Test Questions Flashcards
(487 cards)
1
Q
A service release premium (SRP) must
A
Only be paid on a closed loan to a lender or investor
2
Q
The following activity does NOT exempt a person from required mortgage loan originator licensing
A
Compensation paid to a real estate licensee for referring a borrower to a licensed mortgage loan originator
3
Q
WHICH IS CORRECT?
A. Requires states to set minimum net worth or surety bond requirements
B. NMLS overrides individual state licensing requirements
C. A convicted felon is barred from licensure unless the crime was committed more than 5 years ago
D. Attorneys have been exempted completely from the SAFE Act
A
A. Requires states to set minimum net worth or surety bond requirements
4
Q
Regulatory violations processed by individual state Commissioners must also be reported to
A
The NMLS
5
Q
All refinances should contain
A
A tangible net benefit
6
Q
Which of the following is prohibited?
A. An originator entering into agreement with an applicant to pay to pay the originator a commission regardless of whether or not the originator places the applicant into a loan
B. A licensed attorney receiving payment for procuring a title insurance policy
C. A Realtor splitting their commission with a licensed associate who equally assisted in the transaction’s consummation
D. A registered but unlicensed loan originator originating mortgages while employed by a nationally-chartered ban
A
An originator entering into agreement with an applicant to pay to pay the originator a commission regardless of whether or not the originator places the applicant into a loan
7
Q
If a borrower’s total expense ratio is 45%, her gross monthly income is $12,500, and the housing expense amounts to $1,575, how much is her remaining expense?
A. $4,050
B. $5,625
C. $10,925
D. $3,500
A
A $4,050
All expenses consume 45% of the borrower’s gross monthly income. If the income is $12,500, 45% of that equates to $5,625. If the housing expense consumes $1,575 of the $5,625, the remaining $4,050 is the amount constituting her remaining expense.
8
Q
Which of the following is not a power of the Commissioner?
A. Impose fines
B. Revoke an originator’s license
C. Deny an applicant’s license
D. Negate a legitimately-earned commission as punishment for an unrelated violation
A
D. Negate a legitimately-earned commission as punishment for an unrelated violation
9
Q
RESPA Section 8 refers to
A
Unearned compensation
10
Q
According to Reg. Z, the borrower’s automatic right to rescind the loan within three business days does not apply to
A
Loans used to purchase or build the borrower’s residence
11
Q
What is the minimum amount of time an individual may be self employed in order for his self employed income to be considered?
A
One year
12
Q
One of the main purposes for establishing a mortgage licensing system and registry was to:
A. Create Unique Identifiers, license MLOs, and provide sample regulation
B. Increase consumer protections, enforce the SAFE Act, and provide background checks
C. Reduce regulation, manage surety bonds and state funds, and disburse licensing fees
D. Increase uniformity, reduce regulatory burdens, and enhance consumer protections
A
Increase uniformity, reduce regulatory burdens, and enhance consumer protections
The NMLS was not created to license MLOs as that is the states’ responsibility. The NMLS is neither an enforcement body nor a financial organization. Fees are collected on behalf of some states, but managing a state fund is beyond the purview of the NMLS
13
Q
Which document is issued specifically to the applicant of a home equity line of credit?
A. LE
B. CD
C. When Your Home is On The Line
D. ABAD
A
When Your Home is On The Line
All home equity line of credit applicants must receive the booklet, “When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit” within three days of applying for one in accordance with RESPA.
14
Q
An applicant earns an hourly base rate of $36.50 plus a 5% shift differential working a 40 hour work week. Along with this, he also earns $1,000 per month in untaxed social security. What is his monthly income?
A. $7,326.67
B. $10,660
C. $7,643.87
D. $7,893.87
A
7,893.87
If the applicant earns $36.50 per hour plus a 5% shift differential, his true hourly rate is $38.33 (36.50 x 105%).
15
Q
At what interest rate tier would a 17 year note be priced?
A
20 year tier
Mortgage terms typically run between 10 and 30 years in increments of five. If a mortgagor chooses an “odd-year term,” that term is priced to the next highest five-year increment.
16
Q
A state licensing agency may impose a fine against a violating loan originator of up to
A
$25,000 per occurrence
17
Q
You have been working with Dick and Jane and have prequalified them for a $500,000 30-year purchase money loan. They are putting down $100,000 and have decided to use the MI company to which you referred them and is also your affiliate. Today is Monday the 1st and you now have all 6 pieces of information needed to have an application and their intent to proceed. Your office is closed for business on Saturdays. What is the last day you must deliver the Affiliated Business Disclosure?
A
That document is not needed
18
Q
In a judicial foreclosure
A. A judge must order an eviction
B. The mortgage does not contain a power of sale clause
C. The foreclosure process is, in essence, the same as a non-judicial foreclosure
D. Only a federal court can enforce the foreclosure
A
The mortgage does not contain a power of sale clause
19
Q
What is one of the primary defenses against fraud?
A. Due diligence
B. Knowledge of the law
C. Significant product knowledge
D. Common sense
A
Common sense
20
Q
In accordance with RESPA, which of the following, could NOT provide settlement services for the purchase of an owner occupied property?
A. Someone who holds power of attorney
B. The lender originating the loan
C. A licensed escrow officer
D. A licensed attorney
A
Someone who holds power of attorney
21
Q
Regulatory violations processed by individual state Commissioners must also be reported to
A. The FBI
B. The CFPB
C. The NMLS
D. The U.S. Department of the Treasury
A
The NMLS
22
Q
You are preparing a Closing Disclosure for an upcoming loan consummation. The number of Other Charges outnumbers the line items available on the Closing Disclosure form. What do you do?
A. You cannot charge the fees that do not fit on the number of line items provided on the CD
B. You group all “Other” charges together into one line item
C. You prepare an addendum to the CD
D. You itemize the line items that will fit and then sum the remaining items on the last line item
A
You prepare an addendum to the CD
23
Q
If an individual were to have her mortgage license revoked in a particular state she
A
Would lose her license in most if not all other states and not be able to secure another one
24
Q
A component of the GLBA requiring financial institutions to have a program in place to protect clients’ information is
A
The Safeguards Rule
25
Which of the following individuals would not be required to secure a mortgage originator license?
A. A mortgage loan officer who worked for a bank but transferred over to a mortgage brokerage
B. A financial planner who sells mortgages among many other financial products
C. An individual who only sells timeshare plans
D. An investor who buys over 25 properties annually, sells them, and personally arranges for their financin
An individual who only sells timeshare plans.
Individuals who are solely involved in the extension of credit surrounding timeshare plans are exempt from mortgage licensing requirements.
26
The shorter the lock-in period the _______ the cost.
Lower
27
If a borrower chooses an above-par interest rate that results in a closing cost credit of 2%, how much would her settlement costs be reduced assuming a purchase price of $230,000 and a down payment of 15%?
$3,910
With a 15% down payment, the loan amount will be $195,500. If the rate generates a 2% settlement cost credit, the borrower will receive $3,910 towards her closing costs (195,500 x 2%)
28
A mortgage lender spends $12.50 on a credit report for which it charges the applicant $25.00. To what does this refer and what regulation, if any, does it violate?
Marking up and RESPA
29
A credit bureau is referred to as
A consumer reporting agency
The consumer reporting agency (CRA) is the name for a credit bureau since the consumer data which it collects is more than just credit related.
30
Of which institution may a registered loan originator be employed?
A depository institution
31
Records of telemarketing activity must be retained for
Twenty four months
32
If a 5/1 ARM's start rate is 3.375% with a cap structure of 2/6, What would the customer's interest rate become if, at the first change point, the index was 2.875% and the margin was 3%?
A. 5.875%
B. 5.375%
C. 9.375%
D. 6.375%
Answer : 5.375%
Explanation : With a 2/6 cap structure and a start rate of 3.375%, the highest to which the rate can adjust at the next adjustment point is 5.375%. Even though the rate should technically be 5.875% (2.875 + 3), the 2% cap restricts it from increasing higher than 5.375%.
33
An applicant pays $1,100 in rent, a car loan of $450 with three months remaining, and has two credit cards both with a $110 minimum monthly payment. If his annual salary is $55,000 and the proposed PITI is $1,515, what is his total back-end DTI?
A. 72%
B. 69%
C. 48%
D. 38%
Answer : 38%
Explanation : When calculating his current debts, his $1,100 rent is not included since he will no longer have rent once he buys his house. The $450 car loan is not counted since it is installment debt with less than 10 months remaining. The only debts counted, therefore, are the two credit card payments @ $110 each and the $1,515 PITI. When the sum total of his debts ($1,735) is divided by his monthly income equivalency ($55,000 / 12 = $4,583.33), his back-end DTI calculates to be 38% ($1,735 / $4,583.33 = 38%).
34
Which of the following is not an example of predatory lending?
A. Only offering sub-prime mortgage products to someone qualified for standard mortgage products
B. Charging higher rates to someone with lower credit scores
C. Offering only ARM products with lower start rates in order for borrowers to afford larger houses
D. Focusing on specific socioeconomic neighborhoods to promote higher-priced mortgage products
Answer : Charging higher rates to someone with lower credit scores
Explanation : Charging higher interest rates to someone with a lower credit score offsets risk and is therefore acceptable as long as the higher rate doesn't violate other regulatory considerations and the borrower is still able to afford the payments.
35
If a HOEPA loan is originated for purposes of home improvement
A. The proceeds may be fully disbursed to the home improvement contractor
B. The proceeds may be disbursed fully disbursed to the home improvement contractor with the customer's permission
C. The proceeds may be retained by the lender and issued to the home improvement contractor at a future date agreed upon by all interested parties
D. The proceeds may be issued to and managed by a third-party escrow company that is agreed upon by all parties
Answer : The proceeds may be issued to and managed by a third-party escrow company that is agreed upon by all parties
Explanation : To prevent homeowners from being cheated by unscrupulous home improvement contractors, proceeds from the refinancing of a 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 company, agreed upon by all interested parties.
36
How soon after closing does RESPA require an escrow account to be analyzed?
45 days
RESPA requires any loan closing with an escrow account to incur an escrow analysis within 45 days of closing and annually thereafter.
37
The Equal Credit Opportunity Act is known as
Answer : Regulation B
| Explanation : ECOA is Regulation B as demonstrated through Federal Fair Lending Statutes.
38
On what document is a pre-payment penalty not disclosed
Answer : The Mortgage
Explanation : The mortgage does not reference any indication a pre-payment penalty as it is the document that establishes the lien. The LE, CD, and Promissory Note all do.
39
When a borrower is using income from rental properties to qualify for a loan, how is that income assessed from the tax returns?
A. Net income plus depreciation
B. Gross income plus depreciation
C. Net income minus depreciation
D. Gross income minus depreciation
Answer : Net income plus depreciation
Explanation : Income from rental properties is taken from the tax returns by taking net income plus the depreciation found on Schedule C. Depreciation is a taxable expense, but it is not actually a loss of cash flow therefore it can be added when qualifying for a loan. Gross income from a rental property is not used for qualification
40
For each mortgage loan originator, a surety bond shall be maintained in an amount:
Prescribed by the dollar amount of loans originated as determined by the commissioner
41
All refinances should contain
A net tangible benefit
42
A person was purchasing an income property which was scheduled to close and fund on June 25th. Rent of $1800 was paid for the month of June on the 1st. What was the buyer's prorated amount?
Answer : $360
Explanation : The monthly rent of $1800 is divided by 30 days resulting in a $60 daily rent. The new owner would be entitled to the rent for 6 days or 6 X $60 = $360 (25th, 26th, 27th, 28th, 29th, and 30th).
43
```
Which of the following loans would never be assumable?
A. A USDA
B. A conventional conforming loan
C. A VA
D. An FHA
```
Answer : A conventional conforming loan
Explanation : The FHA, VA, and some ARMs are assumable because they lack a due on demand or alienation clause. Conventional conforming loans are generally not assumable.
44
One primary purpose of securitization is
To provide the funds for mortgage financing
45
For income from alimony and/or child support to be recognized as income, the remaining term of such income must exceed:
Three years
46
What is a primary purpose of RESPA's mortgage servicing disclosure statement?
To inform the borrower of the likelihood that their loan servicing will be transferred
47
All of the following are examples of prohibited conduct EXCEPT:
A. Performing in a negligent manner
B. Knowingly making an untrue statement in a license application
C. Omission of a material fact from a license application
D. Advising a customer with a 575 credit score that you do not have a loan program to offer her
Answer : Advising a customer with a 575 credit score that you do not have a loan program to offer her
Explanation : Although ECOA prohibits discouraging anyone from submitting an application, if a lender had an across-the-board policy that it would not lend to anyone under certain, legitimate circumstances, it could advise a prospective applicant that there were no programs available based on that individual's defining characteristic.
48
Which of the following would be considered illegal?
A. A loan originator completes a mortgage application on a property in a state in which she is licensed
B. A loan originator takes a mortgage application on a property in a state in which she is not licensed but forwards the completed application to a colleague licensed in that state
C. A non-licensed loan originator working for a bank takes a mortgage application
D. A non-licensed loan originator screens a caller and refers him to a licensed loan originator
Answer : A loan originator takes a mortgage application on a property in a state in which she is not licensed but forwards the completed application to a colleague licensed in that state
Explanation : If a loan originator works for an entity required to be licensed, the loan originator may only originate mortgages on properties located in states in which he or she carries a valid license.
49
The FIAR consists of
Answer : Index plus margin
Explanation : The index is the investment portion of the ARM rate and the part that periodically fluctuates. The margin is the fixed, lender operating costs and profit margin. Together they constitute the fully indexed accrual rate (FIAR).
50
An advertisement promoting a 3.5% interest rate should also disclose
The APR, whether the rate is fixed or adjustable, if adjustable what the term is, and, if it contains a balloon component, those terms as well
51
After failing the pre-licensing examination four times, how long must an individual wait to take the test again?
30 days
Failing it a third time requires a six-month waiting period and, after taking it and failing a fourth time, the process repeats itself.
52
The two parts of license maintenance are:
Continuing Education and continuing to meet minimum standards to be granted a license
53
FCRA is also referred to as
REG V
54
You closed a loan for a customer and scheduled a dinner with them to celebrate their new home. The day before the dinner you realize that paying for your clients' meals may be considered a violation of RESPA. You should:
Answer : Proceed as if nothing is wrong and pay for their meals
Explanation : RESPA prohibits the exchange of anything of value between actual or potential referral sources. Although customers often refer others to their loan originator, previous customers are not considered traditional referral sources and, therefore, you are permitted to give a borrower a reasonable gift.
55
What defines a metropolitan area?
An urban environment with a population of at least 50,000
56
According to RESPA Section 8, which is an acceptable reason for compensation?
Legitimate work performed and invoiced at a reasonable price
57
An investigative consumer report is also known as
A full factual
58
The term loan processor or underwriter means an individual who performs clerical or support duties at the direction of and subject to the supervision and instruction of:
A state-licensed or registered lender
59
A property with a value of $410,000 has a first mortgage along with a HELOC. The LTV of the first mortgage is 65%, the HELOC has a $22,500 outstanding balance, and the TLTV is 88%. What is the line amount of the HELOC?
A. $266,500
B. $143,500
C. $94,300
D. $49,200
Answer : $94,300
Explanation : Since the TLTV is 88% and the first mortgage's LTV is 65%, the HELOC's line amount must be 23%. If the property value is $410,000, 23% of that amounts to $94,300
60
Dennis Deskjob works the night shift at the local police department for which he earns an hourly rate of $42.50 plus a 10% shift differential. Assuming that he works and is paid for a standard 40 hour work week, what is his monthly income?
A. $7,366.67
B. $8,103.33
C. $6,630
D. $9,100
Answer : $8,103.33
Explanation : If Dennis' hourly rate is $42.50 plus a 10% shift differential, his hourly rate becomes $46.75 (42.5 x 110%). Through a standard 40 hour work week he earns $1,870 (46.75 x 40). In a year he earns $97,240 (1,870 x 52). His monthly income, therefore, amounts to $8,103.33 (97,240 / 12)
61
In accordance with the SAFE Act, a person is also considered to be
Answer : A corporation
Explanation : "The term 'person' means a natural person, corporation, company, limited liability company, partnership, or association."
62
When must a notice of right to receive an appraisal report be issued?
Answer : At the time of a loan decision
Explanation : The loan decision triggers the issuance of a notice of right to receive an appraisal report affording the applicant a 90-day window during which they may request a copy of their appraisal.
63
The APR is the interest rate plus the finance charges computed and expressed as:
Answer : A percentage
Explanation : The APR or Annual Percentage Rate is expressed as a percentage, not as a dollar amount. It is reported on the Closing Disclosure along with the amount financed. An annual payment is the total amount paid in a calendar year or a single annual payment.
64
On a fixed-rate loan, the Truth in Lending Act protects the borrower through:
Disclosure of costs of the loan
65
A loan originator who applies for license reinstatement after lapse must complete the continuing education requirements for which year?
Answer : Most recent year the license was held
Explanation : Lapse in License-A licensed mortgage loan originator who subsequently becomes unlicensed must complete the continuing education requirements for the last year in which the license was held prior to issuance of a new or renewed license. If the lapse extends beyond the last day of February, the candidate must begin the entire pre-licensing process over.
66
According to Freddie Mac and Fannie Mae guidelines, how long must a Chapter 7 bankruptcy be discharged before a borrower may get a loan?
Answer : 4 years
Explanation : Freddie Mac and Fannie Mae require a minimum of four years since the discharge of a Chapter 7 bankruptcy. If there are extenuating circumstances regarding the bankruptcy, an exception may be granted and financing may be given 2 years after discharge. A bankruptcy stays on the credit report for 10 years.
67
An individual falsely representing an ownership interest in and a right to sell a home is known as a:
A. Straw seller
B. Property flipper
C. Straw buyer
D. Conspirator
Answer : Straw seller
Explanation : Straw sellers falsely claim ownership to a property for a fee and often appear at consummations to act as the legitimate seller.
68
VA and USDA mortgages finance
Primary residences
69
What was one of the primary motivations for the creation of a UST?
A. Loan originators were complaining about having to take so many exams
B. Conducting exams for all of the states was becoming too expensive
C. The questions on state exams were often redundant
D. Loan originators were taking too long to become licensed
The questions on state exams were often redundant
70
A lock-in agreement
Commits a lender to a particular rate and cost for a specific duration
71
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?
A. $185,000/55
B. $225,000/45
C. $225,000/55
D. $185,000/45
Answer : $185,000/45
Explanation : 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).
72
The Lender takes a loan application from Borrower. The Truth in Lending Act states that the borrower is entitled to the disclosure of the costs of a mortgage loan in writing from the lender:
Within three business days of the loan application
73
If a borrower's total expense ratio is 45%, her gross monthly income is $12,500, and the housing expense amounts to $1,575, how much is her remaining expense?
A. $4,050
B. $5,625
C. $10,925
D. $3,500
Answer : $4,050
Explanation : All expenses consume 45% of the borrower's gross monthly income. If the income is $12,500, 45% of that equates to $5,625. If the housing expense consumes $1,575 of the $5,625, the remaining $4,050 is the amount constituting her remaining expense.
74
Up to what back-end DTI may be acceptable with compensating factors?
49%
75
All but which of the following actions may the CFPB take upon discovering that amended state legislation may have rendered the state non-compliant with the SAFE Act?
A. Request that the state submit that its law remains compliant with the SAFE Act
B. Request that the state submit information on the state regulator's supervisory processes
C. Request that the state submit data on the state regulator's investigations, examinations, and enforcement actions
D. Request that the state submit a rescission of the amended laws to the state's legislature
Answer : Request that the state submit a rescission of the amended laws to the state's legislature
Explanation : When an existing law is amended or when new legislation is passed, Regulation H addresses these circumstances by requiring that the Bureau be notified any time a state enacts legislation that affects its compliance with the SAFE Act. The CFPB may ask that the state submit evidence that its law is in compliance with the SAFE Act, for citations to relevant state laws and regulations, for information on the state regulator’s supervisory processes, and for data on the state regulator’s investigations, examinations, and enforcement actions.
76
Creditors are obligated to maintain copies of all Closing Disclosures provided by third party settlement agents for how long?
5 years
77
According to TILA a mortgage applicant must be issued
Answer : A CHARM booklet, when applicable
Explanation : TILA mandates the issuance of the CHARM booklet within three days of the application of all closed-ended ARMs. The Mortgage Servicing Disclosure Statement and Transfer of Servicing Disclosure are requirements of RESPA and TRID. The Notice of Action Taken is an ECOA mandate.
78
The term "Caveat Emptor" means
Let the buyer beware
The law of agency directs a mortgage professional's fiduciary responsibility to the customer rendering the term "caveat emptor" inapplicable
79
What is the potential fine for violating Do Not Call Regulations?
40,000 per occurrence
80
Conventional Qualifying Ratios
HER 28%
| TOTAL DTI 36%
81
FHA Loan Qualifying Ratios
HER 31%
| TOTAL DTI 43%
82
VA LOAN Qualifying Ratios
HER - NOT USED
| TOTAL DTI -41%
83
USDA Qualifying Ratios
HER 29%
| TOTAL DTI 41%
84
MAXIMUM MORTGAGE PAYMENT
MONTHLY GROSS INCOME (X) FRONT END (HER) = MAX PITI
MONTHLY GROSS INCOME (X) BACK END RATIO ( - ) MONTHLY DEBT = MAX PITI
LOWER OF 2 IS THE ANSWER
85
MONTHLY INTEREST AMOUNT
LOAN AMOUNT (X) NOTE RATE ( / ) 12
86
BI-WEEKLY SALARY=
BI-WEEKLY PAY (X) 26 (/) 12 = GMI
87
SEMI-WEEKLY/BI-MONTHLY SALARY =
SEMI-MONTHLY SALARY (X) 24 (OR DIVIDE BY TWO) = GMI
88
TOTAL OBLIGATIONS RATIO (BACK END RATIO)
PITI + TMO (/) GMI = BACK END RATIO
89
MAXIMUM PITI
MULTIPLYING THE BORROWERS GMI BY FRONT END RATIO (HER)
90
MAXIMUM TOTAL DEBT USE
USE BACK END RATIO TO FIND OUT THE MAXIMUM ACCEPTABLE TMO
| GMI X BACK END RATIO= T.M.O
91
LUMP SUM PAYMENT THAT REDUCES THE LOAN'S INTEREST RATE BY 3 POINTS (%) IN FIRST YEAR, 2% IN SECOND AND 1% IN THIRD YEAR
3-2-1 BUY DOWN
92
In the event that a right of rescission is exercised, how long does the lender have to refund any money paid by the applicants?
Answer : 20 days
Explanation : The Truth in Lending Act mandates that all monies paid into the application be refunded within 20 days of a lender receiving an exercised right of rescission.
93
By what date would a mortgage loan originator who does not renew her license by the last day of a year have to renew it to avoid repeating the entire licensing process?
The last day of February
94
What is the appropriate documentation to secure from an applicant disclosing that she is a permanent resident alien?
A copy of the front and back of her valid permanent resident alien card
95
VA
Guarantees the performance of the mortgages it backs
96
The overall governing entity of the mortgage industry is
The CFPB
97
Which of the following loans would require MIP?
Answer : An FHA loan with a 65% initial LTV
Explanation : MIP is only associated with FHA financing and all FHA loans require MIP at closing regardless of their initial LTV.
98
How many hours of continuing education are needed annually for a licensed loan originator to renew his license?
Answer : 8
Explanation : Although some state requirements may add more hours, the standard requirement for annual continuing education is eight hours.
99
If an applicant discloses that she is a plaintiff in a lawsuit what should the loan originator request?
Answer : Evidence of her position as a plaintiff
Explanation : As long as the applicant can demonstrate that she is a plaintiff, the application may be processed without disruption. As a plaintiff, the lender's lien position is not jeopardized as it could be if the applicant was a defendant.
100
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:
legal and ethical
101
How many questions appear on the national pre-licensing examination?
100
102
The standard, fixed rate FHA loan is also referred to as
Answer : FHA 203(b)
| Explanation : Section 203(b) of FHA's insurance guidelines defines the FHA fixed rate mortgage option.
103
What is another term for a HOEPA loan?
Section 32
104
A borrower's credit report reveals three scores: 813, 720, and 735. Which score is the score used for mortgage qualification?
Answer : 735
Explanation : The middle of the three scores is the score used for qualifying purposes. In the presence of multiple applicants, the lowest of all applicants' middle scores is the utilized score
105
Redlining refers to
Answer : Avoiding particular geographic areas based on perceived characteristics of the area's inhabitants
Explanation : Redlining is the avoidance of certain geographic locations due to the perceived characteristics of the area's inhabitants. Often poorer or economically depressed geographic areas were redlined because of the high likelihood of unqualified inhabitants. Consequently, people who might otherwise have been qualified were deprived of opportunities to partake in products and services available to others in stronger areas.
106
Which type or types of mortgages is, are, or can be assumable?
Answer : FHA, VA, and ARMs
Explanation : FHA, VA, and some ARM loans are assumable. A mortgage becomes assumable when it lacks an alienation (due on demand) clause
107
FHA
Answer : Insures the loans it backs
| Explanation : FHA insures the loans that it backs through the upfront and annual mortgage insurance premiums
108
VA and USDA mortgages finance
Primary residences
109
If a borrower's income is $6,500 per month, his back-end DTI is 32%, and his monthly, non-housing related expenses amount to $1,115, what is the total of his housing expense?
Answer : $965
Explanation : If the sum total of all expenses (back-end ratio) equates to 32% of the borrower's $6,500 gross monthly income ($2,080) and of that, $1,115 is monthly expenses, his housing expenses would consume the difference of $965.
110
How many pages of a savings account statement must a loan originator request from an applicant?
All pages
111
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
Bait and switch advertising
112
Under the TRID rules, what is the definition for 3 days at initial disclosure?
A day on which the creditor's offices are open to the public for substantially all business functions
113
At what percentage should the loan originator credit an individual's mutual fund account if the account is being used to satisfy reserve requirements?
Answer : 70%
Explanation : Because of the potential for market fluctuations, when using mutual funds to satisfy reserve requirements, 70% of their current value is used.
114
What is the generally accepted minimum credit score for conventional financing?
620
115
How soon after the issuance of the Loan Estimate may a mortgage close?
7 business days
116
Which of the following forms does a mortgage originator use to update his information through the NMLS?
MU4
117
Which fees can be charged prior to providing the Loan Estimate?
Answer : Only the credit report
Explanation : Fees, except for obtaining a credit report, cannot be charged or collected until the LE is provided and the borrower indicates intent to proceed
118
FHA cash-out refinances are limited to what LTV?
Answer : 85%
Explanation : When a borrower walks away from an FHA refinance transaction with cash, the maximum LTV FHA permits is 85%.
119
The sum total of all costs of originating the loan expressed as a dollar amount
A finance charge
120
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 : $2,616
Explanation : If the buyer remits $1,075 for the first year, he is saving $125 monthly over his note rate. If the buyer remits $1,107 for the second year, he is saving $93 monthly during the second year. When 12 payments of $125 ($1,500) are added to twelve payment of $93 ($1,116) the seller will spend $2,616 to fund the 2-1 buydown.
121
Which of the following transactions must contain a right of rescission?
A. A purchase transaction
B. The refinance of an investment property
C. A primary residential refinance, original loan, original lender
D. A primary residential refinance, original loan, different lender
Answer : A primary residential refinance, original loan, different lender
Explanation : Non-purchase primary residential transaction all require the right to rescind. An exception may be made in the event of an original loan being refinanced through the original lender.
122
Which of the following is not an example of a hybrid ARM?
Answer : 1/1
Explanation : An ARM with a stable interest rate for the first year that adjusts periodically thereafter is referred to as a standard ARM.
123
A good payment history consists of
No 60-day late payments within the previous 13 to 24 months and no 30-day late payments within the previous 12 months
124
A property is worth $325,000. The homeowners owe a first mortgage of $112,000 along with a $70,000 home equity line of credit of which $45,000 is currently outstanding. What is the property's TLTV?
Answer : 56%
Explanation : The TLTV is all outstanding encumbrances in relation to a property's value. When the sum total of the first mortgage ($112,000) and the line of credit amount ($70,000) is divided by the property value (82,000/325,000), the resulting TLTV is 56%.
125
A tester is
An individual posing as a mortgage customer to test the originator's regulatory compliance
126
What is the definition of a Mortgage Loan Originator in accordance with the SAFE Act?
An individual who takes a mortgage loan application for compensation or gain
127
How long does a mortgage license remain in effect before requiring renewal?
Answer : One year
Explanation : Licenses expire annually on December 31st and must be renewed for the loan originator to maintain the ability to originate mortgages
128
Comparing a 3/1 ARM to a 30-year fixed in an ad constitutes which advertising prohibition?
Answer : Misleading comparisons in advertisements
Explanation : Since a 3/1 ARM is typically priced lower than a 30-year fixed, advertising a comparison between the two loans may constitute a misleading comparison
129
If a borrower chooses an above-par interest rate that results in a closing cost credit of 2%, how much would her settlement costs be reduced assuming a purchase price of $230,000 and a down payment of 15%?
Answer : $3,910
Explanation : With a 15% down payment, the loan amount will be $195,500. If the rate generates a 2% settlement cost credit, the borrower will receive $3,910 towards her closing costs (195,500 x 2%).
130
Under whose surety bond would a mortgage originator be covered when a mortgage originator is required to have the coverage of a surety bond?
Answer : Their employer's
| Explanation : Most states require loan originators to be covered under a surety bond provided by their employer.
131
Which of the following topics is not part of the standard 20 hour pre-licensing education requirement?
A. 3 hours of federal law
B. 2 hours of standards for non-traditional mortgage lending
C. 12 hours of electives
D. 3 hours of general mortgage knowledge
Answer : 3 hours of general mortgage knowledge
Explanation : Although General Mortgage Knowledge is consistently a part of 20 hour pre-licensing education, it is actually a part of the 12 hours of electives and therefore not mandatory.
132
At 80 LTV, PMI may be removed
Answer : As long as the borrower demonstrates 20% equity and a good payment history
Explanation : At 80% LTV, PMI will be removed upon a request received from the borrower, an appraisal demonstrating an 80% LTV or lower, and as long as the borrower has maintained a good payment history
133
```
Which of the following is an example of a conventional mortgage?
A. USDA
B. Option ARM
C. FHA
D. VA
```
Answer : Option ARM
Explanation : USDA, FHA, and VA loans are guaranteed by purely-governmental entities. Consequently they are government (non-conventional) loans. Conventional mortgages are not "backed" by purely governmental entities.
134
What is the minimum down payment allowed by USDA?
0%
135
The SAFE Act implements
Answer : A floor of standards to which individual states may add their own qualifications
Explanation : The basic minimum standards are established by the NMLS. States may, and many often do, implement more stringent requirements.
136
If a lender receives an unearned PMI premium from a borrower, within what time frame must it refund the unearned premium?
Answer : 45 days
137
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 : 5.375%
Explanation : 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%.
138
What is/are potential drawbacks of option loans?
Balance caps, re-cast points, potential for negative amortization
139
In the event that a mortgage originator leaves the employment of a licensed mortgage provider for cause or otherwise, who must notify the NMLS?
The licensed mortgage provider and the mortgage originator
140
Which document is mandatory when a fixed rate loan closes with PMI?
An amortization schedule
141
The overall governing entity of the mortgage industry is
Answer : The CFPB
Explanation : The Consumer Financial Protection Bureau is the regulatory entity overseeing the mortgage industry as empowered by the Dodd Frank Act.
142
Which of the following loan types is not exempt from HPA considerations?
Answer : Conventional
Explanation : The HPA exempts FHA or VA loans from consideration because FHA utilizes MIP not PMI and the VA utilizes a funding fee and not MI. Loans containing lender paid mortgage insurance involve the lender paying the MI in exchange for the customer accepting a higher interest rate.
143
The Safeguards Rule program requirement contains all but which of the following components
A. A designated company program coordinator
B. Oversight of service providers
C. Regular testing and monitoring
D. A client opt out waiver
Answer : A client opt out waiver
| Explanation : Clients may not opt out of a company protecting their information
144
A loan originator leaves five messages over a five day period on a sales target's voicemail without first scrubbing the telephone number through the Do Not Call Registry. Assuming the message recipient has registered through the Do Not Call Registry, what penalty is the originator subject to?
Answer : $80,000
Explanation : Violations of Do Not Call legislation subject the violator to a fine of $16,000 per occurrence. Since the originator placed five calls over five days, his company is subject to five fines of $16,000 each
145
Which of the following TRID required documents is due 3 days before closing?
A. The Mortgage Servicing Disclosure Statement
B. The HUD1
C. The CD
D. The HUD Settlement Cost Booklet
Answer : The HUD1
Explanation : The CD is always provided 3 days before closing. The borrower may request a copy 24 hours prior if desired.
146
How many sections does a URLA contain?
10
147
Which of the following properties would require commercial financing?
A. A single family investment property.
B. A four unit dwelling with one unit being a store front that consumes less than 25% of the gross square footage
C. A five-unit dwelling
D. A three unit investment property
Answer : A five-unit dwelling
Explanation : Residential financing finances dwellings up to four units (primary and investment). Anything beyond four units requires commercial financing. FHA will finance mixed-use properties (combined residential and commercial) assuming that the commercial aspect does not exceed 25% of the property's gross square footage
148
When a loan created in the primary market is immediately sold into the secondary market, the responsibility of 'funding' belongs to the:
Answer : Primary lender
Explanation : The primary lender funds the loan. The borrower receives the funds. The seller would only fund if utilizing seller financing. The secondary market buys the loan from the primary market.
149
A 1st mortgage balance is $135,776. There is a $50,000 HELOC in a subordinate lien position with $0.00 owed. The TLTV is 68%. What is the house's value?
Answer : $273,200
Explanation : If both encumbrances constitute 68% of the property's value, and the sum of both encumbrances equating to $185,776, dividing the total amount of encumbrances by the TLTV, will provide the property value (185,776 / 68% = 273,200).
150
Failing to issue a right of rescission at the closing of a rescindable loan is a violation of
REG Z
151
When an action is filed on an existing surety bond, the Commissioner may
Answer : Require the filing of a new surety bond
Explanation : Upon learning that a claim has been filed against an individual's surety bond, the Commissioner will require the filing of a new one in order for the licensee to continue conducting business.
152
When engaging in mortgage loan origination activity, which is not prohibited?
A. Charging an interest rate higher than par in order to generate a settlement cost credit
B. Obtaining property by fraud or misrepresentation
C. Conducting any business without holding a valid license as required, or assisting any unlicensed person in the conduct of loan origination business
D. Failing to make disclosures as required under applicable state or federal law and regulation
Answer : Charging an interest rate higher than par in order to generate a settlement cost credit
Explanation : Above-par pricing is allowed as long as the borrower qualifies at the higher rate, is aware of the higher-than-par rate, and receives 100% of the above-par revenue.
153
Reverse Redlining refers to
Answer : Intentionally pursuing predatory lending in particular geographic locations
Explanation : Reverse redlining is specifically focusing on particular geographic areas to pursue predatory lending practices.
154
TILA Section 32 refers to
HOEPA
155
What constitutes a teaser rate?
Answer : An ARM start rate three percent or more below FIAR
| Explanation : If an ARM start rate is three or more percent below FIAR, it is referred to as a teaser rate
156
Which of the following does not constitute a required standard of state licensing laws?
A. Loan originator licensing requirements
B. Requirements for supervising those who are licensed
C. Requirement for establishing licensing fees
D. A program for enforcing the law
Answer : Requirement for establishing licensing fees
| Explanation : Fees are defined individually by each state.
157
When a loan exceeds the FHFA's annual loan limits, the loan is considered to be
Jumbo
158
When utilizing the sales comparison appraisal approach, the appraiser may make net and gross adjustments up to what percentages respectively?
Answer : 15 and 25
Explanation : The net adjustment test requires adding all adjustments on a particular comp by honoring the sign (+/-). If the sum total falls within 15% of the value assigned to that comp, the adjustments are considered acceptable. The adjustments next must be added together (regardless of their sign). If the sum total is within 25% of the value assigned to that comp, the adjustments are further deemed acceptable.
159
A benchmark interest rate that reflects general market conditions
The index
160
The number of percentage points added to the index by the mortgage lender to set your interest rate on an adjustable-rate mortgage (ARM) after the initial rate period ends.
The margin
161
The aggregate escrow analysis allows for the lender to require that the borrower have which of the following?
Answer : $0 in their escrow account or no more than two month's impound in reserves at one time during the calendar year
Explanation : RESPA allows for a cushion of up to 1/6 of the annual anticipated escrow disbursements to be maintained in escrow accounts. This helps to absorb unanticipated increases to the cost of items paid through escrow. In other words, if a lender is expecting to pay a $4,000 tax bill but the tax bill is ultimately $4,500, the cushion will help the lender avoid having to advance the difference from its own funds.
162
Under TILA a loan servicer may not
Fail to credit a payment on the day of its receipt
163
The overall governing entity of the mortgage industry is
The CFPB
164
In order to meet pre-licensing education requirement, a person shall complete at least 20 hours of education which shall include at least:
Answer : Three hours of federal law and three hours of ethics
Explanation : The minimum educational requirements established to meet the pre-licensing education for licensure dictate that a person shall complete at least 20 hours of education, including at least: three hours of federal law and regulations, three hours of ethics, which shall include instruction on fraud, consumer protection, and fair lending issues, and two hours of training related to lending standards for the non-traditional mortgage product marketplace.
165
In addition to other pertinent facts, when an applicant applies for an adjustable rate mortgage, he must be given information pertaining to
Answer : The index, margin, and the frequency of adjustments
Explanation : 12 CFR §1026.19 requires lenders to disclose to ARM applicants pertinent information pertaining to the loan rate's index, margin, and frequency of adjustments.
166
When an underwriter manually underwrites a Freddie Mac/Fannie Mae loan without compensating factors, what is the maximum debt ratio allowed?
Answer : 36%
Explanation : 36% is the maximum debt ratio allowed when manually underwriting a loan without other compensating factors. Compensating factors such as a large down payment, payment history, and high credit scores may allow an underwriter to justify a higher debt ratio.
167
Which of the following statements best describes Form 1008?
Answer : Transmittal summary
Explanation : Form 1008 is the transmittal summary and summarizes the details, terms, and specifics of the loan transaction.
168
Which of the following constitutes an illegal foreclosure rescue scheme?
A. An attorney advising a client to declare bankruptcy to forestall a pending foreclosure
B. An attorney negotiating with a client's lender on that client's behalf
C. An individual who convinces a mortgagor in foreclosure to sign the deed of their property over under the promise of eventual recovery and then evicts the former property owner while satisfying the foreclosure for less than the property's value
D. A mortgage company offering a sub-prime loan as the only available option to refinance an individual out of foreclosure
Answer : An individual who convinces a mortgagor in foreclosure to sign the deed of their property over under the promise of eventual recovery and then evicts the former property owner while satisfying the foreclosure for less than the property's value
Explanation : Unscrupulous individuals preying on the desperate frequently convinced individuals in foreclosure to sign their property over under the promise of "rent-to-own" again. Once the deed was transferred, the new owner would satisfy the foreclosure and evict the former owner, essentially stealing their property out from under them.
169
What is one of the outcomes resulting from the Great Depression?
The establishment of the Secondary Market
170
What does CHARM stand for?
Consumer Handbook on Adjustable Rate Mortgages
171
Referring to an adjustable interest rate as fixed in an advertisement violates which regulation?
Answer : Reg Z
Explanation : TILA (Reg Z) prohibits misleading advertising practices. If an adjustable interest rate is referenced in an advertisement, it must be referred to as such
172
Which of the following was one of the purposes of the HERA?
Establishing the NMLS
173
HERA is the:
Housing and Economic Recovery Act of 2008
174
You are originating a lot loan for a repeat customer. Today is Saturday, October 3. What is the last day by which the consumer must receive the LE?
Answer : An LE is not required
Explanation : The TRID rule applies to most closed-end consumer credit transaction secured by real property. However, some specific categories of loans are excluded from the rule. Specifically, the TILA-RESPA rule does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land).
175
If a mortgage professional encounters suspicious activity, he is required to file
Answer : A suspicious activity report
| Explanation : Filing a SAR is required any time a financial professional encounters anything suspicious.
176
Convincing an appraiser to fraudulently overvalue a property that is ultimately sold for the artificially-inflated price with the proceeds split between the seller and the appraiser is an example of
Answer : Fraud for profit
Explanation : Fraud for profit is when some or all of the players orchestrating the transaction benefit from the fraud. Although artificially-inflated values are often a component to illegal property flipping, that is not the best possible answer since the question did not indicate how long ago the property was acquired.
177
A mortgage broker invents both a property and a borrower in order to earn false profits on completed loan transactions. This is an example of ?
An air loan
178
Which of the following loans would not be subject to a right of rescission?
Answer : The refinance of a two-family primary residence through a state agency
Explanation : Lending transactions originated through state agencies are not subject to rights of rescission.
179
A mortgage originator is required to display his or her unique identifier on all of the following except:
A. Loan application forms
B. Business cards
C. Advertisements
D. Internal emails
Answer : Internal emails
Explanation : The unique identifier of any person originating a residential mortgage loan shall be clearly shown on all residential mortgage loan application forms, solicitations or advertisements, including business cards or websites, and any other documents as established by rule, regulation or order of the Commissioner.
180
Which regulation governs behaviors pertaining to advertising?
Answer : TILA
Explanation : The Truth-in-Lending Act requires ethical behavior in advertising. Triggering terms require the clear and conspicuous disclosure of the finite details with equal prominence to the triggering term.
181
A mortgage originator receives a call from a friend who wishes to rent a house to a potential renter. The friend does not wish to purchase a credit report but has authorization to access the applicant's credit. The friend asks the loan originator to order the applicant's credit report on his behalf. By doing so, the loan originator
Answer : Violated the FCRA
Explanation : The FCRA requires anyone accessing another individual's credit to have a permissible purpose in addition to permission. Although the partners had permission, accessing the credit report did not satisfy a permissible purpose since the credit access was not in pursuit of mortgage financing.
182
If a 40-year old applicant presents with a retirement account reflecting a $65,000 face value, at what value do you credit him for the retirement account?
Answer : $39,000
Explanation : Since the applicant is younger than 59 1/2, he can only receive credit for 60% of the retirement account's face value to account for taxes and penalties for early withdrawal. Multiplying 65,000 by 60% results in a $39,000 credited value
183
In conducting an examination or investigation, a state licensing agency may not
Answer : Demand a monetary sum placed in escrow until resolution
Explanation : State licensing agencies may not require a monetary sum placed into an escrow account pending an investigation's resolution. They may, among other things, administer oaths and affirmations, require the production of relevant documents, and subpoena witnesses.
184
Which of the following loan types is not exempt from HPA considerations?
A. FHA
B. VA
C. Conventional
D. Conventional loan utilizing LPMI
Answer : Conventional
Explanation : The HPA exempts FHA or VA loans from consideration because FHA utilizes MIP not PMI and the VA utilizes a funding fee and not MI. Loans containing lender paid mortgage insurance involve the lender paying the MI in exchange for the customer accepting a higher interest rate.
185
HPA
Homeowners Protection Act of 1998
186
What does The HPA do?
The Homeowners Protection Act is a law designed to reduce the unnecessary payment of private mortgage insurance (PMI) by homeowners who are no longer required to pay it. The Homeowners Protection Act mandates that lenders disclose certain information about PMI. The law also stipulates that PMI must be automatically terminated for homeowners who accumulate the required amount of equity in their homes.
187
What does PMI do?
PMI protects lenders from the risks of buyer default and foreclosure. It enables prospective buyers, who don't make a significant down payment, to obtain an affordable mortgage. It is used extensively to facilitate ‘‘high-ratio’’ loans for which the loan-to-value (LTV) ratio exceeds 80%. PMI enables a lender to recover the costs associated with the resale of foreclosed property, along with interest payments and fixed costs such as taxes and insurance policies, paid prior to the resale of the distressed property. Once a mortgage loan balance is below the 80% LTV ratio, PMI is no longer needed as it provides little extra protection for a lender and does not benefit the borrower.
188
Federal Housing Finance Agency (FHFA)
was established by the Housing and Economic Recovery Act of 2008 (HERA) and is responsible for the effective supervision, regulation, and housing mission oversight of Fannie Mae, Freddie Mac (the Enterprises) and the Federal Home Loan Bank System, which includes the 11 Federal Home Loan Banks (FHLBanks) and the Office of Finance. Since 2008, FHFA has also served as conservator of Fannie Mae and Freddie Mac.
189
The requirement of including the credit repository's name and address on the adverse action notice is established through
Answer : FCRA
Explanation : FCRA requires that financial institutions provide their applicants with the name and address of the credit repository from which they secured the applicant's credit report so that the applicant can request a free copy of their credit report from the credit repository.
190
A financial institution must provide its customers with its privacy policy
Answer : At the time that the account is opened and annually thereafter
Explanation : The GLBA requires financial institutions to automatically provide their customers with its privacy policy upon opening an account as well as annually.
191
Which of the following describes the VA ARM cap structure?
A. 5% IAC - 2% PC - 5% LOLC
B. 1% PC - 5% LOLC
C. 2 % IAC - 6% LOLC
D. VA ARMs do not allow for interest rate caps
Answer : 1% PC - 5% LOLC
Explanation : VA loans generally limit the periodic rate change to 1% above or below the previous rate and the life-of-loan cap to no more than 5% above the initial interest rate.
192
An office clerk earns an annual salary of $45,000 by working a 40 hour work week with a 1/2 hour unpaid lunch period each day. What is his hourly rate of pay?
Explanation : If the clerk earns $45,000 annually, this translates to $865.38 weekly (45,000 / 52). The weekly rate of $865.38 is then divided by 37.5 (since each day includes a 1/2 hour unpaid lunch break) to calculate his hourly rate of $23.07.
193
The NMLS requires Mortgage Call Reports to be filed
Answer : Quarterly
Explanation : Call reports are required quarterly of all lenders. The reports transmit details pertaining to the loans originated by that lender during the previous quarter.
194
According to ECOA, the Adverse Action Notice must contain
Answer : The reason for declination and a description of the credit
Explanation : Although several things must be disclosed to an individual whose credit application has been declined, ECOA specifically requires the applicant be informed of the reason for denial and the adverse action notice to describe the credit for which the applicant applied.
195
Pre-licensing and continuing education must be secured through
Answer : Any NMLS-approved education provider
Explanation : Any NMLS-approved education provider may provide pre-licensing and continuing education as long as the offered course is also NMLS-approved.
196
For conventional borrowers making a down payment of less than 10%, what is the limit on seller's concessions?
Answer : 3%
Explanation : If a borrower remits a down payment of less than 10% on a conventional purchase, the seller may offer up to 3% seller's concessions. A down payment of 10 - 24.9% would limit the concessions to 6%, and for down payments of 25% or greater, the seller may contribute up to 9% of the purchase price. Investment properties are limited to 2% regardless of the LTV and FHA seller concessions are capped at 6%.
197
FHA loan limits are often defined by
Answer : Geographic location of the property
Explanation : FHA loan limits vary by geographic location, specifically the county in which the property is located. FHA loan limits may be ascertained at https://entp.hud.gov/idapp/html/hicostlook.cfm
198
The Fair and Accurate Credit Transactions Act is a revision of what federal regulation?
FCRA
FACTA was enacted in 2003 as a revision to FCRA.
199
Which of the following income sources may be increased by 25%?
A. Pension
B. Disability
C. Public assistance
D. Untaxed social security
Answer : Untaxed social security
Explanation : An individual earning non-traditional income that is not taxed may receive credit for 125% of the amount received. This is because, under standard underwriting guidelines, standard income is considered at the gross (non-taxed) amount which is higher than the actual amount received.
200
What is the primary characteristic of a balloon mortgage?
Answer : The loan balance becomes payable in full prior to fully amortizing
Explanation : A balloon loan offers a typically low interest rate with a 30-year amortization in exchange for the balance becoming due and payable in full at an established point prior to the loan's complete amortization. Balloon loans may or may not include a conditional right to modify.
201
A police officer is paid $1,800 bi-weekly. The previous year she earned a gross income of $63,000 and the year before that $60,000. She attributes the difference to overtime with a strong likelihood of continuance. With what monthly income do you credit her?
Answer : $5,125
Explanation : Since the overtime has been increasing and is likely to continue you can count it as part of the police officer's annual income. The two years gross earnings are averaged together to derive an annual monthly income of $61,500, the monthly equivalency of which is $5,125. The base salary is $3,900 monthly (1,800 x 26 / 12) and the average monthly overtime is $1,225 (61,500 - 46,800 / 12).
202
An applicant works as a dental assistant earning $25.00 per hour. She works a 35 hour work week and gets paid bi-weekly. What is her gross bi-weekly pay?
Answer : $1,750
Explanation : The hourly rate of $25.00 is multiplied by 35 to calculate the weekly rate of $875.00. The weekly rate of $875.00 is multiplied by 52 to calculate the annual rate of $45,500. The annual rate of $45,500 is divided by 26 to calculate the bi-weekly rate of $1,750.
203
What is the primary difference between a customer and a consumer?
A customer has an established relationship with a business while a consumer simply uses the business' products and/or services
204
Two brothers have applied to refinance their investment property. They have different mailing addresses. How do you display both addresses on the Loan Estimate?
Attach an additional page so you can list all applicants
205
Which one of the following is not one of the four ARM components?
A. Frequency of change
B. Index
C. Start rate
D. Caps
Answer : Start rate
| Explanation : The four components of an ARM are: frequency of change, index, margin, and caps.
206
Loan suitability refers to
A borrower's ability to repay a loan
207
The FHA was established in 1934 as a result of the
Answer : National Housing Act
Explanation : The National Housing Act establishing the FHA was one of the Roosevelt Administration's response to improve conditions resulting from the Great Depression.
208
Which of the following individuals is required to be licensed?
A. A loan originator originating for a depository institution
B. A Realtor who refers customers to a licensed loan originator
C. A licensed builder who also works for a licensed mortgage lender
D. An individual selling timeshare plans
Answer : A licensed builder who also works for a licensed mortgage lender
Explanation : Since the builder is compensated by the lender, he must also be licensed to originate mortgages.
209
Which of the following requires the caller to check the Do Not Call Registry prior to calling?
A. Calling an existing customer
B. Calling an inquirer who initiated the contact within three months
C. Calling a lead provided by a Realtor
D. Calling on behalf of a charitable organization
Answer : Calling a lead provided by a Realtor
Explanation : Unless the lead subject has specifically consented to receiving the call, the lead must be scrubbed through the Do Not Call Registry prior to being called.
210
What is another common term of a home equity loan?
Answer : Subordinate lien
Explanation : Home equity loans are often originated along with or after the origination of a first mortgage. As such, they take a subordinate lien position against the property's title and are therefore typically referred to as subordinate liens. Any lien, whether a home equity loan, line of credit, or otherwise occupying a secondary or higher lien position may be referred to as a subordinate lien.
211
During a telephone application, the applicant is asked to disclose her race, national origin, and sex and refuses, What should the loan originator do?
A. Mark that the applicant has refused to answer and move on
B. Explain that, without disclosing this information, the lender would be unable to process the application
C. Guess based on the sound of her voice and document anyway
D. Attempt to persuade the applicant to reconsider and disclose the information
Answer : Mark that the applicant has refused to answer and move on
Explanation : In accordance with HMDA, in a non-face-to-face application, should the applicant refuse to disclose their race, national origin, and/or sex, the loan originator must document their refusal and move on.
212
Which of the following is not a part of a credit report?
Answer : Applications in process
Explanation : Although an inquiry will appear any time a credit report is ordered, applications in process won't appear on an individual's credit report until it becomes an actual trade line.
213
Up to how many investment properties may one individual mortgage?
Answer : 10
Explanation : Effective 2010, Fannie Mae permits individuals to finance up 10 investment properties at any given time (assuming the individuals are qualified).
214
Beyond what percentage of use of available credit will a creditor start becoming concerned?
Answer : 30%
Explanation : Accessing credit capacity beyond 30% causes lenders to question whether or not an individual is living beyond his means and utilizing credit effectively.
215
The Commissioner maintains the authority to
Answer : Retain attorneys to act as auditors
Explanation : State commissioners may retain attorneys to act as examiners and auditors on its behalf. Criminal matters must be referred to the appropriate enforcement authorities.
216
The Fair Credit Reporting Act requires creditors to
Report the month and year of any reported delinquency
217
If an advertisement is published in a language other than English, the explanation of lending terms resulting from the use of triggering terms
Answer : must be in the same language in which the ad is written
Explanation : The clear and conspicuous disclosure of lending terms resulting from the use of triggering terms must be in the same language in which the main content of the ad appears.
218
With what does the GLBA require financial institutions to provide customers upon opening their account?
Answer : A privacy notice and an opt out notice
Explanation : The privacy notice describes what customer information the financial institution may share with other entities and the privacy notice affords the customer the opportunity to opt out of information sharing.
219
Is there a requirement under the TRID rules for how records are to be maintained?
Answer : Yes, any method that is accurate
Explanation : Regulations X and Z permit, but do not require electronic recordkeeping. Records can be maintained by any method that reproduces disclosures and other records accurately, including computer programs
220
Which of the following does not constitute HMDA data reported to the federal government?
Answer : Whether the application was actual or a pre-approval, ethnicity, and reserves
Explanation : HMDA data does not include information pertaining to the applicant's reserves.
221
Which of the following is an acceptable location for taking the NMLS-required pre-licensing examinations
A. An individual's home
B. A company's office
C. A company's office as long as the test administrator is an approved test provider
D. A community college
Answer : A company's office as long as the test administrator is an approved test provider
Explanation : The administrator of the test must be an approved test provider and, as such, may administer pre-licensing examinations in either an approved testing center or a company's office.
222
Which of the following is not one of the three "C"s of credit?
A. Capacity
B. Character
C. Collateral
D. Capital
Answer : Collateral
| Explanation : Collateral refers to the subject property and not the borrower's credit characteristics.
223
Which of the following is prohibited in consideration of the Telemarketing Sales Rule?
A. Placing outbound sales calls before 9:00 a.m. and after 8:00 p.m.
B. Calling customers back upon their request
C. Calling an existing customer without first referring to the do not call list
D. Placing outbound sales calls prior to 8:00 a.m. and after 9:00 p.m.
Answer : Placing outbound sales calls prior to 8:00 a.m. and after 9:00 p.m.
Explanation : Placing unsolicited calls prior to 8:00 a.m. or after 9:00 p.m. call recipient time is a violation of Do Not Call legislation.
224
John and Sally applied with you to refinance their home. They have indicated their intent to proceed. You requested their paystubs so you can provide an accurate estimate of loan costs and complete their Loan Estimate. If you only verified income, are you within compliance when you provide the LE on the day they applied?
Answer : No, because you are prohibited from requesting any documentation
Explanation : No, you are not in compliance with the new TRID rules because you are prohibited from verifying any information until the LE is provided and the borrower has indicated their intent to proceed
225
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 : $2,616
Explanation : If the buyer remits $1,075 for the first year, he is saving $125 monthly over his note rate. If the buyer remits $1,107 for the second year, he is saving $93 monthly during the second year. When 12 payments of $125 ($1,500) are added to twelve payment of $93 ($1,116) the seller will spend $2,616 to fund the 2-1 buydown.
226
FHA cash-out refinances are limited to what LTV?
Answer : 85%
Explanation : When a borrower walks away from an FHA refinance transaction with cash, the maximum LTV FHA permits is 85%.
227
A title company hosts a holiday party and invites members of the real estate community from which it has received and to which it has referred business throughout the previous year. Food and drinks are served at the party. The actions of the hosts and attendees are
Answer : Illegal since items of value (food & drink) are being provided to actual or potential referral sources) and consequently both the hosts and guests are in violation of RESPA
Explanation : Offering food and drink to potential or actual referral sources constitutes a violation of RESPA since the food and drink are things of value. As soon as the title company offered the refreshments they violated RESPA and the moment that the guests accepted the offer they violated RESPA.
228
Which type or types of mortgages is, are, or can be assumable?
Answer : FHA, VA, and ARMs
Explanation : FHA, VA, and some ARM loans are assumable. A mortgage becomes assumable when it lacks an alienation (due on demand) clause.
229
If a lender receives an unearned PMI premium from a borrower, within what timeframe must it refund the unearned premium?
Answer : 45 days
| Explanation : Unearned PMI premiums must be refunded to the borrower no later than 45 days after receipt.
230
What is the purpose of a 2-1 buydown?
Answer : The borrower pays lower interest rates for the first two years
Explanation : The 2-1 buydown supplements the mortgagor's payment for the first two years. During the first year the borrower remits a payment equivalent to two percentage points below the note rate. The second year the borrower remits a payment equivalent to one percent below note rate. The third year the borrower remits a payment amount equivalent to the note rate.
231
What is the minimum credit score permitted by FHA?
Answer : FHA does not require a minimum credit score
Explanation : Although at a credit score of below 580 the minimum down payment increases from 3.5% to 10%, FHA does not currently maintain a minimum credit score requirement.
232
Which of the following debts does not have to be considered in an applicant's DTIs?
A. Obligatory alimony payments with fewer than 10 months remaining
B. A credit card minimum payment equal to the total amount owed
C. A boat loan with 11 months remaining
D. A deferred payment on living room furniture recently purchased with no payment owed for 18 months
Answer : Obligatory alimony payments with fewer than 10 months remaining
Explanation : Regardless if the revolving debt is almost repaid or if a 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 DTIs. The only exception is when originating an FHA loan, if the applicant has a student loan deferred for 12 or more months, the payment may be ignored upon demonstration of the deferment.
233
Under the TRID rules, what is the definition for 3 days when delivering the Closing Disclosure to the consuer?
Answer : All calendar days except Sundays and legal public holidays
Explanation : A Closing Disclosure must be provided to the consumer at least 3 business days prior to consummation. Under the TRID rules, 3 business days for delivering the CD are defined as all calendar days except Sunday and legal public holidays. Saturday is always included in that definition.
234
A notice of incomplete application must be issued
Answer : When an application cannot be decisioned within 30 days due to a lack of information
Explanation : ECOA requires a loan decision within 30 days of application. In the event that this cannot be accommodated due to a lack of appropriate documentation, the lender must issue a notice of incomplete application advising the applicant of what is needed and giving them a defined timeframe to remit it.
235
Reverse Redlining refers to
Answer : Intentionally pursuing predatory lending in particular geographic locations
Explanation : Reverse redlining is specifically focusing on particular geographic areas to pursue predatory lending practices.
236
FHA
Answer : Insures the loans it backs
| Explanation : FHA insures the loans that it backs through the upfront and annual mortgage insurance premiums.
237
In the event that a right of rescission is exercised, how long does the lender have to refund any money paid by the applicants?
Answer : 20 days
Explanation : The Truth in Lending Act mandates that all monies paid into the application be refunded within 20 days of a lender receiving an exercised right of rescission
238
TILA SUBPART A.
Contains generic information about the purpose and organization of the Federal TILA, some basic definitions, the method for cost calculation and certain exempt transactions. It discusses the method of determining the finance charge (1026.1-4)
239
TILA SUBPART B.
Establishes rules for open-end credit such as Home Equity Lines of Credit (HELOCs). It requires that initial disclosures and periodic statements be provided and it specifies rules for advertising and rescission (1026.5-16).
240
TILA SUBPART C.
Covers closed-end credit - essentially first and second mortgage and Home Equity Loans (HELs). It contains rules on initial disclosures, treatment of credit balances, annual percentage rate calculations, rescission requirements, and advertising. MDIA amendments are mostly found in this section (1026.17-24
241
TILA SUBPART D.
Contains regulations for oral and other-than-English language disclosures plus older consumer credit protection state laws. Subpart D is not covered in this lesson; 1026.25-30.
242
TILA SUBPART E.
HOEPA amendments are mostly found in this section. Subpart E contains special rules for mortgage transactions. Section 1026.32 requires certain disclosures and provides limitations for closed-end loans that have rates or fees above specified amounts. Section 1026.33 requires special disclosures, including the total annual loan cost rate for reverse mortgage transactions. Section 1026.34 prohibits specific acts and practices in connection with closed-end mortgage transactions that are subject to § 1026.32.
Copyright © MortgageEducation.com | All Rights Reserved - 9 -
FEDERAL LAW 100 Truth in Lending Act (Regulation Z)
APR and Finance Charge Disclosure
Section 1026.35 prohibits specific acts and practices in connection with closed-end higher-priced mortgage loans, as defined in § 1026.35(a). Section 1026.36 prohibits specific acts and practices in connection with an extension of credit secured by a dwelling.
Since many rules are repeated in different sections, we will discuss the important topics of TILA for mortgage loan originators instead of going through them section by section.
243
Total Interest Percentage (TIP)
The TIP is the total amount of interest that the consumer will pay over the loan term, expressed as a percentage of the loan amount. (§ 1026.37(l)(3))
For example, if the Loan Amount is $100,000 and the total amount of interest that the consumer will pay over the Loan Term is $50,000, then the TIP is 50%
244
Which of the following shows an inaccurate disclosure according to TILA?
A.
The initial disclosure shows a note rate of 9% while the actual note rate at settlement is 8%
B.
The initial disclosure shows an APR of 7.875% while the actual APR at settlement 7.125%
C.
Total finance charges are $2300 while the initial disclosure reflects $2399
D.
Total finance charges are $395 while the initial disclosure reflects $290
Answer : Total finance charges are $395 while the initial disclosure reflects $290
Explanation : For a mortgage secured by a dwelling (closed-end credit only): The disclosed finance charge is considered accurate if it does not vary from the actual finance charge by more than $100. Overstatements are not a violation.
245
A disclosed finance charge that is not considered accurate will extend the right of rescission for 3 years. For a refinance cash-out transaction with a new creditor, an understatement is considered accurate if it is not more than:`
A. The greater of $100 or 1% of the face amount of the note
B. The greater of $100 or 0.5% of the face amount of the note
C. $35
D. $100
Answer : The greater of $100 or 0.5% of the face amount of the note
Explanation : $100 is the accuracy tolerance for a violation but not for the right to rescind. The exception of the 1% rule is not met because the transaction is a cash out transaction. More specifically, if the required finance charge disclosures are out of tolerance or disclosures are not delivered, in addition to incurring a violation of TILA, the right to rescind is extended to three years. The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) are considered accurate if the disclosed finance charge is either understated by no more than 0.5% of the face amount of the note or $100, whichever is greater; or is greater than the amount required to be disclosed. Overstatements are not violations. There is an exception in the case of a refinancing of a mortgage with a new creditor as long as there is no cash out and no consolidation of existing loans. The exception allows that an understatement is accurate if the d
246
Which interest rate must appear on the Loan Estimate for an ARM?
Answer : Maximum 5 year interest rate
Explanation : According to MDIA the payment summary is to be disclosed in a tabular format. This summary must identify: (1) Introductory interest rate including period of time until first adjustment may occur and monthly payment labeled as the "introductory rate and monthly payment" (2) Maximum interest rate and monthly payment in the first five years and the earliest date that may occur even if that's not the first adjustment (3) Maximum lifetime interest rate and monthly payment and the earliest date that may occur labeled as "monthly ever"
247
The notice of the right to rescind must include all of the following EXCEPT:
A. The applicable penalty
B. How to rescind
C. The effects of rescission
D. The date when rescission expires
Answer : The applicable penalty
Explanation : The notice of the right to rescind must include the manner in which to do so, the effects of such a decision as well as the day when rescission expires. No penalties are charged if a consumer decides to rescind a mortgage.
248
What does HOEPA do with regards to servicing and appraisals?
Answer : Prohibits certain servicing and appraisal practices
Explanation : HOEPA does not regulate mortgage servicers or appraisers but HOEPA aims to limit the subset of lending practices that are unethical, abusive and illegal such as inflated appraisals and dishonest servicer practices.
249
Under HOEPA, the category which covers only "high cost" refinance mortgages is commonly known as
Section 32
250
Requirements of HOEPA Higher Priced Mortgages with regards to "Loose Lending" regulation includes that:
Lenders need to verify the income of borrowers inclusive of property taxes
251
Which of the following is NOT a specific requirement for Higher Priced Mortgages?
A. Restrictions of situations when prepayment penalties can be imposed
B. Escrow account needs to be maintained for at least five years
C. Home equity installment loans are not allowed for most Higher Priced Mortgages
D. Must abide by "Loose Lending" restrictions
Answer : Home equity installment loans are not allowed for most Higher Priced Mortgages
Explanation : HOEPA Section 35 includes four (4) key protections: (a) "Loose" Lending; (b) Prepayment Penalties; (c) Escrow Creation; and (d) Regulation Evasion.
252
A creditor creates an escrow account for a borrower closing a Section 35 mortgage. The borrower would prefer not to participate. What can the borrower do?
After five years have passed, the borrower can request to opt out of using escrow
253
To calculate DTI for assessing payment ability for a Section 35 loan with a 30 year term, the lender must use:
The largest payment required within the first 7 years of the mortgage
254
Which type of loan is allowed as a High-Cost loan?
A. A 3 year balloon mortgage
B. A fixed rate loan with a 3 year prepayment penalty
C. An ARM
D. A loan with negative amortizatio
An ARM
255
A second lien that will meet the APR trigger for a Section 35 loan if the APR exceeds the Average Prime Offer Rate by:
Answer : 3.50%
Explanation : Section 35 loans are described as "Higher-priced mortgage loans," which are closed-end consumer credit transactions secured by the consumer's principle dwelling and which have an APR that exceeds the APOR (Average Prime Offer Rate) for a comparable transaction as of the date the interest rate is set. Specifically, for this question, by 3.5% or more for loans secured by a subordinate lien
256
HOEPA Section 32 restrictions contain additional restrictions beyond Section 35 loans for the following EXCEPT:
A. The interest rate charged on defaulted mortgages
B. Due-on-Demand Clauses
C. Loan proceed disbursements
D. Requirement to verify borrower's ability to repay
Requirement to verify borrower's ability to repay
257
What form(s) doe the Loan Estimate replace?
Answer : The Special Information Booklet, the GFE, and the TIL.
Explanation : An issuance of a new three-page GFE form. These loan terms are so important that the GFE actually displays these non-numerical loan terms upfront on the first page. After this, on the first page, the GFE just shows the two following charges: loan origination and other charges. The two answers limiting the GFE to one or two numbers are clearly wrong, given "enhanced" disclosure. The answer that mentions two disclosures suggests that disclosures are included in the GFE; the GFE is itself defined as a disclosure and does not incorporate any other ones.
258
RESPA guidelines do NOT cover which of the following scenarios?
A. Purchase of a duplex where the applicant intends to occupy half of it and use the rest for rental income.
B. Refinance of a duplex in a residential neighborhood used primarily for rental income.
C. Purchase of a duplex where the borrower will run his accountancy and occasionally stay overnight.
D. Refinance of an owner occupied duplex to convert some equity to cash using a HELOC.
Answer : Purchase of a duplex where the borrower will run his accountancy and occasionally stay overnight.
Explanation : RESPA focuses specifically on residential mortgage loans that include purchase loans, assumptions, refinances, property improvement loans, reverse mortgages, and equity lines of credit. It does not cover real estate used for commercial, agricultural and business purposes.
259
Which of the following does RESPA allow in terms of an escrow account?
A. A lender may pay for a borrower's escrow at closing to assist the borrower to close.
B. In the first year after closing, a lender requires a borrower to contribute 1/6 of the total annual disbursement into the escrow account every month.
C. A lender may require a borrower to maintain a 1/5 of the total annual disbursement as a cushion into the escrow account at all times.
D. A lender is not required to return an excess in an escrow account if the borrower fails to make a payment on time.
Answer : A lender is not required to return an excess in an escrow account if the borrower fails to make a payment on time.
Explanation : RESPA prohibits a lender from charging excessive amounts for an escrow account. Each month, the lender may not require a borrower to pay into the escrow account more than the sum of a monthly payment average, or specifically, 1/12 of the total of all disbursements payable during the year. In addition, the lender may require a cushion in an account not to exceed 1/6 of the total disbursements for the year.
260
A loan servicer sells the servicing rights of a loan. The borrower may provide final payment to the old servicer within:
60 days following the transfer.
261
An applicant learns that an originator violated Section 8 in originating his loan and wants to file charges against the MLO. Is this allowed?
Answer : Yes, for up to one year after the settlement if the borrower provides documented proof of the violation.
Explanation : Individuals have one year from the date of a violation to bring a private lawsuit to enforce violations of Section 2607 or 2608.
262
Mortgage Originators, Lenders and Creditors are allowed to charge the borrower more than the amount disclosed on the Loan Estimate for some fees, as long as the total sum of the charges added together does not exceed the sum of all such charges disclosed on the Loan Estimate by more than 10 percent for the following. What are the fees that have a 10% tolerance?
Recording fees, Fees paid to an unaffiliated third party, if the MLO, Lender, Creditor, permitted the borrower to shop for the service and the borrower selects a third‐party service provider on the creditor’s written list of service providers, The charge is not paid to the MLO, lender, creditor or their affiliate
263
The TRID Rule applies to what transaction types?
Home purchase, refinance and home equity, Lot loans, loans secured by bare land, Loan secured, by more than 25 acres, Construction only loans, Temporary, closed end transactions, Loans extended to family or estate trust
264
Which of the following is an example of a note receivable?
A. The borrower is paying a car loan
B. The borrower sold a house and financed the mortgage for which she is receiving payments
C. The borrower has signed a promissory note obligating himself to a mortgage on a different property
D. The borrower is owed money for which he has been unsuccessfully collecting
Answer : The borrower sold a house and financed the mortgage for which she is receiving payments
Explanation : A note receivable is an income stream earned from the repayment of a debt someone owes to the note holder. If a 12 consecutive or greater monthly payment history can be demonstrated along with evidence of a minimum three year continuance, the note receivable may be considered as income.
265
What is the primary benefit of a balloon mortgage?
The initial interest rate is lower than the standard 30-year rate
266
What constitutes a teaser rate?
An ARM start rate three percent or more below FIAR
267
An adjustable interest rate is ready to adjust. On the day that the new rate is determined, the index is 1.93% and the margin is 4. Assuming that everything falls within the acceptable cap structure, what is the new interest rate rounded to the nearest 1/8%?
Answer : 5.875%
Explanation : The index of 1.93 is added to the margin of 4 for a total of 5.93%. When rounding to the nearest 1/8%, 5.875 is closer than 6.
268
According to Freddie Mac and Fannie Mae guidelines, how long must a Chapter 13 bankruptcy be discharged before a borrower may be approved for a loan?
Answer : 2 years
Explanation : Freddie Mac and Fannie Mae guidelines require chapter 13 bankruptcies be discharged for a minimum of two years before a loan may be approved. In the case of a chapter 13 dismissal, the waiting period is four years.
269
That Statement of Subprime Lending defined the riskiest ARMs as all but which of the following?
A. ARMs with teaser rates as start rates
B. ARMs originated through no or limited documentation
C. ARMs with no rate caps
D. ARMS with high pre-payment penalties
Answer : ARMs with teaser rates as start rates
Explanation : Teaser rates are initial ARM rates that are more than 3% below FIAR. Often these rates are super low and ultimately adjust dramatically. Although the borrower should always understand the potential for worst-case scenario, the Statement did not pose comment regarding the use of teaser rates.
270
Regulatory violations processed by individual state Commissioners must also be reported to
Answer : The NMLS
| Explanation : The NMLS must be notified of any action taken against a licensee
271
A housing finance agency is any authority whose activities make it eligible to be a member of the National Council of State Housing Agencies and that is
Answer : Supervised directly or indirectly by the state government
Explanation : A housing finance agency is any authority whose activities make it eligible to be a member of the National Council of State Housing Agencies and that is chartered by a state to help meet the affordable housing needs of the residents of the state, supervised directly or indirectly by the state government, and subject to audit and review by the state in which it operates.
272
The requirement of including the credit repository's name and address on the adverse action notice is established through
Answer : FCRA
Explanation : FCRA requires that financial institutions provide their applicants with the name and address of the credit repository from which they secured the applicant's credit report so that the applicant can request a free copy of their credit report from the credit repository.
273
On what date did the CFPB activate its authority?
Answer : 7/21/2011
Explanation : The Consumer Financial Protection Bureau assumed its authority to oversee the U.S. financial industry on July 21, 2011.
274
A bricklayer earns an annual salary of $56,500 working a 37.5 hour work week. What is her hourly rate of pay?
Answer : $28.97
Explanation : $56,500 annually translates to $1,086.54 weekly (56,500 / 52). This weekly rate translates to an hourly rate of $28.97 based on a 37.5 hour work week (1,086.54 / 37.5).
275
You just consummated a reverse mortgage loan for Bob and Betty on October 5. At consummation, they signed a CD. Did you violate TRID?
Answer : Yes, because a HUD and final TIL are required at closing on a reverse mortgage
Explanation : Creditors are not prohibited from using the LE and CD forms on loans that are exempted by TRID. However, a creditor cannot use the new forms instead of the GFE, HUD, and TIL forms for transactions that are covered by TILA and RESPA that require those disclosures.
276
Which of the following TRID required documents is due 3 days before closing?
Answer : The HUD1
Explanation : The CD is always provided 3 days before closing. The borrower may request a copy 24 hours prior if desired.
277
Which of the following is subject to the Homeowners Protection Act?
A. An FHA loan
B. A loan with Lender Paid Mortgage Insurance
C. A conventional loan with an original LTV of 40%
D. A conventional loan with an original LTV of 82%
Answer : A conventional loan with an original LTV of 82%
Explanation : FHA loans, conventional loans originating under 80% LTV, and loans containing lender-paid mortgage insurance are not subject to the HPA.
278
A forbearance involves
Answer : A temporary reduction or suspension of loan payments
Explanation : A lender may grant a forbearance by allowing a borrower to refrain from making mortgage payments for a set period of time, usually to recover from a temporary financial setback. Upon resumption of mortgage payments, the accrued interest is usually added to the balance of the loan.
279
May a consumer waive the seven-business-day waiting period?
Answer : Yes, but only if they have a bona fide emergency
Explanation : The consumer may modify or waive the 7 business day waiting period after receiving the Loan Estimate if the consumer has a bona-fide personal financial emergency that necessitates consummating the credit transaction before the end of the waiting period. An example of a bona fide personal financial emergency is the imminent sale of the consumer's home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period.
280
Under 12 USC § 5114, which of the following is any state licensing authority permitted to investigate and examine?
Any licensed loan originator
Explanation : State licensing authorities may investigate any licensed loan originator or any individual required to have a loan originator license.
281
FCRA prohibits
Answer : A furnisher from knowingly providing inaccurate information to a credit repository
Explanation : Loan decisioning timeframes are established by ECOA not FCRA. Verbal or written permission is acceptable in order to secure a credit report. The completion of a nURLA constitutes written permission. Creditors are required to amend previously-reported information when a correction or removal is warranted. Knowingly reporting inaccurate information is a violation of FCRA.
282
When purchasing a two - four unit property according to FHLMC/FNMA guidelines, how many months of reserves are required?
Answer : 6 months
Explanation : When purchasing a multi-unit property, Freddie/Fannie guidelines require the verification of at least six month's reserves.
283
Who provides the Closing Disclosure?
Answer : Creditor or Settlement Agent
Explanation : Creditors must provide a final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The Creditor can prepare and deliver the CD, Settlement Agents can prepare and deliver it on the Creditor's behalf, or a Creditor and Settlement Agent can divide the responsibility. Either the Settlement Agent or the Creditor can provide the CD.
284
A family friend and his spouse have been struggling financially. In an effort to make ends meet, they have come to you to lower their monthly house payment by refinancing. You typically charge your clients a 1% origination fee. However, under these circumstances, you would like to only charge your friend a 0.25% origination charge to help them out. This action would be considered:
Answer : Legal but unethical
Explanation : You can decide what kind of compensation you wish to earn and adjust your origination fee accordingly. However, since you are doing this because the customers are your friends and not simply because they are in need breaches ethical considerations.
285
At what LTV is a mortgage servicer required to remove PMI assuming adherence to a good payment history?
Answer : 78%
Explanation : Once a borrower's LTV reaches 78%, the mortgage servicer must remove the PMI as long as the borrower has a good payment history.
286
Which of the following is not reported through the LAR in accordance with HMDA?
Answer : Borrower's name
Explanation : HMDA collects information pertaining to race, national origin, sex, income, age, loan disposition, property usage, and location among several other considerations. Individual identification is not one of those components.
287
The Statement recommends that mortgage professionals honor all but which of the following control systems?
A. Only sell one particular loan program
B. Establish formal training programs
C. Ensure the competency of third-party service providers
D. Create compensation programs that do not incentivize mortgage professionals to steer customers towards more profitable mortgage products
Answer : Only sell one particular loan program
Explanation : The Statement on Subprime Lending offered no cautionary advice regarding the offering of multiple loan products. Instead, it focused on mortgage professional training, the oversight of third-party settlement providers, and fair compensation by discouraging product steering. In fact, the Federal Reserve took action against product steering when it ratified a final rule effective April 1, 2011 prohibiting it.
288
The term "dwelling" refers to all but which of the following
A. One-to-four unit residential structure
B. A trailer used as a residence
C. An unattached garage
D. A mobile home
Answer : An unattached garage
Explanation : A dwelling is a residential structure that contains one to four units, whether or not that structure is attached to real property. The term “dwelling” includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
289
If a lender receives an unearned PMI premium from a borrower, within what timeframe must it refund the unearned premium?
A. 45 days
290
What is one potential benefit securitization affords borrowers?
Less restrictive terms
291
One of the main purposes for establishing a mortgage licensing system and registry was to:
Answer : Increase uniformity, reduce regulatory burdens, and enhance consumer protections
Explanation : The NMLS was not created to license MLOs as that is the states' responsibility. The NMLS is neither an enforcement body nor a financial organization. Fees are collected on behalf of some states, but managing a state fund is beyond the purview of the NMLS.
292
Which of the following conditions would have to be resolved prior to closing a mortgage?
Answer : Mold stains on the walls and ceiling
Explanation : Although non-toxic peeling paint, outdated carpeting, and an overgrown lawn are cosmetic issues and certainly eyesores, they do not pose as health or safety concerns. Evidence of mold, however, poses a health risk and would always have to be remedied prior to closing.
293
ECOA -- Equal Credit Opportunity Act
(enacted in 1974, implemented by Regulation B) Prohibits discrimination against loan applicants based on race, color, religion, national origin, marital status, sex, age, whether they were recipients of public assistance or whether they previously filed for bankruptcy.1
294
CRA & FACTA – Fair Credit Reporting Act and its recent amendment FACTA
enacted in years 1970 and 2003, respectively). Addresses proper procedures for retrieval, evaluation, storage and disposal of loan applicant credit information.2
295
Red Flag Rules
(enacted in 2004 as an amendment to FCRA/FACTA) Established standards for financial institutions to implement in order to prevent identity theft.3
296
HMDA – Home Mortgage Disclosure Act
(enacted in 1975, implemented by Regulation C). Established requirements for lenders to submit a mortgage applicant’s data to the government.4
297
DNCIA – Do-Not-Call Implementation Act
(enacted year 2003). Established a do-not-call directory
298
he Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
established the BCFP. The Consumer Financial Protection Bureau (Now called the Bureau of Consumer Financial Protection, BCFP) regulates and enforces laws in the mortgage markets as well as all other consumer financial markets.
299
What is the main objective of ECOA?
Answer : To prohibit discrimination against credit applicants.
Explanation : ECOA prohibits discrimination against mortgage applicants based on race, color, religion, national origin, age, and whether they were recipients of welfare.
300
A description of 26 Red Flags is available in:
The Red Flag Rules.
301
Which of the following laws was NOT implemented in part to help stem discrimination in mortgage lending?
HMDA contributes to the mortgage regulatory process by establishing:
A. Standards for home improvement and acquisition.
B. Standards for discrimination in public housing activities.
C. Standards for housing discrimination.
D. Requirements for sending applicant data to the government.
302
Regulation B was issued by
the Board of Governors of the Federal Reserve System to implement the provisions of the Equal Credit Opportunity Act (ECOA).
303
Reg B provides specific rules for a number of different stages in the loan origination process, including:
How to take Applications and how to collect information about the applicant's race and other personal characteristics
How to evaluate Applications
How to extend Credit
Creditor requirements for notifying an applicant of action taken on their applications
Requirements to provide applicants with copies of appraisal reports used in connection with credit transactions.
304
Prohibited Basis:
The use of race, color, religion, national origin, sex, marital status, or age and the applicant’s income from a public assistance program, or the applicant’s exercise of rights under the Consumer Credit Protection Act as a reason to take adverse action on a credit application
305
n general, inquiry of information about a spouse or a former spouse is
prohibited. The exceptions are
o If the spouse or former spouse is permitted to use the credit account
o If the spouse or former spouse is liable on the account
o If the applicant relies on income from a spouse or former spouse to qualify for credit
(such as alimony, child support…)
o If the applicant resides in a community property state or is relying on property located
in a community property state as a basis for repayment
306
Sections 1098 and 1100A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
call for the combination of certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act (Regulation Z) and the Real Estate Settlement Procedures Act (Regulation X).
307
An underwriter would be appreciative if a mortgage broker collected data about alimony, child support, or separate maintenance when which of the following has occurred?
Answer : The borrower wants to use those income sources to qualify for the mortgage loan.
Explanation : A lender may inquire about alimony, child support, or separate maintenance only if the lender first makes a disclosure to the applicant and any co-applicant. This disclosure would be that the applicant does not need to reveal these sources unless the applicant wishes to rely on the income to establish creditworthiness.
308
In what situation can a credit officer inquire about a mortgage applicant's marital status?
Answer : If the applicant resides in a community property state.
Explanation : Inquiry about marital status can be made only if the applicant resides in a community property state, or if the property securing the loan is located in a community property state. A lender may only use the terms "married," "unmarried," or "separated."
309
the Fair Credit Reporting Act (FCRA), passed in 1970 and enforced by the BCFP is designed to promote
accuracy and ensure the privacy of consumers with regards to credit report information.
310
FACTA (Fair and Accurate Credit Transactions Act), enacted in 2003, added
new sections to FRCA which expanded applicants’ rights and placed additional requirements on Consumer Reporting Agencies.
311
The overall goals of FCRA include:
• Promoting accuracy of credit report information
• Ensuring the privacy of a consumer’s credit information
• Ensuring that consumers have access to their credit information which is used by MLO,
insurers, and others.
• Allowing consumers to understand how the information was used to decide whether or not
to providing credit and other services.
312
FCRA VS ECOA
FCRA: DISCLOSED CREDIT BUREAUS' CONTACT INFO
ECOA: DISCLOSES REASONS FOR ADVERSE ACTION
313
FACTA’s Provisions require credit reporting agencies to:
* Provide notice of consumer rights to victims of identity theft
* Provide 1 free credit report annually
* Create a fraud alert for files of victims of identity theft
* Create active duty alerts for consumers in the military
* Block the reporting of information that results from identity theft
314
FACTA’s Requirements for Mortgage Professionals:
Provide applicants with information about the credit score used to assess creditworthiness
• Advising loan applicants of their rights with regard to credit scores
• Providing a consumer with records of lending transactions that are carried out with the
fraudulent use of his/her name
• Complying with the FTC’s Disposal Rule for proper disposal of personal financial information
315
In section 609(f), FACTA requires that if MLOs
se credit scores from credit bureaus as input to their credit processes, then the borrowers must be told what those scores are. 609(f) requires the following to be distributed to the borrowers.
• The credit score from a credit scoring model• A FICO score is one of the three score model’s used when developing a credit score, which is used by Experian. The other two are scores that are commonly used in the mortgage industry are Emperica used by Trans Union and Beacon used by Equifax.
• Key factors, if any, that adversely affect the credit score, listed in order of importance.
316
Before a lender retrieves an applicant's credit report, they must do which of the following?
Answer : Receive the applicant's approval.
Explanation : A lender must receive the consumer's authorization to pull a credit report before the lender retrieves the report.
317
An applicant is applying for a special loan program for disabled applicants. Is the mortgage lender in violation of FACTA when contacting the applicant's doctor for verification of disability status?
No. FACTA allows the request for consumer medical information if needed for the purpose of determining credit eligibility.
318
The Consumer Sentinel Network (CSN)
an online database that receives information from a number of government agencies (facta)
319
(FACTA in 2004) The Red Flag Rule aims at
protecting consumer information and preventing identity theft by requiring financial institutions to develop and implement identity theft prevention programs.
320
FTC (Federal Trade Commission) was charged
with creating regulations to implement the law and issued a final rule in late 2007. Final implementation of the regulation did not occur until 12/31/2010. The Red Flag Rule is enforced by the Federal Trade Commission (FTC), the various federal bank regulatory agencies, and the National Credit Union Administration.
321
Red Flags” are patterns, practices and specific activities that could indicate identity theft. The FTC has identified four broad classes of Red Flags:
• Alerts, notifications or warnings from a consumer reporting agency
• Suspicious documents and/or personal identifying information, such as an inconsistent
address or nonexistent Social Security number
• Unusual use of, or suspicious activity relating to, a client account
• Notices of possible identity theft from either clients, victims of identity theft or law enforcement authorities
322
How Many Red Flag Rules?
26
323
Which of the following is an example of a Red Flag?
Answer : A notice of address discrepancy in response to a request for a credit report.
Explanation : “Red Flags” are patterns, practices and specific activities that could indicate identity theft. Only the discrepancy noted would incur a warning. The other answers are standard practices. The FTC has identified four broad classes of Red Flags: (1) Alerts, notifications or warnings from a consumer reporting agency (2) Suspicious documents and/or personal identifying information, such as an inconsistent address or nonexistent Social Security number (3) Unusual use of, or suspicious activity relating to, a client account (4) Notices of possible identity theft from either clients, victims of identity theft or law enforcement authorities
324
A team of professionals was tasked with creating activities to address the Red Flag Rules. Which of the following is a good example?
A. A three second soft beeping sound occurs when someone on the do-not-call list picks up a call.
B. An automatic email or other electronic notification to a person when someone runs a criminal background check on that person.
C. An automatic email or other electronic notification when charges appear on a check card from an area outside the user's home state.
D. A phone call to an applicant when someone has requested a copy of the applicant's credit report..
Answer : An automatic email or other electronic notification when charges appear on a check card from an area outside the user's home state.
Explanation : Red Flag Rules (enacted in 2004 as an amendment to FCRA/FACTA) established standards for financial institutions to implement in order to prevent identity theft.
325
HMDA requires mortgage lending institutions to
publicly disclose information about their home mortgage lending activity.
(was enacted by Congress in 1975 and is implemented by the Federal Reserve Board's Regulation C.)
326
HMDA's reporting requirements apply to
both depository institutions and non-depository institutions that satisfy a certain dollar asset volume threshold. The Federal Financial Institutions Examination Council (FFIEC), an interagency body, is responsible for collecting data for each region and generating data disclosure reports for each individual lending institution. Such data is available on the FFIEC’s website.
327
Perhaps the first major impact attributed to HMDA is
the enactment of the Community Reinvestment Act (CRA)
328
METROPOLITAN DIVISION (MD)
s a subset of an MSA having a single core with a population of 2.5 million or more.
329
HMDA also expanded its scope from covering just mortgage loans to including
all loan applications received through a loan broker.
330
The institution will fall under HMDA if it either:
Has assets exceeding $46million (for 2019) or Originated at least 25 closed-end mortgage loans in each of the two preceding calendar years or
at least 500 open-end lines of credit in each of the two preceding calendar years
331
(MSAs)
Marketing Services Agreements
332
Federal Financial Institutions Examination Council (FFIEC)
The Federal Financial Institutions Examination Council is a formal U.S. government interagency body composed of five banking regulators that is "empowered to prescribe uniform principles, standards, and report forms to promote uniformity in the supervision of financial institutions
333
HMDA EXPANSION
* 2004: Added whether loan was HOEPA loan and the lien status
* 1989: lenders required to report applications received or denied
* A lender could explain the decision
* Added data of loan types and borrowers’ characteristics (race, gender, income leve
334
In 2013, the BCFP issued a final rule that amended Regulation Z (Truth in Lending), which required
creditors to establish escrow accounts for higher-priced mortgage loans secured by a first lien on a principal dwelling. The final rule implemented statutory changes made by the Dodd-Frank Act that lengthened the time for which a mandatory escrow account established for a higher-priced mortgage loan had to be maintained.
335
HOEPA HIGH-COST LOANS DO NOT APPLY TO
* Loans to purchase or build a home
* Open ended credit such as HELOC’s
* Reverse mortgages
336
(hoepa )Transactions to be Reported
• Home purchase loan
• Home improvement loan
• Refinancing
• Home equity lines of credit (HELOCs) for home purchase or
improvement may be reported at the institution’s option. Report only the amount that is intended for home purchase or home improvement purposes
337
(hoepa ) Each Loan
• Loan amount (in thousands rounded)
• Loan type (conventional, government insured, or government-
guaranteed)
• Loan purpose (home purchase, home improvement, or refinancing)*
338
(hoepa ) Loan Terms
• Rate Spread
• High Priced Mortgages
• Rate Spread (difference between ARP and applicable Treasury yield): Report one of the three conditions below:
• The rate spread is equal to or greater than 1.5 percentage points for first-lien loans
• The rate spread is equal to or greater than 3.5 percentage points for subordinate-lien loans
• “NA” if neither of the two above apply
• Higher Priced Mortgages
• Rate Spread: Report the rate spread and the applicable average
prime offer rate if the spread is equal to or greater than
• percentage points for first-lien loans
• percentage points for subordinate-lien loans
• HOEPA Status. Whether the loan is a HOEPA loan
• Lien Status (first lien, subordinate lien, or not secured by dwelling)
339
(hoepa )Each Loan Application
• Application date
• Action Taken**
• Date of Action
• Reason(s) for Denial
• Type of Purchaser (purchaser of loan if the loan is sold in the same
year it is originated)
• Request for preapproval (not pre-qualification)***
340
(hoepa ) Each Loan Applicant
| and co-applicant
• Ethnicity, race, sex, and income (For income, if it was relied upon to calculate DTI, then the reported amount is base plus bonus). Applicants must be asked to report race, ethnicity and sex, but the answer cannot be required. The originator can record information by observation. Applicants may report more than one race. Cannot have an “other” category
341
(hoepa ) Each Property
* Location (5 digit metropolitan statistical area “MSA”, or if available, the five-digit metropolitan division “MS” number, state and county, and the census track number for the county each property is located in)
* Property Type (Manufactured housing, multifamily dwelling, one-tofour-family dwelling)****
* Occupancy Status (whether it is owner principal residence)
342
Which depository institution would NOT have to report HMDA data?
A. Savings and Loan with $200 million in assets as of the end of the preceding calendar year.
B. A community bank with 200 refinancing transactions in the preceding calendar year.
C. A credit union with 90 purchase loan originations the preceding calendar year and with year end assets of $8 million
D. A bank with only 50 purchases the preceding calendar year and with year end assets of $15 million
Answer : A credit union with 90 purchase loan originations the preceding calendar year and with year end assets of $8 million
Explanation : Depository institutions such as banks, savings and loan associations, and credit unions will fall under HMDA if they have either: (1) Assets exceeding $10 million on the preceding December 31 (assets of any parent corporation are counted as well in this equation) or (2) Originated 100 or more home purchase loans or refinancing loans in the preceding calendar year
343
According to HMDA, it is optional to report which of the following?
A. Home-improvement loans.
B. FHA purchase loans
C. Refinancing loans.
D. HELOCs for home improvements.
Answer : HELOCs for home improvements.
Explanation : Transactions to be reported include home purchase loans, home improvement loans and refinancing loans. It is the institution's option to report HELOCs for home purchase or improvement. If this type of HELOC is reported, only the amount that is intended for home purchase or home improvement purposes should be reported.
344
DNCIA was signed into law
on March 11, 2003 and went into effect Oct. 1, 2003, mandating the creation of a National Do-Not-Call Registry (was amended in 2007) consumer's numbers would automatically fall off the list after five years
345
DO-NOT-CALL IMPLEMENTATION ACT (DNCIA)
The law’s intent is to prohibit sellers and telemarketers from contacting consumers who register their telephone numbers on the list, unless the call falls within a recognized exemption.
346
Exemptions to the do-not-call registry
conduct surveys, market research and political or religious speech as well as calls made by tax-exempt nonprofit organizations, calls made to persons with whom the seller has an established business relationship, and calls to persons with whom the seller has a personal relationship. Calls for the purpose of debt collection generally
347
DNCIA was amended in 2007 with the passage of Do-Not-Call Improvement Act of 2007 (DNCIA). Under the original rules
consumers' numbers would automatically fall off the list after five years, thus requiring consumers to re-register their numbers to avoid future telemarketing calls. The DNCIA prohibits the automatic removal of numbers registered on the Do-Not-Call Registry since its establishment, unless the consumer cancels the registry of the number, or the number has been disconnected or assigned to a new consumer. (The intent of the rule change is to minimize the inconvenience to consumers of having to re-register their phone numbers every five years and also enhances the underlying goal of the registry to protect consumer privacy rights.)
348
PROHIBITED ACTS OF THE TELEMARKETING SALES RULE:
• Calling before 8 AM or after 9 PM in the time zone of the consumer
349
TELEMARKETING CONSUMER FRAUD AND ABUSE PREVENTION ACT (TELEMARKETING ACT 15 U.S.C. §§ 6101-6108 ):
* Gave the FTC the authority to create the Do-Not-Call Registry
* The Act applies to any business or individual engaged in telemarketing
* Consumers must place their name on the registry
350
Which of the following gave the FTC the authority to create the Do-Not-Call Registry?
A. Home Mortgage Disclosure Act (HMDA).
B. Telemarketing Consumer Fraud and Abuse Prevention Act (Telemarketing Act).
C. Equal Credit Opportunity Act (ECOA).
D. Fair Credit Reporting Act (FCRA).
Answer : Telemarketing Consumer Fraud and Abuse Prevention Act (Telemarketing Act).
Explanation : The Telemarketing Consumer Fraud and Abuse Prevention Act or Telemarketing Act gave the FTC the authority to create the Do-Not-Call Registry. The act applies to any business or individual engaged in telemarketing.
351
How long does the National Do-Not-Call Registry retain a consumer's phone number?
Answer : Permanently unless a number is disconnected, reassigned, or removed at the owner's request.
Explanation : Under the original rules of the DNCIA, consumer numbers would automatically be removed from the list after 5 years, thereby requiring the consumer to reregister their numbers to avoid future telemarketing calls. The DNCIA was amended with the passage of the Do-Not-Call Improvement Act of 2007, which prohibits the automatic removal of numbers unless the consumer requests it or if the number has been disconnected or assigned to a new consumer.
352
REGULATION N SAYS IT IS A VIOLATION FOR ANY PERSON TO MAKE ANY _________ REGARDING ANY TERM OF ANY MORTGAGE CREDIT REPORT
MATERIAL MISREPRESENTATION
353
Which of the following would be considered unethical?
A. Appraiser charges a higher fee to complete an FHA appraisal over a conventional appraisal and this is the only program the borrower qualifies for
B. Lender requires the borrower to choose from a list of approved settlement agents
C. Local Home Inspector fees are higher than the industry standard for all clients due to a specialized technology he uses in the inspection process
D. Local mortgage company charges the borrower $15 for a credit report which is much lower than it competitors, however has an agreement with the credit repository for $10 for each report due to the volume of reports pulled from the company
Answer : Local mortgage company charges the borrower $15 for a credit report which is much lower than it competitors, however has an agreement with the credit repository for $10 for each report due to the volume of reports pulled from the company
Explanation : Markups. RESPA prohibits one settlement service provider increasing the fee charged by another provider while retaining the additional fees. Note that this prohibition only applies to additional or unearned fees when split with another party.
354
TITLE VIII OF THE CIVIL RIGHTS ACT OF 1968 IS ALSO CALLED WHAT?
THE FAIR HOUSING ACT
355
WHO HAS AUTHORITY TO ADMINISTER AND ENFORCE TITLE VIII OF THE CIVIL RIGHTS ACT OF 1968 (THE FAIR HOUSING ACT)
THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT
356
FAIR HOUSING AND ADVERTISING (t is illegal to make any statement or advertisement with respect to the sale or rental of a dwelling which indicates any preference, limitation or discrimination based on someone being in a protected class)
“This prohibition against discriminatory advertising applies to single-family and owner-occupied housing that is otherwise exempt from the Fair Housing Act.
357
THE FAIR HOUSING ACT PROTECTED CLASSES ARE
RACE, COLOR, NATIONAL ORIGIN, RELIGION, SEX, FAMILIAL STATUS, AND DISABILITY
358
When a borrower receives reliable alimony, child support or separate maintenance, they are
not required to disclose such income. You may not discriminate against someone who exercises their good faith rights of non-disclosure.
359
WHAT ARE ECOA PROTECTED CLASSES
RACE, COLOR, RELIGION, NATIONAL ORIGIN, SEX, MARITAL STATUS OR AGE, RECEIPT OF PUBLIC ASSISTANCE AND GOOD FAITH RIGHTS UNDER CONSUMER PROTECTION CREDIT ACT
360
THE HMDA REQUIRES MOST MORTGAGE LENDERS THAT HAVE OFFICES OR BRANCHES IN THE METROPOLITAN AREAS TO COLLECT DATA ABOUT THEIR HOUSING-RELATES LENDING ACTIVITY
TO IDENTIFY POSSIBLE DISCRIMINATORY LENDING PATTERS, ASSESS WHETHER FINANCIAL INSTITUTIONS ARE MEETING THE NEEDS OF THEIR COMMUNITIES AND HELP PUBLIC OFFICIALS IN DISTRIBUTION PUBLIC-SECTOR INVESTMENT
361
The types of mortgage loans that are covered under HOEPA are:
Where the annual percentage rate applicable to the transaction will exceed the average prime offer rate for a comparable transaction by more than:
• 6.5 percentage points for a first-lien transaction
• 8.5 percentage points for a first-lien transaction if the dwelling is personal property
and the loan amount is less than $50,000 or
• 8.5 percentage points for a subordinate-lien transaction
Where the transaction’s total points and fees will exceed: (2019 points and fees triggers)
• 5 percent of the total loan amount for a transaction with a loan amount of $21,549 or
more
• The lesser of 8 percent of the total loan amount or $1,077 with a loan amount of less
than $21,549
• Note: the following transactions are exempt:
• A reverse mortgage transaction
• A transaction to finance the initial construction of a dwelling
• A transaction originated by a Housing Finance Agency, where the Housing Finance
Agency is the creditor for the transaction
• A transaction originated pursuant to the United States Department of Agriculture’s
Rural Development Section 502 Direct Loan Program30
362
mortgage loans that are covered under HOEPA are: Where the transaction’s total points and fees will exceed: (2019 points and fees triggers)
• 5 percent of the total loan amount for a transaction with a loan amount of $21,549 or
more
• The lesser of 8 percent of the total loan amount or $1,077 with a loan amount of less
than $21,549
363
mortgage loans that are covered under HOEPA are: Where the annual percentage rate applicable to the transaction will exceed the average prime offer rate for a comparable transaction by more than:
• 6.5 percentage points for a first-lien transaction
• 8.5 percentage points for a first-lien transaction if the dwelling is personal property
and the loan amount is less than $50,000 or
• 8.5 percentage points for a subordinate-lien transaction
364
A part of Reg Z provides consumers with extra protections for certain home loans. These include all of the following except for
A.
Establishing additional restrictions on balloon payments
B.
Requiring additional disclosure
C.
A max interest rate and fees that can be charged
D.
Prohibiting some acts when extending credit secured by a dwelling
Answer : A max interest rate and fees that can be charged
| Explanation : Neither HOEPA nor TILA limit rates or fees..
365
Amendments to which of the following federal laws created requirements for the verification and documentation of a borrower's repayment ability?
A. RESPA
B. HMDA
C. HOEPA
D. ECOA
Answer : HOEPA
| Explanation : HOEPA Requires income verification
366
What is not an example of predatory lending?
Answer : Air Loans
Explanation : Air loans are fraudulent loans which are made with the intent to defraud lenders and not a predatory action against the consumer.
367
What is predatory lending?
Predatory lending refers to unethical lending practices to a previously underserved population of consumers
368
The following are all indicators of potential Mortgage Fraud except for
A. The purchases are processed as refinance transactions
B. The non-existence of a re-purchase agreement
C. The exclusive use of one appraiser on non-traditional mortgages
D. The fact that bonuses are paid outside or at settlement for fee-based services
Answer : The non-existence of a re-purchase agreement
Explanation : Purchases which are processed as refinance transactions, the use of the same appraiser on non-traditional mortgages, the payment of bonuses outside or at settlement for fee-based services, and the existence of a re-purchase agreement are all potential signs of Mortgage Fraud. The non-existence of such an agreement, however, is perfectly lawful.
369
The most commonly included provisions in a Code of Ethics include Professional Conduct, Honesty in Advertising, Confidentiality, Honesty and Integrity and:
Answer : Disclosure of Financial Interest
Explanation : The most commonly included provisions in a Code of Ethics include Professional Conduct, Honesty in Advertising, Confidentiality, Honesty and Integrity and disclosure of financial interest
370
What has been an overriding goal of integrating the TILA and RESPA disclosures?
Answer : Improved disclosure of closing costs and origination charges to facilitate loan shopping.
Explanation : The purpose is to facilitate borrower's effort to shop for the best loan, and it reminds the borrower to shop around.
371
What is one overall theme shared by both ECOA and FCRA?
Answer : Fairness in the determination of credit eligibility.
Explanation : Broadly, both laws protect consumers by enforcing a fair credit determination, ECOA by prohibiting discrimination in credit extension and FCRA by ensuring consumer credit information is presented and utilized fairly in the credit determination process. Though discrimination is a theme in both laws, racial and gender discrimination is addressed only in ECOA. The protection of personal information is related more to FCRA/FACTA and also not shared. Data collection is a general theme of HMDA.
372
When applying for a mortgage, a joint financial statement is NOT required in which of the following circumstances?
A. The potential borrower is over 50 years of age.
B. A community property must be available as collateral as per state laws.
C. The potential borrower cannot alone satisfy the credit requirements.
D. The potential borrower submits an application for joint credit.
Answer : The potential borrower is over 50 years of age.
Explanation : A joint financial statement is only necessary when an applicant applies for joint credit or unless state laws make it necessary for a community property to be available as collateral. A joint financial statement is also required from a spouse or additional parties if the borrower alone cannot satisfy the credit requirements. However, the need for a joint financial statement is not dependent upon an applicant's age.
373
ECOA does NOT require which of the following disclosures?
A. Provision of the ECOA notice on credit action.
B. Disclosure to the applicant the reason for asking for race and gender.
C. Disclosure to the applicant that he or she is entitled to receive a copy of the appraisal.
D. Disclosure to the applicant about the right to dispute credit agency information.
Answer : Disclosure to the applicant about the right to dispute credit agency information.
Explanation : The ECOA includes the provision of the ECOA notice on credit action taken, the disclosure to the applicant regarding the inquiry of race and gender, and the disclosure to the applicant of the right to receive a copy of the appraisal report. It does not include a disclosure about the applicant's right to dispute credit agencies' information, which is a requirement of the Fair Credit Reporting Act (FCRA).
374
A borrower threatens to sue because the MLO understated the finance charge by $200. What is one possible outcome of this situation?
A. Legal damages are incurred of $200
B. It is determined that there is no violation because the understatement is less than $500
C. Legal damages are incurred of $400
D. The finance charge is recalculated and any remaining balance is funded by the lender
Answer : Legal damages are incurred of $400
Explanation : Mortgages secured by a dwelling (closed-end credit only): The disclosed finance charge is considered accurate if it is not understated versus the actual finance charge by more than $100 (see Regulation Z §§1026.18(d)(1)(i) . If inaccurate, the MLO must re-disclose at least 3 days before consummation of the transaction.
375
Any person who violates a cease and desist order can be fined a maximum of
Answer : $10,000 per violation per day
Explanation : The Federal Trade Commission can fine someone who violate a cease and desist order a maximum of $10,000 per violation per day.
376
A mortgage applicant receives an adverse action notice. The applicant states that the denial was due to incorrect information on the credit report. How can the consumer ensure the credit profile is presented fairly?
A. By disputing the inaccurate information with the agency, which will have 30 days to correct the error after the inaccuracy has been verified.
B. The consumer does not have an option here. The regulatory presumption is that the credit reporting agency information is correct since agencies face hefty fines if a violation is found.
C. By filing a letter of dispute, which gives the agency 30 days to correct the data after receipt of the letter.
D. By placing a statement on then credit report instructing lenders how to get updated information from the creditor.
Answer : By disputing the inaccurate information with the agency, which will have 30 days to correct the error after the inaccuracy has been verified.
Explanation : FCRA requires lenders to give applicants disclosures about their right to dispute credit agencies' information. The consumer may dispute the information, though the consumer reporting agency may continue to report information it has verified as accurate; however, once the consumer reporting agency finds that the credit report information is inaccurate, incomplete or unverifiable, the agency then has 30 days to correct the error. The 30 day window does not begin until verification.
377
A mortgage servicing disclosure must be given for what type of loan?
Answer : Reverse mortgages.
Explanation : When borrowers apply for a reverse mortgage loan, lenders must give the borrowers several important disclosures. These include the mortgage servicing disclosure, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolutio
378
A loan servicer sells the servicing rights of a loan. The borrower may provide final payment to the old servicer within:
Answer : 60 days following the transfer.
Explanation : The borrower does not incur a penalty if a payment is made to the original servicer within 60 days following the transfer of servicing rights.
379
The following are all indicators of potential Mortgage Fraud except for
A. Inflated appraisals
B. Lower-than-customary fees
C. Exclusive use of one appraiser on non-conventional mortgages
D. Falsifications on loan applications
Answer : Lower-than-customary fees
Explanation : Inflated appraisals, the consistent use of the same appraiser on non-conventional mortgages, and the evidence of falsifications on loan applications are all examples of potential Mortgage Fraud. Higher-, and not lower-, than-customary fees can also indicate potential fraud.
380
ECOA does NOT require which of the following disclosures?
A. Provision of the ECOA notice on credit action.
B. Disclosure to the applicant the reason for asking for race and gender.
C. Disclosure to the applicant that he or she is entitled to receive a copy of the appraisal.
D. Disclosure to the applicant about the right to dispute credit agency information.
Answer : Disclosure to the applicant about the right to dispute credit agency information.
Explanation : The ECOA includes the provision of the ECOA notice on credit action taken, the disclosure to the applicant regarding the inquiry of race and gender, and the disclosure to the applicant of the right to receive a copy of the appraisal report. It does not include a disclosure about the applicant's right to dispute credit agencies' information, which is a requirement of the Fair Credit Reporting Act (FCRA).
381
A service release premium (SRP) must
Answer : Only be paid on a closed loan to a lender or investor
Explanation : Service release premiums are paid to lenders or investors who agree to release servicing rights to the loan once the loan is closed and sold into the secondary market. A SRP may not be paid directly to a mortgage broker or mortgage loan originator. SRPs are not required to be disclosed to borrowers in any document. SRPs do not raise interest rate charged to borrowers
382
The following is true about the mortgagor and mortgagee
Answer : A mortgagee is also referred to as the investor
Explanation : A mortgagee is also the lender or investor. The mortgagor signs the Mortgage and Note. Property owners are mortgagors. Mortgage loan originators may receive an origination fee or mortgage broker fee from a mortgagor, or the mortgagor may apply their YSP to total origination fees
383
The best explanation of an exculpatory clause is
Answer : Relieves the borrower of any personal liability
Explanation : An exculpatory clause releases the borrower from any personal liability for repaying the loan. This clause is often used in commercial transactions when the officers of the business entity sign the documents but do not want to place their personal assets at risk in the event of defaul
384
Each of the following pieces of information would be found in a Promissory Note EXCEPT
A. The loan repayment schedule
B. Lender's name
C. Rights of the borrower to assign the loan
D. Default interest rate
Answer : Rights of the borrower to assign the loan
Explanation : The Promissory Note will list the lender’s name, the repayment schedule and the default interest rate, however there is no borrower right to assign responsibility to someone else for repaying the loan
385
Borrowing money to own real estate does NOT make sense when
Answer : The borrower has no reliable source of income to repay the loan
Explanation : Borrowers who do not have a reliable flow of cash to meet loan obligations may default on the loan and eventually lose the real estate. Positive leverage resulting from smart borrowing decisions is a good reason. The purchase of real estate is capital intensive so financing increases ownership opportunities. The IRS does not tax loan proceeds as they do income
386
What are the current qualifying ratios for an FHA loan?
Answer : A total housing ratio of 31 percent and a total debt ratio of 43 percent
387
Which of the following is not a primary lender?
A. Credit Union
B. Mortgage Banker
C. Commercial Bank
D. Federal Home Loan Mortgage Corporation
Answer : Federal Home Loan Mortgage Corporation
| Explanation : The Federal Home Loan Mortgage Corporation (Freddie Mac) participates solely in the secondary market.
388
Which mortgage lending regulation does NOT fall under the Federal Reserve Act ?
A. Equal Credit Opportunity Act
B. Fair Credit Reporting Act
C. Home Mortgage Disclosure Act
D. Real Estate Settlement Procedures Act
Answer : Real Estate Settlement Procedures Act
Explanation : Regulations that are included in the Federal Reserve Act are the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Home Mortgage Disclosure Act. The Truth in Lending Act and Reg Z are also included in the Federal Reserve Act. RESPA is enforced by HUD.
389
A VA funding fee is
Answer : Is determined by the type of loan, and whether it is for first-time or a subsequent use
Explanation : Borrowers pay a funding fee to the VA to fund their guarantee program. The percentage is determined by the type of loan (purchase or refinance) and how many times the eligibility has been used in the past
390
Which of the following is NOT one of the unique covenants included in a general warranty deed?
A. Right to prevent unlawful trespass
B. Warranty forever
C. Quiet enjoyment
D. Further assurance
Answer : Right to prevent unlawful trespass
Explanation : The right to prevent unlawful trespass is not one of the three unique covenants provided in a general warranty deed. They are quiet enjoyment, warranty forever and further assurance
391
FHA is part of what government agency?
Answer : Department of Housing and Urban Development
Explanation : FHA is a division of HUD. FHA’s mission is to provide access to home loans to a greater portion of the population; those who may be underserved by other for-profit programs.
392
Adverse action by a lender requires each of the following actions according to ECOA, EXCEPT
A. Inform borrower in writing of their right to receive a copy of their credit score report
B. Inform borrower of right to request within 60 days a copy of the credit report used
C. Provide the borrower full contact information for the credit reporting agency used
D. Tell the borrower if information in their credit file has been used to make the decision
Answer : Inform borrower in writing of their right to receive a copy of their credit score report
Explanation : A copy of the credit score report is not required but all other notices are, including, if information in their credit report was used to make the adverse decision, provide full CRA contact information, and inform borrower of right to obtain a copy of the credit report used if requested within 60 days
393
If a consumer dispute about data accuracy is not resolved, what other rights may they exercise?
A. Consumer may receive monthly free credit reports to monitor the damage
B. Consumer may add a brief statement to their credit file
C. Consumer may require CRA to stop issuing credit reports for 90 days
D. Consumer may file a formal complaint with the Federal Reserve
Answer : Consumer may add a brief statement to their credit file
Explanation : If a dispute is not resolved to the consumer’s satisfaction, they may add a brief statement to their credit file
394
When a victim of fraud notifies a CRA, which of the following is NOT one of the steps they must take?
A. Place a fraud alert on the credit file for at least 90 days
B. Send a fraud alert credit report to all creditors that have made an inquiry in the last 90 days
C. Advise other CRAs of the fraud alert
D. Provide the victim with a free copy of their credit report
Answer : Send a fraud alert credit report to all creditors that have made an inquiry in the last 90 days
Explanation : A CRA is not required to send a fraud alert credit report to all creditors that have made an inquiry in the last 90 days. All other steps are required.
395
The National Do Not Call restrictions do not apply to
Answer : A consumer who submitted an application within the last 90 days
Explanation : Any consumer who has made an inquiry or has submitted an application within the last 3 months may be called, UNLESS that consumer has asked to be placed on the company’s own do not call list.
396
Which federal law requires lenders to capture and report sensitive applicant information such as race and gender?
Answer : Home Mortgage Disclosure Act (HMDA)
Explanation : The Home Mortgage Disclosure Act (HMDA) requires lenders to maintain a Loan Application Register and annually disclose data including the loan requested, the lending decision, type and location of property, and applicant race, ethnicity, and gender
397
The HMDA results are used for all of the following EXCEPT
A. To determine whether financial institutions are serving the housing needs of their communities
B. To ensure lenders are meeting loan quotas to disadvantaged citizens
C. To assist public officials in allocating public sector investments
D. To identify potential discrimination practices by financial institutions
Answer : To ensure lenders are meeting loan quotas to disadvantaged citizens
Explanation : HMDA was not created to measure loan quotas to disadvantaged citizens by privately-held financial institutions. HMDA was enacted in 1975 to detect discrimination practices by financial institutions, to ensure they are serving their communities’ housing needs, and to assist public officials allocate public sector investments
398
According to ECOA, if a lender does not routinely provide all borrowers with a copy of the appraisal, it must
A. Inform the borrower in writing of their right to receive a copy
B. Mail a copy of the appraisal to the borrower within 7 business days of closing
C. Provide a copy of the appraisal in the closing paperwork
D. Cancel closing until after 7 business days of providing the copy to the borrower
Answer : Inform the borrower in writing of their right to receive a copy
Explanation : ECOA requires the lender to inform the borrower/applicant of the right to receive a copy of the appraisal. The Home Valuation Code of Conduct calls for the borrower to receive a copy of the appraisal at least 3 days prior to closing, unless borrower waives that right in writing.
399
All the following statements about credit reports are true EXCEPT
A. Tri-merged credit reports are most reliable because they combine information from all three CRAs
B. Errors in credit reports are rare and difficult to dispute
C. Credit reports do not contain information on sex, race or religion
D. Lenders are free to establish their own underwriting standards regarding credit report information
Answer : Errors in credit reports are rare and difficult to dispute
Explanation : Credit reports contain many errors, often major ones, due to identity theft and sheer transaction volume. There is an established and effective dispute procedure available to every citizen.
400
A credit report will contain all of the following information, except
A. Public records
B. Credit inquiries
C. Account history
D. Spending patterns
Answer : Spending patterns
Explanation : Spending patterns are not captured or reported in a credit report. Public records of financial matters, creditor inquiries, and account history is maintained and reported.
401
A borrower's liquid reserves may be important to a lender EXCEPT when
A. Employment history may indicate a chance of income interruption
B. Debt ratios are not strong
C. LTV is very low
D. Credit history indicates some past payment problems
Answer : LTV is very low
Explanation : When any aspect of a borrower’s creditworthiness concerns an underwriter, they may ask for documentation on reserves. A low LTV is a good characteristic and would help, not hurt the borrower’s creditworthiness
402
What is the importance of a stacking order?
Having paperwork filed in a specific order for easy access and auditing
403
The _______________ of a property must be legal, financially viable, productive and physically plausible.
Answer : Highest and best use
Explanation : The highest and best use of a property is the type of use that is most profitable considering what all uses that are legal, financially viable, productive and physically plausible
404
The main difference between actual cash value and replacement cost coverage for flood or hazard insurance is;
Answer : Replacement cost coverage reimburses for today's cost of replacement however actual cash value subtracts out the cost of depreciation
Explanation : Replacement cost reimbursement covers current construction costs without a deduction for depreciation. Actual cash value is replacement cost minus depreciation cost. Replacement cost coverage premiums would be higher than actual cash value
405
The equation, Gross Potential Income minus Vacancies and Collection Losses, provides:
Effective gross income
406
Which of the following is considered an arms-length transaction?
A. Father passes property to daughter for nominal amount
B. Bankruptcy court authorizes public auction of property
C. MLS records indicate seller financing and a shorter than expected listing period
D. Public records indicate a transfer of property back to mortgagee
Answer : MLS records indicate seller financing and a shorter than expected listing period
Explanation : An arms length transaction is between a non-related buyer and seller, each looking out for their own best interest, using publicly available information and completing the transaction without any undue pressure or stress
407
Flood insurance has all but the following characteristics;
A. The maximum coverage available for personal property is $100,000.
B. The maximum coverage available per residential building is $250,000
C. Flood insurance can always be obtained immediately, even if a storm is approaching.
D. Fannie Mae guidelines call for a maximum flood insurance deductible of $3,000 per building.
Flood insurance can always be obtained immediately, even if a storm is approaching.
408
In the sales comparison approach, the appraiser must adjust the _______________ to compensate for the difference between the comparable and subject properties.
Answer : The purchase price of the comparable(s)
Explanation : Appraisers increase or decrease the actual purchase price of each comparable based on the estimated value of the key feature(s) present in one but not the other
409
All the following EXCEPT _________________ are types of adjustments
A. On-site features
B. Arm's-length conditions
C. Off-site features
D. Sale conditions
Arm's-length conditions
410
The _________________ approach to valuation is most commonly used for houses occupied by single-families
Answer : Sales comparison
| Explanation : The sales comparison valuation approach is most commonly used for single family residential property.
411
Which of the following is considered an arms-length transaction?
A. Father passes property to daughter for nominal amount
B. Bankruptcy court authorizes public auction of property
C. MLS records indicate seller financing and a shorter than expected listing period
D. Public records indicate a transfer of property back to mortgagee
Answer : MLS records indicate seller financing and a shorter than expected listing period
Explanation : An arms length transaction is between a non-related buyer and seller, each looking out for their own best interest, using publicly available information and completing the transaction without any undue pressure or stress
412
The cost approach to appraisal usually establishes site (land) value _______________________.
Answer : Using the sales comparison approach
| Explanation : The value of the site is generally calculated by using the sales comparison approach
413
The Uniform Residential Appraisal Report does not require the appraiser to ____________
A. Rate the quality of the local high school
B. Sign the report
C. Include information about the condition of the roof
D. Report a previous listing of the subject property 10 months ago
Answer : Rate the quality of the local high school
| Explanation : The appraisal report does not require information about schools
414
The potential gross income is the
Maximum possible rent when vacancies and collection losses are zero
415
The Appraiser Independence Requirements allow _______________
A. Mortgage loan originators to select the appraiser
B. Loan production staff employed by the lender to pay the appraiser
C. A copy of the appraisal to be shared with the borrower
D. Blacklisting appraisers who consistently value property too low
Answer : A copy of the appraisal to be shared with the borrower
Explanation : Appraisal Independence Requirements requires the lender to provide a copy of the appraisal to the borrower at least 3 days prior to settlement.
416
When using the sales comparison approach, an appraiser _______ the market value of a comparable property's swimming pool if the subject property does not have one.
A. Adds to the comparable's sold price
B. Subtracts from the comparable's sold price
C. Adds to the subject property's contract price
D. Subtracts from the subject property's contract price
Answer : Subtracts from the comparable's sold price
Explanation : The value of a feature found in the comparable but not in the subject property is subtracted (CBS/CIA) from the sold price of the comparable
417
When using the sales comparison approach, an appraiser _______ the market value of a comparable property's swimming pool if the subject property does not have one.
Subtracts from the comparable's sold price
418
The following characteristics are NOT likely to affect the cost of insurance premiums;
A. A new hip-style roof replaced the old gable roof in a wind-prone area
B. The homeowner now raises pit-bull terriers
C. A security fence and high tech alarm system is added
D. The comparable value of the last three homes purchased in the neighborhood
Answer : The comparable value of the last three homes purchased in the neighborhood
Explanation : The market value alone does not affect premiums. Construction materials and styles (particularly roofs) can affect homeowner’s insurance premiums. Likewise, the presence of certain pets or other activities that increase the likelihood of a liability claim will raise premiums. Measures to reduce burglary or property crimes can reduce premiums
419
The _________________ approach to valuation is most commonly used for houses occupied by single-families.
Answer : Sales comparison
| Explanation : The sales comparison valuation approach is most commonly used for single family residential property.
420
Net operating income is
Effective gross income minus operating expenses
421
Which of the following statements is FALSE?
A. An appraisal is the act or process of developing an opinion of value
B. An appraisal is a report about the marketability of a home
C. An appraisal is different from a broker's market analysis
D. An appraisal should be an objective and autonomous report
Answer : An appraisal is a report about the marketability of a home
Explanation : An appraisal does NOT discuss or indicate the marketability of a home but it is an opinion of value, and should be objective and autonomous, and much more detailed than a broker’s market analysis
422
The _______________ of a property must be legal, financially viable, productive and physically plausible.
Answer : Highest and best use
Explanation : The highest and best use of a property is the type of use that is most profitable considering what all uses that are legal, financially viable, productive and physically plausible
423
The value of a commercial property depends on how much income it can generate, a measure of its _________. This method is used by appraisers in the _________ approach to appraisal.
Answer : Net operating income, income capitalization
Explanation : The value of a commercial property is calculated by dividing net operating income (NOI) by the capitalization rate. This method is used by appraisers in the income capitalization approach to valuation
424
The equation, Gross Potential Income minus Vacancies and Collection Losses, provides
Answer : Effective gross income
| Explanation : Potential Gross Income minus an allowance for collection and vacancy losses equals Effective Gross Income
425
All of the following statements about appraising are true, except_____________
A. Appraising is an art, not a science
B. Appraising relies on good judgment and local experience
C. A mortgage loan originator may not inform the appraiser of the value needed to close the loan
D. An appraisal's stated market value can also be used in the future as liquidation value
Answer : An appraisal's stated market value can also be used in the future as liquidation value
Explanation : Market value is different than liquidation value. An appraisal is accurate as of the date of the appraisal and can not predict any future value
426
The potential gross income is the
A. Maximum possible rent when vacancies and collection losses are zero
427
he main difference between actual cash value and replacement cost coverage for flood or hazard insurance is;
Answer : Replacement cost coverage reimburses for today's cost of replacement however actual cash value subtracts out the cost of depreciation
Explanation : Replacement cost reimbursement covers current construction costs without a deduction for depreciation. Actual cash value is replacement cost minus depreciation cost. Replacement cost coverage premiums would be higher than actual cash value
428
When estimating homeowner's insurance, you have the option of using any of the following, except:
A. A percent of the sales price based on past experience
B. Same amount as the flood insurance
C. Estimation based upon known information from the location of the property
D. Information from an insurance agent
Answer : Same amount as the flood insurance
Explanation : Flood insurance is priced very differently from homeowner’s insurance. The best option is getting an actual quote from an insurance agent. In any case, use a reliable method for estimating homeowner’s insurance cost. The amount may change once an actual quote is received—be sure to update the GFE.
429
Which of the following would yield a per diem rate in the month of July for an annual expense of $1500 ?
Answer : $1500 / 365 = $4.11
Explanation : A per diem rate is determined by dividing the annual charge by 365. Therefore, an annual expense of $1500 when divided by 365 days is a per diem charge of $4.11
430
Question : A borrower has placed $5,000 in earnest money on a $157,000 home and has been approved for a 75% LTV first mortgage. The seller is contributing 4% toward closing costs. Closing costs are $5,250. The borrower is responsible for 1/3rd of annual property taxes of $3,550 that have already been paid. How much cash does borrower need to bring to closing?
Answer : $34,403.33
Explanation : USES: $157,000 purchase price + $5,250 in closing costs + 33.3% X $3,550 = $163,433.33 SOURCES: $5,000 earnest money + 75% loan X $157,000 + 4% X $157,000 seller contribution = $129,030 Cash needed at closing is $34,403.33.
431
Who is ultimately responsible for monitoring compliance with SAFE?
Answer : US Department of Housing and Urban Development (HUD)
Explanation : HUD must determine if a state is in compliance with the SAFE Act within 1 year from enactment (or 2 for biennial legislatures). If HUD determines that the state is not satisfying the Act or at least making a good faith effort to do so, HUD must implement a system for all state licensed mortgage loan originators in that state.
432
In the SAFE Mortgage Licensing Act of 2008, what does "SAFE" stand for?
Answer : Secure and Fair Enforcement
| Explanation : SAFE Act stands for the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.
433
With respect to license renewal, which of the following would qualify as a credit under the MLO continuing education requirements?
A. 2 hours of ethics education approved by the NMLS, which includes instruction on fraud
B. 2 hours of federal law and regulations education as approved by the NMLS
C. 2 hours of training related to lending standards for the nontraditional mortgage product marketplace
D. Total of at least 8 hours of education which includes NMLS-approved courses on federal law, nontraditional mortgages and ethics training.
Answer : 2 hours of ethics education approved by the NMLS, which includes instruction on fraud
Explanation : Note that all education must be reviewed and approved by the NMLS and that there are specific minimum hourse for each section. Specifically, In order to meet the annual continuing education requirements, a licensed MLO shall complete at least 8 hours of education, which shall include AT LEAST 3 hours of Federal law and regulations, 2 hours of ethics, and 2 hours of training related to lending standards for the nontraditional mortgage product marketplace. (Source: MSL XX.XXX.100(1)). These courses must be approved by the NMLS, per MSL XX.XXX.100(2)
434
With respect to the minimum requirements for a state license, which of the following statements is true?
A. Applicants for a license shall apply in person before the Commissioner or an authorized agent.
B. The applicant shall, at a minimum, furnish information concerning the applicant s identity, including fingerprints and tax returns for the two years prior to application.
C. The Commissioner may use the NMLS as a channeling agent for requesting and distributing information to and from any source so directed by the Commissioner.
D. The Commissioner is not authorized to establish relationships with a third party for maintaining records on licensees.
The Commissioner may use the NMLS as a channeling agent for requesting and distributing information to and from any source so directed by the Commissioner.
435
Federal Law makes up what percentage of the Nation Exam?
Answer : 35% on Federal Law and 25% on Loan Origination Activities
Explanation : The 100 questions are comprised of: - 35% Federal Law - 25% General Knowledge - 25% Loan Origination Activities - 15% Ethics
436
Which of the following is required for SAFE licensing renewal of mortgage loan originators?
A. 8 hours of continuing education, including 2 hours of Ethics and 2 hours of Standards on Non-Traditional Mortgage Lending
B. 8 hours of continuing education including 3 hours of Standard of Non-Traditional mortgage Lending
C. 8 hours of continuing education, including 2 hours of Federal Law and 2 hours of Ethics
D. 8 hours of continuing education, including 2 hours of Federal Law
Answer : 8 hours of continuing education, including 2 hours of Ethics and 2 hours of Standards on Non-Traditional Mortgage Lending
Explanation : Licensing: Provide fingerprints for an FBI criminal history background check to the NMLS; Provide authorization for NMLS to obtain a credit report; Never had a loan originator license revoked; Has had no felonies in the past seven years; Never had a felony involving fraud, dishonesty, breach of trust or money laundering; and Demonstrate financial responsibility
437
How many questions are on the National Exam?
100 questions, which includes 35 Federal Law, 15 Ethics and Fraud, 25 Loan Origination Activities, 25 General Knowledge
438
What prompted the implementation of the SAFE Act?
Answer : Mortgage brokers who had revoked licenses were able to obtain license in other states
Explanation : The SAFE Act is designed to enhance consumer protection, reduce fraud and reduce regulation by (1) encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and (2) by establishing a nationwide licensing system and registry.
439
An individual, unless specifically exempted from the SAFE Act, shall not engage in the business of a mortgage loan originator without obtaining and maintaining an annual license. The following are exempt EXCEPT
A. an individual who offers or negotiates terms of a residential mortgage loan with or on behalf of an immediate family member of the individual.
B. a licensed attorney hired by a broker who negotiates terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney s representation of the client.
C. a registered mortgage loan originator.
D. an individual who offers or negotiates terms of a residential mortgage loan secured by a dwelling that served as the individual s residence.
Answer : a licensed attorney hired by a broker who negotiates terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney s representation of the client.
Explanation : A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney s representation of the client is exempt from the Act, PROVIDED the attorney is not compensated by a lender, a mortgage broker, or other mortgage loan originator or by any agent of such lender, mortgage broker, or other mortgage loan originator. Source: MSL XX.XXX.040 (3)
440
Which of the following statements is true?
A. All the information entered into the NMLS by the Commissioner is final unless arbitration or litigation ensues.
B. The information entered into the NMLS by the Commissioner can be challenged by MLOs.
C. The Commissioner is not allowed to enter any information on the NMLS.
D. MLOs are the ones authorized to enter information on the NMLS.
Answer : The information entered into the NMLS by the Commissioner can be challenged by MLOs.
Explanation : The Commissioner can establish an information challenge process whereby MLOs may challenge information entered into the NMLS by the Commissioner.(Source: MSL XX.XXX.120)
441
What is the Model State Law?
Answer : It is a document created by the CSBS and the AARMR to guide states in implementing the legislation required by the SAFE Act.
Explanation : The Model State Law refers to a document created by the CSBS and the AARMR to guide states in implementing the legislation required by the SAFE Act. The rest of the choices refer to the definition of the SAFE Act of 2008.
442
A mortgage loan originator who works for a bank and has 30 years experience is in the process of meeting SAFE guidelines -- what parts of the Act will need to be completed?
A. Registration with NMLS , Testing, and Fingerprinting
B. Registration with NMLS, Education, and Background Check
C. Registration with NMLS, Background Check, and Fingerprinting
D. Registration with NMLS, Background Check and Licensing
Answer : Registration with NMLS, Background Check, and Fingerprinting
Explanation : Registering with NMLS requires registered mortgage loan originators (MLOs) to submit fingerprints for a state and federal background check and personal history and experience.
443
As the Commissioner is required to participate in the NMLS, is he given the authority to establish certain requirements as he deems necessary?
A. Yes, and it includes expediting review and licensing procedures.
B. Yes, but he cannot set fees to apply for or renew licenses through the NMLS.
C. Yes, but it is only limited to the conduct of background checks on licensees or applicants.
D. Yes; however, he cannot set or reset renewal or reporting dates.
Answer : Yes, and it includes expediting review and licensing procedures.
Explanation : The Commissioner may provide requirements regarding setting or resetting as necessary of renewal or reporting dates. In addition, he may provide other requirements for amending or surrendering a license or any other such activities as the Commissioner deems necessary for participation in the NMLS. (Source: MSL XX.XXX.110)
444
A 3/1 ARM has a 2/2/5 cap structure. Assuming worst-case scenario, in what year would the interest rate reach its maximum?
Years 1 – 3 the rate would be the start rate. Year 4 the rate could increase by 2%. Year 5 the rate could increase by 2%. In year 6 the rate could increase by 1% to its maximum rate.
445
Which of the following locations is not considered a high-cost area?
Colorado
Although home prices in some areas of Colorado may be high, the higher cost areas, as defined by the FHFA, are Alaska, Hawaii, Guam, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
446
The Telemarketing Sales Rule allows for five exceptions to first scrubbing a telephone number through the Do Not Call Registry before making an outbound call.
They are: when the call is made to a current customer, when the call is made to an individual who is not currently a customer but was one within the previous 18 months, when the call is made to someone who initiated an inquiry within the previous 90 days, if the caller is from a charitable organization, and if the caller is or the call involves a politician.
447
he penalty for violating the Telemarketing Sales Rule is not cheap! Violators may be fined up to _____ Per Occurrence
$42,530 per occurrence.
448
Above-par pricing
premium to the borrower as a lender credit to help offset closing costs
449
The certificate of eligibility must reflect an entitlement of
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.
450
When structuring a piggyback loan scenario
The first number always represents the LTV of the primary mortgage.The second number represents the LTV of the second mortgage, and the third number represents the borrower’s down payment
451
On a ARM Loan,At the time of the next scheduled interest rate change, the mortgage servicer calculates
the new payment amount considering the currently-applicable interest rate, the remaining term, and the existing principal balance. A balance that is lower than it otherwise would be due to the previous remittance of principal pre-payments will cause the new payment to be lower than it would have been had the balance been higher at the time of the interest rate change.
452
Effective January 10, 2014,The four types of QMs are:
General, Temporary, Small-Creditor, and Balloon-Payment. (Also, QM loans generally do not contain back-end DTI’s of greater than 43% and are fully income and asset documented.)
453
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.
454
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.
455
the value of each retirement account must be considered at
70% of its face value if under 59.5 years old
456
ARM start rates that are more than 3% below FIAR as of the lock date are referred to as
teaser rates
457
The conditions for which a balloon loan may be conditionally modified are:
he 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%
458
Mutual fund-When used solely to satisfy reserve requirements,
100% of a mutual fund’s face value may be considered.
459
A conventional mortgage at an 85% LTV would require
PMI not MIP.
| Note: USDA and VA loans do not utilize MIP
460
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.
461
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.
462
A Home Equity Conversion Mortgage (HECM) is
This type of loan easily converts a home’s equity into capital for senior homeowners.
463
30/15 refers to:
A 30-year loan that balloons at 15 years and lacks a conditional right to modify (Balloon loans described by the term first (in years or months) followed by the balloon term (in years or months) lack a conditional right to modify. Describing the balloon term first followed by the difference between that and the 30-year term (ie. 7/23) describes a balloon loan containing a conditional right to modify.)
464
A 7/1 Hybrid ARM
Has an initially-stable rate for seven years and then adjusts annually for 23 years thereafter
Note: When defining a hybrid ARM, the first number appearing in its name represents the initial period of interest rate stability. All ARM loans are originated with 30-year terms.
465
Components of an ARM
Index, Margin, Rate of Adjustment, Interest Rate cap/floor, conversion options
466
Common Indices
CMT, COFI, LIBOR, CODI, PRIME RATE
467
ARM caps
Initial Cap (first rate), Periodic Cap (limits the amount the interest rate can adjust up or down from an adjustment period) Life time Cap (ceiling for the life of loan)
468
ARMS identified in 3 numbers Example: 5/2/6
5%- first adjustment/ 2%- For subsequent adjustable periods / 6%- total over the life of loan
469
ARMS in 2 numbers Example: 2/6
2-The first number indicates the maximum amount the interest rate can increase (or potentially decrease) from one adjustment period.
6- The second number indicates the maximum amount the interest rate can increase during the life of the loan
470
The Rate Floor
lowest interest rate to which an ARM may adjust. Usually identical to the Margin.
471
Types of ARMs
Interest-only ARMS, Payment Option ARM , Convertible ARM (conversion from ARM to fixed), Hybrid ARM (Fixed and adjustable)
472
Option ARM Payments
Minimum payment, 15 year, 30 year, or interest only
473
TILA regulates creditors that
offer credit to consumers, that make the credit subject to a finance charge or payable under the terms of a written agreement requiring repayment in more than four installments, and that regularly extend credit to consumers.
474
In addition to the VA’s DTI requirement
all VA loan applicants must meet residual income requirements to demonstrate that there will be enough money left over after all monthly expenses are paid. The requirements for residual income are determined based on the household’s size and the location of the property.
475
The current conventional/conforming loan limit for single-family properties is
$510,400
476
The VA DTI guideline is:
The only ratio guideline applicable for VA financing is the 41% back-end ratio.
477
In accordance with the MAP Rule,
“A representation omission, or practice is material if it is likely to affect a consumer’s choice of or conduct regarding a product.”
478
The E-Sign Act requires that all consumers be made aware of
the technical requirements necessary for the utilization of electronic records prior to making the decision as to whether or not they wish to utilize that modality.
479
HUD is working to
strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination, and transform the way HUD does business
480
The Dodd-Frank Act consolidated many various regulatory authorities and centralized oversight of the U.S. financial industry under
the Consumer Financial Protection Bureau (CFPB).
481
HOEPA is Section ___________ of ____________?
32/TILA
482
Qualified mortgages limit pre-payment penalties to:
3% of the outstanding balance during the first year, 2% of the outstanding balance during the second year, 1% of the outstanding balance during the third year, and no penalty thereafter.
483
RESPA covers:
loans made with funds insured by the federal government, loans made with funds from a lender regulated by the federal government, loans that are intended for sale to Fannie Mae or Freddie Mac, loans made by a creditor regulated under the Truth-in-Lending Act, and loan transactions involving federally related mortgage loans. Loans that are exempt from RESPA coverage consist of loans for 25 acres or more, loans for business, commercial, or agricultural purposes, temporary financing (bridge loans), loans secured by vacant land, loan assumptions that are permissible without lender approval (a simple assumption falls within this category), loans sold on the secondary market, and loan conversions when a new note is not required and the provisions are consistent with those of the original mortgage.
484
The four elements of mortgage fraud, as defined by Fannie Mae, are:
intent to defraud, a misrepresentation to the consumer or lender, the omission of important and relevant information, and neglect of fiduciary responsibility to the customer or lender.
485
The FHA was established in 1934 as a result of the:
The National Housing Act, establishing the FHA, was one of the federal government’s responses to improve conditions resulting from the Great Depression.
486
The Loan Originator Compensation Rule:
Ensures the proper application of loan proceeds
487
An ARM start rate is within three percent below FIAR, it is referred to as
a discount rate.
