Final Practice Test Questions Flashcards
1
Q
Which of the following situations would be acceptable under RESPA?
A. A mortgage loan originator requires all borrowers to use an appraisal company which is owned by the mortgage loan originator’s mortgage company, though this ownership is not disclosed
B. A mortgage loan originator requires all borrowers to use his son’s title company and takes an undisclosed share in profits from that company
C. A mortgage loan originator refers all borrowers to use the title company which is located in the same building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage loan originator’s company has no other relationship
D. A mortgage loan originator does not require the use of a certain title company, but receives a financial bonus from a certain title company if the borrowers that she refers use that provider
A
The answer is a mortgage loan originator refers all borrowers to use the title company which is located in the same building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage loan originator’s company has no other relationship. An affiliate relationship exists when one company controls, is controlled by, or is under common control of another company. Under RESPA, when a settlement service provider refers a borrower to one or more affiliates with whom it has an ownership or other beneficial interest, an Affiliated Business Arrangement (AfBA) Disclosure Statement must be given on a separate piece of paper to the borrower. Among other things, the AfBA Disclosure informs the borrower that he/she is generally not required to use the affiliate and is free to shop for other providers. Kickbacks and referral fees are also prohibited under RESPA.
2
Q
Which of the following contains only items which should be used in calculating a borrower’s debt-to-income ratio?
A. Monthly rent expense on current home, credit card payment, car insurance
B. Car payment, boat payment, child support obligations
C. Property tax payment, utility payment, cable bill
D. Mortgage insurance payment, average grocery costs, electric bill
A
The answer is car payment, boat payment, child support obligations. A debt-to-income ratio compares an applicant’s total monthly debt to his or her total monthly income. Total monthly debt would include simultaneous loans, debt obligations, alimony, and child support. Typical living expenses (e.g., utilities, health and disability insurance, food, phone or cable bills, etc.) are not included when calculating DTI.
3
Q
Which of the following would NOT be required if a mortgage company wishes to utilize electronic signatures on required disclosures?
A. Borrowers must be given the option to receive the disclosures in paper form
B. Borrowers must be able to withdraw their consent to receive the disclosures electronically
C. The company must record the IP address from which the documents were accessed
D. The company must disclose hardware and software requirements to borrowers
A
The answer is the company must record the IP address from which the documents were accessed. Under the Electronic Signatures in Global and National Commerce Act (the E-SIGN Act), before obtaining a consumer’s consent, a financial institution must provide a clear and conspicuous statement to consumers, informing them of their right or option to have the record provided or made available on paper or in a non-electronic form. The statement must also explain the consumer’s right to withdraw consent, including applicable conditions, consequences, and fees. Consumers must also be provided with information about the hardware and software required to allow them to access and retain the electronic records.
4
Q
Under the S.A.F.E. Act, a licensed loan originator’s responsibilities with regard to recordkeeping include all of the following, except:
A. Not knowingly withholding, removing, or destroying any books or records
B. Making all of the licensee’s records available to borrowers upon demand
C. Permitting interviews of principals, loan originators, and independent contractors by state regulators
D. Making records and books available to the state regulator
A
The answer is making all of the licensee’s records available to borrowers upon demand. Licensed loan originators and those required to be licensed must make records and books available to their state regulator and permit interviews of officers, principals, employees, independent contractors, agents, and customers. They may not knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, or other information during an investigation or examination. Loan originators are not required to make all of their records available to borrowers upon demand.
5
Q
Ethics:
A. Is a branch of philosophy dealing with legal behavior
B. Provides a guideline for answering questions when a choice of actions is available
C. Defines how a person must act
D. Is set out in law
A
The answer is provides a guideline for answering questions when a choice of actions is available. Ethics goes beyond what is required under the law, so ethical rules extend beyond the minimum legal standards in providing guidance for one’s actions. Ethics goes into the realm of what should be done, providing guidelines for answering questions when a choice of actions is available. As a result, ethical rules are often not as clear-cut as the legal rules.
6
Q
Under the S.A.F.E. Act, a loan originator:
A. Can be an individual or a business entity
B. Is any person who takes loan applications secured by personal property
C. Is an individual who takes residential mortgage loan applications
D. Is any individual who takes loan applications secured by either real estate or personal property
A
The answer is is an individual who takes residential mortgage loan applications. The S.A.F.E. Act defines a mortgage loan originator as an individual who takes residential mortgage loan applications, or offers or negotiates terms of residential mortgage loans for compensation or gain.
7
Q
Which of the following is not a required element of a company’s safeguard policy, as required by the GLB Act?
A. Designate one or more employees to coordinate safeguards
B. Evaluate and adjust procedures in light of relevant circumstances
C. Select appropriate service providers and contract with them to implement safeguards
D. Contract with a federally-insured company to destroy documents
A
The answer is contract with a federally-insured company to destroy documents. Under the GLB Act, a financial institution must have a written information security program that is appropriate to its size and complexity, to the nature and scope of its activities, and to the sensitivity of the customer information it handles. As part of its program, the financial institution must assign one or more employees to oversee the program; conduct a risk assessment; put safeguards in place to control the risks identified in the assessment and regularly test and monitor them; require service providers, by written contract, to protect customers’ personal information; and periodically update its security program. There is no requirement to contract with any external company to handle information security issues of any kind.
8
Q
The purpose of the Truth-in-Lending Act is to do which of the following?
A. Ensure meaningful disclosure of credit terms to consumers
B. Prevent lenders from charging interest rates that are unfair to consumers
C. Protect consumers from abusively high interest rates
D. Require consumers be provided with a good faith estimate of closing costs at the time of loan application
A
The answer is ensure meaningful disclosure of credit terms to consumers. The purposes of TILA include assuring a meaningful disclosure of credit terms so that the consumer will be able to more readily compare the various credit terms available to him or her and avoid uninformed use of credit.
9
Q
Which of the following is most likely to be a violation of the Equal Credit Opportunity Act?
A. Failing to give a borrower notice of the right to rescind
B. Denying an application based on economic characteristics
C. Requiring a borrower to verify residency or citizenship status
D. Declining a loan due to the borrower’s race
A
The answer is declining a loan due to the borrower’s race. The Equal Credit Opportunity Act (ECOA) ensures that all persons, consumers, and businesses are given an equal chance to obtain credit by prohibiting discrimination based on criteria including race, color, religion, national origin, sex, marital status, and age (provided the individual is of age to enter into a contract). Declining a loan due to the borrower’s race is a violation of ECOA.
10
Q
For an FHA loan, how much may the seller contribute toward the borrower’s closing costs? A. Nothing B. 6% of the sales price C. 3% of the sales price D. 3% of the loan amount
A
The answer is 6% of the sales price. The FHA allows the seller to contribute up to 6% of the purchase price toward the buyer’s actual closing costs, prepaid taxes and insurance, discount points, buydown fees, mortgage insurance premiums, and other financing concessions, but nothing toward the down payment.
11
Q
Which of the following is most true concerning a VA funding fee?
A. It is always refundable
B. It is nonrefundable
C. It is not charged to veterans
D. It is not charged to active members of the military
A
The answer is it is nonrefundable. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender’s exposure to loss in the event of a borrower’s default that results in foreclosure. However, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed, instead of a mortgage insurance premium for the guarantee. A veteran receiving VA compensation for a service-connected disability is exempt from the fee requirement.
12
Q
Under HOEPA, a high-cost loan may have a balloon payment under all of the following circumstances, EXCEPT:
A. The loan satisfies the requirements of a balloon payment qualified mortgage
B. A nine-month bridge loan is obtained for the construction of the borrower’s primary dwelling
C. The borrower’s income is seasonal
D. The borrower signs a waiver consenting to the balloon payment
A
The answer is the borrower signs a waiver consenting to the balloon payment. A high-cost loan may not provide for a payment schedule with regular periodic payments that result in a balloon payment, unless the payment schedule is adjusted for the irregular or seasonal income of the borrower; the loan is a bridge loan with a term of 12 months or less, taken in connection with the acquisition or construction of a dwelling that will be the borrower’s principal residence; or the loan satisfies the requirements of a balloon payment qualified mortgage.
13
Q
When would ARM disclosures be required?
A. If the initial term on an ARM is more than one year
B. If the initial term on an ARM is less than five years
C. For all ARMs
D. If the initial term on an ARM is less than one year
A
The answer is for all ARMs. For an ARM, the interest rate will change periodically, based on an index to which the rate is tied and the margin added to cover the creditor’s expenses and profit. Therefore, the borrower must be given information about the index, the margin, and the frequency of rate adjustments, in addition to other pertinent facts about the loan. For an ARM secured by a borrower’s principal residence with a term exceeding one year, additional disclosures must be provided either at the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier.
14
Q
On the Loan Estimate, fees related to third-party service providers chosen from the provider list and not affiliated with the creditor are grouped with the recording fees and subject to a: A. No tolerance limitation B. 10% tolerance C. 15% tolerance D. Zero tolerance
A
The answer is 10% tolerance. In regard to tolerances related to settlement costs, fees related to third-party service providers and recording fees are grouped together and subject to a 10% tolerance. The creditor may charge more for a particular service or recording fee than initially disclosed as long as the total for all such charges, when added together, does not exceed 10% of the amount disclosed.
15
Q
A borrower makes $60,000 per year. The borrower's spouse makes $3,000 per month. The borrowers' monthly housing expense is $1,500. They have a car payment of $500, a boat payment of $350, a phone bill of $150, and a car insurance payment of $100. What is the couple's back-end DTI? A. 30.6% B. 31.25% C. 32.5% D. 29.38%
A
The answer is 29.38%. Monthly Housing Costs + Monthly Liabilities / Gross Monthly Income = Debt-to-Income Ratio. Borrower 1’s annual income is $60,000, divided by 12 = $5,000. The spouse’s gross monthly income of $3,000 is added to $5,000, for a total monthly income of $8,000. The monthly housing expense ($1,500) is added to the car payment ($500) and the boat payment ($350), totaling $2,350. This figure, divided by $8,000, equals 29.38%. Typical living expenses, such as a phone bill or car insurance, are not included when calculating DTI.
16
Q
On an ARM loan, which of the following will not be found on the note? A. Fully-indexed rate after one year B. Margin C. Adjustment parameters D. Identification of index
A
The answer is fully-indexed rate after one year. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. For an ARM loan, it will typically identify the index, specify the margin, and list adjustment parameters, but will not specify the fully-indexed rate after one year.
17
Q
Which of the following is true regarding a creditor’s duty to give a copy of an appraisal to a borrower?
A. The lender is always required to provide a copy of the appraisal promptly upon completion
B. The lender is only required to give a copy of the appraisal for closed-end credit
C. The lender is never required to give a copy of the appraisal to the borrower
D. The lender is required to provide a copy of the appraisal promptly upon completion or three business days prior to consummation for closed-end credit, whichever is earlier
A
The answer is The lender is always required to provide a copy of the appraisal promptly upon completion or three days prior to consummation for closed-end credit, whichever is earlier. A creditor is required to provide an applicant with 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. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion, or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit.
18
Q
Redlining is addressed in which federal law? A. RESPA B. HOEPA C. FCRA D. ECOA
A
The answer is ECOA. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in extension of credit based on race, color, religion, national origin, sex, marital status, age, potential to have or raise children, the fact that the applicant receives income from a public assistance program, or the fact that the applicant has exercised his or her rights under the Consumer Credit Protection Act. This includes the discriminatory lending pattern of redlining, in which a lender refuses to provide lending products and services on an equal basis to residents of minority neighborhoods (the term is derived from the practice of drawing red lines around minority areas on a map.)
19
Q
A mortgage which is amortized for a longer period than the actual term of the loan can best be described as what type of mortgage? A. Balloon mortgage B. Hybrid ARM C. Graduated Payment Mortgage (GPM) D. Fixed period ARM
A
The answer is balloon mortgage. A partially amortized or balloon mortgage provides for some, but not total, amortization during the mortgage term. It has payments that are equal and regular in nature. However, the loan term is shorter than the time needed to repay the full loan balance by making those payments. Therefore, at the end of the loan term, a large balloon payment is needed to pay off the remaining balance.
20
Q
Under Fannie Mae guidelines, the amount of hazard insurance must be equal to:
A. The appraised value
B. The purchase price
C. The lower of the replacement cost or the unpaid loan amount
D. 80% of the replacement cost
A
The answer is the lower of the replacement cost or the unpaid loan amount. Fannie Mae requires that for any first-lien mortgage (excluding a reverse mortgage), the minimum hazard insurance coverage required is the lesser of 100% of the insurable value of the improvements, as established by the property insurer, or the unpaid principal balance of the mortgage, as long as it equals the minimum amount (80% of the insurable value of the improvements) required to compensate for damage or loss on a replacement cost basis. If it does not, then the coverage that does provide the minimum required amount must be obtained.
21
Q
A lender charges 6% interest on a $200,000, 30-year fixed-rate loan, for a property purchased for $220,000. What is the annual interest on the loan?
$6,000
$12,000
$1,600
$1,200
A
The answer is $12,000. To calculate the annual interest: 6% × $200,000 = $12,000.
22
Q
Which of the following would not be on a promissory note?
Amount owed
Rate of interest and whether the loan is fixed or adjustable
Borrower’s Social Security Number
Loan terms
A
The answer is borrower’s Social Security Number. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, amount owed, rate of interest and whether the loan is fixed or adjustable, due dates for payment, and the loan terms.
23
Q
Which of the following does not appear in the Loan Estimate?
The anticipated ARM rates for the first five years
The loan term
Whether the subject loan is assumable
The property purchase price
A
The answer is the anticipated ARM rates for the first five years. In the heading of the Loan Estimate, the licensee must indicate the property address and its sale price, as well as the loan’s term. The Other Considerations table provides the applicant with information on appraisals, the homeowner’s insurance requirement, the lender’s late payment policy, loan servicing information, and whether the loan may be assumed or refinanced. Anticipated ARM rates for the first five years of the loan are not disclosed, although the total the applicant will have paid in principal, interest, mortgage insurance, and loan costs for that time period is, in the Comparisons table.
24
Q
Which of the following would not be considered a settlement service?
Servicing
Escrow services
Origination services
Appraisal services
A
The answer is servicing. Settlement services include a variety of services related to the origination, processing, or funding of a loan, including, among others, rendering credit reports and appraisals, and conducting settlement by a settlement agent (e.g., the originating lender, an attorney, or a licensed escrow agent) and any related services. They do not include loan servicing.
25
If a consumer contacts a mortgage company, for how long does the established business relationship exemption exist?
Nine months
Six months
24 months
Three months
The answer is three months. Under the Do-Not-Call-Act, a company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an “established business relationship” exists. An established business relationship means a relationship between the company and a consumer based on the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the 18 months immediately preceding the date of a telemarketing call. This may also include an inquiry or application regarding an offered product or service, within the three months (90 days) immediately preceding the date of a telemarketing call.
26
A scenario in which a person forces the sale of a home at a much lower value than its true worth, then resells the home at its true value, is known as:
Property flipping
A short sale
An air loan
Property flopping
The answer is property flopping. Property flopping is associated with short sales, and it typically occurs when a short sale is approved based on a misrepresentation of the value of the property. The fraud is usually perpetrated by the buyer purchasing the property from the short sale seller. In some cases, the seller's real estate agent is the buyer. The buyer presents a low offer to purchase the property to the lender along with an artificially low valuation of the property, in order to convince the lender that the property is worth less than it really is. Any higher offers from bona fide buyers are withheld from the lender, who would most likely reject the low offer if it knew that higher offers were on the table. Once the lender approves the short sale at the artificially-low price, the fraudster contacts the bona fide buyer or markets the property at its true market value.
27
The agency that focuses its actions directly on consumers, consolidates responsibilities and supervision of financial entities, products, and services, and protects consumers from unfair, deceptive, and abusive acts and practices is the:
Consumer Protection Agency
Consumer Financial Protection Bureau
Federal Housing Administration
Department of Housing and Urban Development
The answer is Consumer Financial Protection Bureau. The mission of the CFPB is to make markets for consumer financial products and services work for Americans. It is focused on one goal: watching out for American consumers in the market for consumer financial products and services. This includes ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families by making sure prices are clear upfront, risks are visible, and nothing is concealed in fine print. A working market allows consumers to make direct comparisons among products and prohibits providers from using unfair, deceptive, or abusive practices.
28
Which of the following may be a qualified mortgage?
A 30-year adjustable-rate mortgage loan granted to a borrower with a debt-to-income ratio of 45%
A 40-year fixed-rate mortgage
A 35-year fixed-rate mortgage with points and fees equaling 3.75% of the loan amount
A 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan
The answer is a 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan. A qualified mortgage is a covered transaction that provides for substantially-equal, regular periodic payments that do not provide for negative amortization, payment deferral, or (generally) a balloon payment. To be a qualified mortgage, the lender must determine the borrower’s repayment ability based on the monthly payment for mortgage-related obligations, the consumer’s reasonably-expected income and assets, and existing debt obligations. A qualified mortgage may not have a term that exceeds 30 years, provide for points and fees that exceed 3% of the total loan amount, or be granted to a borrower who has a monthly debt-to-income ratio exceeding 43%.
29
Which of the following would not be on a deed of trust?
Legal description
Loan amount
Interest rate
Borrower's name
The answer is interest rate. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. The mortgage or trust deed secures repayment of the note. Housing costs, including principal, interest, taxes, and insurance, are not typically specified on the deed of trust.
30
Assume that the Loan Estimate is mailed on Tuesday. The office is open six days a week and closed on Sundays. What is the earliest day on which the transaction could close?
Wednesday of the following week
Friday of the following week
Monday of the following week
Tuesday of the following week
The answer is Wednesday of the following week. A creditor must provide the Loan Estimate either in person, via overnight delivery, or by placing it in the mail or delivering it no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. For the purposes of determining the waiting period that must elapse between providing a Loan Estimate and consummation, a "business day" is defined to mean all calendar days except Sundays and legal public holidays. Here, the Loan Estimate is mailed on Tuesday. Seven business days from Tuesday would be the following Wednesday (Wednesday, Thursday, Friday, Saturday, Monday, Tuesday, Wednesday).
31
Each of the following is true about the Department of Housing and Urban Development (HUD), except:
The Federal Housing Administration, with its liberal-eligibility FHA loan programs, operates under HUD’s authority
It provides or makes referrals related to housing counseling for loan applicants seeking a HECM or high-cost home loan
Public housing and multi-family housing fall under its purview
It has a major role in overseeing the mortgage industry
The answer is it has a major role in overseeing the mortgage industry. Although the federal Department of Housing and Urban Development (HUD) no longer oversees the mortgage industry (that job has been taken over by the Consumer Financial Protection Bureau, or CFPB), it continues to operate in a number of important areas relating to housing. These areas include programs related to community planning and development, public housing and multi-family housing, and providing counseling for those seeking to purchase a home. The Federal Housing Administration (FHA) also operates under HUD; the FHA sponsors loan programs with relatively liberal qualification requirements, insuring financial institutions that offer loans to individuals who might not qualify for a prime loan.
32
Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet the requirements of the Act, while overall responsibility for interpretation, implementation, and compliance currently lies with:
The NMLS
The Federal Reserve
HUD
The CFPB
The answer is the CFPB. Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet S.A.F.E. Act requirements. Overall responsibility for interpretation, implementation, and compliance with the S.A.F.E. Act was originally delegated to the U.S. Department of Housing and Urban Development (HUD). However, effective July 21, 2011, all of HUD’s authorities and duties were delegated to the Consumer Financial Protection Bureau (CFPB).
33
Which of the following issues is not addressed in the standard deed of trust and note for an owner-occupied primary residence?
Insurance on the property
How quickly a borrower must occupy the property
Keeping hazardous substances on the property
Actual amounts for taxes and insurance
The answer is actual amounts for taxes and insurance. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, the amount owed, the rate of interest and whether it is fixed or adjustable, the due date(s) for payment, and the terms of the loan. The mortgage or trust deed secures repayment of the note. Its covenants address topics that include occupancy, insurance, and hazardous materials, but it does not typically specify actual amounts for taxes and insurance.
34
In order to qualify for an adjustable-rate mortgage, a consumer must be able to show that he or she can:
Make regularly scheduled payments that are calculated using the loan’s introductory rate
Make amortizing payments that are calculated using the fully indexed rate for the ARM
Make amortizing payments that are calculated using the loan’s rate after the first interest rate adjustment occurs
Make regularly scheduled payments that are calculated using the fixed interest rate for which the consumer would be eligible
The answer is make amortizing payments that are calculated using the fully indexed rate for the ARM. Qualifying for an ARM requires a consumer to demonstrate an ability to make amortizing payments that are calculated at the loan’s fully indexed rate.
35
In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for:
Twelve months
Three years
Two years
Five years
The answer is three years. In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for three years.
36
Mortgage loan originator Trevor Tibbs has accepted a loan application for a dwelling that is a mobile home not permanently affixed to the land. Does this mobile home meet the requirements necessary for it to be considered security for a residential mortgage loan?
Yes, a dwelling includes a structure whether or not that structure is attached to real property
No, dwellings must be permanently attached to real property
No, mobile homes are classified as personal property, not real property
Yes, as long as the real property upon which the mobile home will be located is in the borrower’s name, the loan may be a residential mortgage loan
The answer is yes, a dwelling includes a structure whether or not that structure is attached to real property. A residential mortgage loan is any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or will be constructed a dwelling. A dwelling is a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home and trailer, if it is used as a residence.
37
Lester is calculating prepaid finance charges that will be withheld from the proceeds of the loan. These direct loan charges paid by the borrower must be included in computing the:
Annual percentage rate
Broker fees and the amount charged by a third party
Amount of the payment
Length of the loan
The answer is annual percentage rate. A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at the consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower that must be included in computing the annual percentage rate.
38
Sue Ellen has been a mortgage loan originator for nine years and knows her hometown very well. She meets with a couple who have moved to her town from Ecuador. Checking their application, Sue Ellen sees that the neighborhood they are hoping to move to is higher-income and predominantly white. Without discussing it or checking their financial paperwork, Sue Ellen tells the couple they are likely "aiming too high" in their requested loan amount, and she suggests that they keep looking "elsewhere" for "something more appropriate." Sue Ellen is engaging in:
Streamlining
Discouragement
Steering
Redlining
The answer is discouragement. Discouragement is a form of discrimination in which borrowers belonging to certain protected classes are discouraged from applying for a loan on the basis of their personal characteristics. Here, Sue Ellen has no idea as to the couple's financial qualifications to purchase a property in their desired neighborhood. She bases her discouragement solely on perceived racial characteristics, which is a discriminatory act that is prohibited under federal law.
39
If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer at what point?
Within seven business days of a customer providing nonpublic personal information sufficient to pull a credit report
Within three business days of initial contact between the consumer and the financial institution
No later than three business days prior to settlement
No later than the time at which a customer relationship is established
The answer is no later than the time at which a customer relationship is established. If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer no later than the time at which a customer relationship is established.
40
How many total hours of ethics are required, at minimum, for pre-licensing education?
20
8
16
3
The answer is 3. The NMLS requires, as a federal minimum, at least three hours of ethics training within the total 20 hours of education required for pre-licensing education.
41
The Dodd-Frank Act listed the creation of financial education programs as one of the primary functions of:
NMLS
CFPB
FHA
HUD
The answer is CFPB. The Dodd-Frank Act listed the creation of financial education programs as one of the primary functions of the CFPB.
42
Which of the following may be considered an appraisal red flag?
An appraiser’s resume shows substantial experience in the area
Property owner and seller are not the same
Appraisal is dated after the sales contract
Comparables are located within one mile of the subject
The answer is property owner and seller are not the same. If the property owner and property seller are not the same, it is likely more questions should be asked about the deal.
43
If a consumer submits a complaint about a mortgage lender to the CFPB, the lender has _____ days to respond before the CFPB publishes the complaint in its public complaint database and pursues a potential investigation.
7
10
20
15
The answer is 15. If a consumer submits a complaint about a mortgage lender to the CFPB, the lender has 15 days to respond before the CFPB publishes the complaint in its public complaint database and pursues a potential investigation.
44
All of the following are considered involuntary liens, except:
Mortgage
Mechanic’s lien
Tax lien
Judgment
The answer is mortgage. An involuntary lien is “imposed” on a borrower. In the case of a mortgage, a borrower would “consent” to having a lien on his/her home.
45
Which of the following is not permitted for a HOEPA loan?
Documenting a borrower’s ability to repay the loan
Requiring a balloon payment after the first five years
Refinancing into another HOEPA loan within 12 months if it is in the borrower’s best interest
Making a loan solely based on the collateral value of the property
The answer is making a loan solely based on the collateral value of the property. Under HOEPA, you may not make a loan solely based on the value of the borrower’s collateral without considering his/her ability to repay the loan.
46
A lending transaction has been rescinded by a consumer with cold feet. What happens as a result?
The lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process
The rescission may be challenged by the lender as long as it is within seven business days
The lender no longer has security interest in the property, and the borrower is liable for any finance charges and appraisal costs
After cancellation, the lender retains any money or property paid by the borrower
The answer is the lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process. TILA requires that, in the event of rescission, the lender relinquish security interest in the property and return any and all money or property paid by the borrower. All parties are placed back in the exact position they were in before the transaction took place.
47
All but which of the following prohibitions or requirements apply to HPMLs?
The loan cannot include prepayment penalties after the first two years of the loan term
The loan cannot include prepayment penalties
The borrower must have an escrow account for taxes and insurance
Consideration of repayment ability must include verification of income using documents such as IRS W-2 forms
The answer is the loan cannot include prepayment penalties after the first two years of the loan term. HPMLs cannot include prepayment penalties at all, so it is false to say that the loan cannot include prepayment penalties after the first two years of the loan when they are prohibited altogether.
48
Which of the following loans requires the collection of HMDA data?
Refinance of a second home
Financing of a recreational vehicle
Student loan
SBA loan
The answer is refinance of a second home. HMDA data is required for purchase loans, refinance loans, and home improvement loans, as long as the loans are secured by a dwelling.
49
The federal agency that implements and enforces rules related to the origination of FHA loans is the:
Consumer Financial Protection Bureau (CFPB)
Department of Housing and Urban Development (HUD)
Federal Trade Commission (FTC)
National Credit Union Administration (NCUA)
The answer is Department of Housing and Urban Development (HUD). The Department of Housing and Urban Development implements and enforces rules related to FHA lending.
50
Which of the following is true?
Open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule
Open-end credit plans, timeshare plans, and closed-end consumer credit loans are exempt from the ATR Rule
Open-end credit plans are covered by the ATR Rule
Reverse mortgage loans are covered by the ATR Rule
The answer is open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule. Open-end credit plans, timeshare plans, and reverse mortgage loans are excluded from the ATR Rule. The ATR Rule applies to almost all closed-end consumer credit transactions secured by a dwelling, including attached real property.
51
The reporting form used to communicate HMDA data is called what?
1073
Loan/Registration Application
1004
Loan/Application Register
The answer is Loan/Application Register. The form used for reporting HMDA data is called the Loan/Application Register (LAR).
52
Disclosures for high-risk loans required by the Homeowners Protection Act inform the borrower that:
The loan is considered a high-cost loan because it trips thresholds related to title insurance fees
Termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments
There may be a loan more suited for the borrower that is much less expensive
Payment amounts may change based on interest rate changes
The answer is termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments. The term “high-risk loans” pertains specifically in this case to legislation related to the HPA which facilitates the cancellation of private mortgage insurance. The HPA requires PMI on high-risk loans to be terminated automatically at the midpoint of the amortization schedule, when the borrower is current.
53
A lender who refuses to originate loans in a particular neighborhood or ZIP code because of the perceived creditworthiness of consumers living in the area is in violation of:
FCRA
ECOA
HOEPA
RESPA
The answer is ECOA. Refusing to originate loans in a particular neighborhood or ZIP code because of perceived creditworthiness is a practice known as “redlining” and is a violation of ECOA.
54
Which law restricts the sharing of nonpublic personal information given when a consumer applies for a mortgage loan?
Fair Credit Reporting Act
FTC Disposal Rules
Gramm-Leach-Bliley Act
Consumer Regulatory Protection Act
The answer is Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act is the federal law that limits or restricts the use of a consumer’s nonpublic personal information.
55
In the absence of caps, adjustments on an ARM loan would be determined solely by:
The index
The margin
The fully-indexed rate
The lifetime rate
The answer is the fully-indexed rate. If there were no caps involved, an ARM would adjust based on the movement of the fully-indexed rate (margin + index). It would not be adjusted based on index alone or margin alone. While the margin does not change over time, it must be combined with the fluctuating index to find the new rate. It is not sufficient to apply only the index or only the margin to the adjustment - they must be combined into the fully-indexed rate.
56
HMDA data is collected and aggregated to determine:
The success rate of nontraditional mortgage loans
Whether the success of lending terms varies in different geographic areas
The extent of creditor compliance with privacy protection laws
Whether different credit terms are offered to members of protected classes
The answer is whether different credit terms are offered to members of protected classes. HMDA data is collected and aggregated to determine whether different credit terms are offered to members of different protected classes.
57
Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is considered illegal under:
TILA
Homeowners Protection Act
HOEPA
RESPA
The answer is HOEPA. HOEPA prohibits the intentional targeting of poor or underserved areas with expensive high-cost loans, which is a practice known as reverse redlining.
58
What action must a creditor take if it is discovered that the APR listed on the Closing Disclosure is outside of the range of tolerance?
Provide disclosure of the corrected discrepancy and wait three business days before closing
Keep records of the discrepancy for three years
Adjust the APR and close the loan as scheduled
Restart the seven-business-day waiting period after the new disclosure has been made
The answer is provide disclosure of the corrected discrepancy and wait three business days before closing. When the APR listed on the Closing Disclosure is inaccurate, the APR must be re-disclosed to the borrower, and the loan cannot close for at least three business days from the re-disclosure date.
59
While verifying identity, there are several consistent indicators that suggest identity theft. Which of the following is not an example?
Co-borrowers call each other by nicknames that do not relate to the names on the application
Credit history is inconsistent with the borrower’s age
Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs
Income documents appear to have poor printer alignment
The answer is Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs. Mortgage fraud can sometimes be difficult to detect; however, checking names on an application against names on credit reports and supporting documentation as well as the borrower’s age is important. Additionally, if the supporting documents appear to be altered or tampered with, further investigation should occur.
60
LL Mortgage Company is advertising “120% LTV Home Equity Loans!” In order to ensure compliance with Regulation Z, which of the following statements is also required?
Shop for options with lower loan-to-value ratios
Interest on high loan-to-value ratios is not deductible
Interest on the portion of credit exceeding market value is deductible at 50% of the normal value
Consult a tax adviser regarding deductibility of interest
The answer is consult a tax adviser regarding deductibility of interest. Advertising rules under Regulation Z provide that advertisements for loans exceeding the home’s fair market value must clearly and conspicuously state “The interest on the portion of credit that exceeds market value is NOT deductible.” The advertisement must also state that the borrower should consult a tax advisor regarding the deductibility of interest and charges.
61
Mortgage loan originator Janine Jetson has had a complaint filed against her. Upon receiving a request from her state licensing agency, Janine must:
Make her books and records available to the agency
Respond to the complaint
Post an additional bond
Request a hearing
The answer is make her books and records available to the agency. Each loan originator must make available, upon request by the state licensing agency, the books and records relating to the operations of the originator.
62
According to the HPML Rule, which of the following transactions would require a second appraisal?
A higher-priced mortgage loan that also meets qualified mortgage standards
The purchase price is 10% higher than the seller’s acquisition price 100 days ago
All higher-priced mortgage loans are required to have two appraisals
The purchase price is 20% higher than the seller’s acquisition price 150 days ago
The answer is the purchase price is 20% higher than the seller’s acquisition price 150 days ago. According to the HPML Rule, a transaction will require a second appraisal if the purchase involves a possible case of “loan flipping.” This is true when the consumer’s purchase price is 10% more than the seller’s acquisition price (if the seller acquired the property 90 or fewer days ago) or 20% more than the seller’s acquisition price (if the seller acquired the property 91 to 180 days ago).
63
One advantage of VA loans that is not commonly available in transactions for conventional mortgages is that they are:
Interest free
Available to loan applicants regardless of DTI ratios
Assumable
Not funded by private lenders
The answer is assumable. VA loans are assumable, which means that a purchaser of a home that secures a VA loan may assume the mortgage payments of that loan. Except for direct VA loans, most VA loans are funded by private lenders and are subject to underwriting requirements that include DTI ratios.
64
This federal law amended TILA and other mortgage-related laws, and mandated the implementation of additional rules to improve consumer protection.
RESPA
ECOA
The Consumer Fairness Act
The Dodd-Frank Act
The answer is The Dodd-Frank Act. The Dodd-Frank Act amended TILA and other mortgage-related laws, and mandated the implementation of additional rules to improve consumer protection.
65
Which of the following statements most accurately describes the HPML transactions that are subject to the requirement to establish an escrow account?
Escrow accounts are required for all HPMLs secured by the borrower’s principal dwelling
Escrow accounts are required for all HPMLs secured by a dwelling
Escrow accounts are required for all first-lien HPMLs secured by the borrower’s principal dwelling
Escrow accounts are required for all HPMLs, including reverse mortgages
The answer is escrow accounts are required for all first-lien HPMLs secured by the borrower’s principal dwelling. Escrow accounts are required for all first-lien HPMLs secured by the borrower’s principal dwelling.
66
Loan originator Zena Mendez is preparing an advertisement in which more than one simple interest rate will apply over the term of the loan. In order to be in compliance with Regulation Z, Zena must clearly and conspicuously disclose all of the following, except:
Each applicable simple annual rate
The period of time each simple annual rate applies
The frequency with which the rate will change
The annual percentage rate for the loan
The answer is the frequency with which the rate will change. If an ad states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the loan, the ad must clearly and conspicuously disclose each applicable simple annual interest rate, the period of time during which each rate will apply, and the annual percentage rate for the loan.
67
XYZ Mortgage Company just mailed a Closing Disclosure to a consumer. The waiting period prior to closing will begin:
On the date that the Closing Disclosure is mailed
The next business day after the Closing Disclosure is mailed
The third business day after the Closing Disclosure is mailed
The day on which the company received a completed, signed loan application
The answer is the third business day after the Closing Disclosure is mailed. The waiting period prior to closing will begin on the third business day after the Closing Disclosure is mailed.
68
As a result of the Housing and Economic Recovery Act of 2008, Congress created the _____ for oversight of the GSEs.
FNMA
FinCEN
FHLMC
FHFA
The answer is FHFA. HERA created and installed the FHFA (Federal Housing Finance Agency) as the conservator of the GSEs (Fannie Mae and Freddie Mac). The FHFA’s powers include the responsibility to set the conforming loan limits from year to year.
69
Which of the following correctly describes entities that have obligations under the Fair Credit Reporting Act?
CRAs, Experian, and FHA
FHFA, CRAs, and furnishers of information to CRAs
CRAs, furnishers of information to CRAs, and users of consumer reports
Users of consumer reports and lenders regulated by RESPA and TILA
The answer is CRAs, furnishers of information to CRAs, and users of consumer reports. The FCRA creates a number of obligations for users and furnishers of credit information as well as the credit reporting agencies (CRAs) which receive and report credit information.
70
Title searches and title insurance:
Are covered under the provisions of RESPA, but are not considered settlement services
Are not covered under the provisions of RESPA but are considered settlement services
Are covered under the provisions of RESPA and are considered settlement services
Are not covered under the provisions of RESPA and are not considered settlement services
The answer is are covered under the provisions of RESPA and are considered settlement services. The provisions of RESPA cover settlement services including title searches, title examinations, and title insurance.
71
When dealing with third-party service providers, banks and nonbanks must establish risk management programs that include all but which of the following elements?
Conducting due diligence to assess the service providers’ ability to comply with the law
Entering contracts with service providers that include enforceable consequences for failing to comply with the law
Establishing compensation programs that withhold payment for services until the service provider can demonstrate compliance with the law
Reviewing the service provider’s employee training programs, particularly for those employees that have direct contact with consumers
The answer is establishing compensation programs that withhold payment for services until the service provider can demonstrate compliance with the law. Establishing compensation programs to withhold payment for services is not a required element of a risk management program.
72
This is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right.
Mortgage fraud
Industry insider fraud
Identity theft
Predatory lending
The answer is mortgage fraud. Mortgage fraud is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right.
73
A lender is trying to lure customers with advertisements for “Minimum Monthly Payments to Meet Any Budget!” This advertisement must also include an equally prominent statement in close proximity which alerts consumers that:
The loan may not be paid off by the end of the loan term
The loan is only advised for borrowers with a short-term interest in the dwelling used to secure the loan
The borrower should seek homeownership counseling prior to applying for the loan
A balloon payment may result from minimum periodic payments
The answer is a balloon payment may result from minimum periodic payments. The advertisement must include a statement that a balloon payment may result from minimum periodic payments.
74
A VA loan referred to as an “IRRRL” is an:
Interest Rate Refinance Return Loan
Interest Reduction and Refinance Loan
Interest Rate Reduction Refinance Loan
Interim Rate Refinance Reduction Loan
The answer is Interest Rate Reduction Refinance Loan. In terms of VA loans, IRRRL stands for Interest Rate Reduction Refinance Loan, often referred to as “streamline” or a “VA to VA.”
75
In a title theory state, title to residential real estate is granted with a _____, naming the lender as the beneficiary of the trust, the borrower as the trustor, and the third party that holds the deed until the loan is fully paid as the _____.
Mortgage / assignee
Deed of trust / assignor
Mortgage / trustor
Deed of trust / trustee
The answer is deed of trust / trustee. In a title theory state, title to residential real estate is granted with a deed of trust, naming the lender as the beneficiary of the trust, the borrower as the trustor, and the third party that holds the deed until the loan is fully paid as the trustee.
76
Frank Stein is a loan originator for a county housing finance agency whose function is to help meet the affordable housing needs of the residents of the state. Is Frank required to be licensed under the S.A.F.E. Act?
He is not required to be licensed if he is registered
Yes, all loan originators must be licensed
He must be licensed only if he represents that he can and will perform the services of a mortgage loan originator
No, he is exempt from the requirement to be licensed
The answer is no, he is exempt from the requirement to be licensed. A state is not required to license an individual who is an employee of a federal, state, or local government agency or housing finance agency who acts as a loan originator in the course of his/her employment.
77
After an escrow account is established for an HPML, it:
May not be canceled
Will cancel automatically in five years after consummation unless the borrower is in default
May be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan
Will cancel automatically in five years after consummation if the unpaid principal balance is less than 80% of the original value of the home securing the loan
The answer is may be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan. After an escrow account is established for an HPML, it may be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan.
78
All of the following are true regarding the origination of non-qualified mortgages, except:
Non-QMs may include features such as balloon payments or negative amortization
Borrowers are not held to the 43% debt-to-income ratio limitation
Non-QMs may include features such as interest-only payments or payment-option provisions
Analysis of borrower repayment ability is not required
The answer is analysis of borrower repayment ability is not required. Non-qualified mortgages may include features such as balloon payments, negative amortization, interest-only payments, or payment-option provisions. Borrowers are not held to a debt-to-income ratio limitation. Analysis of borrower repayment ability is still required.
79
Qualifying ratios consist of which two separate calculations?
Housing expense ratio and total debt ratio
Loan-to-value ratio and qualifying income ratio
Loan-to-value ratio and housing expense ratio
Total debt ratio and qualifying income ratio
The answer is housing expense ratio and total debt ratio. Qualifying ratios consist of the housing expense ratio and the total debt ratio.
80
Underwriting of non-qualified mortgages must compute periodic payments that:
Include consideration of periodic rate caps
Do not take periodic rate caps into consideration
Do not take lifetime rate caps into consideration
Include consideration of the value of the dwelling as a borrower asset
The answer is do not take periodic rate caps into consideration. Underwriting of non-qualified mortgages must compute periodic payments that do not take periodic rate caps into consideration.
81
According to the federal guidances on nontraditional lending, all of the following loan programs are considered to be nontraditional, except:
Interest-only
Payment-option ARM
Hybrid ARM
Stated income
The answer is Hybrid ARM. The term “nontraditional” primarily refers to payment structure or qualification documentation. In other words, traditional loans will include a payment structure that regularly decreases the principal balance and will require a borrower to prove that he/she can pay off the loan to qualify.
82
The responsibilities of a loan servicer include:
Disbursing escrow funds, managing trust accounts, and adjudicating foreclosure proceedings
Sending closing documents, collecting escrow funds, and obtaining loan funds for clients
Accepting payments, disbursing escrow funds, maintaining records, and managing delinquent accounts
Accepting applications, disbursing interest and principal, and maintaining origination records
The answer is accepting payments, disbursing escrow funds, maintaining records, and managing delinquent accounts. Loan servicers handle many tasks, including accepting payments, disbursing escrow funds, maintaining records, and managing delinquent accounts.
83
The Comparisons table on the Loan Estimate provides all of the following information, except:
The amount of loan costs paid in the first five years of the loan term
The amount paid for private mortgage insurance before the LTV ratio reaches 78%
The amount of principal paid in the first five years of the loan term
The amount of total interest paid over the loan term
The answer is the amount paid for private mortgage insurance before the LTV ratio reaches 78%. The comparisons table does not show the amount paid for PMI before the LTV ratios reaches 78%.
84
Which of the following is a lender unable to consider during the qualification process?
The borrower is 65 years old
The borrower has had several jobs in the last two years
The borrower’s credit score is 618
The assets of the borrower are in a retirement account
The answer is the borrower is 65 years old. According to ECOA, a lender may not consider a borrower’s age for the purposes of credit qualification.
85
Servicers are required to respond to a _____ from a borrower within five days.
Loan application
Qualified written request
Request for servicing transfer
Notice of rescission
The answer is qualified written request. Servicers are required to respond to a qualified written request from a borrower within five days.
86
Two types of loans used to finance the construction of a property are:
Pre-construction and full construction
Fully-amortized and interest-only
Interim and permanent construction
Construction-to-permanent and stand-alone construction
The answer is construction-to-permanent and stand-alone construction. Construction-to-permanent and stand-alone construction loans are two options used to finance the construction of a home being built. Both have advantages and disadvantages based on the borrower’s needs and the timeline of the construction.
87
Which form of fraud is most prevalent involving borrowers in the mortgage process?
Falsified applications
Foreclosure rescue scams
Identity theft
Straw sellers
The answer is falsified applications. Applications using fraudulent information are the most common type of mortgage fraud involving borrowers. Inconsistent information is present in over 35% of cases.
88
The primary purpose of ECOA is to:
Make credit available to borrowers who are less than qualified
Make sure credit is available to all creditworthy applicants
Make sure credit is not denied because of a lack of income stability
Prevent denial of credit due to a potential borrower’s past credit history
The answer is make sure credit is available to all creditworthy applicants. The primary purpose of ECOA is to promote the availability of credit for all creditworthy applicants.
89
An underwriter examines title documents for issues that may cloud the title or affect marketability. All of the following are items that may affect title, except:
Easements
Land locks
Leaseholds
Completion notice
The answer is completion notice. A completion notice is required of an appraiser, typically to document the completion of new construction prior to closing a loan on the property. Easements, land locks, and leaseholds are all examples of title issues that may affect marketability or cloud title.
90
The Equal Credit Opportunity Act requires a Notice of Incomplete Application be provided to a borrower:
Within 15 days of application, if the application is missing required information
Within 30 days of application, if the application is missing required information
If the borrower has provided less than five years’ residence history
Within three days of discovery of incomplete application
The answer is within 30 days of application, if the application is missing required information. ECOA requires the borrower to know the status of his/her loan within 30 days of application. This includes letting the borrower know, within 30 days, that his/her application needs to be completed in order for any further consideration of the file.
91
Under ECOA, the Attorney General may take action against a creditor who appears to have engaged in:
A pattern or practice of discrimination
Straw selling
Redlining
A pattern or practice of mortgage fraud
The answer is a pattern or practice of discrimination. Under ECOA, the Attorney General may take action against a creditor who appears to have engaged in a pattern or practice of discrimination.
92
Which of the following terms is allowed in a high-cost mortgage?
Terms that permit a payment schedule resulting in negative amortization
An advanced payment
A variable interest rate
A prepayment penalty
The answer is a variable interest rate. High-cost mortgages are permitted to have a variable interest rate, however, negative amortization, advanced payments, and prepayment penalties are not allowed.
93
Mary is purchasing her first home with an HPML. When her loan officer is reviewing the transaction with her, he tells her that she must establish an escrow account:
Three business days after consummation of the loan
Before consummation of the loan
Before the first periodic payment is due
At the time of consummation
The answer is before consummation of the loan. Mary must establish an escrow account prior to the consummation of the loan.
94
The lending document that contains the contractual terms for repaying a home loan is the:
Mortgage
Promissory note
Deed of trust
Closing Disclosure
The answer is promissory note. The promissory note is the promise to repay a loan and contains the contractual terms for repayment.
95
HUD will not insure single-family home loans that:
Meet QM standards
Include points and fees in excess of the limit set by the QM Rule
Are small creditor qualified mortgages
Have a DTI ratio of less than 43%
The answer is include points and fees in excess of the limit set by the QM Rule. HUD will no longer insure single-family home loans that include points and fees in excess of the limit set by the QM Rule.
96
A revised Loan Estimate is required when:
There is any change in circumstances
Interest rates drop
Interest rates increase
The loan applicant locks his or her interest rate
The answer is the loan applicant locks his or her interest rate. A revised Loan Estimate is required when a loan applicant locks the interest rate. Offering revised estimates for a change in circumstances is restricted to limited situations.
97
The act of guiding homebuyers in a particular direction based on demographics is prohibited by:
ECOA and RESPA
The Fair Housing Act and ECOA
TILA and RESPA
RESPA and the Fair Housing Act
The answer is The Fair Housing Act and ECOA. The Fair Housing Act and ECOA both prohibit the practice of “steering,” which is directing or recommending a buyer or borrower in a particular direction based on their demographics. This should not be confused with the separate predatory lending practice called steering, in which mortgage professionals coerce or otherwise guide consumers to accept loan terms that are more expensive than they need in order to increase profits.
98
When a borrower is delinquent, RESPA servicing rules require loan servicers to meet all of the following requirements, except:
Make live contact with the borrower within 36 days of the delinquency
Make written contact with the borrower within 45 days of the delinquency
Make live contact with the borrower within 15 days of the delinquency
Include information on loss mitigation options in written correspondence regarding the delinquency
The answer is make live contact with the borrower within 15 days of the delinquency. Delinquency requires live contact within 36 days, and written contact within 45 days that describes loss mitigation options.
99
FACTA requires an initial Fraud Alert to be kept in a consumer’s file for what period of time?
One year
Seven years
One month
Until removed by the borrower
The answer is one year. FACTA requires an initial Fraud Alert to be kept in a consumer’s file for a period of one year. An Extended Fraud Alert, meaning there is an actual identity theft report submitted, is required for seven years.
100
Sally and Ben have lived in their home for ten years and are considering shortening their term. Which of the following appraisal approaches would be best?
Income approach
Cost approach
Market comparison approach
Sales comparison approach
The answer is sales comparison approach. The sales comparison approach is most commonly used and involves the comparison of three similar, recently-sold properties.
101
Which of the following is responsible for determining whether to issue a license approval?
The NMLS
The Governor
The Legislature
The Commissioner
The answer is The Commissioner. The Commissioner or state regulator for financial institutions determines licensing eligibility.
102
A subordinate lien that allows a borrower to pay down principal and continue to make withdrawals is known as:
A reverse mortgage
An ARM
A home equity line of credit
A piggyback loan
The answer is a home equity line of credit. Open-ended credit that allows a borrower to make repeated withdrawals and also make monthly payments based on the outstanding balance is known as a home equity line of credit.
103
Costs anticipated to be charged in a loan transaction, such as origination fees, processing fees, appraisal fees, title fees, and recording fees are called:
Total costs
Estimated closing costs
Purchase price
Pre-paids
The answer is estimated closing costs. Costs anticipated to be charged in a loan transaction, such as origination fees, processing fees, appraisal fees, title fees, and recording fees are called estimated closing costs.
104
“SIVA” stands for:
Stated income validation amortization
Simple interest validation account
Stated income verified assets
Stated interest verification account
The answer is stated income verified assets. “SIVA” stands for stated income verified assets.
105
Under ECOA, a broker is defined as:
A person who regularly refers applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made
Any person who sells mortgage loans in the secondary market
Any person who regularly extends, renews, or continues credit
A natural person or entity who regularly extends closed-end or open-end credit
The answer is a person who regularly refers applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made. A broker does not technically extend credit. However, ECOA specifically addresses the broker by including persons who “regularly refer applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made.”
106
A state-licensed loan originator who fails to maintain a valid license for a period of _____ years or longer shall be required to retake the NMLS test.
Three
Seven
Five
Ten
The answer is five. The NMLS requires a licensee who fails to maintain a license for five years or longer to retake the exam.
107
Which of the following fees is not included in the calculation of the finance charge for a mortgage?
Origination fees charged by the creditor
Charges for title work by an affiliate of the creditor
Use of a closing attorney required by the creditor
Fees charged by an unaffiliated appraiser
The answer is fees charged by an unaffiliated appraiser. Finance charges always include fees charged by the creditor, charges by an affiliate of the creditor, and fees charged by a third-party provider required by the creditor. Fees charged for real estate-related services, such as appraisal, are not included in the finance charge if they are reasonable, are not charged by affiliates, and the creditor does not receive a direct or indirect fee for those services.
108
A mortgage lender regularly shares loan applicants’ nonpublic personal information with an underwriter who works as an independent contractor. What must the lender do to comply with the GLB Act?
The lender must require the underwriter to contractually agree that it will only share the nonpublic personal information with affiliated companies
The lender must provide an opt-out notice to its loan applicants, because the underwriter is a nonaffiliated service provider
The lender must offer its loan applicants a choice of providers for underwriting services
The lender must require the underwriter to contractually agree that it will only use the nonpublic personal information to perform the services requested
The answer is the lender must require the underwriter to contractually agree that it will only use the nonpublic personal information to perform the services requested. When sharing nonpublic personal information with third party settlement service providers, a mortgage lender must require that the service providers enter a contract agreeing to use the information only for the performance of requested services.
109
Renewal of a loan originator license is the responsibility of:
The loan originator
The loan originator and the sponsoring entity
The sponsoring entity
The sponsoring entity and the state regulator
The answer is the loan originator. The loan originator’s individual license is the sole responsibility of the originator. While the sponsoring entity is responsible for the actions of the originator while employed, renewal of an individual license is not the entity’s responsibility.
110
In order to engage in the business of a loan originator, a loan processor who is working for a mortgage broker must:
Secure a license as a loan originator
Request the supervision of a licensed loan originator
Secure new employment with a depository institution, such as a bank
Learn how to perform a mortgage loan repayment analysis
The answer is secure a license as a loan originator. In order to engage in the business of a loan originator, a loan processor who is working for a mortgage broker must secure a license as a loan originator.
111
Which of the following would be considered grounds for license denial?
Payment of licensing fees
Conviction of a felony within the seven years immediately preceding application
Compliance with the pre-licensing education requirements
Providing records of previous loan files
The answer is conviction of a felony within the seven years immediately preceding application. A felony conviction within the seven years immediately preceding application is grounds for denial of an initial application.
112
This federal law was enacted with the intent to make it easier to prosecute mortgage fraud.
The Fraud Enforcement and Recovery Act
The Dodd-Frank Act
The Consumer Financial Protection Act
The Mortgage Acts and Practices Act
The answer is The Fraud Enforcement and Recovery Act. The Fraud Enforcement and Recovery Act was enacted with the intent to increase enforcement against those who commit mortgage fraud.
113
All of the following are examples of nontraditional mortgage products, as defined by the S.A.F.E. Act, except:
A fixed-rate loan with a term of 30 years
An interest-only loan with a term of 40 years
An adjustable-rate mortgage with a term of 30 years
A fixed-rate loan with a term of 15 years
The answer is a fixed-rate loan with a term of 30 years. The S.A.F.E. Act defines a “nontraditional mortgage product” as any loan other than a 30-year, fixed-rate loan.
114
In lien theory states, the _____ holds the title to the home securing a mortgage throughout the loan term.
Borrower
Lender
Title company
Loan servicer
The answer is borrower. In lien theory states, the borrower holds the title to the home securing a mortgage, and when the loan is paid in full, the lien on his or her home is released.
115
Payments for qualified mortgages must be based on:
The maximum interest rate that will apply over the life of the loan
The fully-indexed rate
The introductory rate
The maximum interest rate that will apply during the first five years after the date of the first payment
The answer is the maximum interest rate that will apply during the first five years after the date of the first payment. Payments for qualified mortgages must be based on the maximum interest rate that will apply during the first five years after the date of the first payment.
116
The front-end ratio compares:
Monthly mortgage payments to monthly gross income
Total monthly debts unrelated to housing expenses to monthly gross income
Total monthly housing expenses (including principal, interest, taxes, and insurance) to monthly gross income
Total monthly debts (including housing expenses plus other debts) to monthly gross income
The answer is total monthly housing expenses (including principal, interest, taxes, and insurance) to monthly gross income. The front-end ratio compares housing-related expenses to monthly gross income.
117
Which of the following loans may include a prepayment penalty?
An adjustable-rate qualified mortgage
A fixed-rate qualified mortgage that is not a higher-priced mortgage loan
An adjustable-rate qualified mortgage that is not a high-cost mortgage
A fixed-rate qualified or non-qualified mortgage
The answer is a fixed-rate qualified mortgage that is not a higher-priced mortgage loan. The only loans that may include prepayment penalties are fixed-rate qualified mortgages that are not higher-priced mortgage loans.
118
With regard to fiduciary duties in mortgage lending, the borrower is the _____, and the broker is the _____.
Agent; borrower
Principal; agent
Fiduciary; agent
Fiduciary; principal
The answer is principal; agent. Fiduciary duties include loyalty, good faith, and an obligation to put the interests of the principal (borrower) ahead of those of the agent (broker).
119
Revisions to a Loan Estimate are:
Allowed when certain changed circumstances arise
Always allowed
Never allowed
Allowed only when the interest rate was not locked and rates have changed
The answer is allowed when certain changed circumstances arise. Revisions to a Loan Estimate are allowed when certain changed circumstances arise.
120
Appraisers make adjustments to comparables used in an appraisal based on:
Size, age, and color
Location, owners, and age
Proximity, date of sale, and physical characteristics
Season, size, and age
The answer is proximity, date of sale, and physical characteristics. Adjustments are made to comparables after being analyzed for differences and similarities. The appraiser makes adjustments for location, terms, conditions of the sale, and physical characteristics.
121
A credit report includes all of the following information, except:
Future inquiries
Applicant information
Public records
Current derogatory trade lines
The answer is future inquiries. A credit report would not include future inquiries.
122
The Fair Housing Act prohibits discrimination based on:
Handicap, familial status, sex, national origin, religion, color, race
Race, color, religion, sex, age
Race, sex, age, color, religion, handicap
Race, sex, color, religion, age, familial status, handicap
The answer is handicap, familial status, sex, national origin, religion, color, race. The Fair Housing Act prohibits discrimination in a manner similar to that of the Equal Credit Opportunity Act; however, the Fair Housing Act is not limited to an application for credit. The Fair Housing Act prohibits discrimination based on race, color, religion, national origin, sex, familial status, and handicap.
123
Which of the following describes a state where the lender holds legal title until the debt is paid?
Lien theory
Conveyance theory
Due-on-sale clause
Title theory
The answer is title theory. In a title theory state, the lender holds legal title until the debt is paid, which, in theory, means the lender actually owns the home until the borrower has paid the mortgage.
124
ACME Home Loans is a private lender with a strict policy of limiting originations to conventional qualified mortgages with minimum loan amounts of $300,000. To ensure compliance with this policy, loan originators are instructed to refuse to accept applications from consumers who want loan amounts of less than $300,000, or who have debt-to-income ratios of 44% or more. This policy is:
Not a violation of any federal fair lending law
Potentially unlawful under the disparate impact theory
An example of disparate treatment of consumers
Legal if there is no discriminatory intent
The answer is potentially unlawful under the disparate impact theory. Even when there is no intent to discriminate, lending policies are potentially unlawful if they could adversely impact creditworthy consumers who belong to a protected class. For example, the lending standards described in this question could adversely impact younger applicants, thereby violating ECOA’s prohibition against age-based discrimination.
125
An originator advertises via the Internet and direct mail a “3.5% fixed payment loan” that was not actually available to any loan applicant. Which federal agency would bring the lawsuit against this originator and his company?
HUD or the FTC
FHFA
FTC or the CFPB
FDIC
The answer is FTC or the CFPB. The CFPB is the federal agency responsible for enforcing violations of TILA prohibitions against misleading advertisements, but shares some enforcement authority with the FTC.
126
A balloon loan is defined as:
A loan that has a specific amortization period but matures prior to the time it fully amortizes
A loan that has a specific amortization period but is due at a specific time prior to maturity
A loan whose final payment is smaller than the previous periodic payments
A loan which matures on a date after amortization
The answer is a loan that has a specific amortization period but matures prior to the time it fully amortizes. A balloon loan is a loan that has a specific amortization period but matures prior to the time at which it fully amortizes.
127
Which of the following is true regarding ATR standards for consideration of borrower repayment ability?
General ATR standards require a consideration of DTI ratio and residual income; the DTI ratio threshold is 60%
General ATR standards require a consideration of DTI ratio and residual income; there is no DTI threshold or minimum required residual income
General ATR standards require a consideration of DTI ratio and residual income; the DTI ratio threshold is 40%
General ATR standards require a consideration of DTI ratio and residual income; residual income must equal at least the monthly loan payment amount, plus 5%
The answer is General ATR standards require a consideration of DTI ratio and residual income; there is no DTI threshold or minimum required residual income. General ATR standards require a consideration of DTI ratio and residual income. However, there is no DTI ratio threshold or minimum required residual income.
128
The Gramm-Leach-Bliley Act requires that a consumer be given an Initial Privacy Notice:
Only if nonpublic personal information is intended to be shared with nonaffiliated third parties
Within three days of application
Within 30 days of application
After information has been shared with an affiliated or nonaffiliated party
The answer is only if nonpublic personal information is intended to be shared with nonaffiliated third parties. Financial institutions are only required to provide an Initial Privacy Notice to consumers if they intend to share their information.
129
All of the following are common indices used for adjustable rates, except:
London Interbank Offered Rate
Cost of Funds Index
Subordinate Rate Index
Treasury Bill Index
The answer is Subordinate Rate Index. Common indices include the Treasury Bill Index, the 11th District Cost of Funds Indexes (COFI), or the London Interbank Offered Rate (LIBOR).
130
The types of high-cost mortgages that may be subject to HOEPA include all of the following, except:
Refinances
Reverse mortgages
Home equity lines of credit
Loans to purchase a home
The answer is reverse mortgages. The Dodd-Frank Act broadened the scope of HOEPA to cover almost all mortgage types, except for reverse mortgages.
131
HUD is still responsible for implementation of:
RESPA
The Fair Housing Act
TILA
The Equal Credit Opportunity Act
The answer is The Fair Housing Act. HUD is still responsible for implementation of the Fair Housing Act.
132
A borrower obtains an ARM with a start rate of 2.5% and a periodic rate cap of 1%. The loan adjusts four times. After the fourth adjustment, the rate is expected to be 6.5%. However, due to the lifetime cap on the loan, the rate is not permitted to exceed 5%. What is the lifetime rate cap?
1%
3.50%
5%
2.50%
The answer is 2.50%. For this ARM, the lifetime cap is 2.5%. The lifetime cap limits the maximum amount by which the rate on an ARM may increase. Here, the rate is not permitted to exceed 5%. To determine the lifetime rate cap, subtract the start rate (2.5%) from the maximum rate (5%). This results in the lifetime rate cap of 2.5%.
133
The Truth-in-Lending Act is intended to help consumers by:
Regulating creditors and the rates they can provide
Investigating predatory lending
Limiting the closing costs a broker can charge
Providing the consumer with information on the cost of credit
The answer is providing the consumer with information on the cost of credit. The main purpose of TILA is to provide the consumer protection by requiring disclosure of the cost of credit.
134
Payments for non-qualified mortgages must be based on:
The maximum interest rate that will apply over the life of the loan
The maximum interest rate that will apply during the first five years after the date of the first payment
The fully-indexed rate
The introductory rate
The answer is the fully-indexed rate. Payments for non-qualified mortgages must be based on the fully-indexed rate.
135
Attorney Mike Hammer has an arrangement with Godfrey Lending to fund all loans that Hammer negotiates on behalf of his clients. In exchange, Godfrey pays Hammer a finder’s fee. Under the S.A.F.E. Act:
As a licensed attorney, Mike is exempt from licensing requirements
Mike must employ a state-licensed loan originator on his staff to engage in this practice
Mike must be licensed as a loan originator
Mike may engage in this practice if the property involved is located outside the state in which he is licensed to practice law
The answer is Mike must be licensed as a loan originator. A licensed attorney is exempt from the requirement to be licensed as a mortgage loan originator if he offers or negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to his/her representation of the client, unless the attorney is compensated by a lender, mortgage broker, or other loan originator, or by any agent of the same.
136
Which of the following transactions would be exempt from the ATR Rule?
A refinance transaction
A first lien on a home
A mortgage secured by a vacation home
An open-end HELOC
The answer is an open-end HELOC. An open-end HELOC would be exempt from the ATR Rule.
137
Which of the following statements regarding the calculation of finance charges is not true?
Premiums for optional insurance products are always included
Premiums for optional insurance products are not included if the creditor discloses that coverage is optional and does not extend through the full loan term
Reasonable charges for title insurance that do not result in direct or indirect compensation for the creditor are not included
Charges paid to a title insurer that is not affiliated with the creditor are not included
The answer is premiums for optional insurance products are always included. Charges that result in compensation for creditors and affiliates are included in finance charges, but when required disclosures are provided, charges for optional insurance products are not.
138
An advertisement placed by Buster Posey contains a trigger term. As required, Buster has also provided the required additional disclosures. These include all of the following, except the:
Amount or percentage of the down payment
Terms of repayment
Annual percentage rate
Amount of the finance charge
The answer is amount of the finance charge. Additional disclosures required in an ad containing a trigger term include the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate. The amount of the finance charge is a trigger term, not a required additional disclosure.
139
Under TILA guidelines, all of the following disclosures are provided for an adjustable-rate loan, except:
Frequency of changes in the annual percentage rate
Statement that the interest rate will be offered for the duration of the loan
Possibility of changes in the payment amount over time
The index used to determine rate adjustments
The answer is statement that the interest rate will be offered for the duration of the loan. Under TILA guidelines, required disclosures for an adjustable-rate loan include the frequency of changes in the annual percentage rate, the index used to determine rate adjustments, and the fact that the payment amount may change over time.
140
On which section of the application would a borrower be asked to attest to legal issues that could impact repayment ability, such as outstanding judgments, tax liens or delinquencies on other debts?
Section 1
Declarations
Assets and Liabilities
Information for Government Reporting
The answer is Declarations. The Declarations Section (Section 5) asks the borrower for information regarding any judgments, citizenship, default status, occupancy status, and other questions that may affect underwriting.
141
For an adjustable-rate mortgage, the interest rate that should be listed on the Loan Terms table of the Loan Estimate is:
The rate at consummation
The fully-indexed rate
The rate after the first adjustment
The average of all rates that may apply over the life of the loan
The answer is the fully-indexed rate. For an adjustable-rate mortgage, the interest rate that should be listed on the Loan Terms table of the Loan Estimate is the fully-indexed rate.
142
Jimmy has been working with ABC Mortgage for 16 years and has built a strong relationship base with most of his settlement service providers. The Smith file has been a big headache for Jimmy, and it looks like the deal will be very tight. Jimmy shoots an email to his appraiser that reads, “The Smiths believe that their home is worth $250,000 and would like for you to feel the same. How much will the appraisal cost?” This communication may lead to:
An appraisal review
All of these are likely to result
An inflated appraisal
A violation of TILA’s rules pertaining to communication with appraisers
The answer is all of these are likely to result. It is likely that in Jimmy’s long-term relationship with his appraiser, the meaning in this kind of email is very clear to the appraiser. In order to please Jimmy and the borrower, the appraiser is likely to do everything he/she can to arrive at as high a value as possible. This may lead to an inflated appraisal, possibly an appraisal review, and a violation of TILA’s rules regarding communication with appraisers
143
All of the following loans are covered by the requirements of the Home Mortgage Disclosure Act, except:
A loan to purchase a property in an urban area
A home improvement loan
A loan for an RV which the borrower uses as his/her primary housing six months a year
Refinance of a property owned by an elderly couple who are both over the age of 62
The answer is a loan for an RV which the borrower uses as his/her primary housing six months a year. HMDA reporting is not required for loans for personal property; loans to purchase RVs are personal loans and therefore not subject to mortgage lending laws.
144
Lifetime rate caps are used in transactions for adjustable-rate mortgages to limit:
The number of rate adjustments that can occur during a loan’s term
The amount by which periodic payments can change over the loan term
The amount by which an interest rate can change over the loan term
The amount of interest that a borrower can pay during a loan’s term
The answer is the amount by which an interest rate can change over the loan term. Lifetime rate caps limit the amount by which a rate can change during a loan term.
