Practice Questions 2

Question 1

Loan originators may be compensated through all but which of the following methods:

Answer 1

The Loan Originator Compensation Rule defines the terms under which a loan originator may be compensated. Being paid based on the terms of the transaction (mortgage type, interest rate, loan term, etc.) is prohibited.

Question 2

When is an applicant obligated to disclose child support payments as a liability?

Answer 2

Obligated payments of child support stem from court orders and/or divorce decrees. Whether an individual is actively paying it or not is irrelevant. If someone is court ordered or otherwise required to pay child support, that support payment must be included in his or her DTIs and the liability manually entered onto the application. The only time when court ordered child support could be excluded from an applicant’s DTIs is when there are 10 or fewer months left to pay it.

Question 3

What is the penalty for violating the Telemarketing Sales Rule?

Answer 3

The penalty for violating the Telemarketing Sales Rule is not cheap! Violators may be fined up to $43,280 per occurrence.

Question 4

If two loans together achieve an 83% CLTV and the second loan is at 23% LTV, what is the LTV of the first loan?

Answer 4

If the two loans together comprise 83% of the property’s value and the LTV of the second loan is 23%, the first loan must equate to a 60% LTV (83 – 23 = 60).

Question 5

What constitutes a good payment history in terms of PMI removal?

Answer 5

According to the Homeowners Protection Act, a good payment history requires a 24-month payment history review. During the most recent 24 months, the customer may not have had any 60-day late payments, and, within the most recent 12 months, the customer may not have had any 30-day late payments.

Question 6

Charlie Chancetaker likes the low interest rate offered by the 360/60 balloon loan on which he settles. He is not worried about going into foreclosure because his company transfers him every four years and he intends to sell the home and pay off the loan well in advance of the balloon call. Which of the following would not represent a possible problem when the time to address the balloon call arrives?

Answer 6

A 360/60 is a balloon loan with a payment calculated at the 30-year amortized rate that contains a call term after five years. As the loan is described by the overall term followed by the balloon call term, this type of balloon loan does not contain a conditional right to modify.

Question 7

Which of the following communications would be acceptable to direct to an appraiser?

Answer 7

Asking an appraiser to justify or explain his or her position in valuing a property is acceptable. Conditioning compensation on value or pressuring an appraiser to provide a certain value is an egregious violation of appraiser independence guidelines.

Question 8

All but which of the following are conditions included in the right to conditionally modify a balloon loan?

Answer 8

The conditions for which a balloon loan may be conditionally modified are: the home must be owner occupied, the loan must be current, there cannot be any subordinate liens attached to the property, and the new rate may not exceed the original rate by more than 5%.

Question 9

Reverse Redlining refers to:

Answer 9

Reverse redlining specifically focuses on particular geographic areas to pursue predatory lending practices in order to take advantage of the people living in that area who are often financially naive.

Question 10

The E-Sign Act requires that all of the individuals needed to electronically sign documentation be provided with:

Answer 10

The E-Sign Act affords individuals who do not wish to receive and sign documents electronically with the right to receive and sign on paper and/or in non-electronic format.

Question 11

Anyone applying for a reverse mortgage must have:

Answer 11

nswer: b) Independent, third-party homeownership counseling is a mandatory requirement for all reverse mortgages. In the event that a mortgage servicer does not have a certificate of homeownership counseling in the reverse mortgage file, it does not have an enforceable lien.

Question 12

Joan applies for a mortgage on Tuesday. By the end of what day must the Transfer of Servicing disclosure be issued?

Answer 12

The Transfer of Servicing disclosure must be issued by the releasing entity no later than 15 days prior to a servicing release and by the receiving entity no later than 15 days after the receipt of servicing. The Servicing Disclosure Statement is the disclosure that must be issued within three precise business days of the receipt of an application.

Question 13

A loan officer takes an application on Friday. His business fully operates Monday through Saturday. By when must the loan estimate be issued?

Answer 13

In accordance with TRID, the loan estimate must be issued within three general business days from the date of application. Since this loan originator’s company fully operates on Saturday, Saturday must be considered as one of the three business days. If he took the loan application on Friday, the loan estimate would have to be issued by the close of business the following Tuesday.

Question 14

A buyer buys a home for $395,000 and puts 25% down. What is the amount of his down payment?

Answer 14

Twenty-five percent of a $395,000 sales price equates to $98,750 (395,000 x 25%).

Question 15

A borrower has 10% to put down but desperately wishes to avoid paying a monthly PMI premium. Which of the following options would not be a way for her to avoid paying this monthly expense?

Answer 15

Although above-par pricing would provide funds which could be used to supplement cash towards a down payment, it would be highly unlikely that the credit could equate to 10% of any home’s purchase price. Piggyback financing would provide two loans, one at 80% and one to supplement the other 10% needed to avoid paying PMI. Financed MI would entail a one-time PMI premium financed into the loan amount negating the need for a monthly premium, and Lender Paid Mortgage Insurance (LPMI), would result in the lender paying a one-time PMI premium on the borrower’s behalf, typically in exchange for a higher interest rate.

Question 16

Which of the following is not a part of the mortgage licensing application process?

Answer 16

Checking personal references is not a part of the mortgage licensing process. Each of the other options is.

Question 17

What does CRA stand for?

Answer 17

CRA stands for Consumer Reporting Agency. The three major CRAs are Equifax, Experian, and Trans Union.

Question 18

A purchase price is $400,000 and the buyer wishes to apply $30,000 as a down payment. The seller is offering a 3% seller’s concession. What is the value of the seller’s concessions?

Answer 18

Seller’s concessions are based upon the purchase price. Since the purchase price is $400,000 and the seller is offering 3% in concessions, the seller’s concession will amount to $12,000.

Question 19

If a HOEPA loan is originated for purposes of home improvement:

Answer 19

To prevent homeowners from being cheated by unscrupulous home improvement contractors, proceeds from the refinancing of a HOEPA mortgage to finance home improvements must either be made payable directly to the customer, jointly to the customer and the contractor, or to a third-party escrow

Question 20

What is the definition of a Mortgage Loan Originator in accordance with the SAFE Act?

Answer 20

Both taking a mortgage application and doing so for profit or gain constitutes the SAFE Act’s definition of a mortgage loan originator.

Question 21

How long does a mortgage license remain in effect before requiring renewal?

Answer 21

Licenses expire annually on December 31st and must be renewed in order for the loan originator to maintain his or her ability to originate mortgages.

Question 22

The process by which a fixed-rate loan repays is referred to as:

Answer 22

With each remitted principal and interest payment, more of the payment amount is allocated against the principal balance and less to interest. This process is referred to as amortization.

Question 23

If a borrower has a mutual fund, how much of the fund’s face value may be used to satisfy reserve requirements?

Answer 23

When used solely to satisfy reserve requirements, 100% of a mutual fund’s face value may be considered.

Question 24

The National Mortgage Licensing Exam, containing the UST component, consists of how many questions?

Answer 24

The national examination contains 100 multiple choice questions while the UST component adds an additional 25 for a total of 125.

Question 25

The E-Sign Act:

Answer 25

In order to consummate transactions electronically, consumers must first consent to this method and may not have rescinded their consent on, at, or prior to their transaction’s consummation.

Question 26

Barry is told that he is lacking reserves and may not be able to close. What might he use to supplement his assets?

Answer 26

Although they don’t have to be liquidated, reserves need to be liquid and accessible in case they’re needed. A whole life insurance policy carrying a cash value may be the perfect solution to Barry’s needs. He couldn’t use a blood-relative’s asset statement but he could accept an actual monetary gift. A term life insurance policy carries no cash value and, in order to use the value of his car as reserves, he would have to sell it, thoroughly document the transaction, and deposit the cash.

Question 27

If an individual were to have her mortgage license revoked in a particular state she:

Answer 27

If an individual were to lose her license in a particular state, she would have to notify the NMLS&R as well as every other state in which she was licensed. Consequently, she would lose her license in every other state and would be prevented from securing a license in any state going forward.

Question 28

What would the most ethical response be to a potential mortgage applicant who asks, “How much income do I need to earn in order to qualify for a purchase price of $325,000?”

Answer 28

A loan originator should never guide a customer towards presenting a more approvable application. The loan originator should simply analyze what the customer presents and offer options based on the customer’s true qualifications.

Question 29

At the conclusion of the application, a loan officer observes her customer becoming noticeably uneasy after reading the URLA discloser containing the FBI’s fraud warning notice. Additionally, the customer hesitates to sign the 1003 for a few moments after reading it. She finally signs it, thanks the loan officer, gets up, and hurries out of the office. What rule, if any, requires the loan officer to take further action?

Answer 29

The FTC Red Flags Rule makes it compulsory for any mortgage professional to act upon experiencing anything or witnessing behavior that might be considered a red flag. At the very least she should have e-mailed her superior to advise him of what she observed and to ask for his advice. If the loan officer failed to act and the applicant was, in fact, committing fraud or some other offense, the loan officer could be held accountable along with the applicant for aiding and abetting the offense.

Question 30

A veteran may be exempt from paying the funding fee associated with her VA loan if:

Answer 30

The VA will exempt any eligible veteran pursuing VA financing from having to pay the VA funding fee is s/he has a militarily-incurred disability defined by the VA medical system as 10% or greater.

Question 31

What is one of the SAFE Act’s main objectives?

Answer 31

“The purpose of (the SAFE) … Act is to protect consumers seeking mortgage loans and to ensure that the mortgage lending industry is operating without unfair, deceptive, and fraudulent practices on the part of mortgage loan originators.”

Question 32

Which of the following loans would require MIP?

Answer 32

All FHA loans, regardless of their initial LTV, require MIP. A conventional mortgage at an 85% LTV would require PMI not MIP. USDA and VA loans do not utilize MIP. Only FHA loans utilize MIP.

Question 33

A mortgage originator advises a customer to consider accepting a higher interest rate in order to subsidize his settlement charges since he has no other funds. The borrower is qualified for the payment at the higher interest rate. This is:

Answer 33

As long as the borrower is aware that the rate is higher than the rate for which he would otherwise qualify, has explored all other options, qualifies at the higher rate, and receives the entire proceeds from selecting the higher rate, promoting this option is legal and ethical.

Question 34

What is the maximum LTV on USDA loans?

Answer 34

One of the primary benefits of USDA financing is its zero-down feature. Although a home buyer utilizing USDA financing may certainly make a down payment, it is never necessary. No down payment equates to a 100% LTV loan.

Question 35

One way to safe harbor against steering is to:

Answer 35

Product steering is a practice through which a lender or loan originator encourages a particular product or price point that rewards the lender or MLO at the expense of the customer’s best interests. To ensure that the customer was duly provided with all appropriate pricing options, the customer should be offered three loan scenarios including the highest rate and lowest costs (above-par pricing to offset settlement costs), par pricing, and the lowest rate with the highest costs (discount points). Ultimately the customer decides with which option to proceed and must qualify for whichever options he or she selects.

Question 36

The USA Patriot Act is primarily concerned with:

Answer 36

The USA Patriot Act was enacted as a direct result of the terrorist attacks of September 11, 2001. The primary concerns of the Patriot Act are to thoroughly identify each customer in order to ensure that criminals are prevented from receiving loan proceeds (similar to when an individual attempts to purchase an airline ticket and is compared against the no-fly list) along with ensuring that all money utilized in and as a part of any financial transaction are legitimate and have been legally acquired.

Question 37

If an individual is only an obligated co-signer to a debt, why may they have to qualify for their mortgage counting that debt?

Answer 37

If an individual were to co-sign for another individual’s debt, the co-signer agrees to not only be liable for that debt, but to repay it in the event that the person for whom they co-signed no longer remits payments. Consequently, co-signed debt is always counted in an applicant’s DTI’s unless the applicant can evidence that the person for whom they have co-signed has remitted the previous 12 months’ payments on time and from an account with which the applicant has no affiliation.

Question 38

Falsely representing a low property value to a lender is an example of:

Answer 38

Flopping occurs when an unscrupulous individual convinces a lender to release the lien on a property for less than owed based on an artificially deflated value which that individual then pays to the lender to secure ownership of the property. Once the lien is released, the fraudster then sells the property for its higher, true value and pockets the difference.

Question 39

Which of the following is not a loan type warned about through the Guidance on Non-Traditional Mortgage Product Risks?

Answer 39

The Guidance on Non-Traditional Mortgage Product Risks was published to warn the lending industry of the dangers of continuing to originate mortgage loans that lacked consistent payment amounts and not thoroughly verifying applicants’ abilities to repay. The SAFE Act defines a non-traditional mortgage as any loan other than a 30-year fixed rate program. Even though the 5/1 ARM may have required the applicant to demonstrate their ability to repay, ARM loans were often originated based on the start-rate payment and not based on to what future payments could increase.

Question 40

Of the following choices, which contains information that is not included in the six items constituting a live application?

Answer 40

The six items constituting a live application are social security number, date of birth, income, property address, estimated property value (or property purchase price), and loan amount

Question 41

Which of the following would not be considered public, personal information addressed through the Gramm-Leach-Bliley Act?

Answer 41

The Gramm-Leach-Bliley Act protects the sanctity of individuals’ non-public, personal information. Non-public, personal information is information that cannot be secured through a general records search or a Freedom of Information/Privacy Act request. Public personal information is information that may be secured through those means.

Question 42

How many pages of a savings account statement must a loan originator request from an applicant?

Answer 42

If an account statement indicates that 12 pages exist, the applicant must provide all 12 pages. Every page of a statement is required regardless of whether or not it is blank.

Question 43

A buyer purchases a home for which the seller pledges to fund a 2-1 buydown. The buyer’s note rate results in a payment of $1,200. If the 2-1 buydown would have the buyer remitting a P&I payment of $1,075 for year one and $1,107 for year two, how much did the 2-1 buydown cost the seller?

Answer 43

If the buyer remits $1,075 for the first year, he is saving $125 monthly over his note rate (1,200 – 1,075). If the buyer remits $1,107 for the second year, he is saving $93 per month during the second year (1,200 – 1,107). When 12 payments of $125 ($1,500) are added to twelve payments of $93 ($1,116) the seller will spend $2,616 to fund the 2-1 buydown.

Question 44

What is the appropriate documentation to secure from an applicant disclosing that she is a permanent resident alien?

Answer 44

A permanent resident alien is afforded the same rights to receive home financing as a United States citizen. A permanent resident alien would have to produce a legible photocopy of the front and back of their valid permanent resident alien (green) card.

Question 45

PMI Is utilized:

Answer 45

PMI is utilized when a borrower has less than 20% to put down on a conventional loan purchase or when a customer refinances a loan into a new conventional loan with an LTV of above 80%.

Question 46

Conventional/conforming DTI guidelines are:

Answer 46

Although conventional/conforming DTI guidelines are established at 28/36, they are just that … guidelines. With compensating factors, conventional/conforming QM loans may be approved up to a 43% back-end DTI ratio

Question 47

What is another term for the URLA? .

Answer 47

FNMA form 1003 is another designation for the uniform residential loan application (URLA)

Question 48

An application is taken on May 1st. By May 30th the customer has not returned most of the documentation needed in order to underwrite the file. What must be issued by the end of the day?

Answer 48

In accordance with ECOA, the applicant must be issued one of three documents within 30 days of application: a Notice of Action Taken advising that his or her loan application was approved, an Adverse Action Notice declining the application, or a Notice of Incomplete Application advising that needed documentation is missing and the applicant must provide it within an allotted timeframe for his or her application to receive further consideration.

Question 49

The two types of MIP associated with FHA financing are:

Answer 49

Every FHA loan requires both an annual mortgage insurance premium (AMIP) collected through the monthly payment and an upfront mortgage insurance premium (UFMIP) which, although it can be paid in cash at the time of closing, is generally financed into the loan amount.

Question 50

Which of the following is permitted when servicing or originating a HOEPA loan?

Answer 50

Charges paid by the creditor, other than loan originator compensation paid by the creditor that is required to be included in points and fees can be excluded from points and fees. HOEPA loans may include pre-payment penalties as long as the pre-payment penalty occurs within the first five years (other conditions also apply). Increasing the rate after default is never permitted. When the purpose of the loan is for home improvement, the funds must be disbursed either directly to the homeowner, in the form of a check made payable to both the home owner and the contractor, or to a third-party escrow company agreed upon by all parties. HOEPA balloon loans are permitted as long as the balloon component does not call the loan within the first five years.

Question 51

In order to be eligible for VA financing, the applicant must possess a certificate of eligibility reflecting what entitlement amount?

Answer 51

The certificate of eligibility must reflect an entitlement of $36,000 indicating that the bearer is fully entitled to VA financing. The $36,000 represents ¼ of the guarantee that the VA offers for its financing. It does not limit the applicant, however, to a loan amount of $36,000 or $144,000.

Question 52

The main objective of HOEPA is to prevent:

Answer 52

HOEPA was implemented as an attempt to protect individuals from unscrupulous financial predators who might otherwise take advantage of them through predatory lending tactics and practices.

Question 53

HECM stands for:

Answer 53

The most common form of Reverse Mortgages is the HECM or Home Equity Conversion Mortgage. This type of loan easily converts a home’s equity into capital for senior homeowners.

Question 54

By what date would a mortgage loan originator who fails to renew her license by December 31st have to renew it in order to avoid repeating the entire licensing process?

Answer 54

If a licensee does not renew their license by midnight on December 31st, their license expires, and they are immediately rendered inactive. They have until the last day of February to renew their license by paying the appropriate renewal fees, demonstrating completion of the appropriate continuing education, and paying a late charge. Failure to renew by the last day of February requires that the loan originator repeat the entire licensing process.

Question 55

PMI Is utilized:

Answer 55

PMI is utilized when a borrower has less than 20% to put down on a conventional loan purchase or when a customer refinances a loan into a new conventional loan with an LTV of above 80%.

Question 56

What is the Model State Law?

Answer 56

Model State Law was a document created by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to guide states in implementing legislation required by the SAFE Act.

Question 57

A buyer wishes to purchase a home for $310,000 and has $30,000 for a down payment. He wishes to avoid paying PMI. What is the easiest way to structure this transaction using piggyback financing?

Answer 57

The $248,000 first mortgage brings the borrower to an 80% LTV negating the need for PMI. Since he only has a $30,000 down payment, a second mortgage of $32,000 will be necessary to bridge the gap.

Question 58

Which of the following debts does not have to be considered in an applicant’s DTIs?

Answer 58

Regardless if a revolving debt is almost repaid, if a debt payment is deferred, or if the debt is installment debt with more than 10 months remaining, the payment must be established and considered in the applicant’s DTI ratios.

Question 59

Of the following choices, which contains information that is not included in the six items constituting a live application?

Answer 59

The six items constituting a live application are social security number, date of birth, income, property address, estimated property value (or property purchase price), and loan amount.

Question 60

Jennifer is a 30-year old home buyer. In order to close on the purchase of her new home, she will need to bring $65,750 to the settlement table. Her only asset from which she intends to secure this money is her 401(k) account bearing a face value of $75,500. Jennifer demonstrates that she is the owner of the account, confirms that the account is vested, and that it allows for withdrawals regardless of her current employment status. As such, will Jennifer be able to close on her loan?

Answer 60

Investor criteria maintains that, if a borrower intends to use retirement funds as a source of settlement funds, unless the amount contained in any one specific retirement account equates to or exceeds 120% of the total amount of cash needed for the down payment and closing costs, the applicant will have to document that the account is theirs, it is vested, it allows for withdrawals regardless of the applicant’s current employment status, and their actual receipt of funds realized from the sale or liquidation of the asset.

Question 61

LTV + _____ = 100%

Answer 61

LTV is the lender’s ownership interest in a property. Equity is the homeowner’s ownership interest in a property. LTV plus equity always equals 100%.

Question 62

Loan Officer Larry receives a call from Borrower Brandi during which they discuss many aspects of applying for a mortgage to refinance her home. Among other things, Borrower Brandi shares her income, date of birth, bank account balances, social security number, marital status, property address, years of schooling, property value, needed loan amount, and her employer’s name. After the call ends, what, if anything, must Loan Officer Larry do?

Answer 62

The information discussed in their initial conversation included the six pieces of data that, once known, activate a live mortgage application. As soon as Loan Officer Larry had knowledge of all six pieces of information, he became compelled to consider the application live and issue a Loan Estimate (along with other documents) no later than three general business days from the date of their conversation.

Question 63

With few exceptions, QMs limit a loan’s back-end DTI to:

Answer 63

In most cases, in order for a mortgage to be considered a Qualified Mortgage (QM), the loan’s back-end DTI can be no higher than 43%.

Question 64

What is the APR?

Answer 64

The APR is a government-mandated disclosure informing the applicant as to the cost of originating the loan expressed as an interest rate. It is not the rate at which the periodic payment is calculated.

Question 65

What is a benefit of securing a balloon loan?

Answer 65

Balloon loans often offer interest rates much lower than ARM initial start rates and those of fixed-rate programs. The balloon component makes the loan fairly risky.

Question 66

At the conclusion of the application, a loan officer observes her customer becoming noticeably uneasy after reading the URLA discloser containing the FBI’s fraud warning notice. Additionally, the customer hesitates to sign the 1003 for a few moments after reading it. She finally signs it, thanks the loan officer, gets up, and hurries out of the office. What rule, if any, requires the loan officer to take further action?

Answer 66

The FTC Red Flags Rule makes it compulsory for any mortgage professional to act upon experiencing anything or witnessing behavior that might be considered a red flag. At the very least she should have e-mailed her superior to advise him of what she observed and to ask for his advice. If the loan officer failed to act and the applicant was, in fact, committing fraud or some other offense, the loan officer could be held accountable along with the applicant for aiding and abetting the offense.

Question 67

What is another term for the URLA?

Answer 67

FNMA form 1003 is another designation for the uniform residential loan application (URLA).

Question 68

Barry Borrower has a fixed rate loan. After winning big on a scratch-off lottery ticket, Barry wishes to reduce his principal balance by $50,000. After applying the principal reduction, Barry would prefer that his servicer reduce the payment amount and not the overall term. Barry calls his servicer to discuss:

Answer 68

A mortgage servicer may, at its sole discretion, affect a recast by recalculating the payment amount of a fixed-rate loan after receiving a principal pre-payment. Doing so retains the original term at the fixed interest rate while lowering the payment amount. Servicers may do this as a courtesy and may also charge a fee to accommodate this request.

Question 69

veteran may be exempt from paying the funding fee associated with her VA loan if:

Answer 69

The VA will exempt any eligible veteran pursuing VA financing from having to pay the VA funding fee is s/he has a militarily-incurred disability defined by the VA medical system as 10% or greater.

Question 70

A loan originator informs a customer pursuing a stated income loan of what income amount must be stated in order to make the loan work. This is an ethical violation because:

Answer 70

A stated loan program requires the customer to state their income. Even though the income is not necessarily verified, the stated income results in DTIs that often have to be within acceptable parameters. A loan originator may never prompt a customer into saying what is needed versus what may be accurate.

Question 71

How do principal pre-payments remitted against a fixed-rate loan balance affect the loan?

Answer 71

Unlike remitting a principal pre-payment against an adjustable rate loan balance, doing so against a fixed-rate loan balance accelerates the amortization while reducing both the loan’s term and overall interest rate expense. The payment amount is never affected.

Question 72

An ARM is currently at 3.25% and set to adjust. The index is currently at 1.125% and the margin has been established at 4.25%. To what will the borrower’s interest rate adjust?

Answer 72

Index plus margin equals Fully Indexed Accrual Rate (FIAR). Consequently, the sum of the adjusted index of 1.125% plus the established margin of 4.25% equals the new interest rate of 5.375%.

Question 73

How many pages of a savings account statement must a loan originator request from an applicant?

Answer 73

If an account statement indicates that 12 pages exist, the applicant must provide all 12 pages. Every page of a statement is required regardless of whether or not it is blank.

Question 74

An application is taken on May 1st. By May 30th the customer has not returned most of the documentation needed in order to underwrite the file. What must be issued by the end of the day?

Answer 74

In accordance with ECOA, the applicant must be issued one of three documents within 30 days of application: a Notice of Action Taken advising that his or her loan application was approved, an Adverse Action Notice declining the application, or a Notice of Incomplete Application advising that needed documentation is missing and the applicant must provide it within an allotted timeframe for his or her application to receive further consideration.

Question 75

A buyer’s loan amount is $225,000 on a $410,000 purchase price. How much was her down payment and what percent of the purchase price was it?

Answer 75

Purchase price of $410,000 minus her loan amount of $225,000 equals a $185,000 down payment. Down payment of $185,000 divided by the $410,000 purchase price equals a 45% down payment (185,000/410,000).

Question 76

When originating an adjustable rate mortgage, the lender’s cost and operating expense is covered via the:

Answer 76

The margin is the component of the adjustable interest rate that, in conjunction with the index, forms the fully indexed accrual rate (FIAR). The margin is the component of the rate that pays the lender and covers its operating expenses.

Question 77

Barry is told that he is lacking reserves and may not be able to close. What might he use to supplement his assets?

Answer 77

Although they don’t have to be liquidated, reserves need to be liquid and accessible in case they’re needed. A whole life insurance policy carrying a cash value may be the perfect solution to Barry’s needs. He couldn’t use a blood-relative’s asset statement but he could accept an actual monetary gift. A term life insurance policy carries no cash value and, in order to use the value of his car as reserves, he would have to sell it, thoroughly document the transaction, and deposit the cash.

Question 78

Conventional/conforming DTI guidelines are:

Answer 78

Although conventional/conforming DTI guidelines are established at 28/36, they are just that … guidelines. With compensating factors, conventional/conforming QM loans may be approved up to a 43% back-end DTI ratio.

Question 79

At what equity position is MIP automatically removed?

Answer 79

MIP is the mortgage insurance associated with FHA loans. MIP is only removed after 11 years as long as the initial down payment was equal to or greater than 10%.

Question 80

Advertising a product that sounds too good to be true, telling inquirers that the product has been discontinued, and attempting to sell them something else is an unethical example of:

Answer 80

Bait and switch constitutes the unethical and illegal tactic of advertising an extremely appealing product or service only to inform the respondents that the product is no longer available and attempting to sell them something different. Its main objective is to get the phone to ring.