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Mortgage Loan Originator Exam > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What does RESPA stand for, and what is its purpose?

A

RESPA stands for the Real Estate Settlement Procedures Act. Its purpose is to protect consumers by providing disclosures about settlement costs, preventing excessive charges, and limiting escrow requirements.

(Chapter 1, p. 20)

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2
Q

Which loans are covered by RESPA?

A

Federally related mortgage loans, including loans secured by residential property (1-4 family structures, condominiums, cooperatives, or manufactured homes).

(Chapter 1, p. 20-21)

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3
Q

What is Regulation X?

A

Regulation X implements RESPA and sets forth the rules for the real estate settlement process.

(Chapter 1, p. 20)

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4
Q

What is considered a ‘business day’ under RESPA?

A

Any day a creditor’s offices are open to the public for conducting substantially all of their business functions.

(Chapter 1, p. 22)

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5
Q

What are the six pieces of information that define a loan application under RESPA?

A

Property Address, Loan amount, Income, Estimate of the property’s value, Name, Social Security number (ALIENS).

(Chapter 1, p. 22)

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6
Q

What is the purpose of the Special Information Booklet?

A

To help consumers understand real estate transactions, required for federally related mortgage loans except for refinances and reverse mortgages.

(Chapter 1, p. 23)

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7
Q

What does the Good Faith Estimate (GFE) disclose?

A

Estimated settlement charges and loan terms, primarily used for reverse mortgage transactions.

(Chapter 1, p. 23)

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8
Q

What is included in the Mortgage Servicing Disclosure Statement?

A

Whether the loan servicing may be assigned, sold, or transferred while the loan is outstanding.

(Chapter 1, p. 24)

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9
Q

What are the penalties for violating RESPA Section 8’s anti-kickback provisions?

A

Up to $10,000 fine, imprisonment for up to one year, or both; liable for three times the charge in a private lawsuit.

(Chapter 1, p. 28)

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10
Q

What does RESPA Section 10 regulate?

A

Details not provided in the original text.

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11
Q

What is the Truth-in-Lending Act (TILA)?

A

TILA promotes informed use of consumer credit by requiring disclosures about loan terms and costs, implemented under Regulation Z.

(Chapter 1, p. 29)

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12
Q

What is a ‘dwelling’ under TILA?

A

A residential structure containing 1-4 units, including condos, co-ops, mobile homes, or trailers used as residences.

(Chapter 1, p. 30)

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13
Q

What are exempt transactions under TILA?

A

Business-purpose loans, loans to non-natural persons, public utility credit, securities accounts, and certain student loans.

(Chapter 1, p. 30)

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14
Q

What is the Annual Percentage Rate (APR)?

A

A standardized measure of the cost of credit expressed as a yearly percentage, including interest and certain fees.

(Chapter 1, p. 31)

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15
Q

What triggers the requirement for TILA disclosures in advertisements?

A

Use of terms like down payment amount, number of payments, period of repayment, or amount of finance charge.

(Chapter 1, p. 35)

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16
Q

What is the Home Ownership and Equity Protection Act (HOEPA)?

A

HOEPA protects against predatory lending by regulating high-cost mortgages under Section 32 of Regulation Z.

(Chapter 1, p. 36)

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17
Q

What are high-cost mortgage coverage tests under HOEPA?

A

APR exceeding APOR thresholds, points and fees exceeding specific limits, or prepayment penalties beyond allowable time/amounts.

(Chapter 1, p. 37)

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18
Q

What loans are exempt from HOEPA coverage?

A

Reverse mortgages, construction loans, loans by Housing Finance Agencies, and USDA Section 502 loans.

(Chapter 1, p. 36)

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19
Q

What are prohibited practices for high-cost loans under HOEPA?

A

Balloon payments (except in specific cases), negative amortization, prepayment penalties, and due-on-demand clauses.

(Chapter 1, p. 38)

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20
Q

What is the Ability-to-Repay requirement?

A

Creditors must verify income, assets, and obligations to ensure borrowers can repay high-cost loans.

(Chapter 1, p. 39)

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21
Q

What is the purpose of pre-loan counseling for high-cost mortgages?

A

To ensure the borrower understands the terms and implications of the loan, certified by a HUD-approved counselor.

(Chapter 1, p. 39)

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22
Q

What is a Higher-Priced Mortgage Loan (HPML)?

A

A closed-end mortgage loan secured by the consumer’s principal dwelling with an APR exceeding the APOR by defined thresholds.

(Chapter 1, p. 39-40)

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23
Q

What are the APR thresholds for HPMLs?

A

1.5% for first-lien conforming loans, 2.5% for jumbo loans, and 3.5% for subordinate lien loans.

(Chapter 1, p. 40)

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24
Q

What is required for HPML escrow accounts?

A

Creditors must establish an escrow account before consummation for taxes and insurance, maintained for at least 5 years.

(Chapter 1, p. 40)

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25
Q

What is the Higher-Priced Appraisal Rule?

A

Requires a written appraisal by a certified appraiser who has physically inspected the property’s interior for HPMLs.

(Chapter 1, p. 41)

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26
Q

When is a second appraisal required for HPMLs?

A

For flipped properties resold within 90-180 days with price increases of more than 10% or 20%, respectively.

(Chapter 1, p. 41)

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27
Q

What are the prohibitions on loan originator compensation under Regulation Z?

A

MLOs cannot be compensated based on loan terms, interest rate, or any proxy for loan terms.

(Chapter 1, p. 41)

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28
Q

What are acceptable forms of loan originator compensation?

A

Salary, commission based on loan volume, or participation in tax-advantaged plans like 401(k).

(Chapter 1, p. 42)

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29
Q

What is the anti-steering provision under Regulation Z?

A

Prohibits steering borrowers to less favorable loans to increase compensation unless it is in the borrower’s best interest.

(Chapter 1, p. 42)

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30
Q

What is the TILA-RESPA Integrated Disclosure (TRID) Rule?

A

TRID consolidates the TILA and RESPA disclosures into the Loan Estimate (LE) and Closing Disclosure (CD) forms.

(Chapter 1, p. 43)

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31
Q

What transactions are exempt from TRID?

A

HELOCs, reverse mortgages, mobile home loans not attached to real property, and loans by creditors making five or fewer loans annually.

(Chapter 1, p. 43)

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32
Q

What six pieces of information constitute a loan application under TRID?

A

Property address, loan amount sought, income, estimated property value, name, and Social Security number (ALIENS).

(Chapter 1, p. 44)

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33
Q

When must the Loan Estimate (LE) be delivered?

A

Within three business days of receiving a complete application and at least seven business days before consummation.

(Chapter 1, p. 44)

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34
Q

What is the intent-to-proceed requirement under TRID?

A

Borrowers must communicate intent to proceed after receiving the LE, which can be documented orally, in writing, or electronically.

(Chapter 1, p. 45)

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35
Q

What are zero-tolerance charges under TRID?

A

Fees paid to the creditor, affiliate services not shopped for, and transfer taxes cannot exceed the disclosed LE amounts.

(Chapter 1, p. 46)

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36
Q

What are charges subject to a 10% cumulative tolerance under TRID?

A

Recording fees and third-party services when the provider is on the creditor’s list and chosen by the borrower.

(Chapter 1, p. 46)

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37
Q

What is the Closing Disclosure (CD)?

A

A final disclosure of loan terms and costs, provided at least three business days before consummation.

(Chapter 1, p. 48)

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38
Q

What changes to the CD require a new three-day waiting period?

A

APR inaccuracies, loan product changes, or the addition of a prepayment penalty.

(Chapter 1, p. 48)

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39
Q

What is the right of rescission under TILA?

A

Borrowers can cancel certain refinance transactions within three business days of consummation or receiving disclosures.

(Chapter 1, p. 34)

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40
Q

What happens if rescission rules are violated?

A

The transaction remains rescindable for up to three years, and lenders must return all funds and terminate security interests.

(Chapter 1, p. 34)

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41
Q

What is force-placed insurance under RESPA?

A

Insurance placed by the lender when the borrower’s own coverage lapses, canceled, or is insufficient to meet requirements.

(Chapter 1, p. 26)

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42
Q

What are the four requirements for assessing charges for force-placed insurance?

A

Reasonable basis, 45-day initial notice, 30-day reminder notice, and no evidence of borrower’s coverage within the notice period.

(Chapter 1, p. 26)

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43
Q

What is dual tracking, as prohibited under RESPA Section 6?

A

Foreclosing on a property while simultaneously reviewing the borrower’s loss mitigation application.

(Chapter 1, p. 27)

44
Q

What is an Affiliated Business Arrangement (ABA) Disclosure?

A

Disclosure of a referral relationship where the lender has an ownership or financial interest in the referred service provider.

(Chapter 1, p. 25)

45
Q

What conditions must be met for an Affiliated Business Arrangement to comply with Section 8 of RESPA and Regulation X?

A

Disclosure of a referral relationship where the lender has an ownership or financial interest in the referred service provider.

(Chapter 1, p. 25)

46
Q

What is the purpose of the HUD-1 Settlement Statement?

A

To itemize actual costs of settlement for reverse mortgages and other transactions not covered by TRID.

(Chapter 1, p. 25)

47
Q

What is included in the Initial Escrow Account Statement?

A

An itemization of estimated taxes, insurance premiums, and escrow account charges for the first 12 months.

(Chapter 1, p. 25)

48
Q

What disclosures must be provided at the time of application under RESPA? Or within 3 days?

A

Special Information Booklet, Loan Estimate or Good Faith Estimate, Mortgage Servicing Disclosure, and Homeownership Counseling List.

(Chapter 1, p. 22-23)

49
Q

What is the maximum penalty for violating RESPA’s anti-kickback rules?

A

Fines up to $10,000, imprisonment up to one year, or both, plus potential triple damages in private lawsuits.

(Chapter 1, p. 28)

50
Q

What does Regulation Z prohibit regarding advertising?

A

Misleading advertisements and failure to disclose triggering terms like down payment or repayment period.

(Chapter 1, p. 35)

51
Q

What are the triggering terms in advertising under TILA?

A

Amount of down payment, number of payments, repayment period, or amount of finance charge.

(Chapter 1, p. 35)

52
Q

What disclosures are required in TILA-triggered advertisements?

A

Down payment amount/percentage, repayment terms, and annual percentage rate (APR).

(Chapter 1, p. 35)

53
Q

What is the penalty for violating HOEPA?

A

Criminal and civil penalties, including fines and potential rescission of the loan.

(Chapter 1, p. 36-37)

54
Q

What are the APR thresholds for HOEPA loans?

A

APR exceeding APOR by 6.5% for first liens or 8.5% for smaller first liens or junior liens.

(Chapter 1, p. 37)

55
Q

What is a Qualified Written Request (QWR) under RESPA?

A

A borrower’s written request to a servicer for information about their loan or correction of an error, requiring response within 30 days.

(Chapter 1, p. 26)

56
Q

What loans require HUD counseling?

A

Home Ownership and Equity Protection Act (HOEPA) loans, reverse mortgages, and certain FNMA/FHLMC loans.

(Chapter 1, p. 24)

57
Q

What are the three key purposes of RESPA?

A

Educating consumers, preventing excessive settlement costs, and limiting escrow account requirements.

(Chapter 1, p. 20)

58
Q

What is the Good Faith Estimate (GFE) validity period for settlement charges?

A

The GFE must be honored for at least 10 business days from issuance.

(Chapter 1, p. 23)

59
Q

What is the penalty for violating TILA’s right of rescission rules?

A

Rescission period extended up to three years if disclosures or notice are not provided properly.

(Chapter 1, p. 34)

60
Q

What are finance charges under TILA?

A

The cost of consumer credit in dollars, including interest, mortgage insurance premiums, and prepaid charges.

(Chapter 1, p. 32)

61
Q

What is the Loan Estimate (LE) accuracy tolerance for APR?

A

Regular loans: ±0.125%; irregular loans (e.g., construction): ±0.25%.

(Chapter 1, p. 32)

62
Q

What is the definition of a ‘changed circumstance’ under TRID?

A

Events like natural disasters, inaccurate initial information, or borrower-requested changes affecting eligibility or settlement costs.

(Chapter 1, p. 46)

63
Q

When must revised Loan Estimates be issued?

A

Within three business days of discovering the changed circumstance that affects disclosed settlement charges.

(Chapter 1, p. 47)

64
Q

What is the purpose of the ‘Know Before You Owe’ TRID?

A

Details not provided in the original text.

65
Q

What is the definition of a “changed circumstance” under TRID?

A

Events like natural disasters, inaccurate initial information, or borrower-requested changes affecting eligibility or settlement costs.

(Chapter 1, p. 46)

66
Q

When must revised Loan Estimates be issued?

A

Within three business days of discovering the changed circumstance that affects disclosed settlement charges.

(Chapter 1, p. 47)

67
Q

What is the purpose of the “Know Before You Owe” TRID rule?

A

To help consumers understand key features, costs, and risks of their mortgage.

(Chapter 1, p. 43)

68
Q

What happens if an escrow account has a surplus of $50 or more?

A

The surplus must be refunded to the borrower annually.

(Chapter 1, p. 29)

69
Q

What disclosures must a servicer provide when transferring loan servicing?

A

Notice 15 days prior to transfer, including effective date and contact information for the new servicer.

(Chapter 1, p. 26)

70
Q

What is the penalty for steering borrowers under Regulation Z?

A

Prohibited; loan originators must provide options with the lowest interest rate, lowest points, and no risky features.

(Chapter 1, p. 42)

71
Q

What loans are excluded from the Loan Originator Compensation rule?

A

HELOCs and time-share transactions.

(Chapter 1, p. 41)

72
Q

What is the role of the Closing Disclosure (CD)?

A

It provides the actual loan terms and costs, replacing the HUD-1 and final TIL disclosures.

(Chapter 1, p. 48)

73
Q

What is the APR Coverage Test for HOEPA loans?

A

A loan is high-cost if APR exceeds APOR by 6.5% for first liens or 8.5% for subordinate liens.

(Chapter 1, p. 37)

74
Q

What loans are subject to HOEPA coverage?

A

Purchase-money mortgages, refinances, closed-end home equity loans, and HELOCs.

(Chapter 1, p. 36)

75
Q

What is the purpose of the Initial Escrow Account Statement?

A

To itemize estimated taxes, insurance premiums, and other charges anticipated in the first 12 months of the loan.

(Chapter 1, p. 25)

76
Q

When must the Annual Escrow Account Statement be provided?

A

Once a year, summarizing escrow activity and notifying borrowers of shortages or surpluses.

(Chapter 1, p. 25)

77
Q

What is required for force-placed insurance notices?

A

An initial notice 45 days before charges, a reminder notice 30 days later, and proof the borrower lacks insurance.

(Chapter 1, p. 26)

78
Q

What does RESPA Section 9 prohibit?

A

Prohibits sellers from requiring buyers to use a specific title insurance company as a condition of sale.

(Chapter 1, p. 29)

79
Q

What does RESPA Section 10 limit?

A

Limits monthly escrow payments to 1/12 of total annual disbursements plus a cushion of 1/6 of the total.

(Chapter 1, p. 29)

80
Q

What transactions are exempt from the TILA-RESPA Integrated Disclosure (TRID) rule?

A

HELOCs, reverse mortgages, and loans secured by mobile homes not attached to real property.

(Chapter 1, p. 43)

81
Q

What is the main purpose of the Loan Estimate (LE)?

A

To provide good-faith estimates of credit costs and terms for closed-end credit transactions.

(Chapter 1, p. 44)

82
Q

What is required under the Good Faith requirement for TRID?

A

LE figures must reflect the best information reasonably available to the creditor at the time of disclosure.

(Chapter 1, p. 46)

83
Q

What are the timing requirements for revised Loan Estimates?

A

Must be delivered within three business days of discovering a valid reason for revision and no later than four days before closing.

(Chapter 1, p. 47)

84
Q

What is a Qualified Mortgage (QM)?

A

A mortgage meeting requirements to ensure borrower ability to repay, including limits on fees and risky features.

(Chapter 1, p. 41)

85
Q

What are examples of “zero-tolerance” fees under TRID?

A

Origination fees, affiliate services, and transfer taxes.

(Chapter 1, p. 46)

86
Q

What are examples of fees with a 10% cumulative tolerance under TRID?

A

Recording fees and charges for third-party services chosen from the creditor’s provider list.

(Chapter 1, p. 46)

87
Q

What happens if a borrower does not respond to an LE within 10 business days?

A

The creditor is no longer bound by the original LE.

(Chapter 1, p. 47)

88
Q

What is the penalty for failing to provide the Closing Disclosure (CD) on time?

A

Consummation cannot occur until the borrower has had the CD for at least three business days.

(Chapter 1, p. 48)

89
Q

What is the purpose of the Right of Rescission?

A

To allow borrowers to cancel certain refinance transactions within three business days of consummation.

(Chapter 1, p. 34)

90
Q

What transactions are excluded from the Right of Rescission?

A

Purchase loans, construction loans, and loans secured by vacation or second homes.

(Chapter 1, p. 34)

91
Q

What is dual compensation under Regulation Z?

A

Prohibited practice where MLOs receive compensation from both the borrower and another party.

(Chapter 1, p. 42)

92
Q

What are the tolerances for APR accuracy under TILA?

A

±0.125% for regular loans, ±0.25% for irregular loans (e.g., construction loans).

(Chapter 1, p. 32)

93
Q

What triggers a revised Loan Estimate?

A

Changed circumstances, borrower-requested changes, interest rate locks, or expiration of the original LE.

(Chapter 1, p. 47)

94
Q

What is considered a material disclosure under TILA?

A

Information such as the APR, finance charges, total payments, and terms of repayment.

(Chapter 1, p. 31)

95
Q

What is the penalty for violating RESPA’s escrow rules?

A

Excess funds of $50 or more must be refunded, and violations may result in fines or other penalties.

(Chapter 1, p. 29)

96
Q

What is a triggering term in advertising under TILA?

A

Specific terms like down payment amount, repayment period, or number of payments that require additional disclosures.

(Chapter 1, p. 35)

97
Q

What is the APR Coverage Test for HPMLs?

A

APR exceeding APOR by 1.5% for conforming loans, 2.5% for jumbo loans, or 3.5% for subordinate liens.

(Chapter 1, p. 40)

98
Q

What is required in the Homeownership Counseling List?

A

A list of 10 HUD-approved local counseling organizations provided within three business days of application.

(Chapter 1, p. 24)

99
Q

What are the penalties for violating HOEPA?

A

Criminal and civil penalties, rescission rights, and restitution of borrower fees.

(Chapter 1, p. 36-37)

100
Q

What are acceptable promotional activities under RESPA Section 8?

A

Activities not conditioned on referrals and not defraying costs the referral source would otherwise incur.

(Chapter 1, p. 28)

101
Q

What is a Settlement Service under RESPA?

A

Any service related to the origination, processing, or closing of a federally related mortgage loan.

(Chapter 1, p. 28)

102
Q

What is the penalty for violating RESPA’s Section 8 anti-kickback rules?

A

Up to $10,000 fine, one year imprisonment, or both, plus treble damages in private lawsuits.

(Chapter 1, p. 28)

103
Q

What is the Know Before You Owe (TRID) rule’s main objective?

A

To combine and simplify TILA and RESPA disclosures, improving consumer understanding of loan terms.

(Chapter 1, p. 43)

104
Q

What is considered a changed circumstance under TRID?

A

Events like natural disasters, inaccuracies in provided information, or borrower-requested changes affecting loan terms.

(Chapter 1, p. 46)

105
Q

What type of Booklet is: Your Home Loan Toolkit: A
Step-by-Step Guide” (“Toolkit”),

A

This is the updated Special Information Booklet

(Chapter1, p. 22)

106
Q

What is a Servicing Transfer Statement, and when is it required?

A

A Servicing Transfer Statement is required when a loan servicer sells or assigns servicing rights to another servicer. The borrower must be notified at least 15 days before the effective date, including the transfer date, the new servicer’s contact details, and assurance of no late fees for timely payments made to the old servicer within 60 days of the transfer.

(Chapter 5, p. 168)

107
Q

What are the loss mitigation requirements for servicers under RESPA Section 6?

A

Servicers must make live contact with borrowers by the 36th day of delinquency and provide written information about loss mitigation options by the 45th day. Dual tracking is prohibited, and the first foreclosure notice or filing cannot occur until the borrower is more than 120 days delinquent, violates a due-on-sale clause, or the servicer joins a subordinate lienholder’s foreclosure action.
(Chapter 5, p. 27)

Mortgage Loan Originator Exam (5 decks)

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