1700+ MCQs 3of4

Question 1

With what type of loan do payments, including principal and interest, remain constant throughout the life of the loan?

1. A balloon loan, as long as the maturity date is beyond ten years
2. An ARM with a conversion option
3. Fixed rate
4. An FHA loan

Answer 1

The answer is fixed rate. A fixed-rate loan has its interest rate set at closing and does not change during the life of the loan.

Question 2

Homeownership counseling is required for the following types of lending transactions, except:

1. Fixed-rate qualified mortgages
2. High-cost mortgages
3. FHA HECM loans
4. Negative amortization loans

Answer 2

The answer is fixed-rate qualified mortgages. Homeownership counseling is required for high-cost mortgages, FHA HECM loans, and negative amortization loans.

Question 3

All of the following would be common activities in fraud for housing, except:

1. Flipping
2. Asset fraud
3. Income and employment fraud
4. Silent second

Answer 3

The answer is flipping. Asset fraud, income and employment fraud, and silent seconds (in which a borrower secretly borrows needed funds from the seller secured by an undisclosed and unrecorded second mortgage) are all associated with fraud for housing. In contrast, flipping is usually associated with predatory lending, rather than property fraud.

Question 4

When would ARM disclosures be required?

1. If the initial term on an ARM is more than one year
2. If the initial term on an ARM is less than five years
3. For all ARMs
4. If the initial term on an ARM is less than one year

Answer 4

The answer is for all ARMs. For an ARM, the interest rate will change periodically, based on an index to which the rate is tied and the margin added to cover the creditor’s expenses and profit. Therefore, the borrower must be given information about the index, the margin, and the frequency of rate adjustments, in addition to other pertinent facts about the loan. For an ARM secured by a borrower’s principal residence with a term exceeding one year, additional disclosures must be provided either at the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier.

Question 5

Mortgage insurance insures against losses incurred as a result of:

1. A borrower’s late payment
2. Fire
3. Foreclosure
4. Natural disaster

Answer 5

The answer is foreclosure. Private mortgage insurance (PMI) is an insurance policy issued to provide protection to the mortgage lender in the event of financial loss due to a borrower’s default that results in foreclosure. In the event of a foreclosure, the insurance company will either purchase the loan or let the lender foreclose and pay the lender for its losses up to the face amount of the policy.

Question 6

Which behavior involves conspiratorial involvement of individuals using the mortgage market to benefit financially from criminal behavior?

1. Flipping
2. Fraud for profit
3. Money laundering
4. Identity theft

Answer 6

The answer is fraud for profit. Fraud for profit may involve a number of persons, such as sellers, mortgage loan originators (including mortgage brokers and lenders and their individual mortgage loan originators), real estate brokers, appraisers, builders, and developers, who conspire to inflate property values and therefore loan amounts.

Question 7

All of the following types of income are not taxed and therefore can be “grossed-up,” except:

1. Social Security
2. Public assistance
3. Freelance income
4. Disability

Answer 7

The answer is freelance income. Freelance income is not “nontaxed income” and therefore is not grossed-up. Social Security may be taxed for some, but not all recipients; for recipients who are not taxed on their SSI, the income can be grossed up.

Question 8

By adding together the margin and index, the result is known as the:

1. True index
2. Rate ceiling
3. Start rate
4. Fully indexed rate

Answer 8

The answer is fully indexed rate. On an ARM loan, by adding together the margin and index, the result is called the fully indexed rate, which indicates the adjusted rate.

Question 9

On an ARM loan, which of the following will not be found on the note?

1. Fully-indexed rate after one year
2. Margin
3. Adjustment parameters
4. Identification of index

Answer 9

The answer is fully-indexed rate after one year. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. For an ARM loan, it will typically identify the index, specify the margin, and list adjustment parameters, but will not specify the fully-indexed rate after one year.

Question 10

The first step in the closing process is:

1. Rescission
2. Funding
3. Application
4. Steering

Answer 10

The answer is funding. The first step in the closing process is funding. This occurs when the lender wires funds to the title company or closing attorney. Once the closing has occurred, the title company is authorized to release funds to the parties (disbursement). Depending on state law and the type of transaction, disbursement could occur at closing or several days later.

Question 11

A lender’s title insurance policy would insure against all of the following, except:

1. Future tax liens
2. Mechanic’s liens
3. Judgments
4. Undisclosed encumbrances

Answer 11

The answer is future tax liens. A lender’s title insurance policy insures the lender or mortgagee against loss caused by a borrower’s invalid title or loss of priority of the mortgage or deed of trust due to legal claims based on undisclosed encumbrances. Title insurance protects the lender against losses caused by problems that arose prior to the purchase of the property, such as mechanic’s liens, judgments, and covenants and restrictions. It would not cover future tax liens.

Question 12

Which of the following is NOT required by the BSA?

1. Reporting suspicious activity and transactions
2. Generating requests for information from FinCEN
3. Reporting large currency transactions
4. Implementing an anti-money laundering (AML) program

Answer 12

The answer is generating requests for information from FinCEN. Under the BSA, financial institutions are required to establish and maintain procedures designed to ensure their compliance with the law. Federal regulations outline such requirements. Each institution must develop a written anti-money laundering compliance program, which must be approved by the institution’s board of directors. Provisions of the BSA also require a financial institution to report to FinCEN on a CTR any large currency transaction that exceeds $10,000, and to report suspicious activity and transactions to FinCEN using a Suspicious Activity Report (SAR). There is no requirement to generate requests for information from FinCEN.

Question 13

Which of the following is true regarding acceptable sources for down payment?

1. All gifts may be used, regardless of source
2. Gifts from relatives are permitted
3. Gifts from the seller are permitted
4. No gifts may be used, regardless of source

Answer 13

The answer is gifts from relatives are permitted. Acceptable sources for down payment include gifts from relatives and gifts from domestic partners (although Fannie Mae and Freddie Mac require a 12-month relationship history). Gifts from the seller are not an acceptable source of down payment.

Question 14

Which of the following is a government-owned entity which facilitates home ownership in the United States?

1. Georgie Mac
2. Ginnie Mae
3. Freddie Mac
4. Fannie Mae

Answer 14

The answer is Ginnie Mae. The GNMA, also known as Ginnie Mae, is a government corporation within HUD. Its purpose is to facilitate home ownership in the United States and increase the supply of credit available for housing, by directing funds from the securities market into the mortgage market. It does this by guaranteeing mortgage loans made by private lenders and insured by the FHA or guaranteed by the VA or the USDA, which are then placed into mortgage-backed securities and issued by the private party that holds them.

Question 15

In the event that a real estate agent is also permitted to serve as the broker on a transaction, the person with the dual role must:

1. Limit earnings to just 1% from the loan
2. Give the borrower/consumer full disclosure of the relationship
3. Give the borrower a 10% discount on the cost of the loan
4. Only share the borrower’s information with unaffiliated third parties

Answer 15

The answer is give the borrower/consumer full disclosure of the relationship. In states where it is allowable for a real estate licensee to also act as the mortgage originator, the borrower must be made fully aware of the relationship and advise consumers of the potential conflict of interest.

Question 16

Which law restricts the sharing of nonpublic personal information given when a consumer applies for a mortgage loan?

1. Fair Credit Reporting Act
2. FTC Disposal Rules
3. Gramm-Leach-Bliley Act
4. Consumer Regulatory Protection Act

Answer 16

The answer is Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act is the federal law that limits or restricts the use of a consumer’s nonpublic personal information.

Question 17

This term refers to the practice of adjusting certain types of non-taxable income during underwriting.

1. Flopping
2. Inflating
3. Ballparking
4. Grossing up

Answer 17

The answer is grossing up. Certain types of income may be grossed-up during underwriting. Underwriters may gross-up Social Security income, child support, and some other forms of income, subject to limitations based on product type and other guidelines.

Question 18

Before engaging in a refinance transaction, consumers and mortgage professionals should consider whether the transaction:

1. Is for a qualified mortgage
2. Has a tangible net benefit to the loan originator
3. Has a tangible net benefit to the borrower
4. Will reach closing in time for the borrower to use the funds as he or she wishes

Answer 18

The answer is has a tangible net benefit to the borrower. Before engaging in a refinance transaction, consumers and mortgage professionals should consider whether the transaction has a tangible net benefit to the borrower.

Question 19

Co-borrower information must be provided on the 1003 when the co-borrower:

1. Is a minor
2. Has income being used for loan qualification
3. Is the borrower’s spouse
4. Has a credit score that is below average

Answer 19

The answer is has income being used for loan qualification. Co-borrower information is needed on the1003 when the income or assets of a person other than the borrower (e.g., the borrower’s spouse) are to be used as a basis for loan qualification.

Question 20

If a borrower sells personal property in order to raise money for down payment, and the underwriter questions whether the value of the items sold is realistic, the underwriter may:

1. Deny the loan until another source of down payment can be identified
2. Take the item in trade for cash value
3. Have an appraisal done on the item, or ask for further documentation
4. Add the value in question to the loan amount if further documentation cannot be provided

Answer 20

The answer is have an appraisal done on the item, or ask for further documentation. The underwriter will ask to see documentation if the value of personal property being sold is called into question. This may include an appraisal of the property, and/or some further documentation.

Question 21

The APR factors in the effects of all of the following expenses, except:

1. Hazard insurance premium
2. Processing fee
3. Origination fee
4. Mortgage insurance premium

Answer 21

The answer is hazard insurance premium. The annual percentage rate (APR) represents the relationship of the total finance charge to the total amount financed, as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. Among other charges, finance charges include points, loan fees, and mortgage insurance premiums, but not hazard insurance premiums.

Question 22

The “Confirm Receipt” box on the Loan Estimate informs the consumer that:

1. He or she is now obligated to proceed with the loan transaction
2. He or she has agreed to all costs and terms stated in the disclosure
3. He or she is not obligated to accept a loan simply because he or she has signed or received the disclosure
4. He or she may face legal action for failure to pay fees due at the time of receiving the Loan Estimate

Answer 22

The answer is he or she is not obligated to accept a loan simply because he or she has signed or received the disclosure. The “Confirm Receipt” box on the Loan Estimate informs the consumer that he or she is not obligated to accept a loan simply because he or she has signed or received the disclosure.

Question 23

Stan is a loan processor who works closely with Heidi, who is a licensed loan originator. Both are employed by a state-licensed mortgage broker. While Heidi was out of the office, one of her clients called to ask whether it would be better to apply for an ARM or a fixed-rate loan. How should Stan respond?

1. He should advise the client that he cannot discuss loan terms, but will have Heidi return the call
2. He should only respond to the client’s question if the transaction is for a home purchase and the client needs to expedite loan approval to purchase the home
3. He should refer the client to the Settlement Cost Booklet
4. He should not take the call since the law prohibits him from communicating directly with consumers

Answer 23

The answer is he should advise the client that he cannot discuss loan terms, but will have Heidi return the call. Stan is a loan processor, and therefore, he is not a licensed mortgage loan originator. He should advise the client that he cannot discuss loan terms, but will have Heidi return the call.

Question 24

A loan which allows the borrower to take a lump sum distribution without any monthly repayment requirements is a(n):

1. HECM
2. HELOC
3. Pay-option mortgage
4. Equity mortgage

Answer 24

The answer is HECM. The FHA’s home equity conversion mortgage (HECM) is a reverse mortgage that enables an individual aged 62 or older to convert some of the equity in his/her primary residence to cash to pay living expenses, or to purchase a primary residence if he/she has the cash for a down payment and closing costs. The HECM requires no repayment until either the property is sold or the owner dies, permanently moves, fails to live in the house for 12 consecutive months, or fails to pay property taxes, maintain hazard and/or flood insurance coverage, or maintain the property (i.e., perform necessary repairs).

Question 25

In most cases, a mortgage loan requires monthly payments. All of the following loan types require monthly payments, except:

1. HECMs
2. ARMs
3. Fixed-rate loans
4. HELOCs

Answer 25

The answer is HECMs. The home equity conversion mortgage (HECM) does not require repayment as long as the borrower continues to live in the home.

Question 26

The general purpose of borrower credit is to:

1. Allow a broker to spread closing costs evenly between borrower and lender
2. Allow the lender to minimize the fees they charge
3. Provide the broker with an additional source of income
4. Help the borrower cover or reduce the costs of settlement

Answer 26

The answer is help the borrower cover or reduce the costs of settlement. The general purpose of borrower credit is to help the borrower by subsidizing closing costs by choosing to lock a loan at a slightly higher rate than par.

Question 27

A covered loan under HOEPA is commonly known as a:

1. Non-prime
2. Non-conventional
3. Low-cost, high-fee
4. High-cost mortgage

Answer 27

The answer is high-cost mortgage. Section 32 of the Truth-in-Lending Act contains information and provisions with regard to high-cost mortgage loans. These loans are identified by APR, points and fees, and/or prepayment penalties that meet or exceed thresholds set to a level deemed excessive.

Question 28

Special second appraisal requirements apply for a loan that is a(n):

1. VA loan
2. Higher-priced mortgage loan
3. Adjustable-rate mortgage
4. Refinance

Answer 28

The answer is higher-priced mortgage loan. Special second appraisal requirements apply for a loan that is a higher-priced mortgage loan.

Question 29

What federal legislation requires loan originators to collect demographic data to ensure that creditors are not engaging in discriminatory lending?

1. ECOA
2. HMDA
3. GLB Act
4. FCRA

Answer 29

The answer is HMDA. The Home Mortgage Disclosure Act is a reporting law that helps the federal government, among other things, identify discriminatory lending practices.

Question 30

Which of the following is least likely to be held in an escrow or reserve account?

1. HOA fees
2. Mortgage insurance premium
3. Hazard insurance reserve
4. Property tax reserve

Answer 30

The answer is HOA fees. In addition to principal and interest, a borrower’s monthly mortgage payment may also include a reserve payment (also known as an escrow or impound payment) that represents approximately 1/12 of the estimated annual hazard and flood insurance premiums, mortgage insurance premiums, and property taxes. While some escrow accounts may include assessments for special improvements, homeowners’ association fees, and other recurring charges, these are not a standard component of the escrow account.

Question 31

Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is considered illegal under:

1. TILA
2. Homeowners Protection Act
3. HOEPA
4. RESPA

Answer 31

The answer is HOEPA. HOEPA prohibits the intentional targeting of poor or underserved areas with expensive high-cost loans, which is a practice known as reverse redlining.

Question 32

What was the first law that Congress enacted to combat predatory lending?

1. TILA
2. Fair Housing Act
3. HOEPA
4. RESPA

Answer 32

The answer is HOEPA. The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 and was the first legislation specifically created to combat the practice of predatory lending.

Question 33

The most commonly used type of reverse mortgage is known as a:

1. Proprietary loan
2. Home equity conversion mortgage
3. Single-purpose conforming mortgage
4. Interest-only loan

Answer 33

The answer is home equity conversion mortgage. The home equity conversion mortgage (HECM) is the most commonly used of the three forms of reverse mortgages.

Question 34

Even before the adoption of the Dodd-Frank Act and the Ability to Repay Rule, which of the following federal laws created specific requirements for the verification and documentation of a borrower’s repayment ability?

1. Home Ownership and Equity Protection Act
2. Real Estate Settlement Procedures Act
3. Fair and Accurate Credit Transactions Act
4. Equal Credit Opportunity Act

Answer 34

The answer is Home Ownership and Equity Protection Act. A lender may not extend credit subject to HOEPA based on the value of the consumer’s collateral without regard to his/her repayment ability as of the date of consummation, including consideration of his/her current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations (i.e., expected property taxes, premiums for mortgage-related insurance required by the lender, and similar expenses). This prohibition does not apply to temporary (bridge) loans that have terms of 12 months or less.

Question 35

Qualifying ratios consist of which two separate calculations?

1. Housing expense ratio and total debt ratio
2. Loan-to-value ratio and qualifying income ratio
3. Loan-to-value ratio and housing expense ratio
4. Total debt ratio and qualifying income ratio

Answer 35

The answer is housing expense ratio and total debt ratio. Qualifying ratios consist of the housing expense ratio and the total debt ratio.

Question 36

The front-end ratio is also known as the:

1. Back-end ratio
2. Housing ratio
3. Principal ratio
4. Total debt ratio

Answer 36

The answer is housing ratio. The front-end ratio is also known as the housing ratio.

Question 37

Before accepting a loan that is a high-cost mortgage, borrowers must complete counseling with a counselor approved by:

1. CFPB
2. HUD
3. FTC
4. HOEPA

Answer 37

The answer is HUD. Before accepting a loan that is a high-cost mortgage, borrowers must complete counseling with a counselor approved by HUD.

Question 38

A mortgage which has a fixed interest rate for the first three to five years, and then a rate that adjusts at intervals based on an index and margin, is known as a(n):

1. Hybrid ARM
2. Interval mortgage
3. Graduated payment mortgage (GPM)
4. Static ARM

Answer 38

The answer is hybrid ARM. A hybrid ARM has a rate that does not adjust during the first three to five years of the loan term, but is thereafter adjusted periodically (often annually) based on a specific index and margin.

Question 39

According to the federal guidance’s on nontraditional lending, all of the following loan programs are considered to be nontraditional, except:

1. Interest-only
2. Payment-option ARM
3. Hybrid ARM
4. Stated income

Answer 39

The answer is Hybrid ARM. The term “nontraditional” primarily refers to payment structure or qualification documentation. In other words, traditional loans will include a payment structure that regularly decreases the principal balance and will require a borrower to prove that he/she can pay off the loan to qualify.

Question 40

What is the primary purpose of the Home Mortgage Disclosure Act?

1. Provide borrowers with a clear explanation of the cost of a loan through disclosure of APR and finance charges
2. Allow a borrower the opportunity to remove PMI from his/her loan
3. Identify discriminatory lending practices and determine if financial institutions are meeting the borrowing needs of their communities
4. Use disclosures to help consumers shop for available credit options

Answer 40

The answer is identify discriminatory lending practices and determine if financial institutions are meeting the borrowing needs of their communities. Regulation C pertains to the Home Mortgage Disclosure Act (HMDA). Through the collection of information about loan applications and settlements, HMDA attempts to identify if companies are using discriminatory lending practices and to determine if they are meeting the mortgage lending needs of their communities.

Question 41

A purpose of the Home Mortgage Disclosure Act (HMDA) is to:

1. Identify possible discriminatory lending patterns
2. Ensure that prices of homes are fairly quoted
3. Help lenders decide on mortgage interest rates
4. Provide borrowers with property listings and their prices

Answer 41

The answer is identify possible discriminatory lending patterns. The HMDA was enacted because of credit shortages in certain urban neighborhoods and the failure of some financial institutions to provide adequate home financing to qualified applicants on reasonable terms and conditions. Its main purpose is to provide the public with information about how well financial institutions are meeting the credit needs of the people in the neighborhoods and communities they serve; aid public officials in targeting public investments so as to attract investments from the private sector; and allow for the public to determine possible discriminatory lending patterns and to assist in enforcing laws against discrimination.

Question 42

When would a license be suspended without a hearing?

1. If a licensee fails to renew
2. If a licensee fails to request a hearing with the state regulator
3. If a licensee has failed to complete pre-licensing requirements
4. If a licensee has already executed a right to a hearing for a previous violation

Answer 42

The answer is if a licensee fails to request a hearing with the state regulator. The NMLS does not require a hearing. Under most circumstances, the licensee has the right to request a hearing with the state banking department. If one is not requested, a hearing is not conducted.

Question 43

When would it be ethical for a mortgage broker to offer a loan with a rate higher than the best rate available to the borrower?

1. Never
2. Only when the borrower is unaware and will likely not know
3. If the lender agrees to subsidize the broker fee
4. If the borrower chooses the rate and plans to use the additional premium to offset closing costs

Answer 43

The answer is if the borrower chooses the rate and plans to use the additional premium to offset closing costs. While a licensee is ethically obligated to offer borrowers the best rates available to them, the concept of suitability emphasizes that the licensee must make a conscientious effort to ascertain and understand all relevant circumstances surrounding the client, and take these circumstances into account. This may include suggesting loan products that might not initially seem to be the best option, but effectively serve a particular borrower’s circumstances.

Question 44

It is ethical for a mortgage broker to offer a loan at a rate higher than the best rate available to the borrower:

1. Never
2. Only when the borrower is unaware and will likely not know
3. If the lender agrees to subsidize the broker fees
4. If the borrower chooses the rate in order to secure a borrower credit for closing costs

Answer 44

The answer is if the borrower chooses the rate in order to secure a borrower credit for closing costs. If the borrower is fully aware of and received all information about the costs of the loan, including borrower credit, and chooses to select a closing cost option that allows for a subsidy using the borrower credit to offset closing costs, then borrower credit has been handled ethically.

Question 45

When would business tax returns be required as documentation of income for a borrower?

1. If the borrower owns 15% of a company
2. If the borrower owns more than 25% of a company
3. If the borrower receives a K-1 from a company
4. If the borrower is an officer of a company

Answer 45

The answer is if the borrower owns more than 25% of a company. A self-employed borrower (i.e., one who owns 25% or more of a business) may need to verify his/her employment with a copy of a current business license, a year-to-date profit-and-loss statement prepared by an accountant, and balance sheets and personal and/or business tax returns for the past two years.

Question 46

A broker has originated two loans this month, one of which is for his father. Both borrowers are equally qualified and are looking for exactly the same loan. If the broker charges his father a total of $500 in origination fees, what is the origination fee that should be charged to the other borrower?

1. It varies; everything in the mortgage business is negotiable
2. The origination fee should be less than 3% of the loan amount if he is well qualified
3. Origination fees are not charged to family members
4. If the borrowers are equally qualified, fees should be comparable

Answer 46

The answer is if the borrowers are equally qualified, fees should be comparable. Ethically speaking, if borrowers are equally qualified and choosing the same products, fees should be comparable.

Question 47

A broker has originated two loans this month, one of which is for his father. Both borrowers are equally qualified and are looking for exactly the same loan. If the broker charges his father a total of $500 in origination fees, what is the origination fee that should be charged to the other borrower?

1. It varies; everything in the mortgage business is negotiable
2. The origination fee should be less than 3% of the loan amount if he is well qualified
3. If the borrowers are equally qualified, fees should be comparable
4. Origination fees are not charged to family members

Answer 47

The answer is if the borrowers are equally qualified, fees should be comparable. Ethically speaking, origination fees should reflect objective factors pertaining to loan terms and borrower qualification, rather than non-pertinent factors, including a relationship with the originating licensee.

Question 48

The mandatory waiting period between issuance of disclosures and consummation may be waived:

1. Using a preprinted form from the lender
2. If the loan originator waives it for the consumer
3. If the consumer requests a waiver due to a bona fide financial emergency
4. If the loan is a qualified mortgage

Answer 48

The answer is if the consumer requests a waiver due to a bona fide financial emergency. The mandatory waiting period between issuance of disclosures and consummation may be waived if the consumer requests a waiver due to a bona fide financial emergency.

Question 49

According to ECOA, when could a lender ask a borrower about their race?

1. If they ask for monitoring purposes
2. Never
3. If the borrower’s race is not evident
4. If the loan is not federally-regulated

Answer 49

The answer is if they ask for monitoring purposes. Under ECOA and the Home Mortgage Disclosure Act (HMDA), in order for the government to be able to monitor compliance with fair lending laws, it is permissible for a mortgage licensee to ask applicants for information about their marital status, age, ethnicity, race, and sex.

Question 50

Matt is a mortgage broker who has an ownership interest in a local title insurance company. When his clients apply for loans and request referrals to a title company, Matt must:

1. Offer a list of title companies that does not include the company in which he has an ownership interest
2. Immediately provide an affiliated business arrangement disclosure if he refers them to the title company in which he has an ownership interest
3. Explain to the loan applicants that he cannot refer them to a particular company
4. Offer a list of all local title companies without steering loan applicants towards a particular one

Answer 50

The answer is immediately provide an affiliated business arrangement disclosure if he refers them to the title company in which he has an ownership interest. Many service providers have a business relationship and an ownership interest in other settlement service providers. For example, a mortgage company may have an ownership interest in a title company. Profit-sharing by these affiliated companies is permissible under RESPA. This relationship must be disclosed to a borrower through an “affiliated business arrangement disclosure.”

Question 51

The penal sum of a loan originator’s required surety bond must be maintained:

1. In an amount that reflects the dollar amount of loans originated
2. In a flat-rate amount determined by each state
3. In an amount that reflects the number of loans originated
4. In an amount that reflects the originator’s years of professional experience

Answer 51

The answer is in an amount that reflects the dollar amount of loans originated. Each mortgage loan originator must be covered by a surety bond. If he or she is an employee or exclusive agent of a mortgage licensee, the surety bond of the employing licensee may be used to satisfy the loan originator surety bond requirement. The penal sum of the surety bond must reflect the dollar amount of loans originated.

Question 52

UFMIP is paid:

1. in full when the loan reaches maturity.
2. at the end of each year of the loan term.
3. in full at the time of closing.
4. at the end of each month.

Answer 52

The answer is in full at the time of closing. UFMIP is paid in full at the time of closing, or may be financed.

Question 53

Leslee is a loan processor who is not required to perform her duties at the direction of or subject to the supervision and instruction of an individual who is licensed or exempt. Leslee is a(n):

1. Registered loan originator
2. Mortgage loan originator
3. Independent contractor
4. Licensed loan processor

Answer 53

The answer is independent contractor. An independent contractor is an individual who performs his/her duties other than at the direction of and subject to the supervision and instruction of an individual who is licensed and registered as required under the SAFE Act or is exempt from licensing. An independent contractor may not engage in residential mortgage loan origination activities as a loan processor or underwriter unless he/she has a mortgage loan originator license.

Question 54

A lender may charge a borrower for an appraisal fee once the borrower has received the Loan Estimate and:

1. The Closing Disclosure
2. Indicated an intent to proceed with the loan
3. Paid a credit report fee
4. Met with a financial counselor

Answer 54

The answer is indicated an intent to proceed with the loan. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating an intent to proceed with the loan. Once this occurs, there is no additional waiting period before the lender may charge a fee, such as an appraisal fee.

Question 55

Which of the following is not true of the S.A.F.E. Act?

1. Pre-licensing education under the Act includes hours in law, ethics, and nontraditional mortgage products
2. Consumers can research records of a loan originator’s disciplinary actions
3. Individual states may determine whether experienced MLOs can have education hours waived
4. The S.A.F.E. Act requires licensees to submit to a comprehensive background check

Answer 55

The answer is individual states may determine whether experienced MLOs can have education hours waived. Licensing requirements under the S.A.F.E. Act include both a comprehensive background check and 20 hours of NMLS-approved pre-licensing education, which include three hours of federal law and regulations, three hours of ethics, and two hours of training related to lending standards for the nontraditional mortgage product. The Nationwide Multistate Licensing System and Registry (NMLS or NMLSR) allows consumers to research information on licensees, including a loan originator’s disciplinary actions. The authority granted to individual states does not include waiving education hours, which are among the minimum licensing requirements pertaining to all loan originator licensees.

Question 56

With respect to FHA loans, the FHA:

1. Guarantees the loans, thereby protecting the lender
2. Acts as the lender
3. Issues private mortgage insurance
4. Insures the loans, thereby protecting the lender

Answer 56

The answer is insures the loans, thereby protecting the lender. FHA loans are loans that meet FHA program criteria and are made by approved lenders. For these loans, the FHA insures the issuing lender against loss in the event of default. Under the FHA program, the lender can charge whatever points and interest a borrower is willing to pay, as the cost of the loan is negotiable. The advantage to the borrower is that the lender will make the loan with a very high loan-to-value ratio because it is insured.

Question 57

A VA loan referred to as an “IRRRL” is an:

1. Interest Rate Refinance Return Loan
2. Interest Reduction and Refinance Loan
3. Interest Rate Reduction Refinance Loan
4. Interim Rate Refinance Reduction Loan

Answer 57

The answer is Interest Rate Reduction Refinance Loan. In terms of VA loans, IRRRL stands for Interest Rate Reduction Refinance Loan, often referred to as “streamline” or a “VA to VA.”

Question 58

Which of the following would not be on a deed of trust?

1. Legal description
2. Loan amount
3. Interest rate
4. Borrower’s name

Answer 58

The answer is interest rate. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. The mortgage or trust deed secures repayment of the note. Housing costs, including principal, interest, taxes, and insurance, are not typically specified on the deed of trust.

Question 59

Which of the following best describes the order in which payments will be applied according to the standard deed of trust?

1. Interest, escrow, principal
2. Principal, escrow, interest
3. Late fees, principal, interest
4. Interest, principal, escrow

Answer 59

The answer is interest, principal, escrow. In a standard deed of trust, payments are applied to interest first, then to principal, and then to escrow items, such as tax and insurance payments.

Question 60

According to the S.A.F.E. Act, all of the following are nontraditional loan products, except:

1. Interest-only ARMs
2. Hybrid ARMs
3. Reverse mortgages with fixed rates
4. Interest-only fixed-rate 30-year mortgage loans

Answer 60

The answer is interest-only fixed-rate 30-year mortgage loans. The S.A.F.E. Act defines a nontraditional loan as any loan product other than a 30-year fixed mortgage. All ARMs have rates that are adjustable. A reverse mortgage does not have a 30-year loan term and may have either a fixed rate or adjustable rate of interest. An interest-only loan is considered a traditional loan under the S.A.F.E. Act definition if it has a fixed rate and a 30-year term, even though the period of interest-only payments would be only five, 10, or 15 years. High-risk loans that might still be considered “traditional” under the S.A.F.E. Act include interest-only fixed-rate, no-money-down, subprime, and alternative-documentation (Alt-A) loans.

Question 61

A loan has a rate of 6% for 30 years with a payment of $1,400 per month for the first five years and a payment of $1,800 per month for the remaining 25 years. What type of loan is this?

1. Adjustable-rate
2. FHA buy-down
3. Option ARM
4. Interest-only option fixed-rate

Answer 61

The answer is interest-only option fixed-rate. The loan has a rate of 6% for 30 years, meaning it has a fixed rate. This loan has an interest-only feature for the first five years.

Question 62

An investigator spends three weeks researching Steve Sample, who is applying for a job. He meets Steve’s neighbors, current co-workers, and former teachers and mentors. After interviewing upwards of 30 individuals, the investigator submits his report to the company considering Steve for a position. This is an example of:

1. FBI mortgage fraud investigation
2. CRA disclosure
3. Private investigation methodology
4. Investigative consumer report

Answer 62

The answer is investigative consumer report. A consumer report using information obtained through personal interviews is known as an investigative consumer report and is meant to give insight into a person’s character, general reputation, personal characteristics, and mode of living.

Question 63

Under the S.A.F.E. Act, a loan originator:

1. Can be an individual or a business entity
2. Is any person who takes loan applications secured by personal property
3. Is an individual who takes residential mortgage loan applications
4. Is any individual who takes loan applications secured by either real estate or personal property

Answer 63

The answer is is an individual who takes residential mortgage loan applications. The S.A.F.E. Act defines a mortgage loan originator as an individual who takes residential mortgage loan applications, or offers or negotiates terms of residential mortgage loans for compensation or gain.

Question 64

Under HOEPA, verifying the consumer’s repayment ability in an open-end, high-cost mortgage:

1. Is recommended, but not required
2. Is based on verifying income, assets, and current obligations
3. Is based on the borrower’s notarized financial statement
4. Must be carried out by an independent third party

Answer 64

The answer is is based on verifying income, assets, and current obligations. A lender extending mortgage credit subject to HOEPA in an open-end high-cost mortgage may not extend credit based on the value of the consumer’s collateral without regard to repayment ability as of the date of consummation, including consideration of current and reasonably-expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations (i.e., expected property taxes, premiums for mortgage-related insurance required by the lender, and similar expenses). This prohibition does not apply to temporary (bridge) loans that have terms of 12 months or less.

Question 65

When the term “jumbo loan” is used to describe a loan, the loan:

1. Is subprime
2. Is nonconforming
3. Always has a high interest rate
4. Has a high loan-to-value ratio

Answer 65

The answer is is nonconforming. Conventional loans that conform to the eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and Freddie Mac have a maximum loan limit for loans they will purchase, which is adjusted annually. Loans to persons with satisfactory credit but that exceed this loan limit are called jumbo loans or nonconforming loans.

Question 66

Information held by the NMLS relating to the employment history or disciplinary actions taken against a mortgage loan originator:

1. Is not confidential, but is not available for public access
2. Is confidential and is not available for public access
3. Is not confidential and is available for public access
4. Is confidential, but is available for public access

Answer 66

The answer is is not confidential and is available for public access. The requirements under any federal and/or state law regarding the privacy or confidentiality of any information or material provided to the NMLS continue to apply after such information has been disclosed to the NMLS. However, information or material held by the NMLS relating to the employment history and/or disciplinary and enforcement actions taken against a mortgage loan originator, is not protected by confidentiality and is available for public access.

Question 67

Each of the following is true about the Department of Housing and Urban Development (HUD), except:

1. The Federal Housing Administration, with its liberal-eligibility FHA loan programs, operates under HUD’s authority
2. It provides or makes referrals related to housing counseling for loan applicants seeking a HECM or high-cost home loan
3. Public housing and multi-family housing fall under its purview
4. It has a major role in overseeing the mortgage industry

Answer 67

The answer is it has a major role in overseeing the mortgage industry. Although the federal Department of Housing and Urban Development (HUD) no longer oversees the mortgage industry (that job has been taken over by the Consumer Financial Protection Bureau, or CFPB), it continues to operate in a number of important areas relating to housing. These areas include programs related to community planning and development, public housing and multi-family housing, and providing counseling for those seeking to purchase a home. The Federal Housing Administration (FHA) also operates under HUD; the FHA sponsors loan programs with relatively liberal qualification requirements, insuring financial institutions that offer loans to individuals who might not qualify for a prime loan.

Question 68

Which of the following is not a characteristic of an HPML?

1. It is secured by the borrower’s principal dwelling
2. It has an APR that exceeds the average prime offer rate by 1.5 percentage points for a loan secured by a first lien on the home
3. It has an APR that exceeds the average prime offer rate by 3.5 percentage points for a loan secured by a subordinate lien on the home
4. It has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points

Answer 68

The answer is it has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points. Having an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points is not a characteristic of an HPML.

Question 69

Overtime income may be considered for an hourly employee if:

1. It has been consistent for at least two years and is likely to continue
2. It is being paid in the same paycheck
3. The earnings have been reported as wages
4. It has been consistent for less than two years and is likely to continue

Answer 69

The answer is it has been consistent for at least two years and is likely to continue. Overtime income is only considered if it has been consistent for at least two years, and the employer verifies that it is likely to continue.

Question 70

A borrower asks for the definition of “a point.” Which of the following best describes what a point is in a mortgage transaction?

1. It is the incremental measurement used for ARM adjustments
2. It is 1% of the loan amount; points are paid to reduce the rate
3. It is an incentive earned by loan originators for locking a certain interest rate
4. It is the mathematical conversion of a finance charge to APR

Answer 70

The answer is it is 1% of the loan amount; points are paid to reduce the rate. A point is 1% of the loan amount. Points are paid to reduce the rate.

Question 71

Which of the following best describes a note (i.e., a promissory note)?

1. It is given by the lender to the buyer
2. It is both a promise to repay the money borrowed with interest and evidence of the debt
3. It is identical to a mortgage
4. It replaces the security instrument

Answer 71

The answer is it is both a promise to repay the money borrowed with interest and evidence of the debt. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt.

Question 72

Which of the following is most true concerning a VA funding fee?

1. It is always refundable
2. It is nonrefundable
3. It is not charged to veterans
4. It is not charged to active members of the military

Answer 72

The answer is it is nonrefundable. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender’s exposure to loss in the event of a borrower’s default that results in foreclosure. However, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed, instead of a mortgage insurance premium for the guarantee. A veteran receiving VA compensation for a service-connected disability is exempt from the fee requirement.

Question 73

How often must a borrower renew owner’s title insurance?

1. With each refinance
2. When the house is sold to the next owner
3. Owner’s title insurance expires every seven years
4. It is not necessary to renew

Answer 73

The answer is it is not necessary to renew. Owner’s title insurance is good for the period of time that a borrower owns the home, meaning it must only be purchased once and does not require renewal.

Question 74

Which of the following best describes the LTV ratio?

1. It is the ratio of the borrower’s total debt to monthly income
2. It is the ratio of the borrower’s principal loan balance to the appraised value of the property
3. It is the ratio of the borrower’s monthly loan payment to the principal loan balance
4. It is the ratio of the borrower’s monthly housing expense to monthly income

Answer 74

The answer is it is the ratio of the borrower’s principal loan balance to the appraised value of the property. The LTV ratio is the ratio of the borrower’s principal loan balance to the appraised value of the property.

Question 75

Which of the following is true regarding a borrower’s intent to proceed with a mortgage transaction as required under federal rule?

1. It must be communicated in writing
2. It may be communicated however the borrower chooses
3. It may not be communicated via email
4. It may not be communicated verbally

Answer 75

The answer is it may be communicated however the borrower chooses. A prospective borrower can indicate his/her intent to proceed with a loan in a number of ways, including orally, in person, at the time the Loan Estimate is delivered; by telephone; and in a written communication via e-mail. However, the applicant’s silence (i.e., failure to communicate that he/she will not proceed) may not be used as an indication of intent to proceed.

Question 76

Homes for All considers itself a nonprofit organization. In order for its employees to be exempt from the licensing requirements of the S.A.F.E. Act, each of the following must be true about Homes, except:

1. It has tax-exempt status under the Internal Revenue Code
2. Its employee compensation package does not encourage an employee to act in his or her own interests over that of his or her clients
3. It promotes affordable housing
4. It may engage in both nonprofit and for-profit activities

Answer 76

The answer is it may engage in both nonprofit and for-profit activities. The S.A.F.E. Act provides an exemption for the licensing of loan originators that are employees of a bona fide nonprofit organization. This exemption would not apply to any for-profit activities.

Question 77

Which of the following is not a requirement for the servicing notice given in the event of a transfer of servicing?

1. It must include contact information for the current lender
2. It must be given within 30 days of the transfer
3. It must include contact information for the new lender
4. It must inform the borrowers they may make payments to either lender for 60 days

Answer 77

The answer is it must be given within 30 days of the transfer. When a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower must be sent a servicing transfer statement at least 15 days before the effective date of the servicing transfer. This statement must show the name, address, and toll-free telephone numbers of both the old servicer and the new servicer, as well as the date on which the new servicer will begin accepting payments. The statement also informs the borrower that he or she cannot be penalized for making a timely payment to the prior servicer within 60 days of the servicing transfer.

Question 78

Which of the following is true of the Loan Estimate?

1. It should only be used for reverse mortgages
2. It replaces the HUD-1 Settlement Statement and the final TIL Disclosure
3. It replaces the GFE and the early TIL Disclosure for most transactions
4. It is always identical to the Closing Disclosure

Answer 78

The answer is it replaces the GFE and the early TIL Disclosure for most transactions. The Loan Estimate replaces RESPA’s GFE and the early TIL Disclosure for most transactions. It combines the information provided by these two disclosures and is designed to help the consumer understand the key features, costs, and risks of the loan for which they are applying. It is not identical to the Closing Disclosure, which sets forth the actual costs of the subject mortgage lending transaction, rather than estimates.

Question 79

Which of the following is not true concerning ECOA?

1. It requires lenders to notify loan applicants of their application status within 30 days
2. Its provisions are implemented by Regulation B
3. It requires lenders to give borrowers a copy of their appraisal and a notice stating they are entitled to a copy of the appraisal
4. It requires the disclosure of the APR on all advertisements which contain an interest rate

Answer 79

The answer is it requires the disclosure of the APR on all advertisements which contain an interest rate. Regulation B implements the provisions of ECOA. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. The creditor must mail or provide a notice of the applicant’s right to receive a copy of all written appraisals developed in connection with the application no later than three business days after receiving a completed application. ECOA also requires creditors to notify loan applicants within 30 days regarding application status (i.e., incomplete, accepted, denied, etc.).

Question 80

Jesse James was convicted of felony assault eight years ago. Billy Kidd was convicted of fraud 17 years ago. Both have made application to their state to be licensed as mortgage loan originators. What effect will their past records have on their license applications?

1. Jesse may be granted a license; Billy will not
2. Both Jesse and Billy will be denied a license because of their felony convictions
3. Billy may be granted a license; Jesse will not
4. Both Jesse and Billy may be granted a license

Answer 80

The answer is Jesse may be granted a license; Billy will not. To have a license application approved, an applicant may not have been convicted of, or pled guilty, or nolo contendere to, a felony during the seven-year period preceding the date of the application, or at any time if the felony involved an act of fraud, dishonesty, a breach of trust, or money laundering. Even though Billy’s conviction occurred long before the seven-year window, it was a conviction for fraud, making him ineligible for a license.

Question 81

Which of the following are considered liens?

1. Judgment, mortgage, flood insurance
2. Mortgage, mechanic’s lien, debentures
3. Chattel, mortgage, attachment
4. Judgment, attachment, mortgage

Answer 81

The answer is judgment, attachment, mortgage. Judgments, attachments, and mortgages are all considered liens.

Question 82

When a lender on a loan in default is forced to go to court and request an order of foreclosure, this is called:

1. Comeuppance
2. Equity call
3. Judicial foreclosure
4. Nonjudicial foreclosure

Answer 82

The answer is judicial foreclosure. If a mortgage or deed of trust does not include a power of sale clause, a lender must request a court order for foreclosure. This is known as a judicial foreclosure.

Question 83

Which of the following best describes a loan with a principal balance exceeding Fannie Mae or Freddie Mac guidelines?

1. Subprime
2. Jumbo
3. Illegal
4. Balloon

Answer 83

The answer is jumbo. Conventional loans that conform to the eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and Freddie Mac have a maximum loan limit for loans they will purchase, which is adjusted annually. Loans to persons with satisfactory credit but that exceed this loan limit are called jumbo loans or nonconforming loans. Because these loans cannot be sold to Fannie Mae or Freddie Mac, they often have a higher interest rate than conforming loans.

Question 84

Which of the following is used to describe a loan amount which exceeds conforming loan limits?

1. Subprime
2. Jumbo
3. Interest-only
4. No documentation

Answer 84

The answer is Jumbo. Conventional loans that conform to the eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and Freddie Mac have a maximum loan limit for loans they will purchase, which is adjusted annually. Loans to persons with satisfactory credit but that exceed this loan limit are called jumbo loans or nonconforming loans. Because these loans cannot be sold to Fannie Mae or Freddie Mac, they often have a higher interest rate than conforming loans

Question 85

Jake Pearson applies for a loan with TNT Mortgage on June 1. TNT is required to inform Jake whether it has approved his loan by:

1. June 4th
2. June 15th
3. July 15th
4. June 30th

Answer 85

The answer is June 30th. The Equal Credit Opportunity Act requires lenders to inform applicants of the status of their loan within 30 days of application.

Question 86

A mortgage broker structures a loan priced with two points in borrower credit. He suggests that, based on the limited amount of cash the borrower has on hand to close, it may be best to take a slightly higher rate and use the premium generated to subsidize the closing costs. After consideration, the borrower agrees and moves forward. This is:

1. Legal and unethical
2. Legal and ethical
3. Illegal and ethical
4. Illegal and unethical

Answer 86

The answer is legal and ethical. The primary argument against YSP, prior to changes made in 2011, was that borrowers often had no idea that it was being charged. In scenarios like the one described here, the borrower has the option as to how he/she would like to structure his/her own loan, and the originator abides by the borrower’s decision. This is a legal and ethical use of what is now known as borrower credit.

Question 87

Insurance which guarantees a lender a certain lien position on the title to a property free from undisclosed encumbrances is called:

1. Guarantee against encumbrances
2. Lender’s title policy
3. Owner’s policy
4. Forced policy

Answer 87

The answer is lender’s title policy. A lender’s title insurance policy insures the lender or mortgagee against loss caused by a borrower’s invalid title or loss of priority of the mortgage or deed of trust, due to legal claims based on undisclosed encumbrances.

Question 88

Annual insurance for USDA/RHS guaranteed loans is:

1. More expensive than those for private mortgage insurance
2. Equal to that charged for mortgage insurance for FHA loans
3. More expensive than the premiums for FHA loans
4. Less expensive than that charged for FHA loans and for private mortgage insurance

Answer 88

The answer is less expensive than that charged for FHA loans and for private mortgage insurance. USDA/RHS guaranteed loans require payment of upfront and annual mortgage insurance, but the premiums are less than those for other types of mortgage insurance. For USDA/RHS loans, the insurance charge is referred to as the “guarantee fee.”

Question 89

Safe harbor qualified mortgages offer a “safe harbor” from:

1. Liability for TRID Rule violations
2. Liability for ATR Rule violations
3. Liability for ECOA violations
4. Liability for HOEPA violations

Answer 89

The answer is liability for ATR Rule violations. The Qualified Mortgage Rule extends a safe harbor from liability for ATR Rule violations. The safe harbor is for loans that meet qualified mortgage standards.

Question 90

If a borrower is required to pay alimony or child support, it must be included as a(n):

1. Asset
2. Liability
3. Qualifier
4. Mitigating circumstance

Answer 90

The answer is liability. Alimony and child support must be included in a borrower’s liabilities if they are required to pay.

Question 91

What is Freddie Mac’s automated underwriting system called?

1. Desktop Originator
2. Underwriter Assistant
3. Loan Product Advisor
4. AUS

Answer 91

The answer is Loan Product Advisor. Freddie Mac’s automated underwriting system is called Loan Product Advisor (formerly known as Loan Prospector), while Fannie Mae’s is called Desktop Underwriter.

Question 92

The reporting form used to communicate HMDA data is called what?

1. 1073
2. Loan/Registration Application
3. 1004
4. Loan/Application Register

Answer 92

The answer is Loan/Application Register. The form used for reporting HMDA data is called the Loan/Application Register (LAR).

Question 93

The Qualified Mortgage Rule applies to which of the following?

1. Bridge loans of 12 months or less
2. Open-end home equity loans
3. Reverse mortgages
4. Loans secured by non-owner-occupied homes

Answer 93

The answer is loans secured by non-owner-occupied homes. The Qualified Mortgage Rule applies to a broad range of loans including those secured by second homes or investment properties, but does not apply to open-end home equity loans, bridge loans of 12 months or less, reverse mortgages, or mortgages for timeshares.

Question 94

An underwriter might look for all of the following during the review of an appraisal report, except:

1. Location of the mailbox in relation to the house
2. Visible signs of health or safety hazards
3. Photos of the house, including checking for the address
4. Effective age of the property

Answer 94

The answer is location of the mailbox in relation to the house. While the underwriter may indeed look at the mailbox in pictures to verify the address of the home (or on the house itself), it is unlikely that the location of the mailbox is of any concern to the underwriter.

Question 95

Which of the following best describes the benefit of mortgage insurance to the borrower?

1. Reduced hazard insurance premiums
2. Lower down payment requirements
3. Mortgage insurance only benefits the lender
4. Relaxed underwriting conditions

Answer 95

The answer is lower down payment requirements. So that he/she may get a loan with a small down payment, a borrower pays a mortgage insurance premium either as a lump sum at closing covering the life of the loan, or by paying the first year’s premium at closing and then paying annual premiums as part of the mortgage payment. The amount of the premium is a percentage of the loan amount based on the borrower’s down payment.

Question 96

The Telemarketing Sales Rule prohibits calls:

1. Made to a customer after 8:00 a.m. or before 9:00 p.m.
2. Made to consumers who have specifically asked a mortgage professional not to contact them
3. To consumers not listed on the Do-Not-Call Registry
4. To customers who established a business relationship within the last 12 months

Answer 96

The answer is made to consumers who have specifically asked a mortgage professional not to contact them. The Telemarketing Sales Rule prohibits calls made to consumers before 8:00am or after 9:00pm. Also, mortgage professionals may not make calls to consumers listed on the Do-Not-Call List or if an established business relationship is over 18 months old. Finally, mortgage professionals must respect a consumer’s specific request to be removed from a contact list.

Question 97

When providing services related to a residential mortgage transaction, appraisers have responsibility for all but which of the following?

1. Maintaining direct contact with the loan originator that ordered the appraisal
2. Refusing to accept assignments in which compensation for services depends on delivering a predetermined value for the property securing the loan
3. Performing assignments with impartiality and objectivity
4. Complying with Uniform Standards of Professional Appraisal Practice

Answer 97

The answer is maintaining direct contact with the loan originator that ordered the appraisal. When providing services related to a residential mortgage transaction, appraisers are not required to maintain direct contact with the loan originator.

Question 98

In order to qualify for an adjustable-rate mortgage, a consumer must be able to show that he or she can:

1. Make regularly scheduled payments that are calculated using the loan’s introductory rate
2. Make amortizing payments that are calculated using the fully indexed rate for the ARM
3. Make amortizing payments that are calculated using the loan’s rate after the first interest rate adjustment occurs
4. Make regularly scheduled payments that are calculated using the fixed interest rate for which the consumer would be eligible

Answer 98

The answer is make amortizing payments that are calculated using the fully indexed rate for the ARM. Qualifying for an ARM requires a consumer to demonstrate an ability to make amortizing payments that are calculated at the loan’s fully indexed rate.

Question 99

Mortgage loan originator Janine Jetson has had a complaint filed against her. Upon receiving a request from her state licensing agency, Janine must:

1. Make her books and records available to the agency
2. Respond to the complaint
3. Post an additional bond
4. Request a hearing

Answer 99

The answer is make her books and records available to the agency. Each loan originator must make available, upon request by the state licensing agency, the books and records relating to the operations of the originator.

Question 100

The primary purpose of ECOA is to:

1. Make credit available to borrowers who are less than qualified
2. Make sure credit is available to all creditworthy applicants
3. Make sure credit is not denied because of a lack of income stability
4. Prevent denial of credit due to a potential borrower’s past credit history

Answer 100

The answer is make sure credit is available to all creditworthy applicants. The primary purpose of ECOA is to promote the availability of credit for all creditworthy applicants.

Question 101

In order to comply with the advertising rules found in Regulation Z, creditors that advertise rates and payments for mortgages must:

1. Make the required disclosures with equal prominence and in close proximity to the advertised rates or payments
2. Use model forms
3. Follow the rules for formatting advertisements that the CFPB prescribes
4. Disclose all of the terms for the mortgage loan that the creditor is advertising

Answer 101

The answer is make the required disclosures with equal prominence and in close proximity to the advertised rates or payments. In order to comply with the advertising rules found in Regulation Z, creditors that advertise rates and payments for mortgages must make the required disclosures with equal prominence and in close proximity to the advertised rates or payments.

Question 102

Mortgage loan originator Janine is assisting the Barstows in obtaining a residential mortgage loan. Her assistance may include all of the following, except:

1. Providing advice on loan terms
2. Preparing loan packages
3. Making a loan commitment
4. Collecting information on behalf of the consumer

Answer 102

The answer is making a loan commitment. A mortgage loan originator assisting a consumer in obtaining or applying to obtain a residential mortgage loan may provide advice on loan terms, including rates, fees, and other costs; prepare loan packages; or collect information on behalf of the consumer with regard to a residential mortgage loan. A loan commitment is made by a lender.

Question 103

Which of the following is not permitted for a HOEPA loan?

1. Documenting a borrower’s ability to repay the loan
2. Requiring a balloon payment after the first five years
3. Refinancing into another HOEPA loan within 12 months if it is in the borrower’s best interest
4. Making a loan solely based on the collateral value of the property

Answer 103

The answer is making a loan solely based on the collateral value of the property. Under HOEPA, you may not make a loan solely based on the value of the borrower’s collateral without considering his/her ability to repay the loan.

Question 104

Under the S.A.F.E. Act, a licensed loan originator’s responsibilities with regard to recordkeeping include all of the following, except:

1. Not knowingly withholding, removing, or destroying any books or records
2. Making all of the licensee’s records available to borrowers upon demand
3. Permitting interviews of principals, loan originators, and independent contractors by state regulators
4. Making records and books available to the state regulator

Answer 104

The answer is making all of the licensee’s records available to borrowers upon demand. Licensed loan originators and those required to be licensed must make records and books available to their state regulator and permit interviews of officers, principals, employees, independent contractors, agents, and customers. They may not knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, or other information during an investigation or examination. Loan originators are not required to make all of their records available to borrowers upon demand.

Question 105

Which of the following deals most specifically with representations made in mortgage advertising?

1. Regulation X
2. HMDA
3. MAP Rule
4. E-SIGN Act

Answer 105

The answer is MAP Rule. The Mortgage Acts and Practices Rule (MAP Rule or Regulation N) deals specifically with prohibited material misrepresentations in any commercial communication, including advertising, regarding the terms of mortgage credit products.

Question 106

Which of the approaches to appraisal compares the subject property to similar properties in order to arrive at a value?

1. Income approach
2. Market approach
3. Cost approach
4. Regression approach

Answer 106

The answer is market approach. The market or market data approach, also called the sales comparison approach, bases the value of a property on the prices paid for similar, or comparable, properties in the area that have sold recently. It is the most reliable method for appraising single-family homes and land.

Question 107

A misleading representation, omission, act, or practice is considered deceptive when, among other conditions, it is:

1. Malicious
2. Repeated
3. Intentional
4. Material

Answer 107

The answer is material. A representation, omission, act, or practice is deceptive when it misleads or is likely to mislead the consumer; the consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and the misleading representation, omission, act, or practice is material.

Question 108

After an escrow account is established for an HPML, it:

1. May not be canceled
2. Will cancel automatically in five years after consummation unless the borrower is in default
3. May be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan
4. Will cancel automatically in five years after consummation if the unpaid principal balance is less than 80% of the original value of the home securing the loan

Answer 108

The answer is may be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan. After an escrow account is established for an HPML, it may be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan.

Question 109

A consumer signs a closed-end lending agreement on Wednesday. What is the latest that he/she may wait to exercise the right to rescind?

1. Midnight on Friday
2. Midnight on Saturday
3. Midnight on Monday
4. Midnight on Tuesday

Answer 109

The answer is midnight on Saturday. A consumer for a closed-end loan may exercise the right to rescind at any time up until midnight of the third business day after signing the lending agreement. For the purposes of calculating time limitations for rescission, Saturdays are considered to be business days – meaning that if the consumer signed an agreement on Wednesday, the latest he or she may wait before exercising the right to rescind would be midnight on Saturday.

Question 110

If a foreclosure proceeding has been initiated by a creditor, the borrower may exercise his/her three-year right to rescind if the finance charge for the loan was understated by:

1. $35
2. $10
3. More than $35
4. More than $100

Answer 110

The answer is more than $35. If a foreclosure proceeding has been initiated by a creditor, the borrower may exercise his/her three-year right to rescind if the finance charge for the loan was understated by more than $35.

Question 111

Under Regulation X, the term “loan originator” applies to a:

1. Loan processor
2. Mortgage broker only
3. Mortgage broker or lender
4. Mortgage lender only

Answer 111

The answer is mortgage broker or lender. Regulation X defines a loan originator to include a lender or mortgage broker.

Question 112

Misrepresenting information or intentionally not disclosing material facts necessary for an originator to consider for loan approval is:

1. Negligence
2. Legal and unethical
3. Mortgage fraud
4. Redlining

Answer 112

The answer is mortgage fraud. Making written false statements, using fictitious, forged, or altered documents, or concealing material facts relating to any aspect that would influence the approval of the loan are all aspects of mortgage fraud - specifically, loan documentation fraud. Mortgage fraud is a violation of federal law resulting in severe disciplinary measures, including up to five years in jail and/or a $100,000 fine for fraud and false statements, and up to 30 years in jail and/or a $1 million fine for a false mortgage loan application, conspiracy to commit fraud, fraud/swindles, or bank fraud.

Question 113

This is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right.

1. Mortgage fraud
2. Industry insider fraud
3. Identity theft
4. Predatory lending

Answer 113

The answer is mortgage fraud. Mortgage fraud is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right.

Question 114

Misrepresenting information or intentionally not disclosing material facts necessary for an originator to consider for loan approval is:

1. Negligence
2. Legal and unethical
3. Mortgage fraud
4. Redlining

Answer 114

The answer is mortgage fraud. The intentional misrepresentation of material information needed for underwriting approval is considered mortgage fraud.

Question 115

Mortgage insurance may be cancelled at what LTV percentage on a VA loan?

1. Mortgage insurance is not required
2. 80%
3. 75%
4. After five years

Answer 115

The answer is mortgage insurance is not required. VA loans require a funding fee instead of mortgage insurance

Question 116

“MIP” stands for:

1. Mortgage interest premium
2. Minimum interest payment
3. Mortgage insurance premium
4. Monthly insurance premium

Answer 116

The answer is mortgage insurance premium. Mortgage insurance premium is used for FHA loans and is required both upfront and annually (for most FHA loans).

Question 117

Which of the following documents connects the promissory note to the collateral?

1. Note
2. Commitment letter
3. Mortgage
4. Broker agreement

Answer 117

The answer is mortgage. A mortgage connects the promissory note (the borrower’s promise to pay) with the collateral.

Question 118

All of the following are considered involuntary liens, except:

1. Mortgage
2. Mechanic’s lien
3. Tax lien
4. Judgment

Answer 118

The answer is mortgage. An involuntary lien is “imposed” on a borrower. In the case of a mortgage, a borrower would “consent” to having a lien on his/her home.

Question 119

“MBS” stands for:

1. Mortgage borrowing standards
2. Mortgage balance subordination
3. Mortgage beneficiary securitization
4. Mortgage-backed securities

Answer 119

The answer is mortgage-backed securities. In the secondary mortgage market, mortgage-backed securities are an investment vehicle in which expected payment streams from mortgage loans make up the profit paid out to investors. MBSs are a product of the secondary market.

Question 120

In regard to obtaining property, the S.A.F.E. Act states that loan originators:

1. May do so in any way they see fit
2. May not do so in the course of their professional duties
3. Must not do so by fraud or misrepresentation
4. Must not do so without using the services of a real estate licensee

Answer 120

The answer is must not do so by fraud or misrepresentation. Under the S.A.F.E. Act, it is prohibited for any person, when engaging in mortgage loan origination activity, to obtain property by fraud or misrepresentation.

Question 121

The section of the Uniform Residential Loan Application titled “Information for Government Monitoring Purposes”:

1. Must note the applicant’s sex, race, and ethnicity, based on the lender’s visual observation or the applicant’s surname if the applicant refuses to provide the information
2. Is included to aid the federal government in monitoring compliance with the Mortgage Acts and Practices Rule
3. Is mandatory by the applicant, to ensure compliance with federal laws
4. Is required to be completed only if the applicant is in a protected class

Answer 121

The answer is must note the applicant’s sex, race, and ethnicity, based on the lender’s visual observation or the applicant’s surname if the applicant refuses to provide the information. The section titled “Information for Government Monitoring Purposes” is required by the Home Mortgage Disclosure Act to aid the federal government in monitoring compliance with federal fair lending laws. The applicant should be informed that providing this information is strictly voluntary. If the applicant chooses not to provide this information, an originator taking the application on a face-to-face basis must note the applicant’s sex, race, and ethnicity on the form based on visual observation and/or the applicant’s surname.

Question 122

The six factors that constitute the definition of an application are:

1. Name, address, estimated property value, Social Security number, loan amount, loan type
2. Name, Social Security number, address, loan amount, loan type, income
3. Name, address, Social Security number, income, estimated property value, loan amount
4. Name, Social Security number, income, estimated property value, loan purpose, loan amount

Answer 122

The answer is name, address, Social Security number, income, estimated property value, loan amount. The six factors that constitute the definition of an application are name, address, Social Security number, income, estimated property value, and loan amount. If any one of the six factors is missing, the information does not technically constitute an application.

Question 123

Increasing loan balances resulting from the application of periodic payments that are not sufficient to cover the interest that is due create which of the following for borrowers?

1. Negative equity
2. Negative amortization
3. Lower credit scores
4. Amortizing payments

Answer 123

The answer is negative amortization. Increasing loan balances resulting from the application of periodic payments that are not sufficient to cover the interest that is due create negative amortization.

Question 124

All of the following individuals are exempt from requirements to obtain a mortgage loan originator license, except for a person who:

1. Extends credit only for timeshare plans
2. Negotiates a residential mortgage loan secured by a dwelling that is the individual’s residence
3. Negotiates the terms of a residential mortgage on behalf of a cousin
4. Is an employee of a local government agency and who acts as a loan originator in their official duty as an employee

Answer 124

The answer is negotiates the terms of a residential mortgage on behalf of a cousin. S.A.F.E. Act exemptions include individuals solely involved in extensions of credit referring to timeshare plans; an individual who is an employee of a federal, state, or local government agency or housing finance agency, acting as a loan originator only pursuant to his or her official duties; and an individual who offers or negotiates terms of a residential mortgage loan secured by his own dwelling, or only with or on behalf of an immediate family member. However, a cousin is not considered an immediate family member under the legal definition, which includes a spouse, child, sibling, parent, grandparent, or grandchild, including stepparents, stepchildren, stepsiblings, and adoptive relationships.

Question 125

Which of the following is NOT an example of “liquid assets”?

1. Earnest money
2. Cash value of life insurance policies
3. Net worth of businesses
4. Savings accounts

Answer 125

The answer is net worth of businesses. Liquid assets include things like earnest money, cash, checking or savings accounts, stocks and bonds, and the cash value of life insurance policies. Non-liquid assets include things such as retirement accounts, real estate, and net worth of businesses.

Question 126

Conrad began his 20 HR pre-licensing education in one state and ended up moving to another state prior to actually submitting an application for a mortgage loan originator license. What happens to the courses he has completed?

1. The NMLS-approved 20 HR pre-licensing courses are accepted towards credit in any state
2. He must retake them under the requirements of the state in which he currently resides
3. He can petition the state licensing agency for permission to submit those courses towards the requirement
4. The courses may or may not be accepted towards pre-licensing credit, depending on the requirements of the new state

Answer 126

The answer is NMLS-approved courses are accepted towards credit in any state. Any pre-licensing education course in federal law and regulations, ethics, or lending standards for the nontraditional mortgage product approved by the NMLS for any state may be accepted as credit towards completion of pre-licensing education requirements in the licensing state.

Question 127

When a creditor revises a Loan Estimate, the revised version must be received by the consumer:

1. No later than seven business days prior to consummation
2. On the same date that it delivers a Closing Disclosure
3. No later than four business days prior to consummation
4. At the same time that the revisions are made

Answer 127

The answer is no later than four business days prior to consummation. When a creditor revises a Loan Estimate, the revised version must be received by the consumer no later than four business days prior to consummation.

Question 128

If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer at what point?

1. Within seven business days of a customer providing nonpublic personal information sufficient to pull a credit report
2. Within three business days of initial contact between the consumer and the financial institution
3. No later than three business days prior to settlement
4. No later than the time at which a customer relationship is established

Answer 128

The answer is no later than the time at which a customer relationship is established. If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer no later than the time at which a customer relationship is established.

Question 129

Which of the following best describes the federal limitation on the shortest adjustment period allowed on an ARM?

1. No limit
2. One month
3. Three months
4. Six months

Answer 129

The answer is no limit. Federal law does not place general restrictions on the adjustment period allowed on an ARM.

Question 130

For what length of time can a bankruptcy remain on a credit report?

1. No more than ten years
2. No more than one year
3. No more than seven years
4. No longer than three years after it is paid

Answer 130

The answer is no more than ten years. The FCRA requires that outdated negative financial information remain on a consumer’s credit report no longer than seven years, and for bankruptcies, ten years.

Question 131

Wilbur Green is applying for a loan originator license. His credit report indicates that he has a number of judgments filed against him, all related to a serious medical condition his wife suffered four years prior. Will Wilbur be denied a license because of the judgments?

1. Yes, current outstanding judgments show a lack of financial responsibility
2. Yes, because they indicate a pattern of seriously delinquent accounts within the past three years
3. No, because the judgments are a result of medical expenses, they will not be held against him
4. The judgments will not be held against him because they were entered more than three years ago

Answer 131

The answer is no, because the judgments are a result of medical expenses, they will not be held against him. Evidence that an individual has not shown financial responsibility may include current outstanding judgments, except those solely as a result of medical expenses.

Question 132

A homeowner with an FHA loan would like to sell his home and allow the buyer to assume the existing mortgage. However, he is concerned about violating a due-on-sale clause. Is a due-on-sale clause allowed under the terms of the loan?

1. No, because the loan is assumable
2. Yes, because the loan is assumable
3. Yes, because the loan is an FHA loan
4. No, because seller financing is illegal

Answer 132

The answer is No, because the loan is assumable. A due-on-sale (alienation) clause allows the lender to declare the entire balance of the loan due when the property is sold or transferred. This means that the loan may NOT be assumed. Since FHA and VA loans are generally assumable, a due-on-sale clause would not be included in the security instrument.

Question 133

Frank Stein is a loan originator for a county housing finance agency whose function is to help meet the affordable housing needs of the residents of the state. Is Frank required to be licensed under the S.A.F.E. Act?

1. He is not required to be licensed if he is registered
2. Yes, all loan originators must be licensed
3. He must be licensed only if he represents that he can and will perform the services of a mortgage loan originator
4. No, he is exempt from the requirement to be licensed

Answer 133

The answer is no, he is exempt from the requirement to be licensed. A state is not required to license an individual who is an employee of a federal, state, or local government agency or housing finance agency who acts as a loan originator in the course of his/her employment.

Question 134

Germaine Hopper has not maintained a state loan originator license for five years. However, during the last three years of that five-year period, she was employed as a registered loan originator with the Anywhere Bank. Is Germaine required to retake the licensing test when she decides to apply for a new state license?

1. Yes, she must retake the test because she had not maintained a license for over five years
2. No, her time as a registered loan originator is not counted as part of the time her license has not been maintained
3. No, once passed, an applicant does not have to take the test again
4. Yes, test results are only valid in the year they are taken

Answer 134

The answer is no, her time as a registered loan originator is not counted as part of the time her license has not been maintained. A state-licensed loan originator who fails to maintain a valid license for a period of five years or longer must retake the licensing test. However, any time during that five-year period in which the individual was acting as a registered loan originator is not included when determining whether or not the licensing test must be retaken. Because Germaine worked as a registered mortgage loan originator for three out of the five years she was inactive, she is only considered to have been without a license for two years, meaning she does not have to retake the licensing exam.

Question 135

Mortgage loan originator Steve Scofflaw has entered into a contract that allows him to earn a fee for obtaining a suitable loan for the Misers. However, despite his best efforts, he was unable to locate a loan that suited their financial situation. Do the Misers owe Steve a fee?

1. Yes, they owe him a fee for his best efforts
2. The Misers do not owe Steve a fee for the loan but must pay for his time based on an hourly rate
3. No, it is a prohibited act to earn a fee through best efforts if no loan is obtained
4. Yes, they entered a contract with Steve

Answer 135

The answer is no, it is a prohibited act to earn a fee through best efforts if no loan is obtained. It is prohibited for any person, when engaging in mortgage loan origination activity, to solicit or enter into a contract with a borrower that provides that the person or individual may earn a fee or commission through “best efforts” to obtain a loan even though no loan is actually obtained for the borrower.

Question 136

The GLB Act gives loan applicants the ability to opt out of the sharing of their nonpublic personal information with:

1. Third-party settlement service providers
2. Affiliates of the creditor
3. Affiliates and nonaffiliates of the creditor
4. Nonaffiliates of the creditor

Answer 136

The answer is non-affiliates of the creditor. Loan applicants may opt out of the sharing of their nonpublic personal information with non-affiliates.

Question 137

An advertisement states “Buy for less than rent.” Which of the following must be disclosed under Regulation Z?

1. Down payment
2. Loan amount
3. APR
4. None of the choices

Answer 137

The answer is none of the choices. Under Regulation Z, an ad must disclose a number of additional credit terms if it contains a trigger (or triggering) term, which is any of a number of credit terms specifically cited in an ad. Since in this case the ad does not cite any specific credit terms, no further disclosures are required.

Question 138

The Pois have just closed on their mortgage loan at a formal settlement meeting. What is mortgage loan originator Leilani’s responsibility after loan closing?

1. She must provide any required re-disclosures
2. None; Leilani’s tasks are complete
3. She must provide another set of disclosures, showing final costs and expenses
4. She must record the transaction with the county recorder

Answer 138

The answer is none; Leilani’s tasks are complete. After loan settlement, there are some cases in which additional disclosures are due, however, these would be provided by the creditor rather than the loan originator.

Question 139

A _____ is defined as any mortgage product other than a 30-year fixed-rate mortgage.

1. Piggyback loan
2. Subordinate lien
3. Nontraditional mortgage
4. Nonconventional mortgage

Answer 139

The answer is nontraditional mortgage. A nontraditional mortgage is defined as any mortgage product other than a 30-year fixed-rate mortgage.

Question 140

Nicole is obtaining a higher-priced mortgage loan to buy a home from a Marine in South Carolina who has been reassigned to a base on the West Coast. The Marine purchased and moved into his home three months earlier. In this transaction, a second appraisal will:

1. Be required because the seller acquired the home 90 days prior to the date that Nicole agreed to purchase the home
2. Be required if there is any evidence that the sale constitutes property flipping
3. Not be required unless Nicole has agreed to purchase it for 20% more than the Marine paid
4. Not be required since purchases from servicemembers are not subject to the requirement for two appraisals

Answer 140

The answer is not be required since purchases from servicemembers are not subject to the requirement for two appraisals. Purchases from servicemembers are not subject to the requirement for two appraisals.

Question 141

A loan originator is discussing the features of a home equity consolidation loan with an applicant. In doing so, he relays to the applicant that the interest on the loan is tax deductible. This is:

1. Permissible, as the interest on any loan secured by real estate is tax deductible
2. Permissible, as the interest on any home equity loan is tax deductible
3. Not permissible, as the advice is wrong
4. Not permissible, as the loan originator is not qualified to provide tax advice

Answer 141

The answer is not permissible, as the loan originator is not qualified to provide tax advice. From an ethical and legal standpoint, loan originators must take care not to provide borrowers advice on topics for which they lack the required qualifications, such as tax advice and other legal matters.

Question 142

All of the following are TILA-required disclosures, except:

1. CHARM Booklet
2. Notice of Adverse Action
3. Right to Rescind
4. Loan Estimate

Answer 142

The answer is Notice of Adverse Action. The Notice of Adverse Action is a disclosure required by ECOA, not TILA.

Question 143

Which of the following is not among the initial disclosures that must currently be provided to a mortgage loan applicant?

1. Notice of Right to Cancel
2. Mortgage Servicing Disclosure
3. Loan Estimate
4. Special Information Booklet

Answer 143

The answer is Notice of Right to Cancel. While the Loan Estimate, Mortgage Servicing Disclosure, and Special Information Booklet are all among the initial disclosures that must be delivered to a mortgage loan applicant, the Notice of Right to Cancel is provided at closing.

Question 144

Negative amortization:

1. Describes the result of a default
2. Occurs when the mortgage payment is not sufficient to pay the interest currently due
3. Occurs when a borrower pays only interest due each month
4. Defers principal

Answer 144

The answer is occurs when the mortgage payment is not sufficient to pay the interest currently due. Negative amortization occurs when a mortgage payment is not sufficient to pay the interest currently due.

Question 145

Which of the following settlement services would not be covered by RESPA?

1. Services of a real estate agent
2. Office supply provider
3. Processing services
4. Title abstractor

Answer 145

The answer is office supply provider. A company that delivers office supplies is not generally covered by RESPA.

Question 146

Under RESPA, the servicer may require a borrower to pay into an escrow account to cover disbursements that are unanticipated or disbursements made before the borrower’s monthly payments are available in the account, a cushion or reserve that must be no greater than _____ of the estimated total annual disbursements from the escrow account.

1. One half
2. One third
3. One sixth
4. One twelfth

Answer 146

The answer is one sixth. Under RESPA, a lender may require the borrower to establish an escrow account at closing. The loan servicer may require a borrower to pay into the account to cover disbursements that are unanticipated or disbursements made before the borrower’s monthly payments are available in the account. This is the escrow cushion or reserve, which must be no greater than one sixth of the estimated total annual disbursements from the escrow account.

Question 147

An Affiliated Business Arrangement Disclosure is:

1. Required by TILA to be given to a borrower at the time of referral
2. Only required if the referred party is owned by or has an affiliate relationship with the referring party
3. Used to disclose whether the loan will be serviced, transferred, or sold
4. Required to be disclosed within three business days of application

Answer 147

The answer is only required if the referred party is owned by or has an affiliate relationship with the referring party. An Affiliated Business Arrangement Disclosure is required only if the company being referred has some affiliated relationship with the referring party.

Question 148

Which of the following is true?

1. Open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule
2. Open-end credit plans, timeshare plans, and closed-end consumer credit loans are exempt from the ATR Rule
3. Open-end credit plans are covered by the ATR Rule
4. Reverse mortgage loans are covered by the ATR Rule

Answer 148

The answer is open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule. Open-end credit plans, timeshare plans, and reverse mortgage loans are excluded from the ATR Rule. The ATR Rule applies to almost all closed-end consumer credit transactions secured by a dwelling, including attached real property.

Question 149

A mortgage broker and mortgage loan originator’s duties to the lender include all of the following, except:

1. Expediting processing so the loan can close within the period of any rate-lock
2. Processing applications based on the lender’s underwriting guidelines
3. Originating loans only for those applicants which promise most profit for the lender
4. Guarding against mortgage loan fraud and other practices that may harm the lender

Answer 149

The answer is originating loans only for those applicants which promise most profit for the lender. Mortgage brokers and mortgage loan originators must diligently perform the services expected by the lender, including processing applications based on the lender’s underwriting guidelines, following up to ensure conditions contained in commitment letters are satisfied in a timely manner, expediting processing so the loan can close within the period of any rate-lock, carrying out any cancellation procedures competently and professionally, and guarding against mortgage loan fraud and other practices that may harm the lender or investor purchasing the loan.

Question 150

Pamela has taken the NMLS-approved licensing test for the second time and received a score of 74%. What is the result of Pamela’s attempt?

1. Pamela has earned a passing score
2. Pamela’s score is close enough to the required score that she can ask for exemption from testing again
3. Pamela has failed the test and must wait at least 30 days before retaking it
4. Pamela has failed the test again and must wait at least six months before taking it

Answer 150

The answer is Pamela has failed the test and must wait at least 30 days before retaking it. An applicant for a loan originator license must pass the examination with a score of at least 75%. If the applicant fails the test, he/she may take it two additional times, if necessary, with at least 30 days between each attempt. After failing three consecutive tests, however, the applicant must wait at least six months before taking the test again.

Question 151

A mortgage broker is unable to assist a client and refers him to another mortgage broker for origination services. The second broker pays the referring broker a fee for providing the lead. Which of the following is correct?

1. Payment of the fee is illegal
2. The fee is legal as long as the brokers have a pre-existing agreement in place
3. The fee is legal as long as the brokers do not have a pre-existing agreement in place for payment of referral fees
4. The fee is illegal unless the brokers provide a disclosure to the client

Answer 151

The answer is payment of the fee is illegal. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, verbal or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. A business entity may not pay any other business entity, or the employees of any other business entity, for the referral of real estate settlement service business.

Question 152

An ARM was locked for three years and began adjusting two years ago. It is about to adjust for the third time. What limits the amount the interest rate will increase on this movement?

1. Payment cap
2. Starter cap
3. Initial cap
4. Periodic cap

Answer 152

The answer is periodic cap. The periodic cap is used to limit rate adjustments for ARMs after the initial adjustment.

Question 153

Which of the following is a limit on the amount that the interest rate can change, up or down, on any adjustment date?

1. Initial rate cap
2. Periodic rate cap
3. Lifetime rate cap
4. Payment cap

Answer 153

The answer is periodic rate cap. The periodic rate cap is a limit on the amount by which the interest rate can change, up or down, on any adjustment date.

Question 154

Which of the following is not a part of the definition of a loan originator?

1. For compensation or gain, takes residential mortgage applications
2. For the expectation of compensation or gain, offers or negotiates terms of a residential mortgage loan
3. Person or entity that only performs real estate brokerage activities
4. For compensation or gain, negotiates residential mortgage loans

Answer 154

The answer is person or entity that only performs real estate brokerage activities. Real estate brokerage activities are not considered within the definition of a loan originator.

Question 155

Which of the following is offered on conventional mortgages?

1. UFMIP
2. Guarantee fee
3. COE
4. PMI

Answer 155

The answer is PMI. Private mortgage insurance (PMI) is required on conventional mortgages where the LTV is more than 80%. PMI is not used for government loans. MIP is used for FHA loans.

Question 156

Extension of credit to borrowers who cannot afford it on the terms being offered is considered by most regulators to be:

1. A wise business tactic
2. Ethical, but not legal
3. Predatory lending
4. Nontraditional lending

Answer 156

The answer is predatory lending. Most regulators consider predatory lending to be the extension of credit to borrowers who cannot afford it on the terms being offered. Predatory loans can be recognized by its use of features designed to “strip away” or reduce a borrower’s equity in the collateral and increase the likelihood of foreclosure. Such conduct is considered unethical, and many of the features it utilizes are illegal.

Question 157

The practice of encouraging a consumer to purchase a home based on an inflated appraisal, or steering consumers toward high-cost products with unfavorable terms, is known as:

1. Property flipping
2. Predatory lending
3. Property flopping
4. Equity-based lending

Answer 157

The answer is predatory lending. The practice of encouraging a consumer to purchase a home based on an inflated appraisal, or steering consumers toward high-cost products with unfavorable terms, is known as predatory lending.

Question 158

Finance charges that are withheld from the proceeds of the loan are considered to be:

1. P.O.C. charges
2. Third-party fees
3. Prepaid finance charges
4. Periodic interest charges

Answer 158

The answer is Prepaid finance charges. A prepaid finance charge (PFC) is any finance charge paid separately, in cash or by check, before or at consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower (not a third party) that must be included in computing the annual percentage rate.

Question 159

The Jepsons have brought mortgage loan originator Stanley Rothke a check to pay for loan origination fees, the private mortgage insurance premium, and the commitment fee. These charges are:

1. Paid-outside-of-closing charges
2. Prepaid finance charges
3. Third-party charges
4. Mortgage loan transaction fees

Answer 159

The answer is prepaid finance charges. A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct charges paid by the borrower and include loan origination, discount, and commitment fees; any prepaid private mortgage insurance; underwriting, processing, tax service, and courier fees; buy-down funds; and prepaid interest.

Question 160

This is the term for a charge paid by the borrower when repaying loan principal earlier than required by the amortization schedule.

1. Acceleration
2. Prepayment penalty
3. Early termination fee
4. Payoff penalty

Answer 160

The answer is prepayment penalty. A prepayment penalty is a charge paid by the borrower when repaying loan principal earlier than required by the amortization schedule.

Question 161

The earliest point at which a borrower could request cancellation of private mortgage insurance is:

1. Principal balance reaches 70% of the original purchase price
2. Principal balance reaches 85% of original value
3. Principal balance reaches 75% of the current appraised value
4. Principal balance reaches 80% of original value

Answer 161

The answer is principal balance reaches 80% of original value. To obtain a loan with a small down payment, a borrower pays a mortgage insurance premium either as a lump sum at closing covering the life of the loan, or by paying the first year’s premium at closing and then paying annual premiums as part of the mortgage payment. The amount of the premium is a percentage of the loan amount, based on the borrower’s down payment. The annual premiums and the insurance stop automatically once the loan is paid down to 78%, or may be canceled at the borrower’s request once the loan balance reaches 80% of the value of the property at the time the loan was made.

Question 162

“PITI” stands for:

1. Prime intended tax index
2. Principal index of taxable investments
3. Principal, interest, taxes, and insurance
4. Principal, insurance, taxes, and investments

Answer 162

The answer is principal, interest, taxes, and insurance. “PITI” stands for principal, interest, taxes, and insurance, and is the basis for calculation of the front-end debt-to-income ratio (though other monthly housing payments may need to be included).

Question 163

Once a state licensing agency has provided private or confidential information to the NMLS, what is the status of the information?

1. Privacy and confidentiality requirements continue to apply
2. It becomes a matter of public record
3. It remains confidential only if the state requests it
4. States do not provide private or confidential information to the NMLS

Answer 163

The answer is privacy and confidentiality requirements continue to apply. The requirements under any federal or state law regarding the privacy or confidentiality of any information or material provided to the NMLS continue to apply after such information has been disclosed to the NMLS.

Question 164

Second appraisal requirements for higher-priced mortgage loans were put in place in an attempt to curb the practice of:

1. Reverse redlining
2. Property flipping
3. Equity stripping
4. Steering

Answer 164

The answer is property flipping. Second appraisal requirements were put in place under the HPML Rule for certain higher-priced mortgage loan transactions in an attempt to curb the practice of property flipping.

Question 165

A scenario in which a person forces the sale of a home at a much lower value than its true worth, then resells the home at its true value, is known as:

1. Property flopping
2. Property flipping
3. Short sale
4. Air loan

Answer 165

The answer is property flopping. A scenario in which a person forces the sale of a home at a much lower value than its true worth, then resells the home at its true value, is known as property flopping.

Question 166

A scenario in which a person forces the sale of a home at a much lower value than its true worth, then resells the home at its true value, is known as:

1. Property flipping
2. A short sale
3. An air loan
4. Property flopping

Answer 166

The answer is property flopping. Property flopping is associated with short sales, and it typically occurs when a short sale is approved based on a misrepresentation of the value of the property. The fraud is usually perpetrated by the buyer purchasing the property from the short sale seller. In some cases, the seller’s real estate agent is the buyer. The buyer presents a low offer to purchase the property to the lender along with an artificially low valuation of the property, in order to convince the lender that the property is worth less than it really is. Any higher offers from bona fide buyers are withheld from the lender, who would most likely reject the low offer if it knew that higher offers were on the table. Once the lender approves the short sale at the artificially-low price, the fraudster contacts the bona fide buyer or markets the property at its true market value.

Question 167

Under which of the following circumstances would flood insurance be required?

1. Property is within 100 yards of a body of water
2. Property is in flood zone “X”
3. Property is in flood zone “A”
4. Property is at or below sea level

Answer 167

The answer is property is in flood zone “A”. Flood insurance is required for property improvements located in an SFHA Zone A (an area subject to inundation by a 1%-annual-chance flood event) or a Zone V (an area along the coast subject to inundation by a 1%-annual-chance flood event with additional hazards associated with storm-induced waves).

Question 168

Which of the following may be considered an appraisal red flag?

1. An appraiser’s resume shows substantial experience in the area
2. Property owner and seller are not the same
3. Appraisal is dated after the sales contract
4. Comparables are located within one mile of the subject

Answer 168

The answer is property owner and seller are not the same. If the property owner and property seller are not the same, it is likely more questions should be asked about the deal.

Question 169

The purpose of the S.A.F.E. Act is to:

1. Protect consumers by ensuring that the mortgage lending industry operates without unfair and deceptive practices
2. Provide the opportunity for credit to all creditworthy applicants
3. Provide information about closing costs to the consumer
4. Protect consumers by creating privacy provisions for mortgage lenders

Answer 169

The answer is protect consumers by ensuring that the mortgage lending industry operates without unfair and deceptive practices.

Question 170

The Nationwide Multistate Licensing System and Registry seeks to accomplish all of the following objectives, except:

1. Provide uniform license applications and reporting requirements for state-licensed originators
2. Provide comprehensive training and facilitate responsible behavior to expand the subprime mortgage marketplace
3. Provide increased accountability and tracking of loan originators
4. Facilitate the collection and disbursement of consumer complaints on behalf of state and federal mortgage regulators

Answer 170

The answer is provide comprehensive training and facilitate responsible behavior to expand the subprime mortgage marketplace. The NMLS is a measure aimed at increasing responsible behavior and accountability and protecting consumers, not expanding the subprime marketplace.

Question 171

What action must a creditor take if it is discovered that the APR listed on the Closing Disclosure is outside of the range of tolerance?

1. Provide disclosure of the corrected discrepancy and wait three business days before closing
2. Keep records of the discrepancy for three years
3. Adjust the APR and close the loan as scheduled
4. Restart the seven-business-day waiting period after the new disclosure has been made

Answer 171

The answer is provide disclosure of the corrected discrepancy and wait three business days before closing. When the APR listed on the Closing Disclosure is inaccurate, the APR must be re-disclosed to the borrower, and the loan cannot close for at least three business days from the re-disclosure date.

Question 172

Ethics:

1. Is a branch of philosophy dealing with legal behavior
2. Provides a guideline for answering questions when a choice of actions is available
3. Defines how a person must act
4. Is set out in law

Answer 172

The answer is provides a guideline for answering questions when a choice of actions is available. Ethics goes beyond what is required under the law, so ethical rules extend beyond the minimum legal standards in providing guidance for one’s actions. Ethics goes into the realm of what should be done, providing guidelines for answering questions when a choice of actions is available. As a result, ethical rules are often not as clear-cut as the legal rules.

Question 173

A licensee subject to an investigation or examination may not engage in any of the following, except:

1. Providing computer records
2. Knowingly removing or withholding records
3. Providing records that have had information redacted
4. Failing to cooperate with an investigation

Answer 173

The answer is providing computer records. Providing records electronically is an acceptable method of keeping records available for examination.

Question 174

Servicers are required to respond to a _____ from a borrower within five days.

1. Loan application
2. Qualified written request
3. Request for servicing transfer
4. Notice of rescission

Answer 174

The answer is qualified written request. Servicers are required to respond to a qualified written request from a borrower within five days.

Question 175

Which of the following pieces of personal information is a borrower asked to provide voluntarily on the loan application?

1. Race, age, and marital status
2. Race, ethnicity, and sex
3. Sex and childbearing plans
4. Marital status and age

Answer 175

The answer is race, ethnicity, and sex. Section 8, Demographic Information, of the 1003 requests information regarding the applicant’s sex, race and ethnicity.

Question 176

Which of the following pieces of personal information is a borrower asked to provide voluntarily on the loan application?

1. Race, ethnicity, and sex
2. Race, age, and marital status
3. Sex and childbearing plans
4. Marital status and age

Answer 176

The answer is race, ethnicity, and sex. The section titled “Information for Government Monitoring Purposes,” which asks a borrower to specify sex, race, and ethnicity, is required by the Home Mortgage Disclosure Act to aid the federal government in monitoring compliance with fair lending regulations. Supplying this information is strictly voluntary, and an applicant who does not wish to do so should check the box provided to indicate that decision. When an applicant does not provide this information, an originator taking the application on a face-to-face basis must note the applicant’s sex, race, and ethnicity on the form based on visual observation and/or the applicant’s surname.

Question 177

All of the following may be considered application red flags, except:

1. Reasonable commuting mileage
2. Address is a P.O. Box
3. Education is not consistent with profession
4. Significant changes between handwriting used throughout the documents

Answer 177

The answer is reasonable commuting mileage. If mileage for commuting purposes is realistic, no red flags would be drawn. For example, if the borrower lives relatively close to the workplace, it is acceptable.

Question 178

Which of the following is not prohibited by RESPA?

1. Reasonable fees paid for services actually performed
2. Kickbacks
3. Referral fees
4. Premiums charged on fees for third-party services

Answer 178

The answer is reasonable fees paid for services actually performed. RESPA does not prohibit the charging of reasonable fees paid for services actually performed.

Question 179

Creditors must make a(n) _____ of a borrower’s ability to repay a loan.

1. Probable, estimated determination
2. Reasonable estimation
3. Absolute guarantee
4. Reasonable, good faith determination

Answer 179

The answer is reasonable, good faith determination. Creditors must make a reasonable, good faith determination of a borrower’s ability to repay a loan.

Question 180

Ginger is a mortgage loan originator. She discussed with her clients, the Salts, the requirement to carry property insurance on their home that was securing the mortgage loan Ginger was originating for them. Her recommendation was that they insure the property for an amount exceeding the replacement value of the improvements on the property. What excess amount is Ginger permitted to recommend?

1. Recommending insurance in excess of the replacement value of the improvements is prohibited
2. 110% of replacement value
3. 120% of replacement value
4. 150% of replacement value

Answer 180

The answer is recommending insurance in excess of the replacement value of the improvements is prohibited. It is prohibited for any person, when engaging in loan origination activity, to cause or require a borrower to obtain property insurance coverage in an amount that exceeds the replacement value of the improvements as established by the property insurer.

Question 181

ABC Mortgage has a policy of refusing to originate loans in three neighborhoods near its office known to be highly populated by minorities. This practice is commonly referred to as:

1. Steering
2. Refusal
3. Blockbusting
4. Redlining

Answer 181

The answer is redlining. Redlining is the practice of refusing to originate loans in particular neighborhoods due to discriminatory reasoning.

Question 182

Which of the following loans requires the collection of HMDA data?

1. Refinance of a second home
2. Financing of a recreational vehicle
3. Student loan
4. SBA loan

Answer 182

The answer is refinance of a second home. HMDA data is required for purchase loans, refinance loans, and home improvement loans, as long as the loans are secured by a dwelling.

Question 183

Under ECOA, it is permissible to do which of the following?

1. Base a credit decision solely on the fact that a borrower was in a consumer credit counseling program
2. Refuse to allow a borrower to use public assistance income to attempt to qualify
3. Make oral or written statements that might discourage a prospective applicant from applying
4. Refuse to consider child support payments that have been made sporadically

Answer 183

The answer is refuse to consider child support payments that have been made sporadically. ECOA prohibits discriminatory practices, such as refusing to consider public assistance as income or declining a borrower solely because of his/her involvement in a consumer credit counseling program. Additionally, ECOA does not allow for discouragement meant to keep a borrower from applying at all. Child support must also be considered, as long as payments are made regularly.

Question 184

Which of the following mortgage broker policies would violate fair lending laws?

1. Originating loans only for customers who live within 100 miles of the broker’s location
2. Refusing to originate loans in an earthquake zone
3. Refusing to originate loans in ZIP codes known to be economically depressed
4. Doing business only with customers who are seeking loans for residential properties

Answer 184

The answer is refusing to originate loans in ZIP codes known to be economically depressed. Refusing to originate loans in ZIP codes known to be economically depressed would violate fair lending laws.

Question 185

Mortgage interest rates are influenced by all of the following, except:

1. Foreclosure rates
2. Regional property tax rates
3. Loan fraud
4. Federal Reserve activitie

Answer 185

The answer is regional property tax rates. Interest rates on long-term debt instruments, such as residential mortgages, are influenced by changes in such economic indicators as the gross domestic product (GDP), which measures the amount of goods and services produced in the United States, and the Consumer Price Index (CPI), which measures the average change in prices of consumer goods and services. Features of the economic climate, such as loan fraud, loan payoff rates, and foreclosure rates, will all have an impact on interest rates. Rates are also affected by actions taken by the Federal Reserve (the Fed), which controls the country’s monetary policy, though the Fed does not itself directly set the interest rates that individual lenders will charge borrowers. Each lender will set its own prime rates (i.e., the lowest rates it charges for its best customers), as well as rates for loans to other customers based on its costs and desired profit margin. Regional property tax rates will impact monthly payments, but they do not have a direct relationship with the interest rates set for mortgage loans.

Question 186

The licensing requirements of the S.A.F.E. Act require all but which of the following?

1. Registered MLOs must complete 20 hours of pre-licensing education
2. Registration with the NMLS
3. Successfully pass federal and applicable state components of a test with at least a 75% score
4. Use of a unique identifier on all advertising materials

Answer 186

The answer is registered MLOs must complete 20 hours of pre-licensing education. The S.A.F.E. Act includes requirements for registration with the NMLS, pre-licensing education and federal and state testing, and obtaining and displaying a unique identifier on documents, including advertising materials. Pre-licensing education requirements pertain to state-licensed loan originators, not to registered loan originators, who are not subject to licensing requirements.

Question 187

Which of the following federal regulations prohibits discrimination based on race, color, religion, sex, marital status, or national origin in a credit transaction?

1. Regulation C
2. Regulation B
3. Regulation Z
4. Regulation G

Answer 187

The answer is Regulation B. Regulation B implements the provisions of the Equal Credit Opportunity Act (ECOA), which ensures that all persons, consumers, and businesses are given an equal chance to obtain credit by prohibiting discrimination based on criteria including race, color, religion, national origin, sex, marital status, and age (provided the individual is of age to enter into a contract).

Question 188

The regulations issued for the implementation of ECOA are known as:

1. Regulation E
2. Regulation B
3. Regulation C
4. Regulation X

Answer 188

The answer is Regulation B. The regulations issued for the implementation of ECOA are known as Regulation B.

Question 189

Inquiring as to whether income is derived from alimony, child support, or separate maintenance is prohibited by which of the following?

1. Regulation C
2. Regulation Z
3. Regulation D
4. Regulation B

Answer 189

The answer is Regulation B. Under Regulation B, a loan originator may not ask whether an applicant receives alimony, child support, or separate maintenance payments not needed in order to get credit, unless he or she is first told that this information does not have to be provided. If regular alimony, child support, or separate maintenance payments need to be counted as income to qualify for credit, an applicant may be asked to prove that it has been received consistently.

Question 190

The implementing regulations for the Home Mortgage Disclosure Act are known as:

1. Regulation X
2. HDA
3. Regulation C
4. Section 32

Answer 190

The answer is Regulation C. The regulations promulgated under HMDA are known as Regulation C.

Question 191

The requirement that borrowers receive the Consumer Handbook on Adjustable-Rate Mortgages is required under which regulation?

1. Regulation X
2. Regulation Z
3. Regulation C
4. Regulation M

Answer 191

The answer is Regulation Z. Regulation Z cites a series of required disclosures, including the Consumer Handbook on Adjustable-Rate Mortgages (the CHARM Booklet), published by the Federal Reserve Board and the Federal Home Loan Bank Board, or a similar booklet.

Question 192

A disclosure that allows a consumer to more easily compare loan options is required under which regulation?

1. Regulation B
2. Regulation Z
3. Regulation V
4. Regulation H

Answer 192

The answer is Regulation Z. The TILA-RESPA Rule, included in Regulation Z, outlines the requirements for use of the Loan Estimate and the Closing Disclosure, intended to facilitate the ability of consumers to determine whether they can afford a particular loan, and/or compare specific loan products, including their costs over the life of the loan.

Question 193

Which of the following specifies current disclosure requirements under the TILA-RESPA (TRID) Rule?

1. Regulation Z
2. Regulation C
3. Regulation O
4. Regulation B

Answer 193

The answer is Regulation Z. The TILA-RESPA Rule, or TRID Rule, sets forth disclosure requirements and model forms for the two consolidated disclosures, the Loan Estimate and Closing Disclosure, and provides guidance to ensure compliance by licensees and exempt persons required to follow its provisions. The Rule’s provisions amended Section 19 of Subpart C of Regulation Z (12 C.F.R. §1026.19) and added two sections to Subpart E.

Question 194

Statements in advertising that may lead a consumer to incorrectly assume that a mortgage product or company is directly endorsed by the federal government are in violation of which law?

1. Regulation A
2. Regulation Z
3. Regulation B
4. Regulation X

Answer 194

The answer is Regulation Z. The Truth-in-Lending Act (Regulation Z) covers seven specific prohibitions in advertising for credit, which includes the misrepresentation of government endorsement.

Question 195

Advertising an attractive interest rate that a mortgage professional is not at liberty to offer is a major ethical offense and a violation of:

1. Regulation Z
2. The Equal Credit Opportunity Act
3. Regulation X
4. The Fair Credit Reporting Act

Answer 195

The answer is Regulation Z. Under the requirements of Regulation Z, an ad may state specific credit terms only if those terms actually are or will be arranged or offered to the consumer. Bait-and-switch credit promotions are not allowed. These involve advertising a loan at very attractive terms and then informing potential customers that, while the advertised loan is not available, a substitute is.

Question 196

In verifying a loan applicant’s income and/or assets, a creditor must rely upon:

1. The applicant’s signed and notarized statement
2. Reliable third-party records such as paystubs and tax returns
3. The applicant’s credit report exclusively
4. An independent investigation conducted by the creditor

Answer 196

The answer is reliable third-party records such as paystubs and tax returns. In verifying a loan applicant’s income and/or assets, a creditor must rely upon reliable third-party records such as paystubs, tax returns, employment information, and records from financial institutions.

Question 197

A balloon mortgage that includes a conditional refinance provision allows the borrower to:

1. Request that the loan be refinanced and converted to a 30-year fixed-rate loan
2. Rescind the transaction if the loan becomes too expensive
3. Request modification of the terms of the loan when it reaches maturity
4. Refinance the loan if he or she is in default

Answer 197

The answer is request modification of the terms of the loan when it reaches maturity. A balloon mortgage that includes a conditional refinance provision allows the borrower to request modification of the terms of the loan when it reaches maturity.

Question 198

Which of the following is considered a loan primarily for personal, family, or household use that is secured by a mortgage or deed of trust?

1. Nontraditional mortgage product
2. Residential mortgage loan
3. Commercial mortgage loan
4. Residential real estate

Answer 198

The answer is residential mortgage loan. The phrase “primarily for personal, family, or household use” is legal terminology commonly used to identify a residential mortgage loan.

Question 199

ECOA applies to the extension of credit for:

1. Loans secured by a first or subordinate lien on residential property
2. Residential, business, commercial, and agricultural loans
3. Business, commercial, and agricultural loans
4. All credit other than government loans

Answer 199

The answer is residential, business, commercial, and agricultural loans. ECOA has a wider range than RESPA and TILA, beyond just loans related to residential properties. The law also covers loans for businesses, commercial, and agricultural loans.

Question 200

The amount of income left over after debt is subtracted is called:

1. Residual income
2. Debt ratio
3. Discretionary spending
4. Debt inverse

Answer 200

The answer is residual income. Residual income is money left over after debt is subtracted.

Question 201

Which legislation sets the disclosure requirements for the Affiliated Business Arrangement Disclosure?

1. TILA
2. RESPA
3. ECOA
4. HOEPA

Answer 201

The answer is RESPA. RESPA determined that the Affiliated Business Arrangement Disclosure should be provided to the borrower at the time of referral to the affiliated third party.

Question 202

Which of the following is intended to ensure that consumers are provided with information on the nature and costs of the settlement process?

FCRA
HPA
HOEPA
RESPA

Answer 202

The answer is RESPA. The purpose of RESPA and Regulation X is to help consumers become better shoppers for settlement (closing) services by providing them with information on the nature and costs of the settlement process. RESPA and Regulation X are also intended to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Question 203

The practice of intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is known as:

1. Reverse redlining
2. Steering
3. Misappropriation
4. Redlining

Answer 203

The answer is reverse redlining. HOEPA prohibits the intentional targeting of poor or underserved areas with expensive high-cost loans, which is a practice known as reverse redlining.

Question 204

When a consumer is preapproved for a line of credit and can use this line freely, making repeat transactions, and can pay it off at any time without closing the line, this is an example of:

1. Subordinate lien
2. Reverse mortgage
3. Revolving debt
4. Mortgage

Answer 204

The answer is revolving debt. Revolving debt allows a borrower to draw from and pay down a credit line at his/her own discretion, as long as the borrower makes timely payments for the interest due.

Question 205

Combining stated income with a nontraditional mortgage product is an example of:

1. Risk optimization
2. Risk premium
3. Risk layering
4. Risk enhancement

Answer 205

The answer is risk layering. Risk layering refers to combining, or layering, high-risk loan features, which might include an interest-only or other non-conventional loan, reduced documentation, and a simultaneous second-lien loan.

Question 206

Which of the following is NOT true with regard to TILA disclosures?

1. Disclosure rules differ depending on whether the credit being offered is open-end or closed-end
2. Everyone with ownership interest receives rescission notices
3. Special disclosures are required for adjustable-rate mortgages
4. Rules for disclosure are the same whether credit is open-end or closed-end

Answer 206

The answer is rules for disclosure are the same whether credit is open-end or closed-end. This is NOT true because the rules for TILA disclosures differ whether the loan is open-end or closed-end, including rules about disclosing APR and finance charges.

Question 207

Which federal law specifically requires a mortgage loan originator to obtain eight hours of education annually?

1. S.A.F.E. Act
2. RESPA
3. Section 10
4. HERA

Answer 207

The answer is S.A.F.E. Act. Under the S.A.F.E. Act, licensees must annually obtain at least eight hours of continuing education courses that have been reviewed and approved by the NMLS. These hours must include three hours of federal law and regulations; two hours of ethics, including instruction on fraud, consumer protection, and fair lending issues; and two hours of training related to lending standards for the nontraditional mortgage product marketplace. States may require more than eight hours and may include requirements for hours of education related to state laws.

Question 208

The VA has stated that loans made in compliance with VA standards and guaranteed or insured by the VA are:

1. Small creditor qualified mortgages
2. Safe harbor qualified mortgages
3. Non-qualified mortgages
4. Exempt from qualified mortgage standards

Answer 208

The answer is safe harbor qualified mortgages. The VA has stated that loans made in compliance with VA standards and guaranteed or insured by the VA are safe harbor qualified mortgages.

Question 209

Mortgages may be sold individually or bundled with other mortgages with similar features into mortgage-backed securities in the:

1. Secondary mortgage market
2. Capital market
3. Primary mortgage market
4. Federal reserve market

Answer 209

The answer is secondary mortgage market. The secondary mortgage market is where mortgages may be sold individually or bundled with other mortgages with similar features into mortgage-backed securities. It is comprised of investors and lenders that buy and sell real estate mortgages or guarantee loans from primary market lenders.

Question 210

Which federal law requires individuals to pass a written exam in order to obtain a mortgage loan originator license?

1. Housing and Economic Recovery Act
2. Mortgage Professionalism and Accountability Act
3. Mortgage Disclosure Improvement Act
4. Secure and Fair Enforcement for Mortgage Licensing Act

Answer 210

The answer is Secure and Fair Enforcement for Mortgage Licensing Act. Under the Secure and Fair Enforcement for Mortgage Licensing Act (the SAFE Act), an applicant for a mortgage loan originator license must pass a written national test developed by the NMLS and administered by an approved test provider that covers ethics, federal and state law, and regulations pertaining to mortgage origination, fraud, consumer protection, the nontraditional mortgage marketplace, and fair lending issues. To pass, the individual must achieve a test score of at least 75%.

Question 211

The process of pooling together similar types of loans to create mortgage-backed securities for sale in the secondary financial markets is called:

1. Diversification
2. Capitalization
3. Securitization
4. Collateralization

Answer 211

The answer is securitization. Securitization is the process of pooling together similar types of loans to create mortgage-backed securities.

Question 212

During a routine examination, a state licensing agency discovered that mortgage loan originator Karen Villmer routinely overcharged borrowers for third-party services and pocketed the difference for herself. In terms of an enforcement action, the state licensing agency may do all of the following, except:

1. Seize Karen’s bank accounts
2. Suspend or revoke Karen’s license
3. Require restitution be paid to the borrowers
4. Impose a civil penalty

Answer 212

The answer is Seize Karen’s bank accounts. In order to ensure effective supervision and enforcement of the S.A.F.E. Act, the state licensing agency may deny, suspend, revoke, condition, or decline to renew a license for a violation of the state’s S.A.F.E. Act, rules and regulations issued under the Act or any order or directive entered under the Act; order restitution be paid by persons who have violated the state’s S.A.F.E. Act; and/or impose a civil penalty on a mortgage loan originator.

Question 213

When a seller provides all or part of the financing for the borrower in order to finance a purchase transaction, it is known as:

1. For sale by owner (FSBO)
2. Seller carry-back
3. Seller concessions
4. Seller self-financed

Answer 213

The answer is seller carry-back. In a purchase transaction involving an assumable mortgage, when the party selling the property provides all or part of the financing, it is referred to as a seller carry-back.

Question 214

For a conventional conforming loan, the borrower is making a down payment of 12%. The seller wishes to contribute to closing costs for the transaction. What is the most that the seller can contribute?

1. Seller concessions of 12%
2. Seller concessions of 3%
3. Seller concessions of 78%
4. Seller concessions of 6%

Answer 214

The answer is seller concessions of 6%. Fannie Mae and Freddie Mac permit seller concessions in conforming loan transactions to help defray the costs of closing. When the borrower makes a down payment of between 10% and 24.9%, seller concessions of up to 6% are permitted.

Question 215

The administrative authority of the Commissioner includes all but which of the following?

1. Promulgate rules or regulations implementing the S.A.F.E. Act
2. Administer, interpret, and enforce the S.A.F.E. Act
3. Carry out the intentions of the Legislature
4. Sentencing violators of the S.A.F.E. Act to appropriate prison terms

Answer 215

The answer is sentencing violators of the S.A.F.E. Act to appropriate prison terms. State regulators, such as a Commissioner, are not responsible for determining criminal sentences for violators of the S.A.F.E. Act.

Question 216

XYZ Mortgage is transferring servicing rights for all of its mortgages to a new servicer. RESPA requires what disclosure to be sent to the borrowers affected?

1. Affiliated Business Disclosure
2. Servicing Transfer Statement
3. Escrow Servicing Notice
4. FTC Service Disposal Notice

Answer 216

The answer is Servicing Transfer Statement. RESPA requires that a client be provided a Servicing Transfer Statement at least 15 days prior to the transfer of the loan to a new servicer.

Question 217

Which of the following would not be considered a settlement service?

1. Servicing
2. Escrow services
3. Origination services
4. Appraisal services

Answer 217

The answer is servicing. Settlement services include a variety of services related to the origination, processing, or funding of a loan, including, among others, rendering credit reports and appraisals, and conducting settlement by a settlement agent (e.g., the originating lender, an attorney, or a licensed escrow agent) and any related services. They do not include loan servicing.

Question 218

The Loan Estimate must be provided at least how many days prior to consummation?

1. Seven days
2. Three days
3. Seven business days
4. Three business days

Answer 218

The answer is seven business days. The Loan Estimate must be provided at least seven business days prior to consummation.

Question 219

ABC Financing grants a loan to a borrower, believing the borrower has invested his own money in the down payment and closing costs. However, the borrower has actually borrowed the needed funds from the seller, secured by an undisclosed and unrecorded second mortgage. One name for this second mortgage is:

1. Silent second
2. Double escrow
3. Package money
4. Open-end

Answer 219

The answer is silent second. In the fraudulent activity termed “silent second,” a primary lender grants a loan to a borrower who the lender believes has invested his/her own money in the down payment and closing costs. However, the borrower has actually borrowed the needed funds from the seller secured by an undisclosed and unrecorded (i.e., silent) second mortgage.

Question 220

A type of reverse mortgage offered to low-income borrowers for a designated purpose, such as to pay taxes or to complete a home repair, is known as a:

1. Single purpose reverse mortgage
2. Home equity conversion mortgage
3. Proprietary mortgage
4. Designated use reverse mortgage

Answer 220

The answer is single purpose reverse mortgage. Low-income borrowers may be eligible for single purpose mortgages that they can use to meet expenses such as taxes and home repairs.

Question 221

Which of the following is the least-expensive type of reverse mortgage?

1. HECM
2. Proprietary mortgage
3. Non-recourse
4. Single purpose

Answer 221

The answer is single purpose. A single-purpose reverse mortgage is a low-cost loan offered to low-income borrowers by state and local agencies or non-profit organizations. They are typically made for purposes such as payment of property taxes or payment for home improvements.

Question 222

While verifying identity, there are several consistent indicators that suggest identity theft. Which of the following is not an example?

1. Co-borrowers call each other by nicknames that do not relate to the names on the application
2. Credit history is inconsistent with the borrower’s age
3. Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs
4. Income documents appear to have poor printer alignment

Answer 222

The answer is Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs. Mortgage fraud can sometimes be difficult to detect; however, checking names on an application against names on credit reports and supporting documentation as well as the borrower’s age is important. Additionally, if the supporting documents appear to be altered or tampered with, further investigation should occur.

Question 223

Stan has been in his house for 15 years and built up $100,000 in equity. He decides to do some remodeling and pay off some bills, and he wants to use a closed-end home equity loan to pay for it. He meets with Lending Guys and, because he has a great credit history, gets loan approval right away. Two weeks later he signs the documents. Which of the following is true?

1. Stan may rescind the loan at any time during the term of the loan
2. Stan’s loan is not subject to provisions of the Real Estate Settlement Procedures Act
3. Stan may rescind the loan within 3 business days of consummation
4. Stan was required to provide Lending Guys with a Certificate of Completion prior to signing his final documents, indicating that he has completed homeownership counseling with a HUD-approved provider

Answer 223

The answer is Stan may rescind the loan within 3 business days of consummation. A borrower refinancing a primary dwelling with an open or closed end loan may cancel (rescind) the loan within 3 business days following closing. This right does not extend to the entire term. A borrower is NOT required to complete homeownership counseling unless the loan is a high-cost home loan.

Question 224

For an FHA loan that requires MIP, the annual mortgage insurance premium (payable monthly as part of the mortgage payment), is based on all of the following, except:

1. Loan term
2. State in which the subject property is located
3. LTV
4. Loan program

Answer 224

The answer is state in which the subject property is located. The FHA funds insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable (except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the loan-to-value (LTV) ratio.

Question 225

Which of the following claims, if used in an advertisement, is not a violation of Regulation Z or the MAP Rule?

1. Using images, such as American eagles and flags, to suggest that a loan is offered through a federal program
2. Using language to suggest that the loan is from the borrower’s current lender
3. Stating that a borrower can take advantage of an opportunity to refinance an ARM with a fixed-rate loan
4. Claiming that a borrower will not have to make mortgage loan payments anymore

Answer 225

The answer is stating that a borrower can take advantage of an opportunity to refinance an ARM with a fixed-rate loan. Regulation Z and the Map Rule prohibit misleading practices. These prohibitions do not include advertising the availability of refinances from adjustable- to fixed-rate products, unless the ad includes misleading or inaccurate information in the benefits of a refinance.

Question 226

Typical violations of advertising provisions include the use of trigger terms without:

1. Allowing the borrower to choose another alternative
2. Giving the borrower a chance to choose his/her own service provider
3. Explaining to the borrower how the originator is compensated
4. Stating the less advantageous terms of repayment

Answer 226

The answer is stating the less advantageous terms of repayment. The use of a trigger term in advertising requires the additional disclosure of the less advantageous terms of the agreement, like balloon payments, negative amortization, or interest only payments.

Question 227

A person who allows the use of their personal identifying information (usually in exchange for a fee) by another individual to take out a loan is known as a:

1. Straw buyer
2. Identity thief
3. Flipper
4. Flapper

Answer 227

The answer is straw buyer. A straw buyer is a person who allows the use of their personal identifying information (usually in exchange for a fee) by another individual to take out a loan.

Question 228

A _____ is an individual who, in exchange for a fee, allows his or her qualifying information to be used on an application for a loan he or she has no intention of repaying.

1. Straw seller
2. Straw buyer
3. Air loan
4. Identity thief

Answer 228

The answer is straw buyer. A straw buyer is an individual who, in exchange for a fee, allows his or her qualifying information to be used on an application for a loan he or she has no intention of repaying.

Question 229

A(n) _____ is an individual who accepts a fee to falsely claim ownership to a property.

1. Straw buyer
2. Air buyer
3. Straw seller
4. Air seller

Answer 229

The answer is straw seller. A straw seller is a person who falsely claims to own a property being sold (which may or may not exist) and is typically paid in exchange for doing so.

Question 230

A _____ is an individual who accepts a fee to falsely claim ownership to a property.

1. Straw buyer
2. Air buyer
3. Straw seller
4. Air seller

Answer 230

The answer is straw seller. A straw seller is an individual who accepts a fee to falsely claim ownership to a property.

Question 231

Liabilities may include which of the following?

1. Real estate
2. Net worth of businesses
3. Student loans
4. Stocks and bonds

Answer 231

The answer is student loans. Liabilities may include student loans.

Question 232

A document that changes the order of priority of mortgage liens is referred to as the:

1. Deed of trust
2. Payee clause
3. Promissory note
4. Subordination agreement

Answer 232

The answer is subordination agreement. A subordination agreement changes the order in which creditors are paid in the event of foreclosure.

Question 233

Which of the following is not a threshold that the Home Ownership Equity Protection Act (HOEPA) has established to identify loans as high-cost mortgages?

1. APR threshold
2. Points and fees threshold
3. Subprime interest rate threshold
4. Prepayment penalty threshold

Answer 233

The answer is subprime interest rate threshold. HOEPA uses APR, points and fees, and prepayment penalty thresholds to identify high-cost mortgages.

Question 234

Which of the following would not count as a business day for the purposes of rescission under TILA?

1. Monday
2. Saturday
3. Sunday
4. Day after closing

Answer 234

The answer is Sunday. TILA gives consumers a right of rescission, allowing them to cancel the loan contract within a specified period of time for any reason in some loan transactions. In order to rescind, the consumer must forward a completed rescission form to the creditor no later than midnight of the third business day after the last of certain events occur, including consummation of the transaction, delivery of all material TILA disclosures, or delivery of notice of the right to rescind. For rescission purposes, business days include Saturdays, but not Sundays or legal public holidays.

Question 235

Investigations conducted by state licensing authorities may include all of the following, except:

1. Interviews with employees of an entity
2. Examination of mortgage applications
3. Suspension of a license without notice of a right to a hearing
4. Scheduling a review of advertising examples used by the licensee

Answer 235

The answer is suspension of a license without notice of a right to a hearing. As a result of an investigation, state licensing authorities may not suspend a license without making the licensee aware of why an action may be taken and that the licensee may request a hearing.

Question 236

A mortgage broker originates and closes a mortgage loan, but it is funded by the lender who is purchasing the loan from the originating broker. This is an example of:

1. Warehouse lending
2. Mortgage brokering
3. Table funding
4. Wholesale lending

Answer 236

The answer is table funding. In table funding arrangements, a mortgage broker will originate, process, and close in its own name a loan underwritten and funded by a secondary lender, but will then assign the loan to the funding lender at the closing table.

Question 237

A wholesale lending arrangement that permits a mortgage broker to originate, close, and fund a loan using a warehouse line of credit is called:

1. Warehouse lending
2. Table lending
3. Table funding
4. Warehouse servicing

Answer 237

The answer is table funding. Table funding essentially allows a broker to act as the lender on the transaction, prior to transferring the loan immediately after closing to the lender that extended the credit line. The credit line used for funding is then replenished.

Question 238

A revised Loan Estimate may be provided if an applicant waits more than _____ after the creditor provides a Loan Estimate before indicating an intent to proceed.

1. Three business days
2. Ten business days
3. Five days
4. 24 hours

Answer 238

The answer is ten business days. A revised Loan Estimate may be provided if an applicant waits more than ten business days after the creditor provides a Loan Estimate before indicating an intent to proceed.

Question 239

Disclosures for high-risk loans required by the Homeowners Protection Act inform the borrower that:

1. The loan is considered a high-cost loan because it trips thresholds related to title insurance fees
2. Termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments
3. There may be a loan more suited for the borrower that is much less expensive
4. Payment amounts may change based on interest rate changes

Answer 239

The answer is termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments. The term “high-risk loans” pertains specifically in this case to legislation related to the HPA which facilitates the cancellation of private mortgage insurance. The HPA requires PMI on high-risk loans to be terminated automatically at the midpoint of the amortization schedule, when the borrower is current.

Question 240

A due-on-sale clause requires:

1. That the loan be paid off if the property is sold
2. That all moneys be transferred at closing
3. That consummation take place within 30 days of the date on which the borrower receives the Loan Estimate
4. That the seller address any issues arising from the home inspection prior to closing

Answer 240

The answer is that the loan be paid off if the property is sold. A due-on-sale clause requires that the loan be paid off if the property is sold. If the loan is assumable, the new borrowers must qualify with the lender.

Question 241

Government monitoring information regarding applicant demographics is found where?

1. The HUD-1
2. The 1003
3. The broker agreement
4. The 4506-C

Answer 241

The answer is the 1003. Demographic information collected for government monitoring purposes (HMDA info) is found on the application, or 1003.

Question 242

The term “adjustment frequency” or “adjustment interval” is associated with:

1. The spread between a lender’s margin and its cost
2. The 60-day period after a transfer of servicing that a customer has to send his or her first payment
3. The adjustments of an ARM loan
4. The percentage amount an ARM can increase from its start rate to its rate ceiling

Answer 242

The answer is the adjustments of an ARM loan. An ARM loan, whether fixed at the start or fully-adjustable from the start, carries with it a specific “adjustment frequency,” also sometimes referred to as an “adjustment interval.” Both of these define the amount of time either before an ARM begins to adjust, or between adjustments.

Question 243

The Comparisons table on the Loan Estimate provides all of the following information, except:

1. The amount of loan costs paid in the first five years of the loan term
2. The amount paid for private mortgage insurance before the LTV ratio reaches 78%
3. The amount of principal paid in the first five years of the loan term
4. The amount of total interest paid over the loan term

Answer 243

The answer is the amount paid for private mortgage insurance before the LTV ratio reaches 78%. The comparisons table does not show the amount paid for PMI before the LTV ratios reaches 78%.

Question 244

Which of the following does not appear in the Loan Estimate?

1. The anticipated ARM rates for the first five years
2. The loan term
3. Whether the subject loan is assumable
4. The property purchase price

Answer 244

The answer is the anticipated ARM rates for the first five years. In the heading of the Loan Estimate, the licensee must indicate the property address and its sale price, as well as the loan’s term. The Other Considerations table provides the applicant with information on appraisals, the homeowner’s insurance requirement, the lender’s late payment policy, loan servicing information, and whether the loan may be assumed or refinanced. Anticipated ARM rates for the first five years of the loan are not disclosed, although the total the applicant will have paid in principal, interest, mortgage insurance, and loan costs for that time period is, in the Comparisons table.

Question 245

Which of the following is least likely to be a sign of mortgage fraud?

1. The applicant appears to be quite young but makes a high salary
2. Signatures on documents provided by the applicant do not match one another
3. Identification documents provided are blurry, hard to read, and appear to be photocopies or faxed documents
4. Information on W-2s does not match the income of the applicant

Answer 245

The answer is the applicant appears to be quite young but makes a high salary. Red flags for mortgage fraud include the presentation of suspicious documents (blurry, hard to read, and/or appear to be photocopies or faxed) and discrepancies between documents (signatures which do not match, discrepancies in statements of income, assets, etc.). There is no global correlation between age and income, and a young applicant with a high salary is not a red flag indicating mortgage fraud.

Question 246

For which of the following reasons may a state deny an application for licensure?

1. The applicant had an insurance license in another state that wasn’t renewed two years prior to application
2. The applicant has current outstanding judgments as a result of medical expenses
3. The applicant was convicted of vandalism eight years prior to application
4. The applicant had a property foreclosed two years prior to application

Answer 246

The answer is the applicant had a property foreclosed two years prior to application. In order for a state to approve a license application, the applicant must show that he/she has not been convicted of, or pled guilty or nolo contendere to, any felony in any court during the seven-year period preceding the date of the application; or at any time if the felony involved an act of fraud, dishonesty, or a breach of trust or money laundering. Indications of financial irresponsibility include bankruptcy or pattern of bankruptcies, a foreclosure within the past three years, any unpaid judgments (other than those relating to medical expenses), tax or other government liens, or a pattern of paying creditors late.

Question 247

For which of the following reasons would it be permissible to refuse to take an application from a potential borrower?

1. The applicant has poor credit and you do not feel there is any way that he will meet lender guidelines
2. You do not “click” with the applicant and would rather not do business with him
3. The lender does not accept applications from the neighborhood where the applicant lives
4. The applicant has alluded to the fact that he is submitting false documents in order to qualify for a larger loan

Answer 247

The answer is the applicant has alluded to the fact that he is submitting false documents in order to qualify for a larger loan. A loan originator should not be an accessory to fraud by taking an application based on what he knows or strongly suspects to be fraudulent information. In all other cases, credit decisions should be left to the lender and/or its underwriting department, and should never be based on discriminatory factors or personal whims (not “clicking” with the applicant or denying access to credit based on neighborhood).

Question 248

According to fair lending laws, age may be considered as a factor in denying a loan application if:

1. The applicant is too young to enter into a contract
2. The applicant is seeking a reverse mortgage and is 62 years old
3. The applicant is too old to survive the term of the loan
4. The applicant is too young to have accumulated savings and requires a gift from his or her parents in order to make a down payment

Answer 248

The answer is the applicant is too young to enter into a contract. According to fair lending laws, age may be considered as a factor in denying a loan application if the applicant is too young to enter into a contract.

Question 249

Which of the following best describes the available options for an individual who is applying for a loan originator license but does not pass the required written test?

1. The applicant may take the test up to two additional times, with at least 30 days between each attempt
2. The applicant may try to pass the test a second time, but must wait at least six months
3. The applicant may attempt to pass the test again up to three times within a five-year period before needing to retake the pre-licensing course
4. The applicant may be issued a provisional license for a period of six months, but must maintain a surety bond of twice the normal amount

Answer 249

The answer is the applicant may take the test up to two additional times, with at least 30 days between each attempt. An individual may take the licensing test three times, but to retake the exam, he or she must wait at least 30 days after the date of the preceding test. If he or she fails three consecutive tests, he or she must wait at least six months before taking the test again.

Question 250

All of the following requirements are applicable to HECMs, except:

1. The loan must be secured by the borrower’s principal residence
2. The applicant must complete a consumer information session on reverse mortgages loans
3. The applicant must not have an existing mortgage on the residence
4. The applicant must be at least 62 years old

Answer 250

The answer is the applicant must not have an existing mortgage on the residence​. HECMs include several requirements, including that the applicant must be at least 62 years old; the applicant must complete a consumer information session on reverse mortgage loans; and the loan must be secured by the borrower’s principal residence.

Question 251

Which of the following reasons for denying an applicant a loan is a violation of fair lending laws?

1. The applicant’s recent marital status may lead to a change in employment
2. The applicant’s income does not meet the required level for repayment of the loan
3. The applicant’s age is below the minimum age for executing a contract
4. The applicant’s credit history includes defaults on many credit payments

Answer 251

The answer is the applicant’s recent marital status may lead to a change in employment. It is a violation of fair lending laws to deny an applicant because his or her recent marital status may lead to a change in employment.

Question 252

The URLA is also known as:

1. The application
2. The appraisal
3. The 1004
4. 4506-T

Answer 252

The answer is the application. The URLA stands for “Uniform Residential Loan Application.”

Question 253

Which of the following is true regarding APR tolerance levels?

1. The APR is considered accurate if it is not more than one eighth of one percentage point (.125%) above or below the APR determined in accordance with legal requirements
2. APR tolerance levels are not a feature of federal law
3. The APR is considered accurate generally, if it is not more than one half of one percentage point (.5%) above or below the APR determined in accordance with legal requirements
4. Any change in the APR requires re-disclosure

Answer 253

The answer is The APR is considered accurate if it is not more than one eighth of one percentage point (.125%) above or below the APR determined in accordance with legal requirements. The APR is considered accurate generally, if it is not more than one eighth of one percentage point (.125%) above or below the APR determined in accordance with legal requirements (i.e., in accordance with the actuarial method or the United States Rule method); and in an irregular transaction, if it is not more than one quarter of one percentage point (.25%) above or below the annual percentage rate determined in accordance with legal requirements.

Question 254

For which of the following reasons would it be permissible to refuse to take an application from a potential borrower?

1. The borrower has alluded to the fact that she is submitting false documents in order to qualify for a larger loan
2. The loan originator does not click with the applicant and would rather not do business with him
3. The lender does not accept applications from the residential area where the borrower lives
4. The applicant has poor credit and you do not feel there is any way that he will meet lender guidelines

Answer 254

The answer is the borrower has alluded to the fact that she is submitting false documents in order to qualify for a larger loan. It would be permissible to refuse to take an application from a potential borrower if the borrower has alluded to the fact that she is submitting false documents in order to qualify for a larger loan.

Question 255

Which of the following is a lender unable to consider during the qualification process?

1. The borrower is 65 years old
2. The borrower has had several jobs in the last two years
3. The borrower’s credit score is 618
4. The assets of the borrower are in a retirement account

Answer 255

The answer is the borrower is 65 years old. According to ECOA, a lender may not consider a borrower’s age for the purposes of credit qualification.

Question 256

The Red Flags Rule identifies all of the following as possible red flags, except:

1. The borrower is buying an investment property
2. The borrower fails to respond to a request for additional information
3. The borrower’s identification looks altered
4. The borrower’s address is invalid

Answer 256

The answer is the borrower is buying an investment property. The Red Flags Rule requires financial institutions (including mortgage lenders) that hold any consumer account, or other account for which there is a reasonably foreseeable risk of identity theft, to develop and implement an Identity Theft Prevention Program. Signs indicating possible identity theft include presentation of suspicious documents and personal identifying information (e.g., an address that does not match any address in the consumer report). Buying an investment property is not, in itself, a red flag.

Question 257

When is it legal to refuse to conduct a lending transaction with a consumer on the basis of their personal characteristics?

1. The consumer is a minority who may need assistance with closing costs
2. A large percentage of the borrower’s income is from public assistance
3. The applicant is married but applying individually
4. The borrower is too young to have legal authority to enter a binding contract

Answer 257

The answer is the borrower is too young to have legal authority to enter a binding contract. A creditor may consider the personal characteristics of the applicant if the applicant is not of legal age to enter a binding contract.

Question 258

Under HOEPA, a high-cost loan may have a balloon payment under all of the following circumstances, EXCEPT:

1. The loan satisfies the requirements of a balloon payment qualified mortgage
2. A nine-month bridge loan is obtained for the construction of the borrower’s primary dwelling
3. The borrower’s income is seasonal
4. The borrower signs a waiver consenting to the balloon payment

Answer 258

The answer is the borrower signs a waiver consenting to the balloon payment. A high-cost loan may not provide for a payment schedule with regular periodic payments that result in a balloon payment, unless the payment schedule is adjusted for the irregular or seasonal income of the borrower; the loan is a bridge loan with a term of 12 months or less, taken in connection with the acquisition or construction of a dwelling that will be the borrower’s principal residence; or the loan satisfies the requirements of a balloon payment qualified mortgage.

Question 259

Which of the following might raise a red flag and suggest that further investigation is necessary to ensure that there is no fraud in an application?

1. The applicant uses a co-borrower with a different last name
2. Information in corporate-produced W-2s matches that given in the application
3. The borrower’s claimed income is not consistent with their employment
4. Savings patterns and accumulated assets make sense considering the borrower’s level of income

Answer 259

The answer is the borrower’s claimed income is not consistent with their employment. In the end, sometimes the “Common Sense Rule” catches incidents of fraud. A borrower who claims to be making hundreds of thousands of dollars a year but whose records show employment as a teacher probably has some explaining to do. Close consideration and comparison of the information available can help detect fraud.

Question 260

Which of the following would be a red flag concerning occupancy?

1. The borrowers already own and reside in a property in the same neighborhood
2. The subject property is in another state
3. The borrower has not moved in within ten days after closing
4. The property is three hours away and being declared as a second home

Answer 260

The answer is the borrowers already own and reside in a property in the same neighborhood. A borrower is unlikely to purchase a new primary residence in the same neighborhood as his/her current residence, unless one of the two will be an investment property, or he/she may be planning to let the old home go into foreclosure after purchasing the new home at current market values.

Question 261

If a mortgage broker decides to use telemarketing to establish leads for loan origination, which of the following should occur?

1. The broker should obtain access to the Do-Not-Call Registry
2. The broker should invest in a state-of-the-art predictive dialer
3. The broker should only call former and current customers to ask for referrals
4. The broker should stop calling current customers unless they have given consent

Answer 261

The answer is The broker should obtain access to the Do-Not-Call Registry. The national Do-Not-Call Registry enables consumers to register their phone numbers as numbers not to be called by telemarketers. A company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an established business relationship exists. However, if such a consumer asks not to be contacted, the company must enter that person on their own do-not-call list of such consumers.

Question 262

Which of the following entities, created in 2010, became the new enforcement and regulatory authority for a number of federal laws and regulations?

1. The FTC
2. The CFPB
3. The GNMA
4. The FNMA

Answer 262

The answer is The CFPB. The CFPB, created in 2010, has become the enforcement and regulatory authority for a number of federal laws and regulations, though it still shares some authority with the FTC and other entities in certain instances.

Question 263

Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet the requirements of the Act, while overall responsibility for interpretation, implementation, and compliance currently lies with:

1. The NMLS
2. The Federal Reserve
3. HUD
4. The CFPB

Answer 263

The answer is the CFPB. Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet S.A.F.E. Act requirements. Overall responsibility for interpretation, implementation, and compliance with the S.A.F.E. Act was originally delegated to the U.S. Department of Housing and Urban Development (HUD). However, effective July 21, 2011, all of HUD’s authorities and duties were delegated to the Consumer Financial Protection Bureau (CFPB).

Question 264

Which of these replaces the HUD-1 Settlement Statement and the final TIL Disclosure?

1. The Loan Estimate
2. The Closing Disclosure
3. The Affiliated Business Arrangement Disclosure Statement
4. The Mortgage Servicing Disclosure Statement

Answer 264

The answer is The Closing Disclosure. The Closing Disclosure replaces the HUD-1 Settlement Statement and the final TIL Disclosure. It sets forth the actual costs of the subject mortgage lending transaction in a clear and understandable manner.

Question 265

Which of the following would NOT be required if a mortgage company wishes to utilize electronic signatures on required disclosures?

1. Borrowers must be given the option to receive the disclosures in paper form
2. Borrowers must be able to withdraw their consent to receive the disclosures electronically
3. The company must record the IP address from which the documents were accessed
4. The company must disclose hardware and software requirements to borrowers

Answer 265

The answer is the company must record the IP address from which the documents were accessed. Under the Electronic Signatures in Global and National Commerce Act (the E-SIGN Act), before obtaining a consumer’s consent, a financial institution must provide a clear and conspicuous statement to consumers, informing them of their right or option to have the record provided or made available on paper or in a non-electronic form. The statement must also explain the consumer’s right to withdraw consent, including applicable conditions, consequences, and fees. Consumers must also be provided with information about the hardware and software required to allow them to access and retain the electronic records.

Question 266

The NMLS was established by:

1. HUD
2. The Federal Reserve
3. Each state regulator
4. The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators

Answer 266

The answer is the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. The Nationwide Multistate Licensing System and Registry (NMLS) is a mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for licensing and registering loan originators.

Question 267

This entity is responsible for implementing and enforcing consumer protection laws, establishing consumer education programs, and responding to consumer inquiries and complaints.

1. The Department of Housing and Urban Development
2. The Consumer Financial Protection Bureau
3. The Office of Consumer Financial Education
4. The Federal Housing Administration

Answer 267

The answer is The Consumer Financial Protection Bureau. The Consumer Financial Protection Bureau is responsible for implementing and enforcing consumer protection laws, establishing consumer education programs, and responding to consumer inquiries and complaints

Question 268

Those who disagree with the idea of a fiduciary duty in mortgage loan transactions feel that _____ is ultimately responsible for ensuring that a certain loan product has appropriate terms and conditions.

1. The mortgage broker
2. The lender
3. The consumer
4. The underwriter

Answer 268

The answer is the consumer. Those who disagree with the idea of a fiduciary duty in mortgage loan transactions feel that the consumer is ultimately responsible for ensuring that a certain loan product has appropriate terms and conditions.

Question 269

Which of the following is true regarding preparation and delivery of the Closing Disclosure?

1. The borrower is ultimately responsible for ensuring he receives the Closing Disclosure.
2. Creditors may not use settlement agents to provide the Closing Disclosure on their behalf.
3. The creditor is ultimately responsible for ensuring that the borrower receives the Closing Disclosure.
4. The settlement agent is ultimately responsible for ensuring that the borrower receives the Closing Disclosure.

Answer 269

The answer is the creditor is ultimately responsible for ensuring that the borrower receives the Closing Disclosure. Creditors are responsible for the preparation and delivery of the Closing Disclosure to the borrower. While they may use settlement agents to provide the Closing Disclosure on their behalf, the creditor is ultimately responsible for ensuring that the borrower receives the document.

Question 270

The Nationwide Multistate Licensing System and Registry was developed and is maintained by:

1. The FHFA and CFPB
2. The CSBS and AARMR
3. The CFPB and CSBS
4. The AARMR and CFPB

Answer 270

The answer is The CSBS and AARMR. The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) are the two organizations responsible for creating and implementing the NMLS.

Question 271

According to federal law, which of the following circumstances would require the lender to drop a borrower’s private mortgage insurance (PMI) without the borrower’s request?

1. The current principal balance is 80% of the original purchase price
2. The current principal balance is 78% of the original purchase price
3. The current principal balance is 75% of the current appraised value
4. The current principal balance is 70% of the current appraised value

Answer 271

The answer is the current principal balance is 78% of the original purchase price. Federal law requires automatic termination of PMI on the date when the principal balance is scheduled to reach 78% of the original purchase price. For PMI to be cancelled on that date, the borrower needs to be current on payments on the anticipated termination date.

Question 272

“Equity” is defined as:

1. The difference between the fair market value of a property and the current balances of any liens
2. The difference between the appraised value and the purchase price
3. The relationship between the value of the house and a borrower’s assets
4. The balance of any liens divided by the proposed value of any new loan

Answer 272

The answer is the difference between the fair market value of a property and the current balances of any liens. The equity in a borrower’s home is the difference between the fair market value of a property and the current balance of any liens.

Question 273

This federal law amended TILA and other mortgage-related laws, and mandated the implementation of additional rules to improve consumer protection.

1. RESPA
2. ECOA
3. The Consumer Fairness Act
4. The Dodd-Frank Act

Answer 273

The answer is The Dodd-Frank Act. The Dodd-Frank Act amended TILA and other mortgage-related laws, and mandated the implementation of additional rules to improve consumer protection.

Question 274

Loan originator Zena Mendez is preparing an advertisement in which more than one simple interest rate will apply over the term of the loan. In order to be in compliance with Regulation Z, Zena must clearly and conspicuously disclose all of the following, except:

1. Each applicable simple annual rate
2. The period of time each simple annual rate applies
3. The frequency with which the rate will change
4. The annual percentage rate for the loan

Answer 274

The answer is the frequency with which the rate will change. If an ad states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the loan, the ad must clearly and conspicuously disclose each applicable simple annual interest rate, the period of time during which each rate will apply, and the annual percentage rate for the loan.

Question 275

In the absence of caps, adjustments on an ARM loan would be determined solely by:

1. The index
2. The margin
3. The fully-indexed rate
4. The lifetime rate

Answer 275

The answer is the fully-indexed rate. If there were no caps involved, an ARM would adjust based on the movement of the fully-indexed rate (margin + index). It would not be adjusted based on index alone or margin alone. While the margin does not change over time, it must be combined with the fluctuating index to find the new rate. It is not sufficient to apply only the index or only the margin to the adjustment - they must be combined into the fully-indexed rate.

Question 276

All of the following correctly pair federal laws with their implementing regulations, except:

1. The Equal Credit Opportunity Act and Regulation B
2. The Real Estate Settlement Procedures Act and Regulation X
3. The Gramm-Leach-Bliley Act and Regulation V
4. The Truth in Lending Act and Regulation Z

Answer 276

The answer is The Gramm-Leach-Bliley Act and Regulation V. The Gramm-Leach-Bliley Act is implemented by Regulation P.

Question 277

If a borrower’s reserve account for taxes and insurance is found to be short or deficient by an amount in excess of one month’s worth of deposits, which of the following is true?

1. The escrow account will be cancelled
2. The lender can require the borrower to make up the shortage over the next 12 months
3. The lender can require the borrower to make up the shortage over the next six months
4. The borrower must remit the shortage to the lender within 90 days of notice of the shortage

Answer 277

The answer is the lender can require the borrower to make up the shortage over the next 12 months. If the escrow account is short by more than 1 month, the lender can choose to do nothing or require repayment of the shortage over a minimum of 12 months.

If an escrow account analysis discloses a shortage of less than one month’s escrow account payment, the lender or servicer may allow the shortage to exist and do nothing to change it, require the borrower to repay the shortage amount within 30 days, or require the borrower to repay the shortage amount in 2 or more equal monthly payments.

Question 278

A lender originally discloses an APR of 6.08%. When the lender begins to prepare closing documents, they realize the actual APR is 6.135%. Which of the following is true?

1. The lender must re-disclose and wait three business days from mailing the disclosures before closing the transaction
2. The lender must re-disclose and wait three business days from the borrower’s receipt of the disclosures before closing the transaction
3. The lender must re-disclose and wait six calendar days from mailing the disclosures before closing the transaction
4. The lender has no obligation to re-disclose

Answer 278

The answer is the lender has no obligation to re-disclose. The APR is considered accurate if it is not more than one eighth of one percentage point (.125%) above or below the APR determined in accordance with legal requirements, or if it is not more than one quarter of one percentage point (.25%) above or below the APR for an irregular transaction. In this case, the difference between the disclosed APR and the actual APR is within the limits of this tolerance, and does not require re-disclosure.

Question 279

A loss payee clause protects whom?

1. The lender in the event the property is damaged by fire or other risks
2. The borrower from losing all of his/her investment
3. The lender in the event the borrower defaults on the loan
4. The borrower by using mortgage insurance to offset interest rate adjustment

Answer 279

The answer is the lender in the event the property is damaged by fire or other risks. The loss payee clause in a hazard insurance policy protects the lender’s investment in the event that the collateral is damaged by fire or other risks. This means that if there is a fire or other loss, the lender is paid first to cover its investment.

Question 280

Which of the following is true regarding a creditor’s duty to give a copy of an appraisal to a borrower?

1. The lender is always required to provide a copy of the appraisal promptly upon completion
2. The lender is only required to give a copy of the appraisal for closed-end credit
3. The lender is never required to give a copy of the appraisal to the borrower
4. The lender is required to provide a copy of the appraisal promptly upon completion or three business days prior to consummation for closed-end credit, whichever is earlier

Answer 280

The answer is The lender is always required to provide a copy of the appraisal promptly upon completion or three days prior to consummation for closed-end credit, whichever is earlier. A creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion, or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit.

Question 281

Assume a borrower completes an online loan application, including all six required elements, but never hits “submit.” Which of the following is true regarding the lender’s obligation to issue a Loan Estimate?

1. The lender must issue a Loan Estimate within three days of the borrower’s submission of the last required piece of information
2. The lender is not required to issue a Loan Estimate
3. The lender is required to issue a Loan Estimate once it realizes all six pieces of information have been submitted
4. The lender is required to contact the borrower

Answer 281

The answer is the lender is not required to issue a Loan Estimate. A lender must provide the Loan Estimate either in person or by placing it in the mail no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. If a loan application has not been submitted, a lender is not required to issue a Loan Estimate.

Question 282

A lender’s prime rate is determined by:

1. The Federal Reserve
2. Federal law
3. The lender itself
4. The National Association of Underwriters

Answer 282

The answer is the lender itself. While interest rates are affected by actions taken by the Federal Reserve (the Fed), the Federal Reserve does not directly influence the interest rates that lenders charge borrowers. Each lender will set its own prime rates (i.e., the lowest rates it charges for its best customers), as well as rates for loans to other customers based on its costs and desired profit margin.

Question 283

When a mortgage or deed of trust contains a power of sale clause:

1. The lender can sell the home at its discretion
2. A judge must enter an order of foreclosure before the home can be sold
3. The lender may foreclose without first obtaining a court order
4. The lender is made whole for losses by MIP

Answer 283

The answer is the lender may foreclose without first obtaining a court order. When a mortgage or deed of trust contains a power of sale clause, the lender is authorized to sell the property through foreclosure steps without having to obtain a court order first. This is known as a non-judicial foreclosure.

Question 284

A lending transaction has been rescinded by a consumer with cold feet. What happens as a result?

1. The lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process
2. The rescission may be challenged by the lender as long as it is within seven business days
3. The lender no longer has security interest in the property, and the borrower is liable for any finance charges and appraisal costs
4. After cancellation, the lender retains any money or property paid by the borrower

Answer 284

The answer is the lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process. TILA requires that, in the event of rescission, the lender relinquish security interest in the property and return any and all money or property paid by the borrower. All parties are placed back in the exact position they were in before the transaction took place.

Question 285

Annual PMI is determined by multiplying:

1. The loan amount and the interest rate
2. The mortgage insurance rate and the number of months in a year
3. The interest rate and the number of months in a year
4. The loan amount and the mortgage insurance rate

Answer 285

The answer is the loan amount and the mortgage insurance rate. Annual PMI is determined by multiplying the loan amount and the mortgage insurance rate.

Question 286

Loan-to-value ratio is best described as:

1. The loan amount divided by the lower of the appraised value or purchase price
2. The appraised value divided by the loan amount
3. The down payment divided by the appraised value
4. The purchase price divided by the appraised value

Answer 286

The answer is the loan amount divided by the lower of the appraised value or purchase price. The relationship of the loan amount to the value or sales price of the property securing the loan is called a loan-to-value ratio. The loan-to-value ratio (LTV) relates the loan to the lesser of the appraised value or sales price. LTV = loan amount, divided by property value (appraised value) or purchase price, whichever is less.

Question 287

All but which of the following prohibitions or requirements apply to HPMLs?

1. The loan cannot include prepayment penalties after the first two years of the loan term
2. The loan cannot include prepayment penalties
3. The borrower must have an escrow account for taxes and insurance
4. Consideration of repayment ability must include verification of income using documents such as IRS W-2 forms

Answer 287

The answer is the loan cannot include prepayment penalties after the first two years of the loan term. HPMLs cannot include prepayment penalties at all, so it is false to say that the loan cannot include prepayment penalties after the first two years of the loan when they are prohibited altogether.

Question 288

Under which of the following circumstances would the lender on a conventional loan be required to drop the mortgage insurance?

1. The appraised value has increased, giving the borrower 20% equity, and the borrower has made their first 12 consecutive payments
2. The appraised value has increased, giving the borrower 10% equity, and the borrower has made their first 24 consecutive payments
3. The loan reaches 78% LTV based on the original purchase price
4. The loan reaches 70% LTV based on a new appraisal, and the borrower requests cancellation

Answer 288

The answer is the loan reaches 78% LTV based on the original purchase price. Generally, a conventional loan of up to 80% of the property’s value will be made without private mortgage insurance. The annual premiums and the insurance stop automatically once the loan is paid down to 78%, or may be canceled at the borrower’s request once the loan balance reaches 80% of the value of the property at the time the loan was made.

Question 289

For ARMS characterized by figures like “3/1,” “5/1,” “7/1,” or “10/1,” the first number represents _____, and the second number represents _____.

1. The start rate; the periodic cap
2. The locked term; the adjustment frequency
3. The initial cap; the periodic cap
4. The locked term; the adjustment cap

Answer 289

The answer is the locked term; the adjustment frequency. ARMS are often named for their features. In other words, a 3/1 ARM is locked for three years, and then adjusts annually each year thereafter. The first number represents the locked term and the second number represents the adjustment frequency.

Question 290

Under Fannie Mae guidelines, the amount of hazard insurance must be equal to:

1. The appraised value
2. The purchase price
3. The lower of the replacement cost or the unpaid loan amount
4. 80% of the replacement cost

Answer 290

The answer is the lower of the replacement cost or the unpaid loan amount. Fannie Mae requires that for any first-lien mortgage (excluding a reverse mortgage), the minimum hazard insurance coverage required is the lesser of 100% of the insurable value of the improvements, as established by the property insurer, or the unpaid principal balance of the mortgage, as long as it equals the minimum amount (80% of the insurable value of the improvements) required to compensate for damage or loss on a replacement cost basis. If it does not, then the coverage that does provide the minimum required amount must be obtained.

Question 291

Which of the following accurately describes the difference between the LTV and the CLTV?

1. The CLTV describes the relationship between the primary mortgage and the property value; the LTV describes the relationship between all liens and the property value
2. The LTV describes the relationship between the primary mortgage and the property value; the CLTV describes the relationship between all liens and the property value
3. The LTV describes the relationship between the primary mortgage and all other liens and encumbrances; the CLTV describes the relationship between the property value and the amount of the loan
4. The LTV describes the relationship between the borrower’s monthly payments and residual income; the CLTV describes the relationship between the finance charge and the amount of the loan

Answer 291

The answer is The LTV describes the relationship between the primary mortgage and the property value; the CLTV describes the relationship between all liens and the property value. The LTV describes the relationship between the primary mortgage and the property value; the CLTV describes the relationship between all liens and the property value.

Question 292

In calculating an adjustment for an ARM, the fully-indexed rate is determined by adding:

1. The margin to the start rate
2. The start rate to the index
3. The index to the lifetime cap
4. The margin to the index

Answer 292

The answer is the margin to the index. The fully-indexed rate determines the movement of an ARM (absent the caps). In order to arrive at the fully-indexed rate, you simply add the margin and index together.

Question 293

Unlike other parties to a mortgage transaction, in general, _____ have no long-term financial interest in the performance of the loan.

1. The borrower and mortgage loan originator
2. The mortgage broker and mortgage loan originator
3. The borrower and lender
4. The lender and mortgage broker

Answer 293

The answer is the mortgage broker and mortgage loan originator. Because brokers and loan originators are compensated for originating a loan as long as the lender accepts it, and may not be penalized if they do not actually commit any misrepresentation and the borrower defaults later in the term of the loan, they might be less concerned with the suitability and long-term performance of the loan for the borrower. A relative lack of consequences for a lender’s agent subjects the mortgage delivery system to what economists and political scientists call the principal-agent problem.

Question 294

Which of the following statements most accurately describes the term “predominant value”?

1. The final value an appraiser reports on an appraisal
2. The most common sales price for the neighborhood
3. The highest sales price in the neighborhood
4. The average sales price for the neighborhood

Answer 294

The answer is the most common sales price for the neighborhood. In the context of an appraisal, the term “predominant value” refers to the price or price range appearing most frequently in the market area defined by the appraiser in the report, based on comparable sales.

Question 295

Under which of the following situations would an appraiser use the income approach to appraise a property?

1. The property is in an area which is primarily rental properties
2. All comparable sales for the property are rental properties
3. The new buyer is going to use the property as a rental property
4. The property is being used by the seller as an investment property

Answer 295

The answer is the new buyer is going to use the property as a rental property. The income (or capitalization) approach is used to appraise properties that produce rental income (e.g., apartments, office buildings, and rental units). It bases the value of the property on the net income the owner will receive and a rate of return (capitalization rate) the owner should find acceptable. The estimated net income is calculated by subtracting an allowance for vacancies and bad debts from scheduled gross income to arrive at effective gross income, and then subtracting fixed expenses, operating expenses, and reserves to replace items that will wear out.

Question 296

With regard to adjustable loans with interest rate caps, it is true that:

1. The cap period is always one year
2. The cap is lower when the adjustment period is longer
3. The loan payments can go up when the index plus the margin is less than the rate the borrower has been paying before the adjustment
4. The new interest rate cannot exceed the rate ceiling established by the caps

Answer 296

The answer is The new interest rate cannot exceed the rate ceiling established by the caps. When the rate is reset, the index plus the margin cannot exceed the maximum allowable rate which is determined by adding the periodic cap to the current rate.

The cap period is identical to the adjustment period, and does not always equal one year. The cap would be higher when the adjustment period is longer, as the lender cannot make changes as frequently.

Question 297

The priority of liens is based on:

1. The order of recordation
2. The newest debt paid first
3. Lien holders must file for payment after a default
4. The order of recordation, unless a tax lien or subordination agreement changes the order

Answer 297

The answer is the order of recordation, unless a tax lien or subordination agreement changes the order. Liens are paid in order based on the recording date, oldest first. However, tax liens take priority, and a subordination agreement can change the order between creditors.

Question 298

After a borrower allows the assumption of his or her VA loan, he or she may use his or her VA privilege again only after:

1. Five years have passed
2. The home is sold to a new owner
3. The original VA loan is satisfied
4. The original VA loan is moved from his or her name into the name of the assuming borrower

Answer 298

The answer is the original VA loan is satisfied. A VA loan is assumable; however, the veteran’s VA eligibility is no longer available until the original VA loan has been satisfied. This means that it is paid off, either over the remaining amortization time period, sale of the home, or refinancing out of the VA loan.

Question 299

Which of the following is true of a loan that allows for negative amortization?

1. The payments are not sufficient enough to cover the interest due, so the principal balance increases
2. The interest rate decreases because payments are not sufficient enough to pay the interest due
3. The principal amount increases because the borrower’s payments cover more than the interest due
4. The payments are less than necessary to cover the interest due, so the principal does not increase

Answer 299

The answer is the payments are not sufficient enough to cover the interest due, so the principal balance increases. A loan that allows for negative amortization has a principal balance that goes up because the payments are not sufficient enough to cover interest due.

Question 300

What document would an underwriter rely on for detailed information concerning the collateral for a mortgage loan?

1. The property appraisal
2. The borrower’s asset statements
3. The URLA
4. The borrower’s employment documentation

Answer 300

The answer is the property appraisal. An underwriter would rely on the property appraisal for detailed information concerning the collateral for a mortgage loan.

Question 301

According to the HPML Rule, which of the following transactions would require a second appraisal?

1. A higher-priced mortgage loan that also meets qualified mortgage standards
2. The purchase price is 10% higher than the seller’s acquisition price 100 days ago
3. All higher-priced mortgage loans are required to have two appraisals
4. The purchase price is 20% higher than the seller’s acquisition price 150 days ago

Answer 301

The answer is the purchase price is 20% higher than the seller’s acquisition price 150 days ago. According to the HPML Rule, a transaction will require a second appraisal if the purchase involves a possible case of “loan flipping.” This is true when the consumer’s purchase price is 10% more than the seller’s acquisition price (if the seller acquired the property 90 or fewer days ago) or 20% more than the seller’s acquisition price (if the seller acquired the property 91 to 180 days ago).

Question 302

Which of the following rules requires mortgage professionals to take reasonable steps to ensure that service providers are able to maintain appropriate protection for the privacy of consumer information?

1. The Qualified Mortgage Rule
2. The ATR Rule
3. The Safeguards Rule
4. Title X of the Dodd-Frank Act

Answer 302

The answer is The Safeguards Rule. The Safeguards Rule requires mortgage professionals to take reasonable steps to ensure that service providers are able to maintain appropriate protection for the privacy of consumer information.

Question 303

A borrower is refinancing their first mortgage, but leaving their second mortgage in place. Which of the following is true?

1. The second mortgage holder will need to agree to a subordination
2. This will not be possible due to lien priority
3. The second lien holder will need to reconvey
4. The second lien holder will need to abrogate

Answer 303

The answer is the second mortgage holder will need to agree to a subordination. A mortgage is a second mortgage when it is recorded after another mortgage that is still outstanding on the same property; or when it has a subordination clause specifying that it has lower priority (i.e., is subordinate) even though it may have had priority based on its date of recording, or will remain subordinate in the event that the first mortgage is refinanced. In order to preserve lien priority under the circumstances described, the second mortgage holder will need to agree to a subordination clause.

Question 304

In a mortgage transaction subject to RESPA that is secured by the consumer’s dwelling, a Loan Estimate must be delivered or mailed within three business days after receipt of a written application and no later than:

1. Three business days before the transaction is consummated
2. The fifth business day before the transaction is consummated
3. The seventh business day before the transaction is consummated
4. The date the transaction is consummated

Answer 304

The answer is the seventh business day before the transaction is consummated. A creditor must provide the Loan Estimate no later than three business days after receipt of the consumer’s application AND at least seven business days prior to consummation.

Question 305

The size of the government’s guarantee on a VA loan depends on:

1. Whether the interest rate is fixed or adjustable
2. Whether this is the first time a veteran uses the guarantee or a subsequent transaction
3. The length of the loan term
4. The size of the loan being obtained

Answer 305

The answer is the size of the loan being obtained. The size of the government’s guarantee on a VA loan depends on the size of the loan being obtained.

Question 306

Which of the following is least likely to be considered a proxy for a loan term or condition under the Loan Originator Compensation Rule?

1. The state in which the property is located
2. The amortization term of the loan
3. Whether or not the loan is an ARM or a fixed-rate loan
4. The loan program

Answer 306

The answer is the state in which the property is located. If a loan originator’s compensation is based in whole or in part on a factor that is not an actual loan term but acts as a proxy for a term of transaction (such as the term and/or rate of the loan determining whether it is held in the lender’s portfolio or sold), the originator’s compensation is based on a term of the transaction and is prohibited. A factor is a proxy if the loan originator has the ability to add, drop or change it when originating the loan. Since the loan originator cannot change the state in which the property is located, it is not likely to be considered a proxy for a loan term or condition.

Question 307

Which of the following entities or individuals is responsible for determining financial responsibility requirements for state-licensed originators, lenders, or brokers?

1. The NMLS
2. The state regulator
3. The governor
4. The legislature

Answer 307

The answer is the state regulator. The NMLS consolidates and makes licensing records available to state regulators to use for licensing decisions.

Question 308

XYZ Mortgage Company just mailed a Closing Disclosure to a consumer. The waiting period prior to closing will begin:

1. On the date that the Closing Disclosure is mailed
2. The next business day after the Closing Disclosure is mailed
3. The third business day after the Closing Disclosure is mailed
4. The day on which the company received a completed, signed loan application

Answer 308

The answer is the third business day after the Closing Disclosure is mailed. The waiting period prior to closing will begin on the third business day after the Closing Disclosure is mailed.

Question 309

A creditor that is making an HPML must provide the loan applicant with a disclosure regarding his or her right to a copy of the appraisal no later than ____ after the creditor receives the loan application.

1. Three days
2. The third business day
3. Five days
4. The fifth business day

Answer 309

The answer is the third business day. A creditor that is making an HPML must provide the loan applicant with a disclosure regarding his or her right to a copy of the appraisal no later than the third business day after the creditor receives the loan application

Question 310

If a borrower waives the right to receive a copy of an appraisal:

1. They must receive a copy within 30 days of closing
2. The lender is never required to give the borrower a copy of the appraisal
3. They must receive a copy seven days before closing
4. They must receive a copy at or before consummation

Answer 310

The answer is they must receive a copy at or before consummation. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. An applicant may waive the timing requirement and agree to receive a copy at or before consummation or account opening.

Question 311

Borrowers have the right to rescind a transaction in which a security interest is given in their primary residence until the later of midnight on the _____ business day following the consummation of the transaction or delivery of the required disclosures and rescission forms.

1. Fifth
2. Third
3. Seventh
4. Tenth

Answer 311

The answer is third. Borrowers have the right to rescind a transaction in which a security interest is given in their primary residence until the later of midnight on the third business day following the consummation of the transaction or delivery of the required disclosures and rescission forms.

Question 312

Which of the following is true regarding a lender’s ability to collect an appraisal fee?

1. This is not allowed until closing
2. This is allowed as long as the borrower has received the Loan Estimate and expressed an intent to proceed
3. This is allowed as long as the borrower has expressed an intent to proceed
4. This is allowed as long as the Loan Estimate has been mailed

Answer 312

The answer is this is allowed as long as the borrower has received the Loan Estimate and expressed an intent to proceed. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating an intent to proceed with the loan.

Question 313

In the appraisal process, it is unethical and unlawful to:

1. Request an appraiser to consider additional information on the subject property or comparables
2. Forward information to an appraiser about recent sales in the area
3. Refuse payment of an appraiser due to breach of contract
4. Threaten or pressure an appraiser to promise a specific value

Answer 313

The answer is threaten or pressure an appraiser to promise a specific value. It is unlawful to threaten or pressure an appraiser to promise a specific value for an appraisal.

Question 314

In the appraisal process, it is unethical and unlawful to:

1. Request an appraiser to consider additional information on the subject property or comparables
2. Threaten or pressure an appraiser to promise a specific value
3. Forward information to an appraiser about recent sales in the area
4. Refuse payment of an appraiser due to breach of contract

Answer 314

The answer is threaten or pressure an appraiser to promise a specific value. Under Regulation Z, no person may, in connection with an appraisal, compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate an appraiser in order to cause the appraised value to be based on any factor other than the appraiser’s independent judgment and the pertinent facts. This does not prohibit a licensee from asking an appraiser to consider additional appropriate property information, provide further detail, or correct errors in the appraisal report.

Question 315

If a consumer contacts a mortgage company, for how long does the established business relationship exemption exist?

1. Nine months
2. Six months
3. 24 months
4. Three months

Answer 315

The answer is three months. Under the Do-Not-Call-Act, a company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an “established business relationship” exists. An established business relationship means a relationship between the company and a consumer based on the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the 18 months immediately preceding the date of a telemarketing call. This may also include an inquiry or application regarding an offered product or service, within the three months (90 days) immediately preceding the date of a telemarketing call.

Question 316

Loan originator compensation records must be retained for at least:

1. Three years
2. Two years
3. Four years
4. Five years

Answer 316

The answer is three years. A creditor must maintain, for three years after the date of payment, sufficient records to evidence all compensation it pays to a loan originator, and the compensation agreement that governs those payments.

Question 317

In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for:

1. Twelve months
2. Three years
3. Two years
4. Five years

Answer 317

The answer is three years. In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for three years.

Question 318

The Special Information Booklet must be delivered to the borrower within how many business days of the creditor’s receipt of an application?

1. Three
2. Five
3. Seven
4. Ten

Answer 318

The answer is Three. A special information booklet, titled “Your Home Loan Toolkit: A Step-by-Step Guide,” must be provided within three business days of the creditor’s receipt of the application for a home purchase loan.

Question 319

During initial application for a license, loan originators must make disclosure of all of the following, except:

1. Regulatory history
2. Criminal history
3. Civil and administrative records
4. Three-year history of loan production

Answer 319

The answer is three-year history of loan production. A loan originator is not required to document prior experience or production history as a condition of licensure.

Question 320

Marketing campaigns for the solicitation of credit are covered by the provisions of:

1. GLB
2. TILA
3. RESPA
4. ECOA

Answer 320

The answer is TILA. General marketing and advertising for credit is covered by TILA.

Question 321

HOEPA is federal legislation enacted by Congress through amendments to:

1. FACTA
2. ECOA
3. TILA
4. HMDA

Answer 321

The answer is TILA. The Home Ownership and Equity Protection Act is part of TILA. Created in 1994, it was the first legislation specifically created to combat predatory lending. Its regulations are found in Section 32 of Regulation Z.

Question 322

If a broker is preparing to publish an ad to bring in new clients, with which law should he/she be familiar?

1. TILA
2. FNMA
3. FCRA
4. FACTA

Answer 322

The answer is TILA. The Truth-in-Lending Act governs advertising for credit. Ads for mortgages fall under this legislation.

Question 323

Which of the following fees would NOT be used in calculating the APR?

1. Closing fee
2. Underwriting fee
3. Mortgage insurance
4. Title insurance

Answer 323

The answer is title insurance. The annual percentage rate (APR) represents the relationship of the total finance charge to the total amount financed, as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. Among other charges, finance charges include points, loan fees, and mortgage insurance premiums, but not title insurance premiums.

Question 324

The examination of county and municipal records to determine the legal status of a property is called:

1. Title insurance
2. Title search
3. Title binder
4. Title commitment

Answer 324

The answer is title search. The title search is the first step in the title process. It involves an abstractor or an attorney searching county or municipal records to determine the status of a property.

Question 325

It is unethical and illegal to use yield spread premiums for any reason other than:

1. To earn an additional commission on a loan origination
2. To enable a creditor to earn more on a mortgage transaction
3. To enable a loan originator to meet a monthly sales quota
4. To help a borrower pay for settlement costs

Answer 325

The answer is to help a borrower pay for settlement costs. Yield spread premiums (YSPs) are points credited for an interest rate above its par rate. The Loan Originator Compensation Rule, included in Regulation Z, prohibits using YSPs as a form of loan originator compensation. “No closing cost” loans result from applying the YSP to pay the borrower’s closing costs so that they need not be paid upfront. While such loans are not illegal, some states prohibit the use of terms such as “No Cost” or similar claims in mortgage loan advertising, as they are misleading and deceptive.

Question 326

A husband and wife own their home as joint tenants. When the husband dies, what happens to his share in the property?

1. Transfers according to the probate code
2. Transfers to the husband’s heirs
3. Transfers to the wife
4. Transfers intestate

Answer 326

The answer is transfers to the wife. Joint tenants share equal ownership of the property and have equal, undivided right to keep or dispose of the property. Joint tenancy creates a right of survivorship; if any of the joint tenants die, the remainder of the property is transferred to the survivors. In this case, when the husband dies, his interest in the property would transfer to his wife.

Question 327

Which of the following is not prohibited under the Telemarketing Sales Rule?

1. Threatening to arrest a borrower if he/she does not pay a bill
2. Making misleading statements
3. Transmitting a telephone number so that the recipient can identify it through Caller ID
4. Placing calls before 8:00am or after 9:00pm

Answer 327

The answer is Transmitting a telephone number so that the recipient can identify it through Caller ID. It is not prohibited under the TSR to call a consumer and have the number able to be read on the Caller ID. In fact, it is required.

Question 328

What is the maximum cushion that servicers can hold in a borrower’s reserve account?

1. Two months’ taxes, one month insurance
2. One month taxes, one month insurance
3. Two months’ taxes, two months’ insurance
4. Whatever the lender deems as “reasonable under the circumstances”

Answer 328

The answer is two months’ taxes, two months’ insurance. A borrower’s monthly mortgage payment may include a reserve payment (also known as an escrow or impound payment) that represents approximately 1/12 of the estimated annual hazard and flood insurance premiums and property taxes. When there is need of an account, the borrower may be required to make an initial deposit into the reserve account at settlement to ensure that the regular monthly deposits will accumulate enough to pay the property taxes, insurance premiums, or other charges when they are due. The maximum amount that a lender can collect for this deposit cannot exceed the sum of an amount sufficient to pay taxes, insurance premiums, or other charges up to the due date of the new loan’s first full monthly mortgage installment payment, plus an additional amount sufficient to pay future estimated taxes, insurance premiums, and other charges, not in excess of two months’ worth, which is 1/6 of the estimated charges for the following 12 months.

Question 329

An underwriter would expect to see _____ in order to document the income of a commissioned borrower.

1. Two years’ tax returns if the borrower’s commissions represent 20% of his/her income
2. 1099s from the previous year
3. Profit and loss statement and two years’ tax returns
4. Two years’ tax returns and all schedules if the commission income is more than 25% of income

Answer 329

The answer is two years’ tax returns and all schedules if the commission income is more than 25% of income. Commissioned borrowers must show two years’ tax returns if their commission income is more than 25% of their total income.

Question 330

How many total hours of ethics are required, at minimum, for continuing education?

1. Three
2. Eight
3. Two
4. Eleven

Answer 330

The answer is two. The NMLS requires, as a federal minimum, at least two hours of ethics training within the total eight hours of education required for continuing education.

Question 331

Which of the following pieces of information is NOT found on the 1003?

1. Appraised property value
2. Underwriter’s name
3. Borrower’s Social Security Number
4. Subject property address

Answer 331

The answer is underwriter’s name. Categories of information required on the Uniform Residential Loan Application, or Form 1003, include mortgage type and loan terms, property information and loan purpose, and borrower information. It includes information about the subject property and the borrower (such as Social Security Number and appraised property values), but the underwriter’s name is not a required part of the application and is unlikely to appear.

Question 332

For a mortgage licensee, paying compensation for referrals is:

1. Unethical, and a violation of federal law
2. Neither unethical nor illegal
3. Unethical, but not illegal
4. Unethical, and may be prohibited in some states, but not a violation of federal law

Answer 332

The answer is unethical, and a violation of federal law. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, oral or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person.

Question 333

The 1003 is also known as the:

1. Uniform Residential Loan Application
2. Appraisal
3. Mortgage Credit Analysis Worksheet
4. Uniform Underwriting and Transmittal Summary

Answer 333

The answer is Uniform Residential Loan Application. A Uniform Residential Loan Application, also called Form 1003, is used when the loan is to be sold to Freddie Mac or Fannie Mae, insured by the Federal Housing Administration (FHA), or guaranteed by the Department of Veterans Affairs (VA).

Question 334

Upon meeting all the requirements and being approved by her state for licensing as a mortgage loan originator, Kelly Greene was assigned a number that permanently identifies her as a loan originator. This number is her:

1. Unique identifier
2. License number
3. Authorization number
4. Employment number

Answer 334

The answer is unique identifier. The unique identifier is a number that permanently identifies a loan originator, assigned by the NMLS to facilitate electronic tracking of loan originators.

Question 335

What is the specific distinction between state-licensed and registered loan originators?

1. Unlike state-licensed loan originators, registered loan originators are exempt from licensing requirements
2. State-licensed loan originators are only allowed to originate in the states in which they hold a license, while registered loan originators may obtain one license and conduct business anywhere
3. Only state-licensed loan originators carry a unique identifier
4. Registered loan originators need only ten hours of pre-licensing education, while state-licensed loan originators need 20 hours

Answer 335

The answer is unlike state-licensed originators, registered originators are exempt from licensing requirements. A registered mortgage loan originator is an individual who meets the requirements of a mortgage loan originator, is an employee of a covered financial institution, is registered with the NMLS, and maintains an NMLS unique identifier. Unlike state-licensed originators, registered originators are exempt from licensing requirements.

Question 336

A consumer is obtaining a closed-end loan that allows for rescission. The borrower may exercise his or her right to rescind:

1. If he or she collects the signatures of all other parties with an ownership interest in the property
2. Until midnight on the third business day after signing the lending agreement
3. Until midnight on the first business day after signing the lending agreement
4. Only if he or she has a loan contract that explicitly provides for the right to rescind

Answer 336

The answer is until midnight on the third business day after signing the lending agreement. A consumer with a loan for closed-end credit may exercise his or her right to rescind at any time before midnight on the third business day after signing the lending agreement.

Question 337

How long must flood insurance be in place?

1. The borrower can cancel at 80% of the loan balance
2. Until the loan reaches the halfway point in the amortization table
3. It cannot be canceled as long as the property remains in a mandatory flood zone
4. Until the loan balance is completely paid off

Answer 337

The answer is until the loan balance is completely paid off. Flood insurance must stay in place at least until the loan balance is paid off and the lender no longer needs to be protected from the hazard.

Question 338

“UFMIP” stands for:

1. Uniform Funded Mortgage Insurance Premium
2. Upfront Mortgage Insurance Premium
3. Uniform Financed Mortgage Insurance Premium
4. Uniform Front-End Mortgage Insurance Premium

Answer 338

The answer is Upfront Mortgage Insurance Premium. “UFMIP” stands for “Upfront Mortgage Insurance Premium.”

Question 339

Which of the following terms describes the fee charged to the borrower to insure an FHA loan?

1. Upfront mortgage insurance premium
2. Guaranty fee
3. Insuring fee
4. Funding fee

Answer 339

The answer is upfront mortgage insurance premium. The FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. FHA loans require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable (except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years).

Question 340

Under the GLB Act, a customer relationship is established:

1. As soon as a borrower inquires about a loan
2. When the borrower’s loan is funded
3. Once the loan servicing begins
4. Upon application

Answer 340

The answer is upon application. Under the Gramm-Leach-Bliley Act, a customer relationship begins as soon as a borrower provides non-public personal information. For the purposes of mortgage lending, this happens at application.

Question 341

The Truth in Lending Act protects consumers in the mortgage market by:

1. Using disclosures to ensure that consumers make informed choices for loan products
2. Prohibiting subprime mortgage loan transactions
3. Regulating the interest rates that creditors can charge for conventional mortgage loans
4. Limiting the cost of settlement services by imposing caps on amounts charged

Answer 341

The answer is using disclosures to ensure that consumers make informed choices for loan products. The Truth in Lending Act protects consumers in the mortgage market by using disclosures to ensure that consumers make informed choices for loan products and are given opportunities to understand the fees and charges that accompany mortgage loans.

Question 342

The generally-accepted appraisal standards in the United States are known as:

1. ASB
2. USASB
3. USPAP
4. FinCEN

Answer 342

The answer is USPAP. The Uniform Standards of Professional Appraisal Practice (USPAP) are the recognized standards for appraisals in the United States.

Question 343

Which of the following is true concerning the refundability of a VA funding fee?

1. VA funding fees are refundable if the borrower is overcharged
2. VA funding fees are refundable if the borrower is active military
3. VA funding fees are never refundable
4. VA funding fees are refundable if the borrower is a wounded veteran

Answer 343

The answer is VA funding fees are refundable if the borrower is overcharged. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender’s exposure to loss in the event of a borrower’s default that results in foreclosure. However, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed, instead of a mortgage insurance premium. The funding fee is only refundable if the borrower was overcharged. There are some exceptions to the imposition of a funding fee, including for veterans with disabilities. A veteran receiving VA compensation for a service-connected disability is exempt from the fee requirement.

Question 344

Which of the following loans will not require mortgage insurance?

1. FHA loan at 96.5% LTV
2. Conventional loan at 85% LTV
3. VA loan at 100% LTV
4. Conventional loan at 95% LTV

Answer 344

The answer is VA loan at 100% LTV. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender’s exposure to loss in the event of a borrower’s default that results in foreclosure. However, rather than being charged a mortgage insurance premium for the guarantee, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed.

Question 345

Which of the following is true with regard to VA loans and qualified mortgages?

1. VA loans are not qualified mortgages
2. VA loans are temporary qualified mortgages
3. VA loans have a rebuttable presumption of compliance under the QM Rule
4. VA loans are safe harbor qualified mortgages

Answer 345

The answer is VA loans are safe harbor qualified mortgages. VA-guaranteed loans that are made in compliance with VA standards are safe harbor qualified mortgages.

Question 346

The residual income method applies to which of the following types of loans?

1. Jumbo
2. Conventional
3. VA
4. FHA

Answer 346

The answer is VA. The VA uses two methods for qualifying its borrowers: a 41% debt-to-income ratio (including housing and fixed debt), and the residual income method, which determines whether the veteran has enough income after paying fixed debts to cover daily living expenses. This method can qualify a borrower whose ratio might exceed the 41% limit.

Question 347

An underwriter:

1. Is responsible for approving an originator’s license
2. Verifies that the applicant and subject property meet lender guidelines
3. Looks for red flags in marketing
4. Facilitates the Safeguards Rule for the lender

Answer 347

The answer is verifies that the applicant and subject property meet lender guidelines. The underwriter’s responsibility is to make sure that both the applicant and the property meet lender guidelines before approval for the investor.

Question 348

Of the following, which factor may lawfully be considered when evaluating an applicant’s eligibility for a mortgage loan?

1. Visa or immigration status
2. None of these factors may be considered
3. Sexual orientation
4. Marital status

Answer 348

The answer is visa or immigration status. ECOA does not allow for the denial of credit to creditworthy applicants. Basing a decision on someone’s sexual orientation or marital status would be considered discriminatory. However, someone’s visa or immigration status can certainly be questioned, as it may help to determine if additional items are needed to document a borrower’s qualifications.

Question 349

The right to rescind is one that consumers may:

1. Not waive
2. Waive if they notify the creditor at the time of the loan application that they wish to do so
3. Waive if they do so in writing in order to meet a bona fide financial emergency
4. Waive if they complete a printed form

Answer 349

The answer is waive if they do so in writing in order to meet a bona fide financial emergency. The right to rescind is one that consumers may waive if they do so in writing in order to meet a bona fide financial emergency.

Question 350

Which of the following would convey a property?

1. Deed rider
2. Warranty deed
3. Note
4. Deed of trust

Answer 350

The answer is warranty deed. A warranty deed conveys full ownership of land, and is commonly used in purchase and sales transactions of real estate. In addition to conveying property ownership, a warranty deed contains the promise of clear title, meaning the property is free of encumbrances.

Question 351

Assume that the Loan Estimate is mailed on Tuesday. The office is open six days a week and closed on Sundays. What is the earliest day on which the transaction could close?

1. Wednesday of the following week
2. Friday of the following week
3. Monday of the following week
4. Tuesday of the following week

Answer 351

The answer is Wednesday of the following week. A creditor must provide the Loan Estimate either in person, via overnight delivery, or by placing it in the mail or delivering it no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. For the purposes of determining the waiting period that must elapse between providing a Loan Estimate and consummation, a “business day” is defined to mean all calendar days except Sundays and legal public holidays. Here, the Loan Estimate is mailed on Tuesday. Seven business days from Tuesday would be the following Wednesday (Wednesday, Thursday, Friday, Saturday, Monday, Tuesday, Wednesday).

Question 352

Assume a Loan Estimate is mailed on Monday. The borrower receives the Loan Estimate on Wednesday, and calls the originator that day to let them know it was received and they would like to move forward, and signs and returns it to the lender. What is the earliest date the lender could charge the borrower for the appraisal?

1. Saturday
2. Thursday
3. Wednesday
4. Friday

Answer 352

The answer is Wednesday. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating that he or she wishes to proceed with the loan. Once this occurs, there is no additional waiting period before the lender may charge a fee, such as an appraisal fee.

Question 353

HMDA data is collected and aggregated to determine:

1. The success rate of nontraditional mortgage loans
2. Whether the success of lending terms varies in different geographic areas
3. The extent of creditor compliance with privacy protection laws
4. Whether different credit terms are offered to members of protected classes

Answer 353

The answer is whether different credit terms are offered to members of protected classes. HMDA data is collected and aggregated to determine whether different credit terms are offered to members of different protected classes.

Question 354

When must loan applicants receive an adverse action notice if they cannot qualify for a loan?

1. Within 15 days of loan application
2. Within 60 days of loan application
3. Within 30 days of loan application
4. Within 90 days of loan application

Answer 354

The answer is within 30 days of loan application. An applicant has the right to receive, within 30 days of the creditor’s receipt of an incomplete application, notice of incompleteness with a reasonable time to respond, and within 30 days after receipt of a completed credit application, notice of action taken (i.e., acceptance or adverse action).

Question 355

According to the standard deed of trust, how soon must a borrower on an owner-occupied loan occupy the property?

1. Within 30 days of closing
2. Within 90 days of closing
3. Within 60 days of closing
4. Within 15 days of closing

Answer 355

The answer is within 60 days of closing. Under most deeds of trust, including most FHA and VA loans, a borrower who intends to occupy the property as his/her residence must move in within 60 days after closing.

Question 356

Under ECOA, when is a notice concerning the right to obtain a copy of the appraisal due to a consumer?

1. Within 90 days of loan application
2. Within three business days of loan application
3. Within 30 days of closing
4. At the time of Notice of Action Taken

Answer 356

The answer is within three business days of loan application. Under ECOA, a notice concerning the applicant’s right to obtain a copy of the appraisal is due within three business days of receiving a loan application.

Question 357

A disclosure advising the borrower of their right to receive a copy of the appraisal must be delivered:

1. At the time of application
2. Within three business days of the application
3. Any time during the processing of the loan
4. Only if the loan is declined

Answer 357

The answer is within three business days of the application. Under the ECOA Valuations Rule, no later than the third business day after receipt of an application for credit to be secured by a first lien on a dwelling, the creditor must mail or provide a notice of the applicant’s right to receive a copy of all written appraisals developed in connection with the application.

Question 358

Which of the following inquiries is considered lawful when asked for the purposes of credit approval as governed by ECOA?

Years on the job
Race
Marital status
Age

Answer 358

The answer is years on the job. ECOA protects against discrimination in credit transactions. Asking how many years someone has been at their job is not considered discriminatory. It is a gauge of income stability.

Question 359

A fully-documented loan for a salaried borrower should include all of the following, except:

1. Year-to-date profit and loss statements
2. W-2s for the past two years
3. Paystubs for the most recent 30 days
4. Complete employment information for the most recent two years

Answer 359

The answer is year-to-date profit and loss statements. A salaried borrower would generally be asked to provide a lender with documentation of his/her past two years’ employment, W-2s for those years, and paystubs for the most recent 30 days.

Question 360

Mortgage loan originator Trevor Tibbs has accepted a loan application for a dwelling that is a mobile home not permanently affixed to the land. Does this mobile home meet the requirements necessary for it to be considered security for a residential mortgage loan?

1. Yes, a dwelling includes a structure whether or not that structure is attached to real property
2. No, dwellings must be permanently attached to real property
3. No, mobile homes are classified as personal property, not real property
4. Yes, as long as the real property upon which the mobile home will be located is in the borrower’s name, the loan may be a residential mortgage loan

Answer 360

The answer is yes, a dwelling includes a structure whether or not that structure is attached to real property. A residential mortgage loan is any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or will be constructed a dwelling. A dwelling is a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home and trailer, if it is used as a residence.

Question 361

In a transaction for a fixed-rate mortgage to finance a home purchase, the loan applicant should receive:

1. The CHARM Booklet
2. Your Home Loan Toolkit: A Step-by-Step Guide
3. What You Should Know about Home Equity Lines of Credit
4. The Consumer Handbook on Fixed-Rate Mortgages

Answer 361

The answer is Your Home Loan Toolkit: A Step-by-Step Guide. In a transaction for a fixed-rate mortgage to finance a home purchase, the loan applicant should receive Your Home Loan Toolkit: A Step-by-Step Guide.

Question 362

Assuming a borrower is not allowed to shop for the credit report provider, which of the following best describes the applicable tolerance?

1. Zero tolerance
2. No tolerance requirement
3. Tolerance depends on certain factors
4. 10% tolerance

Answer 362

The answer is zero tolerance. Fees in the zero-tolerance category, for which the actual charges at settlement may not exceed the amounts included on the Loan Estimate unless there is a change in circumstance, include fees paid to an unaffiliated third-party service provider if the creditor did not permit the consumer to shop for the third-party service provider.

Question 363

What is the minimum time period that MIP must be in place for a USDA loan?

1. Zero years
2. Three years
3. Five years
4. Depends on LTV

Answer 363

The answer is zero years. MIP, or mortgage insurance premiums, are only paid on FHA loans. Some other loan types are subject to PMI (private mortgage insurance). USDA loans use a funding fee and an annual premium rather than the traditional forms of MIP or PMI.

Question 364

What is the maximum number of hours of continuing education that may be carried over from any given year to the next in order to meet requirements for license renewal?

1. Up to four
2. Up to eight
3. Zero
4. Up to sixteen

Answer 364

The answer is zero. Continuing education hours are valid only for the year they are taken, and may not be carried over from year to year.

Question 365

What is the tolerance allowed for variances in the APR disclosure required by the Truth-in-Lending Act in a regular transaction?

1. 1%
2. 0.125%
3. .25%
4. $200

Answer 365

The answer is .125% (one eighth of one percent). The APR is considered accurate if it is not more than one eighth of one percentage point above or below the APR determined in accordance with legal requirements (i.e., in accordance with the actuarial method or the United States Rule method), or if it is not more than .25% (one quarter of one percentage point) above or below the APR for an irregular transaction.

Question 366

Tom and Cindy Lewis are buying a house with a $300,000 sale price and their LTV will be 80%. They paid $3,600 in discount points. How many total points did they pay?

2
4
1.5
2.5

Answer 366

The answer is 1.5. Points are paid off of the loan amount. The loan amount is $240,000 (80% of $300,000). On a $240,000 loan, points costs $2,400. To calculate, divide $3,600 by $2,400, resulting in 1.5 points.

Question 367

There is a _____ accuracy tolerance for amounts stated on the Loan Estimate and the actual closing costs if the consumer is allowed to shop for his/her own settlement service provider and chooses one from the list.

0%
10%
5%
15%

Answer 367

The answer is 10%. Creditors have a 10% tolerance for discrepancies between estimated and actual closing costs if consumers do not have to pay the creditor or one of its affiliates for settlement services, are allowed to shop for their own services, and choose one from the provided settlement service provider list.

Question 368

How much hazard insurance does FNMA require on a property?

100% of the lesser of the loan amount or the cost to restore the improvements to the property
100% of the appraised value
80% of the value of the property
100% of the replacement cost

Answer 368

The answer is 100% of the lesser of the loan amount or the cost to restore the improvements to the property. Fannie Mae requires hazard insurance in place of at least 100% of the lesser of the loan amount, or the cost to restore the improvements to the property.

Question 369

If a purchase loan closes on January 20th, how many days of per diem interest must be collected to put the loan on schedule?

12
10
20
31

Answer 369

The answer is 12. 12 days of per diem interest would be collected to place this loan on schedule for a first payment date of March 1. Remember, per diem interest needs to count the day of closing. There are 31 days in January - so, per diem interest must be paid for 12 days (January 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31).

Question 370

If a first-time homebuyer wishes to use his/her VA loan privilege for the first time and is not planning to make a down payment, what is the amount of his/her funding fee?

2. 30%
3. 30%
4. 50%
5. 25%

Answer 370

The answer is 2.30%. The funding fee for a first-time user who is regular military, purchasing a home using a VA loan, is 2.30%.

Question 371

A borrower obtains an ARM with a start rate of 2.5% and a periodic rate cap of 1%. The loan adjusts four times. After the fourth adjustment, the rate is expected to be 6.5%. However, due to the lifetime cap on the loan, the rate is not permitted to exceed 5%. What is the lifetime rate cap?

1%
3.50%
5%
2.50%

Answer 371

The answer is 2.50%. For this ARM, the lifetime cap is 2.5%. The lifetime cap limits the maximum amount by which the rate on an ARM may increase. Here, the rate is not permitted to exceed 5%. To determine the lifetime rate cap, subtract the start rate (2.5%) from the maximum rate (5%). This results in the lifetime rate cap of 2.5%.

Question 372

The Derringers have rescinded their loan transaction, informing their lender of their decision by mail. They are entitled to a full refund within:

10 days
20 days
30 days
60 days

Answer 372

The answer is 20 days. If a borrower rescinds a transaction, within 20 days of the rescission, he is entitled to a refund of all money or property given to the creditor.

Question 373

The Walkers are purchasing a home for $300,000. Their down payment is $60,000. What is the percentage of the down payment the Walkers are making?

30%
20%
15%
25%

Answer 373

The answer is 20%. The Walkers are making a down payment equal to 20% of their loan amount.

Question 374

Loan originators are required to complete _____ hours of pre-licensing education to satisfy the federal requirement under the S.A.F.E. Act.

20
8
16
24

Answer 374

The answer is 20. The NMLS requires that a minimum of 20 hours of pre-licensing education be completed before an application will be considered.

Question 375

Don is refinancing his home in order to save money. If the loan goes through, his payment will drop from $2,000/month (PITI) to $1,500/month (PITI). Don’s gross income each month is $6,800, but he has a $300 car payment, a $150 credit card payment, and monthly alimony payments of $1,300. What is Don’s housing ratio on the proposed loan?

29%
48%
31%
22%

Answer 375

The answer is 22%. “Housing ratio” refers to the cost of Don’s housing expenses monthly divided by his gross monthly income. In this case, his proposed housing expense (PITI) will be $1,500/month. $1,500 / $6,800 = 22%.

Question 376

The Phillips family has a joint gross monthly income of $11,300. The $499 lease payment for their car expires in four months. A student loan that has been deferred will kick in at the end of the year, and payments will be $210 monthly. Joe Phillips pays child support for his children with his first wife in the amount of $2,200 per month, but $600 of that will drop off in four months when his oldest son turns 18. They are buying a new home with a loan that carries a $2,700 a month payment. What is their housing ratio?

29%
38%
24%
41%

Answer 376

The answer is 24%. Housing ratio is only concerning the ratio between housing expenses and gross monthly income. In this case, their housing expenses ($2,700), divided by gross monthly income ($11,300) equals 24%.

Question 377

The term “grossing up” means a borrower’s non-taxed income is allowed to be increased by as much as:

125%
15%
28%
25%

Answer 377

The answer is 25%. Borrowers with non-taxed income are allowed to increase their earnings by 25% for qualification purposes. This means they would multiply by 125% - not increase income by 125%.

Question 378

The general acceptable front-end housing ratio for a USDA loan is:

29%
28%
31%
Front-end ratios are not considered for USDA loans

Answer 378

The answer is 29%. USDA loans use a front-end ratio of 29%.

Question 379

An ARM is beginning its adjustment period and has a margin of 3.00% set at the start of the loan. The current index value is 2.50%. The caps on this ARM are set to 2% and 5% for periodic and lifetime, respectively. What is the highest value the margin can reach during this initial adjustment?

5%
5.25%
3%
8%

Answer 379

The answer is 3%. A margin value will never change once set on a loan. Therefore, this margin is set at 3.00% and will remain at 3.00% during each and every adjustment.

Question 380

A licensee may attempt a qualified written exam three consecutive times, each occurring at least _____ days after the preceding test.

30
45
90
180

Answer 380

The answer is 30. A licensee is permitted three total attempts, with at least a 30-day waiting period in between each attempt, after which a 180-day waiting begins before a fourth attempt can be made.

Question 381

Debt ratios for an FHA loan are:

31% / 41%
28% / 36%
28% / 41%
31% / 43%

Answer 381

The answer is 31% / 43%. The general debt ratios for an FHA loan are 31% housing, and 43% total debt.

Question 382

Ted Lange wants to build a tiki bar in his backyard next to the pool. In order to do this, he is going to take out a home equity line of credit. He believes that he will need about $20,000 to build the bar as envisioned. His home’s current value is $405,000, and he has a first mortgage with a balance of $130,000. The bank agrees to extend him a line of credit for $50,000, since he has quite a bit of equity in his home. What is Ted’s CLTV if he draws $20,000 as anticipated?

44%
37%
32%
39%

Answer 382

The answer is 37%. Ted’s plan was to build a $20,000 tiki bar. Adding the $20,000 draw to his current $130,000 first mortgage balance leaves a $150,000 total encumbrance. Dividing that by the value of the home ($405,000) brings a combined-loan-to-value of 37%.

Question 383

A 7 / 1 ARM has a start rate of 4%, an initial cap of 3%, and a periodic cap of 1%. The lifetime cap is 8%. The margin is set at 4%, and the current index value has risen in the last month to 9.25%. The loan closed four years ago. What is the current rate?

7%
4%
8%
12%

Answer 383

The answer is 4%. This ARM has a start rate of 4.00%, and is locked for the first seven years. The question specifies that the loan is entering into its fifth year. The rate would still be 4.00% until at least the start of the eighth year.

Question 384

The Qualified Mortgage Rule establishes a debt-to-income ratio standard of _____ for qualified mortgages.

78%
80%
43%
60%

Answer 384

The answer is 43%. The Qualified Mortgage Rule establishes a debt-to-income ratio standard of 43%. For the first seven years during which the Rule is in effect, this ratio will not be enforced for temporary qualified mortgages.

Question 385

The Qualified Mortgage Rule establishes a debt-to-income ratio standard of _____ for qualified mortgages.

60%
43%
78%
80%

Answer 385

The answer is 43%. The Qualified Mortgage Rule establishes a debt-to-income ratio standard of 43%. For the first seven years during which the Rule is in effect, this ratio will not be enforced for temporary qualified mortgages.

Question 386

A borrower obtains an ARM with a start rate of 2%. The ARM has an initial cap of 1%, a periodic cap of 2%, and a lifetime cap of 4%. Assume that the ARM will adjust three times, and that at each adjustment, the rate will increase by the maximum amount possible. What is the maximum amount that the interest rate can reach?

6%
2%
5%
7%

Answer 386

The answer is 6%. At the first adjustment, the ARM rate would increase from 2% to 3%. At the second adjustment, it would increase from 3% to 5%. At the third increase, it would increase from 5% to 7%. However, the lifetime rate cap is 4%, meaning that the rate may never be higher than 6% (2% + 4% = 6%). As a result, the interest rate may never be higher than 6%.

Question 387

What is the LTV for a loan in the amount of $525,000 and a property with an appraised value of $750,000?

70%
75%
68%
80%

Answer 387

The answer is 70%. To determine LTV, simply divide the loan amount by the value of the property. $525,000 / $750,000 = 70%

Question 388

If a borrower intends to use rental income for qualification, what amount of that income is allowable?

The first $750
100% if the home is unencumbered
The income is not allowable unless a lease has been in effect for five years or more
75% of the rental income

Answer 388

The answer is 75% of the rental income. Rental income is allowable in calculating qualifying income, but only at 75%.

Question 389

A borrower pays $200,000 for a home and gets a fixed-rate loan from his lender at 5.75%. He puts $40,000 down. What is the LTV on this loan, and does the buyer have to pay PMI?

80% and yes
90% and yes
80% and no
Need to know the term

Answer 389

The answer is 80% and no. This borrower put 20% down on the purchase. Therefore, with an 80% LTV, the borrower does not need PMI.

Question 390

Under the Homeowners Protection Act, borrowers can request that lenders cancel PMI when their loan balance is less than _____, or a lender may collect PMI until _____ loan-to-value ratio is reached.

65%; 50%
78%; 62%
80%; 78%
80%; 65%

Answer 390

The answer is 80%; 78%. Under the Homeowners Protection Act, borrowers can request that lenders cancel PMI when their loan balance is less than 80%, or a lender may collect PMI until 78% loan-to-value ratio is reached.

Question 391

Under which of the following scenarios could a borrower cancel a transaction after closing has already occurred?

1. A borrower closes on a refinance transaction for a primary residence on Monday and changes his mind the following Monday. The week contained no holidays and all disclosures were proper.
2. A borrower closes on a refinance transaction for an owner-occupied vacation home on Monday and changes his mind two days later.
3. A borrower closes on a refinance transaction for his primary residence and did not receive the proper rescission notice. The borrower changes his mind and wants to cancel 18 months later.
4. A borrower closes on a purchase transaction for a primary residence, but changes his mind within three days of closing.

Answer 391

The answer is a borrower closes on a refinance transaction for his primary residence and did not receive the proper rescission notice. The borrower changes his mind and wants to cancel 18 months later. TILA gives a consumer a right of rescission, allowing him or her to cancel the loan contract within a specified period of time for any reason if the loan is secured by the borrower’s principal residence and is a refinance transaction for a first or subordinate mortgage. The right of rescission does not apply to a residential mortgage transaction for a purchase or initial construction of a dwelling. In order to rescind, the consumer must forward a completed rescission form to the creditor no later than midnight of the third business day after the last of certain events occur, including consummation of the transaction, delivery of all material TILA disclosures, or delivery of notice of the right to rescind. If the creditor failed to provide the required disclosures and notice of the right of rescission, the rescission period may be extended up to the date of the first of the following: three years after the consummation of the transaction, the transfer of all of the consumer’s interest in the property, or the sale of the property.

Question 392

A loan feature that is not prohibited for qualified mortgages is:

Points and fees that exceed 9% of the total loan amount
A negative amortization feature
A 30-year loan term
Ability to defer payment of the principal

Answer 392

The answer is a 30-year loan term. A 30-year loan term is not prohibited for a qualified mortgage.

Question 393

Which of the following is a description of a permanent buy-down?

A lender pays a broker 25 bps for delivering a loan at a rate higher than par
A borrower pays discount points to lower the note rate from 4.875 to 4.50
A lender accepts funds paid into escrow in order to offset lower interest payments
A real estate agent collects a deposit from a borrower to hold a contract

Answer 393

The answer is a borrower pays discount points to lower the note rate from 4.875 to 4.50. A permanent buy-down is a tool some borrowers use to adjust the price of their loan. It can also be referred to as prepaying interest.

Question 394

A mortgage lender that is conducting telemarketing to generate business will not violate the Telemarketing Sales Rule by calling which of the following individuals?

A borrower who used the broker’s services to secure financing for a home purchase two years earlier
A borrower who used the broker’s services to secure a home equity loan three years earlier
A borrower who accepted but rescinded a home equity loan 24 months earlier
A borrower who contacted the lender three months ago to ask about interest rates for refinances

Answer 394

The answer is a borrower who contacted the lender three months ago to ask about interest rates for refinances. The Telemarketing Sales Rule allows telemarketers to contact consumers with whom they share an established business relationship. An established business relationship exists if a consumer secured a loan from a lender within the past 18 months or contacted it within the past three months to inquire about loan products.

Question 395

Which of the following may be an indication of predatory lending?

A borrower with a 720 credit score uses borrower credits to offset closing costs
A borrower with a 610 credit score is offered a subprime loan
A borrower with a 580 credit score is offered a loan with credit life premiums included
A borrower with a 560 credit score is given a rate that is 2% above a “standard” rate

Answer 395

The answer is a borrower with a 580 credit score is offered a loan with credit life premiums included. Tacking on unnecessary insurance premiums such as “credit life” is a practice that predatory lenders often use to increase profits.

Question 396

Information that would be protected as nonpublic personal information under the Gramm-Leach-Bliley Act includes which of the following?

A consumer’s credit report
Information in government real estate records
Listed telephone numbers provided by consumers
Government records of recorded liens

Answer 396

The answer is a consumer’s credit report. The GLB Act covers “nonpublic personal information.” This does not include information that is readily available to the public through court records, phone books, or land records.

Question 397

A balloon rider, a prepayment penalty rider and a second-home rider may all be part of:

1. A title insurance policy
2. A deed of trust
3. A note
4. A power-of-attorney agreement

Answer 397

The answer is a deed of trust. A deed of trust is used to secure a note. A deed can carry a rider, or an addendum, which may include a balloon rider, a prepayment penalty rider and a second-home rider, among others.

Question 398

A fee may be charged for preparing or delivering a Closing Disclosure if:

The consumer requests a revised copy
The consumer requests one or more duplicate copies
A fee may not be charged for preparing or delivering a Closing Disclosure
The fee does not exceed .5% of the loan amount

Answer 398

The answer is a fee may not be charged for preparing or delivering a Closing Disclosure. A fee may not be charged for preparing or delivering a Closing Disclosure.

Question 399

Which of the following describes an air loan?

A loan is obtained with inflated property values
A loan that is repeatedly refinanced with no benefit to the borrower
A loan that is presented to the borrower with hidden fees
A fictitious borrower obtains a mortgage and secures it with fictitious property

Answer 399

The answer is a fictitious borrower obtains a mortgage and secures it with fictitious property. An air loan is an instance in which a fictitious borrower obtains a mortgage and secures it with fictitious property.

Question 400

If a mortgage broker agrees to serve a loan applicant as his or her agent, the broker owes _____ to the applicant.

A fiduciary duty
A fidelity agreement
A financial partnership
Power of attorney

Answer 400

The answer is a fiduciary duty. If a mortgage broker agrees to serve a loan applicant as his or her agent, the broker owes a fiduciary duty to the applicant.

Question 401

Which of the following statements accurately describes the APR threshold used to identify loans regulated by HOEPA?

A first-lien loan with an APR that is 10 percentage points above Treasury securities with a comparable rate
A subordinate-lien loan with an APR that is 8 percentage points above the rate for Treasury securities with a comparable rate
A subordinate-lien loan with an APR that is 6.5 percentage points above the average prime offer rate for comparable transactions
A first-lien loan with an APR that is 6.5 percentage points above the average prime offer rate for comparable transactions

Answer 401

The answer is a first-lien loan with an APR that is 6.5 percentage points above the average prime offer rate for comparable transactions. A first-lien loan with an APR that is 6.5 percentage points above the average prime offer rate for comparable transactions would meet the APR threshold used to identify loans regulated by HOEPA.

Question 402

All of the following are examples of nontraditional mortgage products, as defined by the S.A.F.E. Act, except:

A fixed-rate loan with a term of 30 years
An interest-only loan with a term of 40 years
An adjustable-rate mortgage with a term of 30 years
A fixed-rate loan with a term of 15 years

Answer 402

The answer is a fixed-rate loan with a term of 30 years. The S.A.F.E. Act defines a “nontraditional mortgage product” as any loan other than a 30-year, fixed-rate loan.

Question 403

Which of the following loans may include a prepayment penalty?

An adjustable-rate qualified mortgage
A fixed-rate qualified mortgage that is not a higher-priced mortgage loan
An adjustable-rate qualified mortgage that is not a high-cost mortgage
A fixed-rate qualified or non-qualified mortgage

Answer 403

The answer is a fixed-rate qualified mortgage that is not a higher-priced mortgage loan. The only loans that may include prepayment penalties are fixed-rate qualified mortgages that are not higher-priced mortgage loans.

Question 404

For which of the following transaction types would a creditor not be required to provide the consumer with a Loan Estimate?

A purchase money mortgage
A closed-end home equity loan
A home equity line of credit
A refinance of an existing mortgage

Answer 404

The answer is a home equity line of credit. A Loan Estimate would not be required in a transaction for a home equity line of credit.

Question 405

A subordinate lien that allows a borrower to pay down principal and continue to make withdrawals is known as:

A reverse mortgage
An ARM
A home equity line of credit
A piggyback loan

Answer 405

The answer is a home equity line of credit. Open-ended credit that allows a borrower to make repeated withdrawals and also make monthly payments based on the outstanding balance is known as a home equity line of credit.

Question 406

The promissory note contains all of the following, except:

A legal description of the property
A provision requiring notices be done in writing
The loan amount
The loan terms

Answer 406

The answer is a legal description of the property. The promissory note contains the borrower’s name, loan amount, interest rate, loan terms, and a provision requiring notices be done in writing. It does not contain a legal description of the property.

Question 407

All but which of the following must be completed prior to engaging in the business of mortgage loan origination?

Payment of licensing fees
Obtain a unique identifier
Completing pre-licensing education
A letter of recommendation from a former employer

Answer 407

The answer is a letter of recommendation from a former employer. A letter of recommendation is not required from a former employer as a condition of licensure within the NMLS system.

Question 408

Helena receives a completed application for a 30-year fixed-rate mortgage loan. Which of the following must be provided at least seven business days prior to consummation?

A Closing Disclosure
A CHARM Booklet
A URLA
A Loan Estimate

Answer 408

The answer is A Loan Estimate. For most mortgage loan transactions (unless exempt), a Loan Estimate must be provided no later than three business days after receiving a completed loan application and at least seven business days prior to consummation.

Question 409

All of the following loans are covered by the requirements of the Home Mortgage Disclosure Act, except:

A loan to purchase a property in an urban area
A home improvement loan
A loan for an RV which the borrower uses as his/her primary housing six months a year
Refinance of a property owned by an elderly couple who are both over the age of 62

Answer 409

The answer is a loan for an RV which the borrower uses as his/her primary housing six months a year. HMDA reporting is not required for loans for personal property; loans to purchase RVs are personal loans and therefore not subject to mortgage lending laws.

Question 410

Which of the following statements most accurately describes HOEPA’s prepayment penalty threshold for high-cost mortgages?

A loan is a high-cost mortgage if it includes a prepayment penalty provision that is in effect for more than 36 months after consummation, and requires the prepayment penalties to exceed 2% of the amount prepaid
A loan is a high-cost mortgage if it includes a prepayment penalty provision that is in effect for more than 36 months after consummation, or one that allows the prepayment penalties to exceed 2% of the amount prepaid
A loan is a high-cost mortgage if it includes a prepayment penalty provision that is in effect for more than 24 months after consummation, or one that allows the prepayment penalties to exceed 2% of the amount prepaid
A loan is a high-cost mortgage if it includes a prepayment penalty provision that is in effect for more than 24 months after consummation, and requires the prepayment penalties to exceed 3% of the amount prepaid

Answer 410

The answer is a loan is a high-cost mortgage if it includes a prepayment penalty provision that is in effect for more than 36 months after consummation, or one that allows the prepayment penalties to exceed 2% of the amount prepaid. A loan is a high-cost mortgage if it includes a prepayment penalty provision that is in effect for more than 36 months after consummation, or one that allows the prepayment penalties to exceed 2% of the amount prepaid.

Question 411

Which of the following individuals performs clerical or support duties as an employee at the direction of a licensed or exempt institution?

A loan processor
A sole proprietor
An underwriter acting as an independent contractor
An attorney representing a client in an ancillary capacity

Answer 411

The answer is a loan processor. A loan processor is an individual who performs clerical or support duties.

Question 412

A balloon loan is defined as:

A loan that has a specific amortization period but matures prior to the time it fully amortizes
A loan that has a specific amortization period but is due at a specific time prior to maturity
A loan whose final payment is smaller than the previous periodic payments
A loan which matures on a date after amortization

Answer 412

The answer is a loan that has a specific amortization period but matures prior to the time it fully amortizes. A balloon loan is a loan that has a specific amortization period but matures prior to the time at which it fully amortizes.

Question 413

Which of the following is not a qualified mortgage?

A mortgage with a 40-year loan term
VA loan
FHA loan
A mortgage with a debt-to-income ratio of 43%

Answer 413

The answer is a mortgage with a 40-year loan term. VA and FHA loans are qualified mortgages, as are loans with DTI ratios that do not exceed 43%. Qualified mortgages may not have loan terms that exceed 30 years.

Question 414

It is acceptable under RESPA regulations for a title company to provide a mortgage broker with:

Tickets to a pro football game
A weekend stay for two at a spa
Season tickets to a local theater
A notepad imprinted with the title company’s information

Answer 414

The answer is a notepad imprinted with the title company’s information. RESPA prohibits the exchange of “things of value” which can include money, discounts, special rates or terms, stock, tickets to sporting or theater events, or trips at another’s expense. An imprinted notepad is not considered something of value.

Question 415

Under ECOA, the Attorney General may take action against a creditor who appears to have engaged in:

A pattern or practice of discrimination
Straw selling
Redlining
A pattern or practice of mortgage fraud

Answer 415

The answer is a pattern or practice of discrimination. Under ECOA, the Attorney General may take action against a creditor who appears to have engaged in a pattern or practice of discrimination.

Question 416

Under ECOA, a broker is defined as:

A person who regularly refers applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made
Any person who sells mortgage loans in the secondary market
Any person who regularly extends, renews, or continues credit
A natural person or entity who regularly extends closed-end or open-end credit

Answer 416

The answer is a person who regularly refers applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made. A broker does not technically extend credit. However, ECOA specifically addresses the broker by including persons who “regularly refer applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made.”

Question 417

The minimum standards for license renewal include all but which of the following?

Continuing to meet the minimum standards for license issuance
A production report for all licensed originators
Satisfaction of annual continuing education requirements
Payment of renewal fees

Answer 417

The answer is a production report for all licensed originators. Production information pertaining to individual originators is not a necessary requirement as a condition of license renewal.

Question 418

If a lender is comfortable with existing data on a property being used as collateral for a rate and term refinance, what might be permitted?

A waiver of the rescission period
A silent second
A property inspection waiver
A streamline close

Answer 418

The answer is a property inspection waiver. A property inspection waiver may be allowed if the lender is comfortable with existing data on a property used as collateral for a rate/term refinance.

Question 419

Which of the following would be subject to the ATR Rule?

A purchase money mortgage
A reverse mortgage loan
A construction loan
A purchase money mortgage made by a housing finance agency

Answer 419

The answer is a purchase money mortgage. A purchase money mortgage would be subject to the ATR Rule.

Question 420

Examples of loans that are typically secured by a subordinate lien include all but which of the following?

A home equity line of credit
A home equity loan
A purchase money mortgage
A piggyback loan

Answer 420

The answer is a purchase money mortgage. Loans that are typically secured by a subordinate lien may include a home equity line of credit, a home equity loan, or a piggyback loan.

Question 421

For which of the following does rescission not exist?

A refinance of a principal residence
Opening a home equity line of credit
A refinance in which a husband has requested a rescission waiver without his wife’s signature
A purchase of a principal residence with a conventional loan

Answer 421

The answer is a purchase of a principal residence with a conventional loan. Rescission does not exist for a purchase of a principal residence with a conventional loan.

Question 422

In which of the following transactions must “Your Home Loan Toolkit” be provided?

A reverse mortgage origination
A purchase transaction
A refinance transaction
When a borrower applies for subordinate financing

Answer 422

The answer is a purchase transaction. The “Your Home Loan Toolkit” disclosure is required for a purchase transaction.

Question 423

Mr. Jones’s loan application has been denied and he is provided with an Adverse Action Notice as required by ECOA. Which of the following pieces of information would not be included on the notice?

Information on the credit reporting agency if the adverse action is based on his credit report
Reasons for the denial of credit
His credit score
A referral to another potential creditor

Answer 423

The answer is a referral to another potential creditor. An adverse action notice contains a statement of the action taken; a prescribed ECOA Notice regarding the prohibition of discrimination; the name and address of the federal agency that administers compliance with respect to the loan originator; a statement of the specific reasons for the adverse action or a disclosure of the applicant’s right to be given such a statement and the identity of the persons or office from which the statement may be obtained; and, if a credit score is used, FCRA requires that it also include the actual numerical credit score, the range of credit scores possible under the model used, all key factors that adversely affected the credit score, the date of the credit score, and the name of the entity that created the score or the credit file upon which the score was based.

Question 424

The Barrows applied for a loan to buy a small duplex in a suburb of Springfield. However, shortly after they received the Loan Estimate from their lender, a tornado swept through Springfield and severely damaged the home they are purchasing, requiring construction and repairs. Under these circumstances:

The previous Loan Estimate still applies
The transaction is void
The Barrows must reapply
A revised Loan Estimate may be issued

Answer 424

The answer is a revised Loan Estimate may be issued. In general, a creditor may not make a material change to a Loan Estimate once it is provided to the loan applicant. However, under certain specific “changed circumstances,” a revised Loan Estimate may be provided. These include an extraordinary event beyond the control of any party which specifically affects the transaction, such as a tornado damaging the subject property.

Question 425

The S.A.F.E. Act requires which of the following to fulfill responsibilities including participating in the NMLS, conducting background checks, and writing rules and regulations?

A state legislature
A state Attorney General
A state licensing agency
The federal government

Answer 425

The answer is a state licensing agency. In having oversight and supervisory authority over loan originators, a state licensing agency must participate in the NMLS, conduct background checks, and write rules and regulations.

Question 426

Which of the following is required if a borrower receives an Adverse Action Notice?

A suggestion of a loan product for which the consumer may be eligible
A referral to a lender who offers subprime products
A statement that ECOA prohibits discrimination against credit applicants
A statement of the minimum credit score required for loan approval

Answer 426

The answer is a statement that ECOA prohibits discrimination against credit applicants. There must be a statement on the Adverse Action Notice stating that ECOA prohibits discrimination against credit applicants.

Question 427

What type of lien takes priority?

A tax lien
The first mortgage
The second mortgage
A mechanic’s lien

Answer 427

The answer is a tax lien. A tax lien takes priority over all other liens, regardless of chronological order.

Question 428

In order to contain a prepayment penalty in compliance with federal law, a mortgage loan must include all of the following features, except:

A term of no more than 40 years
A debt-to-income ratio of no more than 43%
Points and fees that do not exceed 3% of the loan amount
A fixed interest rate

Answer 428

The answer is a term of no more than 40 years. In order to contain a prepayment penalty in compliance with federal law, a mortgage loan must be a fixed-rate qualified mortgage. This means that the loan must have a debt-to-income ratio of no more than 43%, points and fees that do not exceed 3% of the loan amount, and a fixed interest rate, as well as meeting other qualified mortgage underwriting standards. Qualified mortgages are limited to terms of 30 years or less; any term longer than 30 years is prohibited, and therefore such a loan would not be permitted to include a prepayment penalty.

Question 429

The right to rescind a loan applies to which one of the following transactions?

A transaction for a home equity line of credit secured by a principal residence
A transaction involving a loan to purchase a principal residence
A refinancing of credit with the same creditor that made the loan being refinanced
A transaction for the refinance of a loan that is secured by a vacation home

Answer 429

The answer is a transaction for a home equity line of credit secured by a principal residence. The right to rescind a loan applies to a transaction for a home equity line of credit secured by a principal residence.

Question 430

An originator uses a contracted processor who charges $500 per file. The fee disclosed to the borrower for processing is $800, a difference of $300 which the originator keeps for himself. This is:

A violation of RESPA’s prohibition against fee-splitting
Permitted only as long as receipts are kept from the processor for five years
A unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees
A violation of ECOA

Answer 430

The answer is a unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees. RESPA requires compensation for settlement services to be earned. Any compensation not in direct correlation with an actual service is likely a violation. However, according to a 2012 case, the act of unilaterally marking up a fee and retaining the additional earnings is not illegal, as long as fee-splitting is not involved.

Question 431

Which of the following terms is allowed in a high-cost mortgage?

Terms that permit a payment schedule resulting in negative amortization
An advanced payment
A variable interest rate
A prepayment penalty

Answer 431

The answer is a variable interest rate. High-cost mortgages are permitted to have a variable interest rate, however, negative amortization, advanced payments, and prepayment penalties are not allowed.

Question 432

Which of the following would not be considered behavior that constitutes honest, fair, and nondiscriminatory lending?

Advertising loans that are not actually available
Charging reasonable fees
Maintaining the confidentiality of a borrower’s personal information
Conducting business fairly and honestly

Answer 432

The answer is advertising loans that are not actually available. Advertising loans that are not actually available is behavior that would not be considered ethical, honest, and fair.

Question 433

When a fixed-rate qualified mortgage includes a prepayment penalty, that penalty may not be charged:

Until after the first three years of the loan term have passed
After the first three years of the loan term
Until there are three years left in the loan term
Prepayment penalties may not be charged on fixed-rate qualified mortgages

Answer 433

The answer is after the first three years of the loan term. When a fixed-rate qualified mortgage includes a prepayment penalty, the penalty may not be charged after the first three years of the loan term.

Question 434

An incorrect calculation of income can result in:

The borrower being denied a loan after it is sent to underwriting
All of these answers are correct
The borrower needing to put more money down to lower the DTI
The loan being delayed because of the inaccurate calculation

Answer 434

The answer is All of these answers are correct. All are examples of common underwriting pitfalls that can delay a loan or cause its denial.

Question 435

Which of the following individuals might be involved in appraisal fraud?

Mortgage broker
Borrower
All of these answers are correct
Appraiser

Answer 435

The answer is all of these answers are correct. It is not likely that an appraiser, of his/her own volition, would decide to overinflate a value. Often, inflated appraisals are a result of the conspiratorial efforts of many involved in the process.

Question 436

Jimmy has been working with ABC Mortgage for 16 years and has built a strong relationship base with most of his settlement service providers. The Smith file has been a big headache for Jimmy, and it looks like the deal will be very tight. Jimmy shoots an email to his appraiser that reads, “The Smiths believe that their home is worth $250,000 and would like for you to feel the same. How much will the appraisal cost?” This communication may lead to:

An appraisal review
All of these are likely to result
An inflated appraisal
A violation of TILA’s rules pertaining to communication with appraisers

Answer 436

The answer is all of these are likely to result. It is likely that in Jimmy’s long-term relationship with his appraiser, the meaning in this kind of email is very clear to the appraiser. In order to please Jimmy and the borrower, the appraiser is likely to do everything he/she can to arrive at as high a value as possible. This may lead to an inflated appraisal, possibly an appraisal review, and a violation of TILA’s rules regarding communication with appraisers

Question 437

Revisions to a Loan Estimate are:

Allowed when certain changed circumstances arise
Always allowed
Never allowed
Allowed only when the interest rate was not locked and rates have changed

Answer 437

The answer is allowed when certain changed circumstances arise. Revisions to a Loan Estimate are allowed when certain changed circumstances arise.

Question 438

An advertisement placed by Buster Posey contains a trigger term. As required, Buster has also provided the required additional disclosures. These include all of the following, except the:

Amount or percentage of the down payment
Terms of repayment
Annual percentage rate
Amount of the finance charge

Answer 438

The answer is amount of the finance charge. Additional disclosures required in an ad containing a trigger term include the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate. The amount of the finance charge is a trigger term, not a required additional disclosure.

Question 439

In which of the following scenarios would it be appropriate to conduct an appraisal using a cost approach?

An appraisal is done on a new home being built for a first-time homebuyer
A borrower wants to refinance his/her primary residence to lower the cost
An investor is having an appraisal done on his/her rental
A buyer is determining the value of a home he/she has under contract

Answer 439

The answer is an appraisal is done on a new home being built for a first-time homebuyer. The cost approach is generally used on new home construction (among other reasons). This approach arrives at a value by estimating the value of the land, as if vacant, and adding the cost to build the house.

Question 440

The S.A.F.E. Act defines a loan processor as:

An individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator
An individual employed by a state-licensed mortgage broker
An individual employed by a depository institution
An individual who has applied for licensing as a loan originator, but who has not yet completed all the licensing requirements

Answer 440

The answer is an individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator. The S.A.F.E. Act defines a loan processor as an individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator.

Question 441

Which of the following transactions would be exempt from the ATR Rule?

A refinance transaction
A first lien on a home
A mortgage secured by a vacation home
An open-end HELOC

Answer 441

The answer is an open-end HELOC. An open-end HELOC would be exempt from the ATR Rule.

Question 442

Which of the following correctly demonstrates how to calculate the periodic rate on a mortgage loan?

Annual rate / number of payments in a year = periodic rate
Annual rate × number of payments in a year = periodic rate
Loan balance / annual rate = periodic rate
Annual rate × monthly payment = periodic rate

Answer 442

The answer is annual rate / number of payments in a year = periodic rate. The periodic rate is calculated by dividing the annual rate by the number of payments in a year.

Question 443

Safina Marigold, a mortgage loan originator, has received a request for an offer of residential mortgage loan terms together with information about the prospective borrower that will be necessary for her to make a decision on whether or not to offer a loan. Safina has received a(n):

Credit report
Application
Appraisal
Solicitation

Answer 443

The answer is application. An application is a request, in any form, for an offer, or a response to a solicitation of an offer, of residential mortgage loan terms and the information about the borrower or prospective borrower that is customary or necessary in order to make a decision on whether to offer a residential mortgage loan.

Question 444

The Homeowners Protection Act is applicable to all but which of the following?

Lenders
Loan servicers
Appraisers
Mortgage insurance companies

Answer 444

The answer is appraisers. The HPA applies to residential mortgages used for primary residences and is applicable to lenders, loan servicers, and insurers.

Question 445

When may a homeowner request that PMI be cancelled?

When the lender informs him/her that it is terminating PMI
As soon as the five-year required minimum is met
As soon as his/her equity position reaches at least 22%
As soon as his/her equity position is 20% or greater

Answer 445

The answer is as soon as his/her equity position is 20% or greater. The Homeowners Protection Act states that a homeowner may request a lender/servicer cancel PMI as soon as the equity position is at 20% or greater (80% LTV or less). The PMI is automatically terminated by the lender/servicer at 78% LTV or when the loan reaches the midpoint in its amortization.

Question 446

If a loan originator license needs amending due to a change of address, the Commissioner would be made aware:

Through submission of documents by the sponsoring employer
At the next renewal date
Only if the address affects the business, not the residence of the loan originator
As soon as is determined in accordance with state regulator notification requirements

Answer 446

The answer is as soon as is determined in accordance with state regulator notification requirements. A change which renders the initial application inaccurate must be made known to the NMLS and the Commissioner through an updated Individual Form.

Question 447

A creditor must provide an Affiliated Business Arrangement Disclosure to a loan applicant:

Only if the creditor will receive a referral fee from the provider of settlement services
At the same time that it refers a loan applicant to any provider of settlement services
Only if the loan applicant was referred to the creditor as a provider of mortgage credit
At the same time that it refers a loan applicant to an affiliated provider of settlement services

Answer 447

The answer is at the same time that it refers a loan applicant to an affiliated provider of settlement services. Creditors are required to offer an Affiliated Business Arrangement Disclosure at the same time that they refer a consumer to an affiliated provider of settlement services.

Question 448

Desperate to increase her business, Sandy has advertised a loan product that has very attractive terms but which does not actually exist in the marketplace. She plans on telling consumers who inquire about the product that it was pulled from the market and then steer them to other loan products that are actually available. By doing this, Sandy has engaged in:

Bait-and-switch advertising
Trolling advertising
Fishing advertising
Scamming advertising

Answer 448

The answer is bait-and-switch advertising. Bait-and-switch advertising is advertising a loan at very attractive terms and then informing the potential customer that that loan is not available but that a different loan with different terms is.

Question 449

A 15-year loan allows a borrower to pay his or her loan off in a shorter term than a 20- or 30-year loan and provides significant interest savings. Which of the following is a drawback of a 15-year mortgage?

The rate is often lower than a 30-year mortgage
The down payment can be less
The borrower owns the home sooner
Because of the shorter amortization period, the payments are often much higher than the 30-year loan

Answer 449

The answer is because of the shorter amortization period, the payments are often much higher than the 30-year loan. One of the biggest drawbacks of a 15-year term is the higher monthly payments, due to a shorter amortization period.

Question 450

Mary is purchasing her first home with an HPML. When her loan officer is reviewing the transaction with her, he tells her that she must establish an escrow account:

Three business days after consummation of the loan
Before consummation of the loan
Before the first periodic payment is due
At the time of consummation

Answer 450

The answer is before consummation of the loan. Mary must establish an escrow account prior to the consummation of the loan.

Question 451

Which of the following is not a common underwriting pitfall?

Cash-out refinances listed as no cash-out
Income calculated incorrectly
Borrower delayed in returning initial signed docs
Secondary financing not disclosed

Answer 451

The answer is borrower delayed in returning initial signed docs. A borrower being delayed in returning docs would suggest that the file has not even gone into underwriting yet, which would not be an underwriting pitfall.

Question 452

In lien theory states, the _____ holds the title to the home securing a mortgage throughout the loan term.

Borrower
Lender
Title company
Loan servicer

Answer 452

The answer is borrower. In lien theory states, the borrower holds the title to the home securing a mortgage, and when the loan is paid in full, the lien on his or her home is released.

Question 453

All of the following are true of FHA fixed-rate loans, except:

Borrowers are only required to carry MIP until the LTV reaches 78%
They are available in 15- and 30-year terms
They require upfront MIP on all loans
Borrowers must make at least a 3.5% investment

Answer 453

The answer is borrowers are only required to carry MIP until the LTV reaches 78%. A borrower with an FHA loan is required to pay both upfront and annual MIP. After June 3, 2013, FHA loans with an LTV less than or equal to 90% will require MIP until the end of the loan term or the first 11 years, whichever comes first. For FHA loans with an LTV greater than 90%, MIP will be required until the end of the loan term or the first 30 years, whichever comes first.

Question 454

Which of the following loans are covered by RESPA?

First liens
Both first and subordinate liens
Subordinate liens
Neither first nor subordinate liens

Answer 454

The answer is both first and subordinate liens. RESPA covers first and second liens on residential property.

Question 455

Two brothers, Tom and Jim, purchase homes on the same block where they grew up. They knew the sellers, having grown up on the block, and both obtain $200,000 loans to purchase their new homes. Jim chose a “traditional” loan – 30-year fixed, while Tom would rather pay his loan off more quickly. He decided on a 15-year mortgage. Which of the two will pay more principal?

Both Jim and Tom will pay the same amount of principal
Jim
Tom
It depends on their rates

Answer 455

The answer is Both Jim and Tom will pay the same amount of principal. Both brothers will pay the same amount in principal, though Jim will pay much more in interest over the longer term.

Question 456

A hazard insurance company hosts a dinner for the employees of a mortgage broker. The designated broker encourages the employees to send clients to the insurance company. Who has violated RESPA?

Both the hazard insurance company and the mortgage broker
The hazard insurance company
The mortgage broker
Neither the hazard insurance company nor the mortgage broker

Answer 456

The answer is both the hazard insurance company and the mortgage broker. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback or other thing of value under any agreement or understanding, oral or otherwise, that business relating to or part of a settlement service involving a federally related mortgage loan will be referred to any person. The term “thing of value” includes any payment, advance, funds, loan, service or other consideration, such as payments of another person’s expenses. The above is an example of an instance in which both parties are in violation of the prohibition against the payment or receipt of a thing of value in exchange for referrals.

Question 457

In the practice of table funding, what is used to protect the lender against fraudulent activity?

Rigorous income analysis
Documentation of repayment ability
Buy-back provisions
Line of credit

Answer 457

The answer is buy-back provisions. A warehouse lender often uses buy-back provisions in the agreements with brokers to assure themselves some protection against fraudulent activity during the loan process.

Question 458

Civil monetary penalties resulting from the failure to report data for HMDA are:

$1,000 per violation, with a maximum of $300,000 in fines annually
Calculated based on a penalty matrix, which considers good faith, previous violations, and financial resources of the entity involved
Calculated based on a percentage of total loan amounts of mortgages in violation
$11,000 per violation, but can be increased to $25,000 for willful and knowing violations

Answer 458

The answer is calculated based on a penalty matrix, which considers good faith, previous violations, and financial resources of the entity involved. HMDA uses a penalty matrix to determine fines for violations. The matrix includes considerations for good faith, previous violations, and the financial resources of the entity involved.

Question 459

Oversight for FCRA is shared between the FTC and:

Federal Reserve
HUD
TILA
CFPB

Answer 459

The answer is CFPB. Oversight for FCRA is shared between the FTC and the CFPB.

Question 460

Which of the following federal agencies is responsible for the enforcement of Regulation B?

FTC
FDIC
NCUA
CFPB

Answer 460

The answer is CFPB. The regulations promulgated under ECOA are known as Regulation B. The federal regulatory agency responsible for ECOA is the CFPB.

Question 461

Which of the following federal agencies is responsible for the enforcement of Regulation X?

FTC
FDIC
CFPB
NCUA

Answer 461

The answer is CFPB. The regulations promulgated under RESPA are known as Regulation X. The federal regulatory agency responsible for RESPA is the CFPB.

Question 462

If a homebuyer is using an ARM to finance his/her home, the _____ is a mandatory disclosure.

AARMR
CSBS
HUD
CHARM

Answer 462

The answer is CHARM. The CHARM Booklet is an educational disclosure that is mandatory under TILA.

Question 463

The ratio of the total balance of all mortgage liens against a property to the total property value is called:

TLTV
HLTV
LTV
CLTV

Answer 463

The answer is CLTV. The CLTV is the ratio of all mortgages on the property divided by the total value of the property.

Question 464

Which of the following would not be considered an appraisal red flag?

Appraisal dated prior to the sales contract
Blurry photos or photos that appear to be downloaded
Comparables within one mile of the subject property and sold within one year
Adjustments that exceed guideline

Answer 464

The answer is comparables within one mile of the subject property and sold within one year. Comparables located within one mile of the subject property and sold within one year are not considered an appraisal red flag.

Question 465

The risk of a balloon mortgage may be minimized by including a:

Mandatory arbitration clause
Acceleration clause
Conditional refinance provision
Home equity conversion provision

Answer 465

The answer is conditional refinance provision. The risk of a balloon mortgage may be minimized by including a conditional refinance provision.

Question 466

In addition to any authority allowed under state law, a state licensing agency must have the authority to:

Approve licensing courses
Conduct examinations and investigations
Collect licensing and renewal fees
Request enforcement action from the NMLS

Answer 466

The answer is conduct examinations and investigations. Under the S.A.F.E. Act, a state licensing agency must have the authority to conduct investigations and examinations of licensed loan originators and individuals required to have a loan originator license.

Question 467

Which of the following is not an example of an FHA loan product?

Conforming mortgage loan
Cash-out refinance
Home equity conversion mortgage
Streamline refinance

Answer 467

The answer is conforming mortgage loan. Cash-out refinances, home equity conversion mortgages, and streamline refinances are all examples of FHA loan products.

Question 468

The acronym “CHARM” stands for:

Cost Handbook for Adjustable-Rate Mortgages
Credit History on Adjustable-Rate Mortgages
Customer Highlights for Adjustable-Rate Mortgages
Consumer Handbook on Adjustable-Rate Mortgages

Answer 468

The answer is Consumer Handbook on Adjustable-Rate Mortgages. The acronym “CHARM” stands for “Consumer Handbook on Adjustable-Rate Mortgages.”

Question 469

The acronym “CHARM” stands for:

Cost Handbook for Adjustable-Rate Mortgages
Credit History on Adjustable-Rate Mortgages
Consumer Handbook on Adjustable-Rate Mortgages
Customer Highlights for Adjustable-Rate Mortgages

Answer 469

The answer is Consumer Handbook on Adjustable-Rate Mortgages. The acronym “CHARM” stands for “Consumer Handbook on Adjustable-Rate Mortgages.”

Question 470

Regulations in Section 32 of TILA deal strictly with:

The interactions between mortgage professionals and real estate agents
Consumer protections triggered by high-cost loans covered under HOEPA
The amount a borrower should expect to be charged as an annual percentage rate
Licensing standards placed in effect by the Housing and Economic Recovery Act

Answer 470

The answer is consumer protections triggered by high-cost loans covered under HOEPA. Section 32 of Regulation Z (TILA) deals with added provisions and protections that are required if a loan meets or exceeds any one (or more) of three thresholds: either a points and fees threshold, an APR threshold, or a prepayment penalty threshold. Loans meeting or exceeding any of these thresholds are subject to the provisions required by the Home Ownership and Equity Protection Act (HOEPA, which is Section 32 of TILA).

Question 471

A borrower of a closed-end loan with a three-day right to rescind may exercise this right at any time until midnight on the third business day after:

Consummation, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever is later
Consummation or delivery of the required rescission notice, whichever is earlier
Delivery of the notice of the right to rescind or delivery of all material truth-in-lending disclosures, whichever is later
Delivery of the notice of the right to rescind or delivery of all material truth-in-lending disclosures, whichever is earlier

Answer 471

The answer is consummation, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever is later. In a closed-end loan transaction that offers the right to rescind, rescission may be exercised at any time until midnight on the third business day after consummation, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever is later.

Question 472

What term describes the transfer of ownership of real estate from one owner to another?

Reconveyance
Conveyance
Assignment
Transmittal

Answer 472

The answer is conveyance. A conveyance is the transfer of ownership of real estate from one owner to another.

Question 473

Which of the following would be considered grounds for license denial?

Payment of licensing fees
Conviction of a felony within the seven years immediately preceding application
Compliance with the pre-licensing education requirements
Providing records of previous loan files

Answer 473

The answer is conviction of a felony within the seven years immediately preceding application. A felony conviction within the seven years immediately preceding application is grounds for denial of an initial application.

Question 474

If an appraiser considers the value of the land and the cost of improvements as a means to arrive at an estimate of value for a property, he/she is using the _____ approach.

Sales comparison
Income
Cost
Investment

Answer 474

The answer is cost. The cost approach uses the value of the land and the reproduction cost of any improvements.

Question 475

Fiduciary duties include all but which of the following?

Creating a zero-cost borrower credit
Loyalty
Good faith
Putting the borrower’s interests first

Answer 475

The answer is creating a zero-cost borrower credit. A broker under the Law of Agency has a fiduciary duty to represent the borrower with loyalty, good faith, and should always put the borrower’s best interest ahead of his/her own.

Question 476

The _____ is ultimately responsible for ensuring that the borrower receives a Closing Disclosure.

Settlement agent
Creditor
Seller
Mortgage broker

Answer 476

The answer is creditor. The creditor is ultimately responsible for ensuring that the borrower receives a Closing Disclosure.

Question 477

On which section of the application would a borrower be asked to attest to legal issues that could impact repayment ability, such as outstanding judgments, tax liens or delinquencies on other debts?

Section 1
Declarations
Assets and Liabilities
Information for Government Reporting

Answer 477

The answer is Declarations. The Declarations Section (Section 5) asks the borrower for information regarding any judgments, citizenship, default status, occupancy status, and other questions that may affect underwriting.

Question 478

Where inquiries related to marital status are permitted (e.g., community property states), Regulation B permits the creditor to inquire using any of the following terms, except:

Unmarried
Divorced
Married
Separated

Answer 478

The answer is divorced. Regulation B provides that, when inquiries related to marital status are permitted, the terms that may be used are “married,” “unmarried,” and “separated.”

Question 479

Which of the following was enacted primarily because of anecdotal evidence that women were not treated on an equal basis to men when applying for credit?

RESPA
TILA
ECOA
FHA

Answer 479

The answer is ECOA. The Equal Credit Opportunity Act (ECOA) is intended to promote the availability of credit to all creditworthy applicants, regardless of race, color, religion, national origin, sex, marital status, or age.

Question 480

Giani and Maria are attempting to purchase a house in a new neighborhood. Maria is four months pregnant with their first child, and they are making the move to set themselves up in their dream neighborhood to raise a family. Two weeks after the initial interview, their broker calls to inform them that they have been denied for a loan. The broker continues to say that he mentioned to his underwriter that Maria probably planned to stay at home for a year after having the baby. With that, the underwriter did not allow her income to be used for qualification. This broker is in violation of what law?

ECOA
FCRA
HMDA
TILA

Answer 480

The answer is ECOA. The Equal Credit Opportunity Act strictly prohibits the assumption that a woman will discontinue working once she has had a baby.

Question 481

What is the primary intent of RESPA?

Protect borrowers from misleading advertising
Eliminate unearned fees, such as referral fees, kickbacks, and fee splitting
Protect the privacy of a borrower’s personal financial information
Provide the borrower an opportunity to rescind certain types of loans

Answer 481

The answer is eliminate unearned fees, such as referral fees, kickbacks, and fee splitting. RESPA’s provisions prohibit the payment of any fee that was not earned.

Question 482

The intention of the Safeguards Rule is to:

Require disclosures regarding the use of personal information by third parties
Prohibit lenders from sharing account numbers if they share customers’ information
Restrict the sharing of nonpublic personal information between nonaffiliated financial institutions
Ensure the protection of personal information through an effective security program

Answer 482

The answer is ensure the protection of personal information through an effective security program. The Safeguards Rule requires the creation, implementation, and maintenance of an effective security program that ensures the privacy of clients’ personal financial information. The program must include four key elements, including a program coordinator, identification of risks, regular testing, and oversight of third-party service providers.

Question 483

While taking an application, an originator learns that his potential borrower receives income from a public assistance program. Without even running a full pre-qualification, the originator tells the would-be borrower that he cannot help someone who is receiving public assistance. This originator is in violation of the:

Equal Credit Opportunity Act
Fair Housing Act
Equal Housing Act
Fair Credit Transaction Act

Answer 483

The answer is Equal Credit Opportunity Act. Under ECOA, originators may not base a decision to extend credit on the fact that an applicant receives income from a public assistance program.

Question 484

Costs anticipated to be charged in a loan transaction, such as origination fees, processing fees, appraisal fees, title fees, and recording fees are called:

Total costs
Estimated closing costs
Purchase price
Pre-paids

Answer 484

The answer is estimated closing costs. Costs anticipated to be charged in a loan transaction, such as origination fees, processing fees, appraisal fees, title fees, and recording fees are called estimated closing costs.

Question 485

Which of the following is true?

Unethical practices in lending transactions do not lead to legal consequences
Federal lending laws do not address the issues of ethical lending practices
Ethical issues are the basis of both state and federal laws and can have legal consequences
Only state laws address the issue of ethical lending practices

Answer 485

The answer is ethical issues are the basis of both state and federal laws and can have legal consequences. Ethical issues are the basis of both state and federal laws, and violating these laws can have serious legal consequences.

Question 486

The underwriting process:

Evaluates a borrower for loan approval
Uses ratios and other criteria to approve a borrower
Evaluates collateral for deficiencies and borrowers for solvency
Examines whether the collateral and applicant meet lender guidelines

Answer 486

The answer is examines whether the collateral and applicant meet lender guidelines. Underwriting is the process of evaluating both the borrower and collateral to ensure that lender guidelines are met.

Question 487

All of the following are responsibilities of the closing agent, except:

Verify identity and notarize documents
Explain the risks and benefits of the ARM product on which the client is closing
Coordinate the closing process
Verify that all parties have copies of forms and disclosures required for settlement

Answer 487

The answer is explain the risks and benefits of the ARM product on which the client is closing. In broad terms, it is the closer’s job to “review” the terms of the loan with the borrower; it is not their job to “re-sell” the loan to the borrower. Full disclosure and discussion of all fees are the obligations of the borrower and should take place prior to closing.

Question 488

Originators who mislead borrowers about the contents of their credit histories and/or their credit scores in an effort to steer them into disadvantageous loans are in violation of:

ECOA
FHA
HPA
FCRA

Answer 488

The answer is FCRA. Failing to give borrowers accurate information about their credit in an effort to steer them into a loan they may be overqualified for is an ethical and legal violation of the Fair Credit Reporting Act

Question 489

Kelsey is a registered loan originator who is employed by the Your Home Town Bank, a depository institution regulated by a federal banking agency. Each of the following is a federal banking agency, except the:

Board of Governors of the Federal Reserve System
Comptroller of the Currency
Federal Home Loan Mortgage Corporation
National Credit Union Administration

Answer 489

The answer is Federal Home Loan Mortgage Corporation. The federal banking agencies include the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the National Credit Union Administration, and the Federal Deposit Insurance Corporation.

Question 490

Virtually every residential transaction involves an estate that is held in _____, the desired form of holding ownership to property because it has the fewest restrictions.

Foreclosure
Fee simple
Short sale
Deed-in-lieu

Answer 490

The answer is fee simple. Virtually every residential transaction involves an estate that is held in fee simple, the desired form of holding ownership to property because it has the fewest restrictions.

Question 491

Which of the following fees is not included in the calculation of the finance charge for a mortgage?

Origination fees charged by the creditor
Charges for title work by an affiliate of the creditor
Use of a closing attorney required by the creditor
Fees charged by an unaffiliated appraiser

Answer 491

The answer is fees charged by an unaffiliated appraiser. Finance charges always include fees charged by the creditor, charges by an affiliate of the creditor, and fees charged by a third-party provider required by the creditor. Fees charged for real estate-related services, such as appraisal, are not included in the finance charge if they are reasonable, are not charged by affiliates, and the creditor does not receive a direct or indirect fee for those services.

Question 492

The TRID Rule’s zero tolerance for variances between estimated and actual charges applies to which of the following fees?

Fees paid to non-affiliated third-party settlement service providers chosen by the borrower and not included on the creditor’s recommended list of providers
Fees paid for prepaid interest
Fees paid to third-party providers of optional insurance products, such as credit life and credit disability insurance
Fees paid to a creditor

Answer 492

The answer is fees paid to a creditor. Fees that are subject to a zero tolerance for variances between estimated and actual fees include those for creditors, mortgage brokers, and their affiliates.

Question 493

Which of the following types of loans is not a conventional mortgage?

Nonconforming loan
Non-qualified mortgage
FHA loan
Subprime loan

Answer 493

The answer is FHA loan. Conventional loans include a wide range of loan types except for government-insured and guaranteed loans such as FHA loans, USDA loans, and VA loans.

Question 494

Which of the following loan types is exempt from the HPA?

FHA loans
Fixed-rate loans
Conventional loans
Non-conforming loans

Answer 494

The answer is FHA loans. The Homeowners Protection Act (HPA) is used to facilitate the cancellation of private mortgage insurance, or PMI. FHA loans require upfront and annual mortgage insurance premiums; they do not rely on private mortgage insurance to protect their investment.

Question 495

Which of the following is not involved in the bundling of mortgages for sale in the secondary market?

FHA
FNMA
Private-label investors
FHLMC

Answer 495

The answer is FHA. The secondary market includes GSEs, such as Fannie Mae and Freddie Mac (FNMA and FHLMC), as well as private financial institutions, also known as private-label investors.

Question 496

Which of the following is a trigger term for advertisements for both open-end and closed-end mortgage loans?

Finance charge
Amount of down payment
Period of repayment
Number of payments

Answer 496

The answer is finance charge. The finance charge is a trigger term in advertising for both open- and closed-end loans.

Question 497

Income derived from a rental property would be entered in which section of the URLA?

Current Employment/Self-Employment and Income
Income from Other Sources
Financial Information - Real Estate
Borrower Information

Answer 497

The answer is Financial Information - Real Estate. Income derived from a rental property would be entered into the “Financial Information - Real Estate” section of the URLA, under a heading called “Property You Own.” If the applicant owns multiple properties from which they earn rental income, there are additional content boxes in this section to accommodate that information.

Question 498

A state-licensed loan originator who fails to maintain a valid license for a period of _____ years or longer shall be required to retake the NMLS test.

Three
Seven
Five
Ten

Answer 498

The answer is five. The NMLS requires a licensee who fails to maintain a license for five years or longer to retake the exam.

Question 499

Cindy bought a home and closed on a 6.0% rate for 30 years. The loan includes a payment feature that allows Cindy to make a $1,400/month payment for the first five years, and a $1,800/month payment for the remainder of the loan. What type of loan is this?

Variable
ARM
Option ARM
Fixed rate

Answer 499

The answer is fixed rate. This loan is a fixed-rate loan (at 6% for 30 years). The payment example shows an interest-only feature for the first five years and then a fully-amortized payment for the remainder of the loan.

Question 500

A Loan Program Disclosure must be provided:

For each variable-rate mortgage product available at the time
Only for the product for which the applicant is most likely to qualify
For each variable-rate mortgage product in which the applicant expresses an interest
Only for the product which the lender feels is best for the applicant

Answer 500

The answer is for each variable-rate mortgage product in which the applicant expresses an interest. A Loan Program Disclosure must be provided for each variable-rate mortgage product in which the applicant expresses an interest.