Chapter 1

Question 1

What act established the Federal Reserve System?

Answer 1

Federal Reserve System (1913)

The Federal Reserve System serves as the central bank of the United States.

Question 2

What was the purpose of the Federal Home Loan Bank Act of 1932?

Answer 2

Federal Home Loan Banks lend to banks

This act aimed to provide liquidity to the banking system.

Question 3

What does the FDIC stand for and what is its role?

Answer 3

Federal Deposit Insurance Corporation; insures deposits against bank defaults

The FDIC protects depositors by providing insurance for their deposits.

Question 4

What is the largest mortgage insurer established in 1934?

Answer 4

Federal Housing Administration (FHA)

The FHA was created to help recover from the Great Depression.

Question 5

What is Fannie Mae and when was it established?

Answer 5

Federal National Mortgage Association (Fannie Mae, 1938); Government-sponsored entity (GSE) to increase market liquidity

Fannie Mae plays a crucial role in the secondary mortgage market.

Question 6

What is the role of Freddie Mac?

Answer 6

Federal Home Loan Mortgage Corporation (Freddie Mac, 1970); GSE dealing with conventional loans

Freddie Mac works alongside Fannie Mae in the secondary mortgage market.

Question 7

What does Ginnie Mae do?

Answer 7

Government National Mortgage Association (Ginnie Mae, 1968); government-insured mortgages (e.g., FHA)

Ginnie Mae focuses on loans backed by the government.

Question 8

What is the purpose of HUD?

Answer 8

Department of Housing and Urban Development (HUD, 1965); manages federal housing programs, enforces fair housing laws, provides funding, and conducts research

HUD plays a key role in national housing policy.

Question 9

What does the SAFE Act establish?

Answer 9

Minimum standards for Mortgage Loan Originators (MLO)

The SAFE Act was introduced in 2008 to enhance consumer protection.

Question 10

What is the Dodd-Frank Act of 2010 known for?

Answer 10

Establishes the Consumer Financial Protection Bureau (CFPB) to regulate, supervise, and enforce federal law

This act was a response to the financial crisis of 2007-2008.

Question 11

What are the main responsibilities of a Mortgage Loan Originator (MLO)?

Answer 11

Takes residential mortgage loan applications, offers and negotiates terms, and receives compensation

MLOs play a crucial role in the home financing process.

Question 12

What is the difference between a registered MLO and a licensed MLO?

Answer 12

Registered MLO: employee of a depository institution; Licensed MLO: completes a 20-hour course, obtains a license from NMLS, and is sponsored by a lender or broker

Licensing ensures that MLOs meet specific training and regulatory standards.

Question 13

What is the NMLS?

Answer 13

Nationwide Multistate Licensing System & Registry; a database that stores information on mortgage loan originators

NMLS helps streamline the licensing process across states.

Question 14

What role does a Mortgage Broker play?

Answer 14

Takes mortgage loan applications but cannot underwrite, acting as middlemen

Brokers connect borrowers with lenders but do not provide the funds themselves.

Question 15

What is the function of a Mortgage Lender?

Answer 15

Provides funds for mortgage loans

Lenders are essential for financing home purchases.

Question 16

What does a Mortgage Servicer do?

Answer 16

Collects payments and manages escrow accounts

Servicers handle the ongoing administration of mortgage loans.

Question 17

True or False: An individual negotiating a residential mortgage loan with an immediate family member needs to be licensed.

Answer 17

False

Family transactions are exempt from licensing requirements.

Question 18

What are mortgage-backed securities?

Answer 18

Securities secured by a mortgage or collection of mortgages

These securities are a key component of the secondary mortgage market.

Question 19

Who are the big players in the secondary mortgage market?

Answer 19

• Fannie Mae (1938)
• Freddie Mac (1970)
• Ginnie Mae (1968)

These entities play significant roles in mortgage financing.

Question 20

What do regulatory authorities do in the mortgage industry?

Answer 20

Supervise, investigate, and impose civil penalties to regulate the industry

They ensure compliance with laws and protect consumers.

Question 21

What is the significance of the SAFE Act in licensing?

Answer 21

Created minimum standards for MLOs and established the NMLS

It aims to improve the quality of mortgage lending.

Question 22

What are the pre-licensing education requirements under the SAFE Act?

Answer 22

• 20 hours of education
• 3 hours federal law
• 3 hours ethics
• 2 hours non-traditional
• 12 hours elective

These requirements ensure MLOs have a foundational understanding of the industry.

Question 23

What is the uniform state content test (UST)?

Answer 23

A test with 120 questions, requiring more than 75% correct to pass

This test assesses the knowledge of state-specific laws and regulations.

Question 24

What is the MU4 application?

Answer 24

NMLS generic application for MLO licensing

This application collects necessary information for licensing.

Question 25

What criteria must be met for issuing a mortgage license?

Answer 25

• No license revocation
• No felony conviction (7 years for non-financial, never for financial crimes)
• Financial responsibility
• Pre-licensing education

These criteria help ensure that only qualified individuals are licensed.

Question 26

What is temporary authority in the context of MLO licensing?

Answer 26

Allows registered MLO to become licensed when moving if employed by a state-licensed mortgage company and registered for the past year

This provision eases the transition for MLOs relocating.

Question 27

What is the Mortgage Call Report (MCR)?

Answer 27

Licensees/registrants must file quarterly reports through NMLS, including residential mortgage loan activity and financial condition

MCRs help regulators monitor the health of mortgage businesses.

Question 28

What are the loan originator compensation rules established by TILA and Dodd-Frank?

Answer 28

Prohibits compensation based on terms or fees of a transaction, dual compensation

These rules aim to prevent conflicts of interest and protect consumers.

Question 29

Fill in the blank: An MLO cannot collect fees in their own name; they can only collect fees in the name of the _______.

Answer 29

[lender or broker]

This regulation prevents MLOs from misrepresenting their role.

Question 30

What are the three options an MLO must provide to a consumer expressing interest?

Answer 30

• Lowest interest rate qualified
• Lowest point & fees
• Lowest rate without risky features

This ensures transparency and informed decision-making for consumers.

Question 31

How long must MLO origination records be kept?

Answer 31

3 years

Recordkeeping is essential for regulatory compliance and audits.