800 Flashcards
1
Q
What is the required pass
rate for the NMLS Test and
how long is it?
A
75% of 115 questions. The test has 125 questions with 10 questions that are ungraded.
2
Q
What is important to
remember about taking the test?
A
Read the questions twice, slowly, but do not take over 30 seconds per question the first time through.
3
Q
What is the requirement under Fair Lending, Fair Housing, and ECOA?
A
All consumers have the right to apply for a loan unless they are under 18 years of age
4
Q
Which Law and Regulation is
Home Ownership Equity Protect Act (HOEPA) under?
A
Truth in Lending Act (TILA) and REG Z
5
Q
Which items are restricted
under HOEPA?
A
Predatory Lending, Abusive Lending Practices, Negative Amortization, Prepayment Penalties, Balloon Lending, Subprime Lending, Equity
Stripping, and not meeting Ability to Repay (ATR)
requirements.
6
Q
What is the minimum period
for a Balloon mortgage?
A
A 30-year amortized loan that is due in 60 months.
7
Q
What is the Average Prime
Offered Rate?
A
APOR – an index that is published weekly. It is added to High-Cost and Higher-Priced Triggers.
8
Q
Who publishes the APOR
Index?
A
FFIEC, the Federal Financial
Institutions Examination Council
9
Q
What is the Regulation for
High-Cost Loans?
A
Section 1026.32
10
Q
What are the three triggers for High-Cost Lending?
A
High-cost lending is governed by the Home Ownership and Equity Protection Act (HOEPA), which identifies “high-cost” mortgages based on three specific triggers. If any of these thresholds are exceeded, the loan is classified as high-cost, and additional disclosures and restrictions apply to protect the borrower. The three triggers are:
1. APR Trigger: • A loan is considered high-cost if the Annual Percentage Rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by: • 6.5 percentage points for a first-lien mortgage (for loans over $50,000). • 8.5 percentage points for a first-lien mortgage on personal property or a loan amount less than $50,000. • 8.5 percentage points for subordinate liens (such as second mortgages). 2. Points and Fees Trigger: • A loan is considered high-cost if the total points and fees paid by the borrower exceed: • 5% of the loan amount for loans over $24,000. • For loans under $24,000, the threshold is the lesser of 8% of the loan amount or a specified dollar amount (set annually, around $1,200). 3. Prepayment Penalty Trigger: • A loan is high-cost if it includes a prepayment penalty: • That is in effect for more than 36 months after closing. • That exceeds 2% of the amount prepaid.
If a loan meets any of these triggers, it becomes subject to stricter regulations, including additional consumer protections, restrictions on terms, and the requirement for special disclosures to the borrower.
11
Q
What are the triggers for
Higher-Priced lending?
A
High-priced lending is governed by the Truth in Lending Act (TILA) under the Higher-Priced Mortgage Loan (HPML) rules. These loans are considered higher-priced if certain thresholds are exceeded, which trigger additional requirements and protections for borrowers. The three key triggers are:
-
APR Trigger:
- A loan is considered higher-priced if the Annual Percentage Rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by:
- 1.5 percentage points for first-lien mortgages.
- 2.5 percentage points for jumbo loans (first-lien loans exceeding the conforming loan limit).
- 3.5 percentage points for subordinate-lien mortgages (e.g., second mortgages).
- A loan is considered higher-priced if the Annual Percentage Rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by:
-
Escrow Requirement:
- Higher-priced loans must have an escrow account for property taxes and insurance for at least five years (for most loans secured by a first lien on the borrower’s primary residence).
-
Ability to Repay/Verification of Income:
- Lenders are required to verify the borrower’s ability to repay the loan. This includes reviewing and verifying income, assets, and employment status before approving the loan.
These triggers ensure that higher-priced loans come with additional consumer protections, including limitations on risky features, mandatory escrows, and stricter underwriting requirements to help prevent borrower default.
12
Q
How do you calculate whether a loan exceeds the Higher-Priced mortgage limits?
A
Add the APOR index to 1.5% on a first mortgage. The Annual Percentage Rate (APR) cannot exceed the two numbers together.
13
Q
What are the requirements for a High-Cost Loan?
A
Tax and insurance escrows for the first five years of
the loan, mandatory counseling and possibly two appraisals. Cannot use an Appraisal Waiver from
Fannie or Freddie. No Balloons are allowed.
14
Q
What are the requirements for a Higher-Priced Loan?
A
Tax and insurance escrows for the first five years of the loan. Cannot use an Appraisal Waiver from Fannie or Freddie.
15
Q
Prepayment Penalties are not allowed by which agencies?
A
Fannie Mae, Freddie Mac,
USDA, FHA, and VA
16
Q
What is collateral?
A
Property that is used as security against a debt
17
Q
What is Net Monthly Income?
A
Take-home pay after taxes and payroll deductions.
18
Q
What is a non-liquid asset?
A
A type of asset that is not easily turned into cash. Real estate is considered non-liquid.
19
Q
What are the 5 parts of ECOA?
A
Age, Discrimination, Underwriting, Appraisal and Adverse Action.
20
Q
What is the minimum age under ECOA to obtain a mortgage loan?
A
18 years or older
21
Q
ECOA has discriminatory items. What can’t you do with them?
A
You cannot use them to make or decline a loan.
22
Q
What are the discriminatory items under ECOA?
A
Sex, Marital Status, Race, Color, Age, Religion, National Origin, Public Assistance, and Sexual Orientation.
23
Q
What can you ask on Marital Status?
A
Married, unmarried, or separated.
24
Q
Which 4 areas should you never ask about?
A
Race, Color, Religion and Nationality.
25
What is the requirement for Public Assistance?
It must be considered, even though you may not be able to use it for qualifying.
26
How long, after a complete underwriting package is delivered to the underwriter, does a decision have to be made?
30 days, but this may be extended if the package is not complete.
27
How many days before closing must the appraisal be delivered to the borrower?
Three business days before, unless there is an appraisal waiver issued, then the borrower must be informed that an appraisal will not be done unless they request it.
28
How long after a loan is declined or cancelled must an adverse action notice be sent?
30 days from the decision, explaining the reason.
29
Under the Fair Housing Act, what are three protected bases that are different from those covered by ECOA?
1. Disability
2. Familial Status
3. Age
30
Why is Disability considered discriminatory under Fair Housing Act?
You cannot discriminate against a borrower because they are physically or mentally disabled
31
Why is Familial Status considered under Fair Housing Act?
You cannot discriminate because of the size of family or if a woman is pregnant
32
Why is age not considered discriminatory under Fair Housing Act?
Reverse mortgages require a borrower to be 62 years of age or older, and a 55 and over subdivision requires the borrower or purchaser of property to be 55 and over
33
What is the Reg Letter for Fair Credit Reporting Act?
REG V
34
How many free credit reports does every consumer have the right to get each year?
At least one
35
Which credit score do you use when considering a borrower?
Three credit scores are issued on each credit report for each borrower: High, Middle, and Low. You will use the Middle unless the program states differently
36
Which credit score do you use if the loan is declined because of credit and there are three borrowers?
Lowest of the Middle score for all the borrowers.
Example: Borrower 1 has a score of 780, borrower 2
has a credit score of 720, and borrower 3 has credit
score of 660. You would use 660.
37
What additional information is required on the Credit Score Disclosure?
Listing of all three national credit agencies, with
contact information, so the borrower can contact
them in case of an error or dispute. Agencies are
Experian, TransUnion, and Equifax
38
What are the three national Credit Agencies?
1. Experian
2. TransUnion
3. Equifax
39
Which law did the Fact Act amend?
Fair Credit Report Act (FCRA)
40
What is a fraud alert?
An alert put on the credit report, indicating the
borrower may have had their identity stolen or
credit card or bank accounts compromised
41
What happens with a Credit Freeze?
No one will be able to access the borrower’s
credit without them unfreezing their account.
Credit issuers will be able to report credit
payments
42
What is the cost for a fraud alert or credit freeze?
Zero cost and should be applied to
| all three credit agencies
43
What is Truncation?
When credit card, debit card, or bank deposit
receipts are given, they cannot show more than
the last four digits of the account numbers
44
What are the two parts of Red Flag Rules?
(1) Before the request for change of personal information, the company must send a letter or email asking if the person requested the change.
(2) All employees are to be trained on how to identify a breach of security and what the company’s requirement is once the breach has been determined.
45
Which agency regulates Red Flags?
Federal Trade Commission (FTC)
46
What is a Homeowner’s Warranty?
A warranty and insurance program that insures a new home for ten years against major structural defects
47
If a breach is determined, what is the requirement?
It must be reported to Compliance Officer or Senior Officer and, 30 days from that point, the company must send a notice to all people in their database notifying them of the breach and what the company has done to protect them
48
What does GLB stand for?
Gramm-Leach-Bliley
49
What is the REG for Gramm-Leach-Bliley?
REG P
50
What is the main emphasis of Gramm-Leach-Bliley?
Privacy of consumers’ personal information
51
What does NPPI stand for?
Non-Public Personal Information
52
What is “Opt-Out” under GLB?
The consumer has the right to opt-out of a company sharing, selling, or giving their NPPI to anyone. The Opt-out stays on as long as their name is in the company’s data base.
53
What is Phishing or Pre-Texting?
Obtaining personal information by illegal process, like a text, claiming to be from the IRS, asking for your SSN
54
What is required under Safe Guard Rules?
Whenever you are not using your files, they are to be locked up in a desk drawer or filing cabinet. If your files are on a computer, there must be a lock out after a few minutes.
55
What regulates Safe Guard Rules?
FTC – Federal Trade Commission
56
What is the required retention of Loan Information?
3 years for all loan files and 5 years for the CD
57
Can the hard files be destroyed?
Once the files are digitized, they can be destroyed, but that does not mean throwing them away
58
Who is required to file a HMDA report?
All companies that underwrite or fund loans must file a HMDA report annually. This includes banks, credit unions, and mortgage bankers.
59
What does HMDA stand for?
Home Mortgage Disclosure Act
60
What is the REG letter for HMDA?
Reg C
61
Which agency is responsible for overseeing HMDA data?
FFIEC - Federal Financial Institutions Examination Council
62
What does CRA stand for?
Community Reinvestment Act
63
What does CRA require?
To encourage depository institutions to help meet the credit needs of the communities in which they operate
64
Do Mortgage Brokers have to report HMDA data?
No, because brokers do not underwrite or fund loans
65
When does the HMDA data have to be reported?
In 2019, by March 1st of each year. In 2020, it is quarterly.
66
What does PENCIL stand for?
```
P= Property address
E=Estimated value
N= Name
C = Credit or Social Security number
I = Income
L = Loan amount
```
67
When is an application considered a loan?
When you have collected all the items in PENCIL
68
What agency regulates and enforces Do-Not-Call?
FTC – Federal Trade Commission
69
How often do you have to pull new data from the Do-Not-Call website if you are using the data to solicit consumers?
The data cannot exceed 31 days. The data incudes phone numbers for any person that registers their phone number with DNC.
70
How long are you to retain your solicitation records?
2 years from the date of solicitation
71
What times can you solicit?
8:00am – 9:00pm, depending on where the person being solicited is located
72
What are the 2 exemptions for solicitations under Do-Not-Call?
1. 18 months for someone with whom you have an existing business relationship
2. 90 days for a Pre-qualification
73
What is an in-house Do-Not-Call List?
If a consumer sends a letter or an email to the company
indicating they want no solicitations, the company must put that person on an internal do-not-call list, so not one contacts that person. This overrides the 18 month and 90-day exemption.
74
What are the 8 items covered under TILA?
1) MDIA – Mortgage Disclosure Improvement Act
2) Advertising
3) HOEPA
4) Loan Estimate (LE)
5) Annual Percentage Rate (APR)
6) Qualified Mortgage (QM)
7) Loan Officer Compensation
8) CHARM Booklet
75
What Does MDIA stand for?
Mortgage Disclosure Improvement Act
76
What does Mortgage Disclosure Improvement Act (MDIA) cover?
MDIA is a part of Reg Z and covers timing and delivery
requirements for initial disclosures, LE, intent to proceed, and changes to the mortgage loan program, prepayment penalty, or APR calculations. MDIA also addresses when the CD needs to be issued, as well as the waiting period involved.
77
What is a Changed Circumstance?
Any borrower-requested change due to an extraordinary event beyond anyone’s control. A new LE must be received by the borrower within three business days from the change.
78
What are the requirements for advertising under TILA?
All marketing materials must have the company name,
company NMLS number, phone number, address, equal housing logo, and an APR. All advertising must be kept for two years from the last date used.
79
What is the definition of Annual Percentage Rate (APR)?
APR is expressed as a percentage that represents the total costs paid over the term of a loan. This includes any fees or mortgage insurance associated with the transaction.
80
What does APR stand for?
Annual Percentage Rate – the cost of the loan over the life of the loan, quoted as a percentage rate
81
What is a CHARM booklet?
A booklet that is required for all ARM loans. It is issued at least three days from the signed application
82
What is the Loan Estimate (LE)?
A disclosure of all terms and costs of the loan, to be issued when you have all the items under PENCIL, and within three business days of the signed application
83
What does QM stand for?
Qualified Mortgage – all conforming conventional loans must meet the standards
84
What are the two ways a conventional conforming loan can meet QM Standards?
Option #1: 43% maximum DTI and maximum
3% in fees.
Option #2: Approved eligible from Fannie or Freddie and meet the Higher-Priced Lending triggers
85
What is Safe Harbor?
If you meet either of the two options under QM that showed you proved Ability to Repay requirement, you are protected from a lawsuit
86
What is the punishment if you do not meet QM Standards?
Up to three years interest, all loan costs, and legal costs for both sides
87
If an MLO is paid commissions, what can the commissions based on?
Basis points under your Loan Originator Agreement, times the loan amount. No terms or costs of the loan can be counted.
88
What does UDAAP stand for?
Unfair, Deceptive, or Abusive Acts or Practices
89
What Does Unfair, Deceptive, or Abusive Acts or Practices state?
It is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive, or abusive act or practice
90
If a company pays a bonus or retirement donation, what are the criteria for determining the amount?
Number of loans, dollar amount originated for a specific time, and/or the closing rate on your applications. Bonuses are limited to 10% of the last 12 months’ compensation.
91
What does Reg N Cover?
Mortgage Acts and Practices
92
What does Mortgage Acts and Practices require?
If you don’t have a program or rate, do not advertise it, and do not use Bait and Switch tactics, or language or terms that would indicate to a borrower you do not want them to apply
93
What is Bait and Switch?
Advertising a lower rate or a program that may not exist to entice consumers, and then when they call, you offer them another less-attractive program.
94
What is not included in Digital Delivery?
Faxing or e-mail. Docu-sign or E-sign are acceptable where the person can be verified, and the documents are time stamped as they are sent back and forth.
95
What are the requirements for Digital Delivery?
The borrower must give you written approval, have the right to go back to hard copy, and you must determine, to the best of your ability, if the borrower is technically able to do the process
96
What does CFPB stand for?
Consumer Financial Protection Bureau
97
What are duties of the Consumer Financial Protection Bureau?
They have the power to write, implement regulations, investigate, and issues fines or other penalties as needed
98
Who does the CFPB answer to?
The President
99
What is a Consumer?
Someone who obtains a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, like applying for a loan (whether they accept the loan or not).
100
How many days do you have to send an adverse action notice?
30 days, mailed or verbal
101
TILA Trigger terms
Balance, term, APR (rate), payment
102
Flood Insurance
Stays until the loan is paid off
103
How many months reserves are needed for non-owner-occupied properties?
6 months
104
What is excessive value?
An appraisal term to express a value higher than the highest in the neighborhood
105
What is the flood insurance requirement?
Enough to cover the loan amount
106
What is the hazard insurance requirement?
Enough to cover the loan amount
107
What are the payment options for ARMs?
15 years, 30 years, Negative/Minimum
108
Servicing loan estimates need to be given within what time frame?
3 days
109
What are the manufactured home financing
| requirements?
Home must be on a permanent foundation and
| the land must be titled as real property. The HUD Data Plate must be on the home
110
What is the VA back-end ratio?
41%, including housing, utilities, and all other debts
111
How much hazard insurance is required on a reverse
| mortgage?
100% of the loan amount
112
What is the minimum down payment?
FHA: 3.5%
Conventional: 3%
113
What does the cost approach include?
Depreciation, Square Footage, and Replacement Cost
114
With the Sales Comparison Approach, what adjustments are allowed?
Net adjustments of 15% and gross adjustments of
| 25% to comparables
115
What do riders include?
PUD, ARM, Balloon Payment, Prepayment Penalty
116
What is a Hybrid Loan?
A loan that performs like a fixed and adjustable-rate
| loan. It has a fixed rate for an initial period before turning into an ARM
117
What is a non-warrantable condo?
FNMA will not do the loan
Condo-conversion= non warrantable
HOA, 51% owner occupied
118
FHA loans are only for what types of properties?
Owner-Occupied Properties
119
What is a grace period?
A period of extra time allowed for making a payment without incurring a late penalty
120
What does Title VII include?
Discrimination, Sexual Harassment, Hostile Workplace
121
What is the FHA loan verification of child support?
Divorce decree and 3 months of cancelled checks
122
What are the types of title policies?
Final, Termite, Engineer Certification of Foundation
123
What must happen in order to transfer an FHA case number?
Request must come from borrower
124
What is the UFMIP %? (Up Front Mortgage Insurance Premium - FHA)
1.75%
125
How is monthly MIP calculation done?
On base loan amount before UFMIP
126
What is the active-duty vet 1st time funding fee at 100%?
2.3%
127
What is the FHA loan minimum living time before resale?
91 days from consummation with second appraisal
128
How is a GLBA notice delivery given out?
Mailed, given personally, or faxed
129
How do tenants in common mortgages work?
Each owner has their own share of the property that they can pass on in their will
130
What information is covered in the privacy rule of GLBA?
Non-public information, including any information an individual gives you to get a financial product or service; i.e., credit reports, banking info, unlisted home telephone numbers
131
What is on the deed of trust agreement?
Metes and bounds, legal description, attached riders, name of borrower
132
What is an ongoing business relationship?
Customer
133
How long is the FIRREA statute of limitations loan fraud?
10 years
134
How often must the aggregate accounting escrow be reviewed?
Every 12 months, cushion up to 2 months
135
What is a Chain of Title?
The ownership history of a piece of land, from its first owner to the present one
136
Which types of loans are Assumable?
VA, FHA if stated in the deed
137
How much is title insurance coverage on reverse?
150% of original loan amount
138
What is AQB?
National appraiser group
139
What percentage of a VA loan is guaranteed?
Up to 50% of a loan up to $45,000.
Between $45,000 and $144,000, the minimum is
$22,500 and the max of up to 40% of the
loan up to $36,000.
140
What is a notice of transfer?
Includes toll free number of new and old servicer and effective date, 15 days before transfer
141
When are LE requirements not required?
They are not required on commercial loans, loans denied within three days, or bridge/swing loans
142
What is a “due on sale” clause?
A clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note
143
How often do telemarketers update the DNC?
31 days
144
After someone requests you to put them on your DNC list, how many days do you have to do so?
30 days
145
How long does a conventional loan owner agree to occupy the
| property?
1 year
146
What are the guidelines for
| appraisers?
USPAP
147
Where is the Prepayment
| penalty disclosed?
Rider to trust deed LE/CD
148
Which loan requires a large final loan payment, as it does not fully amortize?
Balloon
149
What is included in typical
| property inspections?
Verification that required repairs have been made, termite, well, septic, and roof
150
Joint Tenants
Ownership automatically
transferred on death to other
owners, cannot be a corporation
151
What is a Bridge loan?
A loan which occurs between the termination of one mortgage and the
beginning of the next.
152
What affects mortgage
| interest rates?
Unemployment report,
| consumer price index, federal reserve board
153
What affects PMI?
LTV, ARM, Term, FLCO
154
What is an indemnity
| agreement?
With a real estate indemnity agreement, one party is pledging to protect another from any kind of financial loss or from a lawsuit of some kind
155
What is the required
| fire/hazard insurance amount?
Enough to cover the loan
| amount
156
What is LIBOR?
London Inter Bank Offered
| Rate
157
What is the max seller paid
closing costs for Conventional,
FHA/USDA, and VA loans?
Down: S. P.
Conv:
<10% 3%
10-25% 6%
25+ % 9%
FHA/USDA: 6%
VA: 4%
158
What is the right of rescission?
A right, set forth by TILA, of a borrower to cancel a home
equity or line of credit with a new lender, or to cancel a
refinance transaction done with another lender other
than the current mortgagee, within three days of closing
159
Which form states that the borrower must occupy the property as primary residence within 60 days?
FNMA FHLML Form 3072
160
What are the different
| appraisal types?
Cost: Cost to replace; usually newer construction
Income: Income producing properties
Sales Comparison (Market): Compare to other similar properties
161
When was the Dodd-Frank
| Act created?
2010
162
What are Mortgage-Backed Securities?
A type of asset-backed security that is secured by a mortgage or collection of mortgages
163
Lower-cost MI with loan level price adjustment
Borrower with high credit scores. The borrower can have lower MI but FNMA will pay less for the loan.
164
What does plain language title insurance do?
Protects the buyer:
1. Rights of claims of 3rd parties
2. Easements or claims of it not in the public record
3. Forced removal of existing structure
4. Mechanics lien coverage (unrecorded)
165
What is the appraiser trainee period?
12 months
166
Who are the big players
| on the Secondary Market?
FNMA, FHLMC, and
| GNMA
167
Someone on the DNC list contacts you. How long can you continue to call?
3 months
168
What are the high-cost
limits with APR and point
fees?
APR:
6.5 on 1st or 8.5% on 1st less than 501c or 2nd
Points Fees:
5% + on $20,000+ loan or
8% on less than $20,000
169
Where can acceptable down payments come from?
- Selling an asset
- An employer
- Family
- A fiancé
170
Which financial and non-financial companies are covered by the Bank Secrecy Act?
Banks, Credit Unions, Mortgage Bankers, and Mortgage Brokers
171
Who is required to take the
| AML and Fraud Training?
All staff and management
172
How often does the AML and fraud training have to be done?
Once a year
173
Does fraud or money laundering have to be proven or just detected?
Only detected
174
If AML or fraud is detected,
| who do you report it to?
Compliance officer or Senior
| Officer
175
What is the name of the report that is to be filed if fraud or AML is detected?
SAR – Suspicious Activity
| Report
176
Which government agency is responsible for the Bank Secrecy Act?
FinCEN - Financial Crimes
| Enforcement Network
177
If a SAR is reported, how long does the file have to be kept in a secure place?
5 years
178
Can the borrower be told a SAR has been reported on them?
No – information on SARs is to be kept confidential for a five year period
179
Who is allowed to see the file once it has been reported as a SAR?
Police Authority or anyone
| approved by FinCEN to see the information
180
Who is the person responsible for SAR files and releasing information?
Compliance Officer or Senior Officer
181
What is the penalty for
| violating the Bank Secrecy Act?
A person convicted of money laundering can face up to 20 years in prison and a fine of up to $500,000
182
What is required under the
| U.S. Patriot Act?
All borrowers are required to show personal identification: either a driver’s license or passport
183
What does OFAC stand for?
Office of Foreign Asset Control
184
What is required if a borrower is on the OFAC watch list?
The lender must call OFAC and report the person and ask what is to be done with the loan
185
What does HPA stand for?
Homeowners Protection Act
186
What is required under the
| Homeowners Protection Act?
All loans about 80% LTV must have Mortgage Insurance if they are
Conventional Conforming Loans
187
What is the purpose of
| Private Mortgage Insurance?
To provide security to the lender in case of default. Also allows borrower to
make a smaller down payment
188
What does MIP stand for?
Mortgage Insurance Premium for FHA Loans
189
Under the Homeowners
| Protection Act, what is available to the borrower at 80% LTV?
The borrower can request that the PMI be dropped but it is at the option of the lender
190
When is PMI required to be
dropped under the
Homeowners Protection
78% Loan to Value (LTV)
191
What does QM stand for?
Qualified Mortgage
192
What is one of the options for a loan to meet QM standards?
Approved eligible from Fannie Mae or Freddie Mac and higher-priced lending standards are met
193
What is the penalty if you close a Conventional Conforming loan without QM approval?
Up to three years interest, all loan costs, and legal costs for both sides of the lawsuit
194
What does Safe Harbor mean?
The lender has proven the
| borrower has the Ability to Repay (ATR)
195
What does LO Comp stand for?
Loan Officer Compensation
196
What law is LO Comp covered under?
TILA – Truth in Lending Act
197
What can commissions be paid on?
Basis points of the loan amount.
80 basis point loan officer X a $200,000 = $1,600 commission
198
What items can LO
| Compensation be paid on?
Loan amount only
199
What is the limit of bonus money that can be paid to MLO?
10% of the last twelve months
| compensation
200
What are the two ways that
| compensation can be paid?
By the customer or the mortgage company, but not both
201
What does TRID stand for?
TILA, RESPA Integrated
| Disclosure
202
What are the two booklets
| required within three business days of the signed application?
Loan Tool Kit for all purchases and CHARM booklet for all ARM Products
203
What is the requirement for
| the Intent to Proceed?
When the borrower brings the signed Intent to Proceed to the company, the borrower indicates they are obligated to the loan
204
When can an appraisal be
| ordered?
When the borrower signs and delivers the Intent to Proceed
205
How many days from the signed application are the initial disclosures, including the LE, to be delivered?
3 business days
206
How many days does the borrower have to wait to close after the signed Intent to Proceed is delivered to the lender?
7 business days
207
What is a Regulatory Authority?
An entity that has the power
| to regulate the mortgage industry
208
What are the four ways the initial disclosures can be delivered to the borrower?
Electronic signature, in person, mail, or overnight
209
What is required to use
| electronic signatures?
Borrower’s written authorization, ability to go back to hard copy if they wish, and determining whether they are able to do
electronic signatures
210
What is a Changed
| Circumstance?
Any change requested by the borrower (loan amount, locking the loan, program, etc.) or a natural disaster
211
How many days does a new Loan Estimate (LE) have to be delivered after a Changed Circumstance?
3 business days
212
How many business days before closing is the Final Loan Estimate (LE) required to be received by the borrower?
No less than 4 business days
213
How many business days before the closing does the borrower have to receive the Initial Closing Disclosure?
3 business days
214
What are the 3 things that would require a new CD and a three-business day delay in the closing?
1. Mortgage program change
2. prepayment penalty added
3. APR tolerances are exceeded (1/8% on a
fixed or 1/4% on an ARM)
215
What is the definition of
| Consummation?
When the borrower becomes obligated to the loan
216
What is a business day for the closing?
Any day the business is open, not including Sunday or federal holidays
217
What are the 3 stages of a mortgage loan life cycle?
1. Borrowers consideration
2. Primary market
3. Secondary market
218
What items are considered
| ZERO tolerance items?
Appraisal, origination fee,
lender fee, and transfer
taxes
219
What are the 3 categories for fees on the LE?
1. Zero tolerance
2. 10% tolerance
3. No tolerance
220
What is covered under 10%
| tolerance?
Title policy or lender required inspection or recording fees
221
What does 10% tolerance
| mean?
When you quote title or lender required inspection
or recording fees, and the amount is higher than
quoted, the borrower is liable for 10% and you are
responsible for the balance
222
When is an MLO or company not liable under the 10% tolerance?
When the borrower selects their own title or inspection company
223
What does no tolerance
| mean?
No liability for the MLO and
| company because the borrower selects the items
224
What items are included in the no tolerance items on the LE?
Attorney’s fees, realtor fees,
| Homeowners insurance, escrows, per diem interest
225
How do you calculate per diem interest?
Principal balance * interest rate (note rate) / 360 days on conventional loans, or 365 on a government loan =
interest per day
226
What is the Lien Priority?
The chronological order in which liens are filed against a property. Lenders want first priority.
227
What does HUD stand for?
Housing and Urban
| Development
228
What are the responsibilities
| of HUD?
Manage Federal Housing Administration (FHA) and monitor companies and MLOs for Fair Lending, Fair Housing, and complying with ECOA
229
What does ECOA Stand for?
Equal Credit Opportunity Act
230
What is the Reg letter for
| ECOA?
Reg B
231
What is the Reg Letter for Fair Credit Reporting Act?
Reg V
232
Which 3 laws does the Federal Trade Commission (FTC) regulate?
1. Red Flags
2. Safeguard Rules
3. Do-Not-Call
233
On the Loan Estimate (LE), can the Interest Rate be quoted as a fraction? (i.e. 3 7/8%)
Only decimal format (i.e.
| 3.875%)
234
On the Loan Estimate, if “Yes” is shown for Loan Amount, Interest Rate and P&I payment, what does that mean?
The loan is an Adjustable-Rate Mortgage (ARM)
235
What is a Prepayment Penalty?
If you attempt to pay the loan off in the first two or three years, there could be a penalty
236
Who is required to complete the Loan ID on the Loan Estimate?
The company funding the loan
237
What items may be included in the escrow portion of your monthly mortgage payment?
Real Estate taxes, Homeowners Insurance, Flood Insurance, or HOA
fees if the property is a condo
238
On the loan estimate, what is included in the estimated closing costs?
All the costs and fees that will be paid by the borrower at closing
239
When a borrower locks their loan, what does that mean?
The interest rate and fees are locked, as long as the loan is funded by the expiration date
240
What are the different lock
| options for loans?
15, 30, 45, or 60 days. The lock period will cost more as the lock gets longer.
241
Can a mortgage broker issue an extended lock agreement?
No, only a lender that funds loans can issue an extended lock agreement
242
What is an extended lock?
A lock of interest rates and fees for a period longer than 60 days
243
What 4 items must be on an extended lock agreement?
1. Program
2. Interest rate
3. Cost of the lock
4. Expiration date
244
How many days from the issue date of the loan estimate does the borrower have to bring the signed Intent to Proceed to the
lender to protect their costs?
10 business days
245
What happens if the borrower does not return the signed Intent to Proceed to the lender within 10 days of the issue
date of the LE?
The costs of the loan are subject to change and the LE continues to be active
246
What must be put on the top-left side of page 3 of the Loan Estimate?
The lender that is funding the loan
247
What must be put on the top-right side of page 3 of the Loan Estimate?
If the loan is originated by a
| Mortgage Broker, their contact information is to be listed
248
What 3 comparisons are
| required on page 3 of the Loan Estimate?
1. Total cost for the first 5 years
2. Annual Percentage Rate (APR)
3. Total Interest Percentage (TIP)
249
What is Annual Percentage
| Rate (APR)?
The cost of the loan, including interest rate and all costs over the life of the loan
250
What does TIP stand for?
Total Interest Percentage
251
What does TIP tell you?
The total interest paid over
| the life of the loan
252
How is Total Interest
| Percentage calculated?
P&I payment, times the number of payments on the loan, then subtract the principal balance (total interest paid over the life of the loan), divided by the principal = TIP
253
When is the appraisal to be
| delivered to the borrower?
No less than three business
| days before the closing
254
Can a borrower appeal an
| appraisal?
Yes, with information that shows the reason; they cannot just say they feel the property is worth more
255
What is the rule on how much Homeowners Insurance is required?
The lower of the value of the property or the mortgage amount.
256
When must a Late Payment be applied?
After the 15th of the month, a fee of 5% of the P&I payment can be added to the amount due for the
month
257
What items are required to
| refinance a loan?
Value of the property, credit,
| and income
258
What does Servicing mean?
The collection of monthly payments, paying the investor, and setting aside the escrow money into separate accounts other than operating accounts for the servicer. Paying taxes and insurances as they come due.
259
Do the signatures on Loan
Estimate obligate the
borrower to the loan?
No, the signatures only indicate the borrower received a copy of the LE. The signed Intent to Proceed is the document
that obligates the borrower.
260
What is a Mortgage Broker?
A company that originates a loan but cannot underwrite or fund a loan. A MB cannot claim they are a mortgage
lender.
261
What type of properties are
| covered under the laws of TILA, RESPA, ECOA, and HMDA?
1-4 family residences. Any residential is not correct. Units more than 4 units may
be residential but are not covered under the laws.
262
What is a third-party provider?
Any company that provides a service for the origination of a mortgage loan, like appraisals, title insurance, or
credit reports
263
Can a mortgage be called a
| TPO?
Yes, they could be called a
| third-party originator
264
When can the foreclosure
| process begin?
When the loan is 120 days
| delinquent
265
What is covered under the
| Initial Escrow Disclosure?
How the escrows are collected and the servicer’s
| responsibilities
266
What circumstances can result in a declination?
Credit, insufficient assets, the borrower does not have sufficient income, or the
appraisal is not high enough to make the loan
267
What is required to be in the Adverse Action notice?
The reason for the cancellation or declination
268
What is Comparative evidence of Disparate Treatment?
When similar applicants receive different treatment that cannot be explained by
non-discriminatory factors
269
What is evidence of Disparate Impact?
When a policy or practice
negatively impacts individuals on a prohibited
basis
270
What is the responsibility of a Cosigner?
They are as responsible as the borrowers when the loan becomes delinquent or goes into foreclosure. The cosigner’s credit will be affected the same as the borrower’s credit
271
What are the types on income eligible to be used in
| underwriting?
Any income that can be verified and has a two-year history and the potential of lasting for three years in
the future
272
If the borrower refuses to
| volunteer their ethnicity, what are you to do as an MLO?
You cannot require the borrowers to provide the information, but you are required to complete the information based on your
observation of the borrowers
273
What are the core items of the Truth in Lending Act (TILA)?
MDIA, Advertising, APR, LE,
HOEPA, CHARM Booklet,
QM, and LO Compensation
274
What are the limitations for
| seller/lender concessions?
3% on a conventional conforming loan over 90%, and 6% on loans
between 75% and 90%
275
What are permissible fees and charges?
Any fees that the borrower is charged to obtain the loan and are disclosed on
the LE
276
Which loans require a Right of Rescission?
Owner occupied primary
| residences
277
How many copies of the Right of Rescission are to be given to the borrowers and owners of the property?
2 copies to each person
278
How many of the people that were given the Right of Rescission are required to rescind the loan?
1 person
279
When does the Right of
| Rescission start?
3 complete business days after the closing
280
What are the two fee
| thresholds?
3% on Qualified Mortgage and 5% on a High Cost Loan
281
Where does the origination fee go on page 2 of the LE?
Under Loan Costs
282
What is required to be on the Annual Escrow Analysis report?
How much the borrower has paid in and how much was paid on their behalf for taxes and insurances and if there is an overage or shortage
283
What is required if there is an overage on the escrow analysis?
If the amount is over $50.00, the overage must be paid to the borrower within 30 days
284
What is required if there is a
shortage on the escrow
analysis?
The borrower must pay it in one lump sum within 30 days or spread it over the
next 12 months
285
What is the Acceleration
| Clause?
If the borrower is delinquent and it reaches 120 days, the lender has the right to call the balance due
286
What is the Alienation Clause?
If the borrower sells their house and does not notify the lender or allow the new buyer to take over the mortgage, the lender has
the right to start foreclosure
287
Which loan products will not
| allow assumptions?
Conventional conforming or
| USDA loans
288
Which loan products will allow assumptions?
FHA and VA, if the new buyer is approved by the lender. If it is a VA
loan, the new buyer must be a veteran.
289
What is an assumption?
The new buyer can take over the original borrower’s loan and continue to make
the payments, but only on FHA and VA loans
290
What is required to be
reported on your HMDA
report?
All loans that meet the definition of a legal loan whether declined, approved, or cancelled
291
What is a Tri-Merge credit
| report?
A credit report that has
information from Experian,
TransUnion and Equifax
292
What is a Deed?
A written instrument by which land is conveyed
293
When a credit report is reviewed, what are the items that should be checked against the application?
Social Security number, residency history, employment history, payment history, and debts that are on the application
294
When are you allowed to pull credit?
When the borrower authorizes you in writing or on a pre-qual, if the borrower discloses their SSN and you document it in your records
295
What is the definition of a
| creditor?
Any company or business that advances credit to a consumer
296
How long does a Chapter 11 or 13 bankruptcy show on the credit report?
7 years
297
How long does a Chapter 7
| bankruptcy show on the credit report?
10 years
298
What is the fine for Red Flag
| violations?
$3,500, plus $2,500 for FTC
| violations
299
What are the penalties if you violate Dodd-Frank Tier One, Federal Consumer Financial laws?
$5,639 per violation per day
300
What are the penalties if you violate Dodd-Frank Tier two, Federal Consumer Financial laws?
$28,139 per day for each
| violation
301
What are the penalties if you violate Dodd-Frank Tier three, Federal Consumer Financial laws?
$1,127,779 maximum per
| violation
302
What are the requirements for Conventional Conforming loans over 80% LTV?
All loans over 80% must have escrows and PMI mortgage insurance
303
What is the definition of a
| Conventional Conforming Loan?
97%
304
What are the debt-to-income
ratios on a Conventional
Conforming Loan?
28% for Housing (up-front) and 36% for overall debt (back-end)
305
Do Fannie Mae and Freddie
| Mac allow non-owner-occupied loans?
Yes, at lesser loan-to-value and may have increased rates and fees
306
What is the Underwriting
| system for Fannie Mae?
DU – Desktop Underwriter
307
What does approve eligible
| mean?
A loan that has been run through the Fannie or Freddie underwriting systems that says they
will be accept the loan if the documents match what was put into the system
308
What is allowed for down payment on Conventional Conforming, FHA, USDA,
and VA loans?
Verified liquid assets, a gift from a blood relative,
employer or close friend with no repayment required, or down payment assistance from agencies helping first-time homebuyers
309
What does USDA stand for?
United States Department of
| Agriculture
310
What are the underwriting
| ratios for a USDA loan?
29% for housing and 41% for overall debt
311
What are the restrictions on
| USDA loans?
The home must be in areas of less than 35,000 people, income limitations, and all
loans must be underwritten and funded by USDA
312
What does FHA stand for?
Federal Housing Agency
313
Does FHA insure or guarantee loans?
Yes, they insure and will
| pay a claim after the lender forecloses
314
What is the maximum Loan-to-Value on FHA loans?
96.5%
315
What is the maximum loan
| amount allowed?
It is set by the government at the end of each year and set for areas in each state
316
What are the debt-to-income ratios on FHA
| loans?
31% for housing and 43% for overall debt. (overall means mortgage payment and all other debt payments)
317
What is CAIVRS?
A database that shows liens, defaults, and debt owed to federal agencies, including
government insured student loans. This needs to be checked for FHA loans
318
What is the upfront premium for FHA loans?
1.75%; this may be added
| into the loan amount
319
What is the renewal premium on FHA loans?
.85% of the loan amount divided by 12 = the amount added to the monthly payment
320
What is the maximum
loan-to-value on VA
loans?
100% if the veteran has 100% benefits
321
What is a DD214?
The document that tells you the veteran has benefits, but does not say how much
322
What is the COE?
Certificate of Eligibility, which provides proof of a veteran’s service and tells the lender that an applicant has met the minimum service requirement. This will determine the amount of down payment required, if any.
323
Does VA insure or guaranty
| loans?
```
Guaranty loans (up to a
maximum of $144,000)
```
324
What is the debt-to-income ratio for VA loans?
41% overall; they don’t have a housing ratio
325
What are non-conforming
| loans?
Any loan that cannot be sold to Fannie Mae or Freddie Mac
326
Who sets the underwriting
rules, programs, and pricing
for non-Conforming loans?
The companies buying the
| loans
327
What is “payment shock”?
A borrower who is renting for $900 a month and now buying a home with a payment of $1,300 a month with no reserves to show where the extra $400 a month is coming from
328
What is a non-traditional loan?
Any loan that is not 30-
| year fixed
329
Is a 40-year amortized loan
| considered conforming or non-conforming?
Non-conforming – any loan above 30 year fixed cannot be sold to Fannie or Freddie
330
What is a Purchase
| Money Second?
A second mortgage that is used to eliminate Mortgage Insurance. Terms like 80/10/10 mean an 80% first mortgage, a 10% second,
and a 10% down payment.
331
Can the interest rate change on a fixed-rate mortgage?
No- it is fixed for the life of the loan
332
What are the five parts of an ARM loan?
Program, caps, margin,
index, and fully-indexed
rate
333
What program is a 5/1 ARM?
Initial interest rate fixed for 5
years and then an annual
adjustment
334
What does a 2/5 cap mean?
The 2 is the adjustment cap, meaning the interest rate cannot go up or go down any more than 2%.
The 5 is the life cap,
which requires you to add the starting rate to the life cap of 5 which equals the highest the interest rate can go over the life of the loan
335
What is the margin on an ARM loan?
The only number on an ARM loan that does not change over the life of the loan and it is the floor, meaning the interest rate cannot go below the margin.
336
What is the most common
| index today?
LIBOR – London Interbank
| Offered Rate
337
What 2 numbers do you add together to obtain the Fully-Indexed Rate?
Margin and index
338
How long before the interest adjustment is the first ARM disclosure to be sent to the borrower?
7months before the adjustment is required
339
What 3 items are required to calculate the mortgage payment?
1. Remaining balance
2. Interest rate
3. Remaining term
340
Which law covers Balloon
Loans and what is the
minimum balloon?
HOEPA – Home Owners Equity Protection Act. The minimum balloon is five years.
341
What does 360/180 mean?
15- year balloon
342
What are the 5 parts of a
| Reverse Mortgage?
1. Negative amortization
2. Borrower pays their
own taxes and insurance
3. Must be 62 or older
4. Mandatory counseling
5. Non-recourse mortgage
343
What does a non-recourse
| mortgage mean on a Reverse Mortgage?
At the end of the mortgage, if the balance is higher than the value, and the borrowers have passed, the government absorbs the deficiency
344
What is the minimum age to
| obtain a Reverse Mortgage?
62 years of age. If the spouse is only 60, the spouse cannot be on the loan.
345
What does HELOC stand for?
Home Equity Line of Credit
346
Is interest charged if you do
| not draw any proceeds?
No, only after you draw money; you will then pay interest from the day of the draw till the end of the month, and pay interest on the balance at the end of each month
347
Are principal payments
| required on HELOCs?
They are at the option of the
borrower whether to pay
principal each month
348
Is the interest rate fixed or
| floating on HELOCs?
The interest rate floats,
usually based on the Prime
Rate
349
What is the difference between a 2nd mortgage and a HELOC?
On a 2nd, all the proceeds are paid out at closing, while on a HELOC, the borrower chooses when to draw
principal
350
What are the two types of
| Construction Loans?
Construction with a Permanent take out and Construction Permanent
351
How many loans are on a
| Construction Permanent?
One loan and one set of
| closing costs
352
In an Interest Only Loan, what is the amount you pay each month?
Only interest is paid, but the borrower must qualify for the full principal & interest payment
353
What would the balance be on an Interest Only loan if the loan were $100,000 and it is 5 years later?
$100,000. The principal balance stays the same because you are only required to pay interest.
354
What is Table Funding?
Any loan that the originating
company is having the lender
fund, predominately for Brokers
355
What are the APR Tolerances?
1/8 on a fixed rate loan
¼% on an ARM Loan.
If you exceed either, a new LE or CD must be issued within three business days.
356
What is Yield Spread Premium (YSP) and Servicing Released
| Premium (SRP)?
The amount a company receives from the lender that funds the loan
357
Which loans are considered
| Federal Loans?
Conventional conforming, FHA, VA, USDA
358
What is Premium Pricing?
The amount above PAR that can be used to pay the borrower’s closing costs. Not
discount points, just costs and fees.
359
What is Accrued Interest?
If your payment is due on May 1st, you are paying interest for April. Accrued interest is the interest you pay on the mortgage each
month.
360
What is a Conveyance?
Transfer of ownership via a
| Deed
361
What is a 2-1 Temporary Buydown? If the interest/note rate is 5%, what are the payment rates?
Usually for two years. A buydown account is
established by the seller or the borrower. The first year the payment rate is 2% below the note rate and the second year it would 1% below the interest rate. The borrower is qualified at the note rate.
362
What does SAFE stand for?
Secure and Fair Enforcement – the licensing law that covers all originating companies and Mortgage Loan Originators
363
Who must be registered with NMLS?
All MLOs employed by banks, credit unions, mortgage bankers, and
mortgage brokers
364
What does NMLS stand for?
Nationwide Multistate
| Licensing System and Registry
365
Who must be licensed?
All mortgage bankers, mortgage brokers and all mortgage loan originators that work for either company
366
Can you work or be licensed with more than one originating company?
Your license only allows you to originate for one financial or non-financial company
367
What is an MU1?
MU1 is the application for a
| mortgage company.
368
Do you receive a state license or federal license?
State license only; there is no such thing as a federal or national license. You must be licensed in each state where you want to originate
369
Can you be licensed in a state where your company is not licensed?
No, you can apply for a license in any state where your company is licensed. Banks and Credit Unions are exempt from licensing and
can originate in any state.
370
What are the duties of the
| NMLS?
Approve all education providers and courses.
Prepare and maintain a national test. Provide a
service for the MLOs and owners of companies to
obtain a background check.
371
What makes up the 20 hours of the pre-licensing course?
3 hours of law
3 hours of ethics
2 hours of non-traditional
12 hours of mortgage topics
372
What makes up the 8-hour CE course that is required each year?
3 hours of Law, 2 hours of ethics, 2 hours of non-traditional lending, and one hour of another mortgage topic
373
What are the requirements for gift funds for FHA loans?
Gift funds can come from the borrower’s family members, employer, close friend, or a charitable organization
374
What is the term of your
| license?
One calendar year: January
| 1st through December 31st
375
When do you have to pay your licensing renewal fees?
Between November 1st
| and December 31st
376
What happens if you do not
| renew by December 31st?
```
Your license lapses and you must take a Late CE class and pay a renewal fee and penalties by March 1st. Until your license is reinstated, you cannot originate loans. If you do not complete your
renewal by March 1st, your license is suspended.
```
377
What is the consumer access website?
Once you are licensed, your information will be on the consumer access website so the consumer can check who you are working for and if you have any complaints or violations
378
What are the two groups that oversee NMLS?
CSBS – Conference of State Bank Supervisors
AARMR – American
Association of Residential Mortgage Regulators
379
What does USC stand for and what does it do?
Uniform State Content - allows MLOs that pass the National Test to apply for a license in any state where your company is approved
380
What does the SAFE Act allow each state to do?
License mortgage bankers and mortgage brokers and complete audits and
examinations of the companies if they suspect the consumer is at risk
381
What does sponsorship
| require you to do?
The company you will be employed by needs to request that your NMLS number be moved under their company NMLS
number
382
When a company or MLO receives a notice of violation or complaint, what is the requirement?
They must supply all documents in response
to the complaint or violation within 30 days or they are assumed to be guilty and the state will assess the fines as they see fit
383
If an applicant for a license has a non-financial felony, what is the soonest they could apply for a license?
7 years from the date of conviction
384
If an applicant for a license has a financial felony, what is the soonest they could apply for a license?
They cannot, as they are
| banned for life
385
If an applicant for a license has had a license revoked, what is the soonest they could apply for a license?
They cannot, as they are
| banned for life
386
What is the 1003?
Uniform Residential Loan Application: The document where you collect the data to assist in underwriting
387
When verifying assets for closing, what items are included?
Down payment and closing costs
388
Can long term/retirement assets be used for the two months’ reserve for escrows?
Yes, and they don’t have to be cashed; they just have to show they are available
389
What are the requirements for gift funds for conventional loans?
Gift funds can only come from a relative: Spouse,
child, other dependent, or anyone related by blood, marriage, adoption, or legal guardianship; and there can be no expectation of repayment
390
What are Concessions?
Voluntarily yielding to a demand for the sake of a settlement in a real-estate
transaction, such as closing costs
391
What are the 3 questions you cannot ask on an application?
1. Religion
2. Nationality
3. Whether they receive child support or alimony
392
How may MLOs accept loan
| applications?
1. Face to Face
2. Phone
3. Computer
4. Mail
393
Who is allowed to offer and
| negotiate terms of a loan?
Only those who are licensed as an MLO working for a Mortgage Broker or Mortgage Banker
394
What is the “AUTHORIZATION TO
RELEASE MORTGAGE
INFORMATION”?
A form which, when signed by the borrower(s),
authorizes a third party to receive information about them and their mortgage, for things like verification of employment, deposits, etc.
395
What methods are used to
| verify assets?
Two months bank statements, investment statements, and/or a Verification of Deposit
396
What methods are used to verify employment?
W-2, 1099, Tax returns with
4506T, and/or Verification of
Employment
397
What are the mandatory items on the Loan Estimate (LE)?
Terms of the product, all costs and fees, comparisons, and mortgage process explanations
398
What information is required on the Adjustable-Rate Mortgage (ARM) disclosure?
Which type of program, caps (adjustment and life), margin, index, fully-indexed rate, and how the adjustments are
calculated
399
What does AML stand for?
Anti-Money Laundering
400
What does CHARM stand for?
Consumer Handbook on
| Adjustable Rate Mortgages
401
For a Reverse Mortgage, what must the disclosure tell the borrowers?
Negative Amortization, taxes and insurance to be paid
by the borrower, must be 62 or older to apply for the
mortgage, mandatory counseling, and the borrower could lose their home if they do not comply with all of the requirements of the loan
402
What are the 5 items included in the “Zero Tolerance” items on the LE?
1. Appraisal
2. Origination fee
3. Discounts
4. Lender fee
5. Transfer taxes
403
What items are included in the“10% Tolerance” items?
Title, recording fees, lender required inspection. The borrower selects these and you no longer have any liability.
404
Which items are included in
| “No Tolerance”?
Realtor fees, Attorney fees,
| Escrows, Homeowners Insurance, Flood Insurance, Prepaid Interest
405
When do the early disclosures after application have to be delivered?
No more than 3 business days from signed application. If they are mailed, you must show
proof that they were mailed within the three day requirement.
406
When does the early Closing Disclosure have to be delivered to the borrowers?
No less than 3 business days before closing
407
When do the fees and charges expire from the issue date of the Loan Estimate (LE)?
10 business days, if the signed Intent to Proceed has not been delivered to the lender
408
When would you not have to give an LE?
When you do not have all the items under PENCIL (Property address, estimated value, name, credit, income, or loan amount)
409
Who created Credit Scoring?
The Fair Isaac Company. Credit scores are also knowns as FICO scores.
410
What law requires the appraisal to be delivered 3 business days before closing?
ECOA – Equal Credit Opportunity Act
411
How many days after a “Changed Circumstance” has been determined must the new LE be issued?
3 business days
412
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When does the Preferred
Providers list (REG H) have to be delivered to the borrower?
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Within 3 business days from
| when a conflict of interest has been determined
413
What are the valid delivery
| methods in delivering a Loan Estimate or Closing Disclosure?
Person to Person, Digital Delivery with written
| borrower approval, Mail, and Overnight, as long as you have proof that it was done in the three-business day requirement
414
How many business days before the closing is the Closing Disclosure to be
delivered to the borrower?
3 business days
415
What does Consummation mean?
Once the borrower is obligated on the loan (funding date)
416
What items will require a new Closing Disclosure to be issued and a three-business day for the closing
Program change, prepayment penalty added
| to the mortgage or the APR tolerances are exceeded (1/8% on a fixed or 1/4% on an ARM loan)
417
What is an MU4?
The application for MLO licensing used by the NMLS
418
How many counselors are
required to be listed on the
Homeownership Counseling?
10, and they must be in the
| borrower’s area
419
Is counseling required on the
Homeownership Counseling
Disclosure?
Counseling is not required, but it is recommended, and it is at the cost of the borrower
420
What are the classifications of assets?
Assets for down payment and closing costs must
be liquid.
Long term assets can be used for reserves. They don’t need to have the cash; they just need to show as available
421
What are you not able to do in regards to Verifications?
It must be done digitally via e-mail or mail; it cannot be done in person
422
What liabilities are to be listed on the application?
Any debt listed on the Credit
| Report or volunteered by the borrower
423
What are the types of debts?
Bank loans, student loans, car loans, credit cards, mortgages, leased cars, IRS tax liens, judgments, alimony, and child support
424
How many payments would remain for a debt not to be counted in the Debt-to-Income (DTI) ratio?
Any loan that has less than 10 payments remaining, except car leases; no matter
how many payments are left, they must be counted in the DTI
425
How do you calculate the payment on a student loan if there isn’t a loan payment on the credit report?
Fannie Mae loans - 1% of the balance .
FHA, Freddie Mac & USDA -
½% of the balance.
426
What is the required
| documentation for a self-employed borrower?
2 years of Tax Returns. If the borrower owns 25% or more of the company, they
must provide two years of business tax returns, plus a year-to-date operating
statement.
427
If a self-employed borrower owns 25% or more of their company, what is required for income verification?
If the borrower owns 25% or more of the company, they must provide two years of business tax returns plus a year to date operating statement
428
What is a surety bond?
A promise to be liable for the default of another. It is like malpractice insurance for
a doctor.
429
Can a borrower use Capital Gains for qualifying for a loan?
Yes, if they show two years’ history of income from capital gains and they can
show that the income will continue for an additional three years
430
What type of income can be
| used for loan qualification?
Any income that can be verified and has at least two to three years continuation.
Cash income cannot be used.
431
Can rental income be used?
Only if it is claimed on the
| borrower’s income taxes
432
What percentage of income can be used on rental property?
75%. A 25% vacancy must be deducted from the gross rental income.
433
When would a debt payment be required on a rental property?
If the rental income minus the 25% vacancy is less than the mortgage payment
434
What are the rules for counting overtime income?
Two years history and assurance the income will continue for two to three years in the future
435
How do you calculate bonus income if the bonus income reduced in the last two years?
You use last year’s bonus amount and provide assurance that the bonus
income will continue in the future
436
How do you calculate bonus income if the bonus income increased over the
last two years?
You average the last two years to determine the income and provide assurance that the bonus income will continue in the future
437
How do you calculate social
| security or disability income?
If the monthly amount paid has taxes taken out before being paid to the borrower, the amount received by the borrower can be grossed up by 25% (Ex. $1000 received can be counted as $1,250 for qualification purposes)
438
What is the calculation for
| determining the monthly income for an hourly waged borrower?
Hourly wage X the number of hours per week X 52 weeks / by 12 months = monthly income
439
What is the calculation for
| determining income for someone who is paid every other week?
Bi-weekly income X 26 pay periods/ by 12 months = monthly income
440
What is the calculation for determining income for someone is paid on the 15th
and 30th of the month?
Income paid on the 15th and the 30th X 24 pay periods / by 12 months
441
What is the Fannie Mae self-employed document to calculate income?
Fannie Mae form 1084
442
What is the Freddie Mac self-employed document to calculate income?
Freddie Mac Form 91
443
What information is on the credit report?
Legal name, employment history, residency history, Social Security number, credit history, credit inquiries
444
Which credit score do you use to qualify the borrower?
You will always use the middle score for each borrower
445
How is the Credit Score
| established?
No one is sure of the formula, but payment history and credit utilization are two factors that are used. Credit utilization means the amount of credit that is available to you and how much of it you are using (The more you use, the lower the credit score)
446
How do you calculate “capacity”?
If you are using 43% overall ratio, multiply the gross income by 43% and the answer will be the maximum allowed for the mortgage payment and all monthly debt (ex. $5000 X .43 = $2,150)
447
How do you determine Debt-to-Income Ratio (DTI)?
Gross verified income divided into total monthly debt payments =
Debt-to-Income Ratio
448
What do LTV, CLTV, and TLTV mean?
LTV = Loan-to-Value
CLTV = Combined Loan-to-Value
TLTV = Total Loan-to-Value
449
How do you calculate Loan-to-Value (LTV)?
Value or Purchase Price, whichever is lowest, divided into the Loan Amount = LTV
(i.e., $500,000 value divided into $250,000 loan amount = 50% LTV)
450
How do you calculate Combined Loan-to-Value (CLTV), assuming the borrower has a first mortgage and a $100,000 HELOC of which they have drawn $50,000?
Value is divided into the Loan Amount + the drawn HELOC=CLTV (ex. $500,000 value divided into $250,000 first mortgage +$50,000 drawn HELOC = 60%)
451
How do you calculate Total Loan-to-Value (TLTV), assuming the borrower has a first mortgage and a $100,000 HELOC of which
they have drawn $50,000?
Value is divided into the Loan Amount + the HELOC amount =TLTV
(ex. $500,000 value
divided into $250,000 first mortgage + $100,000 HELOC = 70%)
452
If a borrower wants a conventional conforming loan, has $5,000 monthly income and $500 in monthly debt payments, which payment income ratios would you use?
28% housing and 36% overall
453
If a borrower wants a conventional conforming
loan, has $5,000 monthly income and $500 in monthly debt payments, what is the PITI that the
borrower would qualify for?
$5,000 X 28% = $1,400 housing limit.
$5,000 X 36%
= $1,800 overall limit (includes housing and debt
payments).
You subtract the $500 debt payments from $1,800 = $1,300 for housing.
You take the lower of $1,400 or $1,300 for PITI
454
What is another name for
| Front-End Ratio?
Housing Ratio – program ratio for housing X verified income
455
What is another name for
| Back-End Ratio?
Overall Ratio – program ratio for overall debt X verified income
456
What is the maximum overall debt if you are calculating the Qualified Mortgage limit?
43% of gross verified income
457
What factors should be used to determine if a borrower has the Ability to Repay?
Meeting QM standards is essential, so the MLO is
required to find out and document a borrower’s
income, assets, employment, credit history, and monthly expenses
458
What is the definition of Tangible Net Benefit?
MLOs cannot refinance without determining if the loan will benefit the borrower, by giving them benefits like a reduced
interest rate, loan term, and/or monthly payment; debt consolidation; cash-out benefits, etc.
459
What are the 3 occupancy types?
1. Primary
2. Second home
3. Non-owner
460
Which of the occupancy types (primary, 2nd home or Non-owner require Right of Rescission?
Primary residence only
461
What would raise a red flag with a Verification of Deposit?
If the average balance on the verification is different than the average on the bank statements
462
What is the purpose of an
| appraisal?
It is an opinion of value that is determined by the market
| approach
463
What is the Sales Comparison Approach in
| establishing the value?
An appraisal method that compares one property to comparables or other recently sold properties in the area with similar
characteristics
464
When does the appraisal have to be delivered to the borrower?
No less than three business days before closing
465
What are the three Flood Zones that require Flood Insurance?
ZONE “A”, “V”, or “D”
466
What is Fair Market Value?
The price that a seller is willing to accept and a buyer is willing to pay on
the open market
467
On the appraisal, if it says, “As Is,” what does that mean?
The property does not require any repairs and is eligible to close
468
How is monthly interest
| calculated?
Principal balance X note or interest rate / 12= Interest for the month. Should match up with the interest due on the payment slip.
469
How is the new P&I payment calculated on each adjustment?
On an ARM loan at adjustment time, remaining principal balance X the new
interest rate divided by remaining term = New P&I payment
470
How is Per Diem interest
| calculated?
Principal balance X the note or interest rate /d by 360 days on conventional loans, or 365 days on government loans
471
How would you calculate the interest rate on a loan if you don’t know the interest rate?
Remaining balance divided into interest paid in the last twelve months = note rate. This is a very rough calculation.
472
What is a Discount Point?
1% of the loan amount for each discount point to be used for interest rate reduction only. They can be paid by the seller, borrower, or their employer.
473
What is not included in the APR and 3% fee limit on QM
| calculations?
Prepaids = Appraisal, credit
| report, title and prepaid interest
474
What fees and costs are shown on the Closing Disclosure?
ALL COSTS DISCLOSED ON THE LOAN ESTIMATE AND NO MORE THAN A 10% TOLERANCE
475
For an ARM, a limit on the amount that payments can increase or decrease over
the life of the mortgage
Lifetime Payment Cap
476
Qualified Mortgage allows a maximum Debt-to-Income (DTI) to meet requirements. What is that percentage?
43% of the verified gross income = maximum debt-to-income, including mortgage payment + monthly debt
payments
477
What does an Approved Eligible mean to meet QM requirements?
Based on the information submitted by the mortgage company into Fannie Or Freddie underwriting systems, it the information meets their requirements, the Approved Eligible means they will buy the loan
478
What is a Certified Appraiser?
The appraiser who can sign the appraisal attesting the final value
479
What does a Title Report tell you?
Who owns the property and what liens and encumbrances are against the property, including unpaid real estate
taxes
480
Who is protected by the Title Insurance policy?
The lender and the borrower, that from the date of funding, there are no liens or encumbrances, thus ensuring that the lender and borrower are in the first position with their recorded mortgage
481
What are the flood insurance limits?
$250,000 on the property and $100,000 in personal property
482
What portion of the property has to be in the flood plain as determined by FEMA?
Any portion of the house that is occupied. Garages and outside buildings not included.
483
What does FEMA stand for?
Federal Emergency Management Agency
484
What are some examples of
| Involuntary Liens?
Tax liens, mechanics liens,
| judgments, and attachments
485
What does FHA stand for?
Federal Housing Agency –
| oversees and publishes guidelines for all FHA insured loans
486
What does FHAct stand for?
Federal Housing Act – governs discriminatory practices
487
What does PMI stand for?
Private Mortgage insurance –
| insurance for conventional loans over 80%
488
What does MIP stand for?
Mortgage Insurance Premium –FHA loan premium for mortgage insurance on all FHA loans
489
If an application for credit is DENIED based on the Appraisal (could also use value instead of appraisal) - under ECOA (Reg B) says borrower has ___ days to request a copy & lender has ___ days to deliver.
90/30
490
What 3 words are used to describe ECOA, etc...
Rule, Law, Regulation
