Final Final Flashcards
Which of the following circumstances is least likely to lead to a determination that two entities are operating a sham affiliated business arrangement under RESPA?
The same person owns both entities
One entity shares office space with the other entity
One entity’s business comes exclusively from referrals from another entity
Both entities share the same employees
The answer is the same person owns both entities. An affiliated business arrangement is an arrangement in which a person or his or her associate is in a position to refer real estate settlement service business for a federally-related mortgage loan and has either an affiliate relationship with, or ownership interest of more than 1% in, a provider of settlement services and refers business to or influences the selection of that provider. As ownership in an affiliated business is part of the definition of an affiliated business relationship, such ownership does not necessarily point to a sham operation.
A borrower receives a document which contains a list of all closing costs, a disclosure of the borrower credits received on the transaction, an estimate of the cash the borrower needs to bring in to closing, and the sales price. Which of the following best identifies this document?
Loan Closure
Closing Disclosure
Itemization of Amount Financed
Loan Estimate
The answer is Loan Estimate. The Loan Estimate provides an “estimate” only of closing costs. The Closing Disclosure sets forth the” actual” costs of the subject mortgage lending transaction in a clear and understandable manner.
According to ECOA, discrimination is:
Never allowed
Allowed if based on income
Allowed if based on sex
Allowed if based on marital status
The answer is never allowed. A creditor may not discriminate against an applicant in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, or age, because all or part of his or her income derives from a public assistance program, or because he or she has, in good faith, exercised any right under the Consumer Credit Protection Act. The amount and probable continuance of income may be considered in evaluating an applicant’s creditworthiness; however, making a lending decision based wholly or in part on income is not discrimination.
Which line of the Loan Estimate would reflect any lender credits?
Funds for Borrower
Closing Costs Financed
Adjustments and Other Credits
Total Closing Costs
The answer is Total Closing Costs. The Total Closing Costs section totals the Loan Costs and Other Costs tables, plus the amount of any lender credits, on the Loan Estimate.
A lender mails the Loan Estimate on Monday. Assuming no holidays and the lender is open on Saturdays, what is the earliest day on which the transaction may be consummated?
Tuesday of the following week
The following Monday
Wednesday of the following week
The following Thursday
The answer is Tuesday of the following week. A Loan Estimate must be provided to the loan applicant no more than three business days after receipt of an application and no less than seven business days prior to loan consummation. A business day is defined for Loan Estimate purposes as all calendar days except Sundays and legal public holidays. Using this information, the transaction could not be consummated earlier than Tuesday of the following week.
A mortgage loan in the amount of $18,000 is a high-cost home loan if it has points and fees that exceed:
5% of the loan amount
6% of the loan amount
$1,148
$1,440
The answer is $1,148. A loan may be a high-cost home loan if it exceeds a points and fees threshold. For a transaction like this one, which has a loan amount of less than $22,969, the loan is high-cost if its points and fees equal the lesser of 8% of the total loan amount or $1,148. In this case, $18,000 × 8% = 1,440. $1,148 is less than 8% of the loan amount, meaning that if its points and fees exceeded $1,148, it would be high-cost.
Which of the following would not need to be contained in a privacy notice?
Categories of information collected
Categories of affiliates with whom information is shared
Names of affiliates with whom information is shared
Categories of information disclosed
The answer is names of affiliates with whom information is shared. A privacy notice must clearly, conspicuously, and accurately state the company’s privacy practices, including what information the company collects and discloses about its consumers and customers, the types of entities with which it shares the information, and how it protects or safeguards the information.
Under the PATRIOT Act, covered entities must have a CIP, which stands for:
Customer Identification Program
Consumer Identification Protocol
Corrected Information Protocol
Correspondent Information Program
The answer is Customer Identification Program. The PATRIOT Act requires covered entities to have and use Customer Identification Programs, or CIPs, to help verify consumer identities and combat identity theft, money laundering, and terrorist financing activities.
All of the following are mortgage loans subject to coverage under the Home Mortgage Disclosure Act, except:
A loan to purchase a condominium unit
A home improvement loan made for the purpose of repairing, rehabilitating, or remodeling a dwelling
A home equity loan used to pay off outstanding medical bills
A loan to purchase a mobile home or multi-family dwelling
The answer is a home equity loan used to pay off outstanding medical bills. Loans subject to the Home Mortgage Disclosure Act (HMDA) include home purchase loans for any residential dwelling, home improvements loans made for the purpose of repair, rehabilitation or remodeling a dwelling, and refinance loans of a loan previously covered by HMDA.
The Interagency Guidance on Nontraditional Mortgage Products applies to:
Any adjustable-rate mortgage
Any mortgage with a prepayment penalty
Any mortgage that requires a determination of ability to repay
Any mortgage which allows the deferment of principal or interest
The answer is any mortgage which allows the deferment of principal or interest. Under the Guidance, the term “nontraditional mortgage product” refers to a closed-end residential mortgage loan product that allows a borrower to defer payment of principal and sometimes interest.
Which of the following transactions would carry monthly mortgage insurance?
VA 100% LTV, 30-year fixed
Conventional 80% first, 15% second; combined LTV of 95%
Conventional 30-year fixed, 72% LTV
FHA 30-year fixed, 20% down
The answer is FHA 30-year fixed, 20% down. For all FHA insured mortgages involving an original principal obligation less than or equal to 90% LTV, regardless of amortization terms, an annual mortgage insurance premium will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.
Which of the following is true of the repayment of a construction loan?
Principal is repaid when all the work is completed
Interest is paid upfront, when the funds are released
Principal and interest are paid in installments until the work is completed
Principal is repaid in installments until the work is completed
The answer is principal is repaid when all the work is completed. Repayment of the principal of a construction loan is required at the time work is concluded. Interest is charged on funds as they are released and repaid in interest-only installments while work is ongoing.
Subordinate financing relates to:
Seller financing
Second mortgages
Financing in the secondary mortgage market
Subprime loans
The answer is second mortgages. Subordinate financing relates to the making of a loan that is secondary to one or more other loans on the property. A mortgage is a second mortgage when it is recorded after another mortgage that is still outstanding on the same property, or it has a subordination clause specifying that it has lower priority or will remain subordinate in the event that the first mortgage is refinanced.
Which of the following best describes the tolerance applicable to the escrow account?
Tolerance depends on certain factors
Zero tolerance
No tolerance requirement
10% tolerance
The answer is No tolerance requirement. There is no tolerance requirement for an escrow account. In other words, the creditor may charge more than it discloses in the Loan Estimate as long as the original estimate was based on the best available information at the time. Other charges that do not have a tolerance limitation include prepaid interest and property insurance premiums.
Which of the following lists contains a piece of information which will usually not be found on the 1003?
Mortgage type, borrower’s housing expenses, purchase price
Borrower’s name, borrower’s Social Security Number, underwriter’s name
Subject property address, PMI, closing costs paid by the seller
Borrower’s income, interest rate, loan term
The answer is Borrower’s name, borrower’s Social Security Number, underwriter’s name. The underwriter’s name is not included in the 1003.
If a consumer pays more at consummation than what was disclosed in the Loan Estimate and the amounts exceed the tolerances allowed by law, the creditor must:
Refund the excess within 60 calendar days of consummation
Provide an additional disclosure acknowledging this fact
Waive all application fees
Refund the excess within five business days of providing the Closing Disclosure
The answer is refund the excess within 60 calendar days of consummation. If a consumer pays more at consummation than what was disclosed in the Loan Estimate and the amount paid exceeded the allowable tolerances, the creditor must refund the excess to the consumer within 60 calendar days of consummation. For those charges subject to zero tolerance, the full amount in excess of the amount disclosed must be refunded. For charges subject to the 10% tolerance, to the extent the total sum of the charges added together exceeds the sum of all such charges disclosed on the Loan Estimate by more than 10%, the difference must be refunded to the consumer.
Which of the following best describes a lender’s obligation under the Ability-to-Repay Rule?
Lenders may not close loans with a debt-to-income ratio above 43%
Lenders must always require two years of tax returns in order to assess income
Lenders must make a reasonable determination regarding the borrower’s ability to repay the loan
Lenders must guarantee the borrower’s payments for the first 24 months of the loan
The answer is Lenders must make a reasonable determination regarding the borrower’s ability to repay the loan. Under the Ability-to-Repay Rule, a creditor must make a good faith determination that the borrower will be able to repay the mortgage loan according to its terms. Such a determination must be made based on a periodic payment amount, calculated at the fully-indexed rate and a schedule that fully amortizes the loan.
If required, the amount of flood insurance must be the lower of:
80% of the replacement cost or the unpaid principal balance of the loan
The insurable value or the unpaid balance of the loan
The insurable value or the appraised value
100% of the replacement cost or the unpaid balance of the loan
The answer is 100% of the replacement cost or the unpaid balance of the loan. A lender may not make, increase, extend, or renew a loan that is secured by improved real estate or a mobile home located in an area designated by the government as a Special Flood Hazard Area (SFHA), unless the building or mobile home and any personal property securing the loan are covered by flood insurance for the entire loan term with a limit of the lesser of the outstanding principal loan balance or 100% of the replacement cost of the property, less the value of the land.
A borrower is claiming capital gain income on their tax returns. Which of the following is most accurate with regard to using the income to qualify for a mortgage loan?
The income can be used, as long as the borrower provides an explanation for the income
The income can be used, as long as the borrower can show a history of receiving the income and document that the income will continue
Capital gain income can never be used in qualifying a borrower
The income can be used, as long as the borrower has reported capital gain income for the last two years on their tax returns
The answer is the income can be used, as long as the borrower can show a history of receiving the income and document that the income will continue. To qualify a borrower for a conforming loan, stable monthly income can include secondary sources of income that may vary in terms of quantity, quality, and durability. The average of capital gains income can be counted as a source of income if the applicant has consistently turned over assets over a sustained period of time (e.g., two years) and owns additional property or assets that can be sold to make future mortgage payments.
An underwriter may require _____ in order to document the income of a commissioned borrower.
Two years’ tax returns if the borrower’s commissions represent 20% of his/her income
1099s from the previous year
Profit and loss statement and two years’ tax returns
Two years’ tax returns and all schedules if the commission income is more than 25% of income
The answer is two years’ tax returns and all schedules if the commission income is more than 25% of income. Commissioned borrowers may be required to show two years’ tax returns if their commission income is more than 25% of their total income.
Which of the following would not be considered a prepaid finance charge?
Title insurance premium
Flood certification fee
Discount points
Upfront mortgage insurance premium
The answer is title insurance premium. A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at consummation of the loan or withheld from the proceeds. They include loan origination, discount, and commitment fees, any prepaid private mortgage insurance premium, upfront mortgage insurance premium, VA funding fee, or USDA guaranty fee, underwriting, processing, and courier fees, if paid to the creditor, buydown funds, and prepaid interest. The cost of a title insurance premium is NOT a prepaid finance charge.
If a borrower has a fixed-rate mortgage and her taxes and insurance are included in her monthly payments, which of the following does not change over the life of the loan?
Principal amount combined with interest amount in payment
Interest amount in payment
Tax amount in payment
Principal amount in payment
The answer is principal amount combined with interest amount in payment. The payment amount related to principal and interest on a fixed-rate mortgage loan will not change. However, if the borrower is paying property taxes and/or insurance through an escrow account established by the lender, if either of those mortgage-related expenses increase or decrease, the monthly payment amount will change accordingly.
A borrower closes in April. His first payment is due June 1. If his insurance is due on November 1st, how many months of insurance premiums must be collected at closing to properly fund the escrow account (not accounting for any cushion)?
Six
Five
Four
Seven
The answer is seven. In order to ensure that the escrow account has a full year’s worth of money by November 1st, the account needs to be “front loaded” at closing with the number of months needed to total 12 months.
Let’s assume that the annual premium is $1200.
Each month, $100 is going into the account starting June 1.
Here’s how much will be in the escrow account month by month:
JUNE 1 = $100
JULY 1 = $200
AUG 1 = $300
SEPT 1 = $400
OCT 1 = $500
NOV 1 = (-) 1200 ***This is how much is needed by 11/1. Since there will be $500 in the account by that time, the borrower will need to bring $700 or 7 months’ worth of insurance to the closing to ensure that there is enough in the account to pay for the insurance premium.
Which of the following would not be covered by the GLB Act?
Processor
Loan broker
Title company
Appraiser
The answer is Appraiser. The Gramm-Leach-Bliley Act requires financial institutions to give privacy notices to consumers, explaining their information-sharing policies. The GLB Act applies to financial institutions that offer financial products and services to individuals. Persons covered would include loan processors and loan brokers. Since title companies also handle consumers’ personal information, such entities would be covered as well. Appraisers are not covered under the GLB Act.
