnest money), proceeds from the sale of a non-real estate asset, proceeds from a property being sold on or before closing of the subject property, sweat equity, employer assistance, rent credit, secured borrowed funds, trade equity, and unsecured borrowed funds.

Mortgage Loan Origination Activities: The lender must determine whether or not the property is located in a Special Flood Hazard Area by using the Standard Flood Hazard Determination form endorsed by FEMA. Properties that have the highest risk potential for flooding are referred to as Flood Zone _____ properties. CORRECT ANSWER: A YOUR ANSWER: X RATIONALE All flood zones beginning with the letter "A" or "V" are considered a Special Flood Hazard Area (SFHA). Flood Zone A is referred to the 100-year flood or an area exceeding a 1% chance of being inundated by a flood.

Mortgage Loan Origination Activities: Patrick is interested in a particular house. The MLO estimates that, given the down payment and the current interest rate, the monthly mortgage payment (PITI) would be $1,000. Patrick's gross stable monthly income is $3,800. What is his housing expense ratio? CORRECT ANSWER: 26% YOUR ANSWER: 28% RATIONALE Use the formula: Total Housing Expense / Gross Monthly Income = Housing Expense Ratio; $1,000/$3,800 = .26(rounded) or 26%. Conventional lenders consider a borrower's income adequate for a loan if the proposed total mortgage payment of PITI does not exceed 28% of stable monthly income, so the housing expense ratio of 26% will be acceptable for a conventional loan.

Mortgage Loan Origination Activities: Documentation of assets includes ____ months of bank statements (all pages) to verify available funds. CORRECT ANSWER: two YOUR ANSWER: six RATIONALE A Verification of Deposit (VOD) form may be used to verify current and average bank statement balances. Documentation of assets includes two months of bank statements (all pages) to verify available funds. Underwriters prefer to see seasoned funds, meaning the funds have been in the account for the entire period covered by the bank statements (60 days).

Mortgage Loan Origination Activities: A(n) _____ is defined as any claim, lien, charge, or liability that affects or limits the fee simple title to real property. CORRECT ANSWER: encumbrance YOUR ANSWER: easement RATIONALE An encumbrance is defined as any claim, lien, charge, or liability that affects or limits the fee simple title to real property.

Mortgage Loan Origination Activities: The ____ indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments. CORRECT ANSWER: mortgage note YOUR ANSWER: Closing Disclosure RATIONALE The mortgage note states the promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments.

Mortgage Loan Origination Activities: When a clerical numerical error has occurred to the Closing Disclosure and the initial Closing Disclosure has been delivered to his borrower, MLO Wyatt must CORRECT ANSWER: make redisclosure. YOUR ANSWER: deliver a revised Closing Disclosure and apply a new three-day waiting period before consummation. RATIONALE If the Closing Disclosure has changed because of a clerical numerical error, creditors must ensure that the consumer receives a corrected Closing Disclosure but are not required to provide an additional three-day waiting period.

Mortgage Loan Origination Activities: Sara's stable monthly gross income is $3,000. She has a monthly car payment of $200, a 401(k)loan payment of $250 with 11 months remaining, and monthly credit card payments of $125. What is the maximum mortgage PITI payment she can afford if the acceptable front and back ratios are 28%/36%? CORRECT ANSWER: $755 YOUR ANSWER: $679 RATIONALE First note that 401-k loans payment do not count as debt regardless of time remaining. Using the front-end housing expense ratio: $3,000 X 28% = $840 maximum mortgage PITI payment. Using the back-end DTI ratio: $3,000 X 36% = $1,080 maximum debt allowed; $1,080 maximum debt allowed minus $325 debt = $755 maximum mortgage PITI payment. When both ratios are used, Sara must qualify under both ratios, so the lower figure ($755) is the maximum monthly mortgage PITI payment she can afford.

Mortgage Loan Origination Activities: When a prospective borrower calls an MLO with an inquiry about mortgage loan products and terms, what is the name of the process that a lender can complete that promises that the prospective borrower's situation has been investigated and, provided all circumstances stay the same, the lender is willing to loan a certain amount of money to finance a home purchase? CORRECT ANSWER: pre-approval YOUR ANSWER: pre-qualification RATIONALE Pre-approval is the process by which a lender determines if a potential borrower can receive financing through the lender and for what amount of money. A prospective borrower goes through most of the same steps as in the full loan process, such as completing an application and providing documentation of income and assets, so that the lender can render a credit decision that is binding as long as the prospective borrower's circumstances stay the same.

Mortgage Loan Origination Activities: A _____ is a form of pre-paid interest that a lender charges to increase the yield on a lower-than-market interest rate loan. CORRECT ANSWER: discount point YOUR ANSWER: lender credit RATIONALE Discount points represent a pre-payment of interest at the beginning of a loan for reducing the note interest rate charged for some defined period of the life of the loan. One point equals 1% of the loan amount. This essentially shifts the timing of when the lender collects its fees for making the loan. With discount points, the borrower pays more out-of-pocket upfront in order to pay less out-of-pocket later. Discount points, especially if paid by the seller, could allow the borrower to qualify for a loan that would otherwise be impossible to get.

Mortgage Loan Origination Activities: When a mortgage loan meets the criteria of a higher-priced mortgage loan and the price reflected in the consumer's purchase agreement exceeds ____ of the seller's original acquisition price during the first 90 days, lenders are required to obtain a second appraisal. CORRECT ANSWER: 10% YOUR ANSWER: 50% RATIONALE If the price reflected in the consumer's purchase agreement is more than 10% higher than the seller's acquisition price during the first 90 days or more than 20% higher than the seller's acquisition price during the first 91-180 days, creditors are required to obtain a second appraisal. This requirement for next home purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased. The borrower cannot pay for the cost of the second appraisal report. Higher-priced mortgage loans that exceed a set amount determined annually by the CFPB may be exempt from this additional appraisal requirement.

Mortgage Loan Origination Activities: When using the market appraisal approach to arrive at an opinion of value, an appraiser looks CORRECT ANSWER: into the recent past to analyze similar sales. YOUR ANSWER: at current prices of all homes on the market in a given neighborhood. RATIONALE The market approach, also called the sales comparison approach, looks at past sales that are similar to the subject property and that have recently sold in the area. Sold data within a recent timeframe and geography, not simply listings, is always more accurate.

Ethics: A mortgage loan processor distributes a company business card with her name on it along with the unique identifier of the mortgage lender she works for. The loan processor hand writes a message on the card that states, "Call me to find out more about your loan options." This employee is CORRECT ANSWER: committing a prohibited act of misrepresentation in advertising which is a violation. YOUR ANSWER: indirectly soliciting loan business, which requires her to be licensed as a broker. RATIONALE An individual engaging solely in loan processor or underwriter activities is not permitted to represent to the public, through advertising or other means of communicating or providing information, including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items, that she can or will perform any of the activities of an MLO. An MLO license is required to discuss loan options.

Ethics: Brett Markley is head of Community Mortgage LLC. His son, Mike, is not licensed and processes loans for the business. Which of the following is illegal for Mike to do? CORRECT ANSWER: advise a borrower who applied for a loan to get an ARM rather than a fixed-rate loan YOUR ANSWER: to call a borrower's employer to verify employment RATIONALE It is illegal for an individual who is not licensed as an MLO to advise a borrower regarding mortgage loan options. The other actions are legal for a loan processor working for a mortgage company who is not a licensed MLO.

Ethics: The primary purpose of the FACT Act is to protect consumers from CORRECT ANSWER: identity theft. YOUR ANSWER: credit agency fraud. RATIONALE The primary purpose of the Fair and Accurate Credit Transactions Act (FACTA or FACT Act) is to protect consumers from identity theft by ensuring that consumers' credit information is securely maintained and disposed of.

Uniform State Content: A mortgage loan processor distributes a company business card with her name on it along with the unique identifier of the mortgage lender she works for. The loan processor handwrites a message on the card which states, "I can help you get a loan." This employee is CORRECT ANSWER: committing a prohibited act due to being unregistered or unlicensed as an MLO. YOUR ANSWER: directly soliciting loan business under the unique identifier of a licensee which is legal. RATIONALE A person not licensed as an MLO who is engaging solely in loan processor or underwriter activities is not permitted to represent to the public, through advertising or other means of communicating or providing information, including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items, that he or she can or will perform any of the activities of a mortgage loan originator.

Uniform State Content: Which of the following is a requirement for obtaining an MLO license that has been given an active status? CORRECT ANSWER: sponsorship YOUR ANSWER: state certification RATIONALE As defined by the NMLS, "sponsorship" is the term used as a company's indication that an individual MLO will conduct business under a specific license/registration for the company. Obtaining state sponsorship is a requirement that must be met for an individual to be issued an MLO license with an active status.

Mortgage Loan Origination Activities: Underwriter Stan sends the loan package back to MLO Joe because it is missing Form 4506-C. This form is needed to obtain transcripts of the borrower's A. W-2s. B. income tax returns. C. credit report. D. bank account records.

CORRECT ANSWER: income tax returns RATIONALE IRS Form 4506-C gives the lender permission to get transcripts of the borrower's income tax returns.

Mortgage loan applicant Wyatt can use a real estate _________to provide an accurate property address to complete his mortgage loan application. Title Report incorrect! Appraisal Report Loan Estimate Purchase Agreement correct! Mortgage Loan Origination Activities / Q: 2 of 24 ID: 85027 Next Question QUESTION RATIONALE The purchase agreement, also referred to as a sales contract, is typically the document buyer clients submit to lenders as a means for providing a property address to complete their mortgage loan application. The title report for a property being financed can provide additional clarification regarding a property's legal description.

Section 5a in the Declaration section of the URLA is where the borrower answers questions about the subject property and finances for the loan. What information is NOT to be included in Section 5a? The borrower records loan information such as the loan amount, purpose, and address. correct! If this is a purchase transaction, the borrower identifies if there is a family relationship or business affiliation with the seller of the property. The borrower identifies if the property securing the loan is subject to a lien that could take priority over the first mortgage lien. incorrect! The borrower records if the plan is or is not to occupy the property as the primary residence. Mortgage Loan Origination Activities / Q: 4 of 24 ID: 85020 Next Question QUESTION RATIONALE Loan information such as the loan amount, purpose, and address is to be recorded in Section 4 of the URLA. The other information listed as an answer choice is to be recorded in Section 5a.

Vocabulary: FinCEN The Financial Crimes Enforcement Network, a bureau of the Department of the Treasury.

Income Approach An appraisal method that estimates the value of real estate by analyzing the amount of revenue, or income, the property currently generates, or could generate. Also called Capitalization Approach.

Affidavit of Title A statement, sworn in front of a notary public or other authorized official, by the seller or grantor of property that identifies the grantor, identifies the grantor's marital status, and certifies that the grantor has no new judgments, liens, divorces, unrecorded deeds, or other potential title defects since the title examination was completed. It also certifies that the grantor is indeed in possession of the property.

Contingency Clause A provision in a contract, deed, law, regulation, guideline, etc. that makes the parties' rights and obligations depend on the occurrence (or nonoccurrence) of a specified event. Also called Condition, Escape Clause, Subject to Clause, or Kick-Out Clause.

Unsecured Loan A loan made on the signature and credit of the borrower, not secured by collateral.

Package Mortgage A mortgage where personal property (e.g., appliances) is included in a real estate sale and financed with one contract.

Easement by Prescription An easement created by open and notorious, hostile, and adverse use of another person's land for a specific period of time determined by state law. Prescriptive use does not have to be exclusive (the owner may be using the property, too), and the user does not acquire title to the property. Also called Prescriptive Easement.

Consumer Price Index (CPI) An index published monthly by the United States Bureau of Labor Standards (BLS) considered by many to be the basic indicator of inflation in the U.S.

Assumption An action in which one party agrees to take over payments of another party's debt, with terms of the note staying unchanged.

Bridge Mortgage A mortgage loan that occurs between the termination of one mortgage and the commencement of another. When the next mortgage is taken out, the bridge is repaid.

Wraparound Mortgage A financing arrangement in which an existing loan on a property is retained while the lender gives the borrower another, larger loan.

Encumbrance Any claim, lien, charge, or liability that affects or limits the fee simple title to real property.

Chattel Mortgage A loan that uses only personal property as security.

Easement for Light and Air A view easement; considered a negative easement. In the case of a negative easement, the dominant tenant can prevent the subservient tenant from doing something on the land because it could affect the dominant land. Also called View Easement.

Buyer's Market A situation in the housing market when there are many homes available for sale, but few buyers.

Easement in Gross An easement that benefits a person or company, rather than benefiting another parcel of land.

Annunzio-Wylie Anti-Money Laundering Act The Annunzio-Wylie Anti-Money Laundering Act of 1992 (AML Act), which was part of the Housing and Community Development Act of 1992, created a shift in money laundering policy by focusing less on the investigative power of federal agencies and placing more compliance responsibility on financial institutions. The Act established the Bank Secrecy Act Advisory Group (BSAAG) to advise the Secretary of Treasury on matters related to the administration of the Bank Secrecy Act. Due to the scope of the AML Act and its complementary relationship to the BSA, the AML Act is generally referred to jointly as BSA/AML.

Regulation P Regulation P (12 CFR Part 1016) implements the Privacy of Consumer Financial Information. It requires financial institutions to provide certain privacy notices and to comply with certain limitations on the disclosure of nonpublic personal information to nonaffiliated third parties.

Gramm-Leach-Bliley Act The federal Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (GLB Act), includes provisions in Title V to protect and regulate the disclosure of consumers' personal financial information. There are three principal parts to the Title V privacy requirements: Safeguards Rule, Pretexting Provisions, and Financial Privacy Rule.

Regulation V Regulation V (12 CFR Part 1022) implements the Fair Credit Reporting covering topics such as identity theft; duties of furnishers of information; duties of users of consumer reports; duties of consumer reporting agencies; file disclosures to consumers; affiliate marketing; and use of medical information.

Red Flags Rule On January 1, 2011, the Federal Trade Commission (FTC) began enforcing the Fair and Accurate Credit Transactions Act (FACTA or FACT Act). Section 114 of the FACT Act is known as the Red Flags Rule. The Rule requires that financial institutions and creditors implement a written identity theft prevention program.

Regulation Z Regulation Z (12 CFR Part 1026) implements the Truth in Lending Act to protect people when they use consumer credit. Regulation Z covers topics such as annual percentage rates, credit card disclosures, periodic statements, mortgage loan disclosures, mortgage loan servicing requirements, and mortgage loan appraisal requirements.

Model state law sets forth minimum qualifications for a state to issue an applicant an MLO license, including that the MLO needs to have demonstrated financial responsibility. Though state law may differ, model state law sets forth that an individual has not shown financial responsibility when there is a foreclosure within the past year. 3 years. correct! 5 years. 10 years. incorrect! Uniform State Content / Q: 1 of 10 ID: 84280 Next Question QUESTION RATIONALE Model state law sets forth that indicators that an individual has not shown financial responsibility include, but are not limited to: (i) Current outstanding judgments, except judgments solely as a result of medical expenses; (ii) current outstanding tax liens or other government liens and filings; (iii) foreclosures within the past three years; or (iv) a pattern of seriously delinquent accounts within the past three years.

Two different definitions for the term "business day" are set forth in Regulation Z; often referred to as the "Business Day Rule" and the "More Precise Business Day Rule". The "Precise Business Day Rule" defines business day as all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). The "Precise Business Day Rule" applies to all of the following EXCEPT for the required number of business days before consummation after the Closing Disclosure is given to the consumer for providing the consumer with the initial Loan Estimate. correct! before consummation after a revised Loan Estimate is given to the consumer. before consummation after early disclosures are provided to the consumer. incorrect! Mortgage Loan Origination Activities / Q: 12 of 24 ID: 85055 Next Question QUESTION RATIONALE Regulation Z offers two different definitions for the term "business day"; often referred to as the "Business Day Rule" and the "More Precise Business Day Rule". The "More Precise Business Day Rule" defines business day as all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. The "More Precise Business Day Rule" applies to must waiting periods applied before consummation, such as the 7 business day waiting periods before consummation after early disclosures and the 4 business day waiting periods before consummation after a revised LE.

If the amounts paid by borrower Kyle at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, lender Lisa must refund the excess and mail corrected disclosures reflecting that refund to Kyle within ___ calendar days after consummation. 15 30 incorrect! 60 correct! 3 Mortgage Loan Origination Activities / Q: 13 of 24 ID: 85060 Next Question QUESTION RATIONALE If the amounts paid by the consumer at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the creditor must refund the excess to the consumer and mail corrected disclosures reflecting that refund no later than 60 calendar days after consummation.