☑️ Chapter 1: Mortgage Lending Overview

Question 1

Concepts of Mortgage Lending:
Importance of Understanding
Mortgage Lending Concepts:
A successful MLO will know and understand the regulations and laws, and the intent of the law as well.
Understanding the ______ of the mortgage industry provides a solid basis for better comprehending the concepts that have prevailed through time and will serve as a guide for the MLO’s success.
Adherence to the laws, regulations, and industry guidelines that are in place today is more important than ever. Assisting the public with their mortgage needs by educating them, using industry knowledge to provide them with suitable and appropriate mortgage products, and adhering to the principles and regulations of mortgage lending are essential in the industry.
When studying and learning these principles, look for the concepts and history behind the law, as well as the regulations and guidelines that are in place today. That is the key to success!

Answer 1

A. history

Question 2

Concepts of Mortgage Lending:
Seeds of Today’s Mortgage Industry:
In the United States from the 1800s through the 1930s, buying a home was a much different process than it is today. The modern mortgage industry began as a method of rehabilitating an economy decimated by the Great Depression. Most of today’s underwriting standards have been around for less than 80 years. Prior to the late 1930s, today’s mortgage professionals would be taken aback at what a mortgage loan looked like.
Following independence from _______, property ownership in the United States became available to a larger portion of the public. However, having severed ties , the new nation had effectively cut off its major source of financial support. Since the economy in most of the United States at that time was agricultural, very few individuals or businesses had sufficient capital to act as large-scale lenders. Many merchants gradually stepped into this role and would lend locally.

Answer 2

A. England

Question 3

Concepts of Mortgage Lending:
Seeds of Today’s Mortgage Industry:
Most early mortgages were short-term generally 3-5 Years years ______-only loans, which did not pay down the principal of the loan. The loan amounts were usually for no more than 50% of the home’s value, requiring homeowners to have substantial assets to qualify for financing. This kept many people in perpetual debt due to the need to repeatedly refinance their home purchase.
If they were unable to pay off or reborrow at the end of the 3-5 year loan term, they lost their home in foreclosure.
Due to the risks involved, many ______ companies decided to become mortgage lenders and sought out groups of investors to spread the risk and rewards.
Building and loan associations (also known as thrifts) were mutually held financial institutions that provided home loans regionally, eventually growing nationally to number over 12,000 by the late 1920s. Many building and loan associations eventually became federally chartered savings and loan associations starting in the mid-1930s following the passage of the ______Act of 1932 during the Great Depression.

Answer 3

A. Interest
B. insurance
C. Federal Home Loan Bank Act of 1932

Question 4

Concepts of Mortgage Lending:
Seeds of Today’s Mortgage Industry:
First, even before the Great Depression, the ______ Act of 1913 created the Federal Reserve System. This Act established a federal charter for banks that permitted them to make real estate loans.
Although these loans were initially the short-term, high down payment loans previously referenced, the Act established the framework for _____ involvement with mortgage lending. Furthermore, this Act was instrumental in implementing a system for the government to influence _____.

Answer 4

A. Federal Reserve Act of 1913
B. government
C. interest rates

Question 5

Concepts of Mortgage Lending:
Seeds of Today’s Mortgage Industry:
During the Great Depression, the economic instability allowed very few Americans to buy homes.
Not only were they without personal financial resources to do so, but many banks were unable to lend funds due to a lack of _____. Instead, banks were UNABLE to refinance mortgages that were being paid in a timely manner, resulting in widespread foreclosures.
Significant banking legislation followed:
• The ______ Act of 1932, passed during the height of the Great Depression, established the _______ Banks, which had the authority to LEND money to THRIFTS–savings and loan associations (S&Ls), credit unions, and savings banks–so that they could finance home mortgages in their neighborhoods.

Answer 5

A. capital reserves
B. Federal Home Loan Bank Act of 1932
B. Federal Home Loan Banks

Question 6

Concepts of Mortgage Lending:
Seeds of Today’s Mortgage Industry:
During the Great Depression, the economic instability allowed very few Americans to buy homes.
Not only were they without personal financial resources to do so, but many banks were unable to lend funds due to a lack of capital reserves. Indeed, banks were unable to refinance mortgages that were being paid in a timely manner, resulting in widespread foreclosures.
Significant banking legislation followed:
• The ______ Act of 1933, also known as the _______ Act, created the ______ to insure depositors against bank default. This was an important step in enticing people to, once again, ____ their money in banks. This enhanced the banks’ ability to increase available funds to make more home mortgage loans.

Answer 6

A. Banking Act of 1933
B. Glass-Steagall Act
C. Federal Deposit Insurance Corporation (FDIC)
D. SAVE

Question 7

Concepts of Mortgage Lending:
Seeds of Today’s Mortgage Industry:
During the Great Depression, the economic instability allowed very few Americans to buy homes.
Not only were they without PERSONAL financial resources to do so, but many banks were UNABLE to lend funds due to a lack of CAPITAL RESERVES. Indeed, banks were unable to refinance mortgages that were being paid in a timely manner, resulting in widespread foreclosures. Significant banking legislation followed:
• The National Housing Act of 1934 extended the deposit insurance protection to savings and loan depositors with the creation of the Federal Savings and Loan Insurance Corporation (FSLIC). Unfortunately, after the savings and loan crisis of the 1980s exhausted FSLIC reserves, it was abolished by the federal _____ Act in 1989. FIRREA transferred all assets previously held by FSLIC to the ________, a division of the _____.

Answer 7

A. Financial Institutions Reform Recovery and Enforcement Act (FIRREA)
B. Savings Association Insurance Fund (SAIF)
C. FDIC

Question 8

Concepts of Mortgage Lending: Federal Home Loan Banks:
Federal Home Loan Banks (FHL Banks) were established in 1932 by the _______ Act, are ELEVEN REGIONAL cooperative banks that U.S. lending institutions use to finance housing and economic development in their communities. These Banks have been the largest source of funding for community lending for eight decades. The purpose of the Banks is to use their collective resources to expand credit opportunities throughout all markets. More than 8,000 lenders are members of the ______, representing approximately 80% of the insured lending institutions in the country. Community banks, thrifts, commercial banks, credit unions, community development financial institutions, insurance companies, and state housing finance agencies are all eligible for membership through the purchase of stock. These are called ______ Banks.

Answer 8

A. Federal Home Loan Banking Act
B. FHL Bank System
C. FHL Banks

Question 9

Concepts of Mortgage Lending: Federal Home Loan Banks:
As these Federal Home Loan Banks are entirely ______ owned by their member-owners, they do not have the same pressure as PUBLICLY traded companies to deliver high rates of RETURN. As cooperatives, these FHL Banks pass their GSE benefits to their members in the form of LOWER borrowing costs, which are passed ON to consumers.
Today, these Federal Home Loan Banks contribute ______% of their net income to the _______. This grant program is the largest source of private sector grants for housing and community development in the country. These Federal Home Loan Banks also play a part in the funds available for HIGHER-priced loans which are also called _____ loans, which are loans that do NOT meet conforming loan limit guidelines for maximum loan size set by SECONDARY market leaders Fannie Mae and Freddie Mac.

Answer 9

A. privately
B. 10%
C. Affordable Housing Program (AHP)
D. jumbo

Question 10

Concepts of Mortgage Lending: Federal Housing Administration (FHA):
The Federal Housing Administration (FHA) was created by the ______ Act of 1934 with the intent of helping the housing industry ______ from the Great Depression. The FHA was NOT intended to FUND loans; instead, the FHA administration _____ loans so banks do not have to incur LOSSES for DEFAULTS by the borrower on home loans. These loans were designed to promote homeownership, ________ of income or home location area, by ensuring mortgage loans were made according to established guidelines.

Answer 10

A. National Housing Act of 1934
NOTE: NHA > FHA
B. recover
C. INSURES
C. mortgage insurance
D. regardless

Question 11

Concepts of Mortgage Lending: Federal Housing Administration (FHA):
The creation of the Federal Housing Administration (FHA) allowed banks to commit more of their funds to ______ loans, while at the same time improving the quality of those loans by requiring them to CONFORM to FHA standards. Banks that followed FHA guidelines would be ______ for the INSURED amount of any borrower’s DEFAULT amount.
Under the FHA program, there are NO _____ limits on borrowers who have the eligibility take advantage of the program.
However, the government _____ the mortgage amount that can be insured based on a sound appraisal and the median price of homes in a particular geographic area.

Answer 11

A. home mortgage
B. reimbursed
C. income
D. limits

Question 12

Concepts of Mortgage Lending:
FHA Assistance:
Insured Mortgages:
Because banks are NOT at risk for borrower default once the ______ approves the loan for its mortgage ______ program, the FHA was able to create innovative programs and terms over the years for the mortgages that they insure. For example, when most mortgages required as much as 50% down, the FHA introduced loans that required only a 20% down payment.
When short maturities and balloon mortgages were the norms, the FHA created loan programs with 20-year maturities that were fully amortizing (level payments allowed the loan to be paid in full at the end of the term of the loan). The end of the term of a FHA insured mortgage loan eventually grew to _____ years as the market changed.

Answer 12

A. FHA
B. insurance
C. 30 Years

Question 13

Concepts of Mortgage Lending:
FHA Assistance:
Insured Mortgages:
In fact, the FHA innovated the use of fully amortizing loans, where the monthly payments would RETIRE the debt over the LIFE of the loan instead of leaving the borrower with a large BALLOON payment due at the end. In 1965, the FHA became part of the _________. Today, the FHA is the largest insurer of mortgages in the world, insuring over 47 million properties since its inception.

Answer 13

A. Department of Housing and Urban Development (HUD)

Question 14

Concepts of Mortgage Lending: Government-Sponsored
Enterprises:
The _____ are entities established by Congress to improve the efficiency of markets and to enhance the flow of CREDIT to _____ sectors of the ECONOMY . GSEs may serve as financial ________ to assist lenders and borrowers, primarily in housing and agriculture, or create a secondary market where loans may be sold. The _____ Banks are government-sponsored enterprises, as are SECONDARY market leaders ______ and ______.
In the past, the federal government has issued recommendations for REFORM that included the WINDING down of Fannie Mae and Freddie Mac, with a GOAL of bringing more private _____ back into the housing market. Reform of the industry is likely to continue for some time, though the impact of such reforms remains uncertain.

Answer 14

A. Government-sponsored enterprises
B. targeted
C. intermediaries
D. FHL Banks
E. Fannie Mae and Freddie Mac
F. capital

Question 15

Oversight of Financial
Institutions:
Federal Deposit Insurance
Corporation:
The ______ is a PUBLIC corporation established by Congress in 1933 that insures up to $_______ for each depositor for most member commercial banks and S&Ls. This entity maintains stability and public confidence in the nation’s financial system by ______ DEPOSITS in banks and thrift institutions; examining and supervising financial institutions for safety, soundness, and consumer protection; and managing receiverships. The FDIC ______ deposits only. It does NOT insure _____, _____, or similar types of investments that banks and thrift institutions may offer.

Answer 15

A. Federal Deposit Insurance Corporation
B. $250,000
C. insuring
D. insures
E. securities
F. mutual funds

Question 16

Oversight of Financial
Institutions:
Federal Deposit Insurance
Corporation:
The Federal Deposit Insurance
Corporation (FDIC) directly examines and supervises more than 5,000 banks and savings associations for operational _____ and _____. Banks can be chartered by the states or by the federal government. Banks chartered by states also have the choice of whether or NOT to join the Federal Reserve System. The FDIC is the PRIMARY federal regulator of banks that are chartered by the states that did NOT join the ______. In addition, they are also the backup supervisor for the remaining insured banks and thrift institutions.
They insure a depositor’s qualified account(s) up to $_______. This MAXIMUM amount was made permanent under the _________ Act.

Answer 16

A. safety and soundness
B. Federal Reserve System
C. $250,000
D. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

Question 17

Oversight of Financial
Institutions:
Office of Thrift Supervision:
The Office of Thrift Supervision (OTS), is a division of the U.S. U.S. Department of the Treasury, that was established in 1989 in RESPONSE to the SAVINGS and loan CRISIS to replace the Federal Home Loan Bank BOARD for the purpose of supervising, chartering, and regulating federal and state-chartered savings institutions that belong to the ______.

Answer 17

A. Savings Association Insurance Fund (SAIF)

Question 18

Oversight of Financial
Institutions:
Office of Thrift Supervision: Savings banks, savings and loans, cooperative banks, and credit unions are classified as thrift institutions (the word “federal” or the initials “______” appear in the federal institution’s name).
Although initially seen as an aggressive regulator, shutting down many troubled savings and loans, it became more neglectful over time.
It was the primary regulator for American International Group (AIG), Countrywide Bank, F.S.B., Flagstar Bank, F.S.B., and IndyMac Bank, F.S.B. to name a few. The OTS CEASED to EXIST on October 19, 2011, as it was MERGED with the ______, the ______, the ______, and the ______ by the mandates of the ____ Act.
MEMORY: OFFCD

Answer 18

A. F.S.B.
MEMORY: OFFCD
B. Office of Comptroller of Currency (OCC) (OCCulus)
C. Federal Deposit Insurance Corporation (FDIC) (F*DIC)
D. Federal Reserve Board of Governors (FRBG) (FReeBG
E. Consumer Financial Protection Bureau (CFPB) (CheeseFries PeanutButter)
F. Dodd-Frank Wall Street Reform and Consumer Protection Act (Lisa Frank)

Question 19

Oversight of Financial
Institutions:
Office of the Comptroller of the Currency:
The Office of the Comptroller of the Currency (OCC), is an INDEPENDENT bureau within the Treasury Department, charters, regulates, and supervises all _____ banks, THRIFT institutions, and federal branches/ agencies of _____ banks (the word “national” or the initials “_____” appear in or after the bank’s name). It is headed by the Comptroller, who is appointed by the PRESIDENT to a _____-year term.

Answer 19

A. national
B. Foreign
C. N.A.
D. 5 Year

Question 20

Oversight of Financial
Institutions:
National Credit Union
Administration:
The National Credit Union Administration (NCUA), was created in 1970, it is the INDEPENDENT federal agency that ____ and _____ FEDERAL credit unions. This agency is backed by the _____ of the U.S government, and also operates the _____, which is a fund that insures the savings of more than 100 million account holders in ALL federal credit unions and many state-chartered credit unions.
The NCUA originally began as the Federal Credit Union Division in 1934 and changed its name to the Bureau of Federal Credit Unions in 1948.

Answer 20

A. charters and supervises
B. full faith and credit
C. National Credit Union Share Insurance Fund (NCUSIF)

Question 21

Oversight of Financial
Institutions:
Federal Financial Institutions
Examination Council:
The ______ is a formal INTERAGENCY body empowered to prescribe uniform principles, standards, and report forms for the federal EXAMINATION of financial institutions by the Federal Reserve Board of ______ over the Federal Reserve System (FRB), the FDIC, the NCUA, the OCC, and the CFPB. This agency is made up of representatives from these five agencies as well as the Commissioner of ______ and makes recommendations to promote uniformity in the supervision of financial institutions.

Answer 21

A. Federal Financial Institutions Examination Council (FFIEC)
B. Board of Governors
C. Commissioner of Banks

Question 22

Oversight of Financial
Institutions:
Federal Housing Finance Agency:
The Federal Housing Finance Agency (FHFA) is an INDEPENDENT federal agency created by the ______ Act of 2008. The purpose of the FHFA is to promote a stronger, safer U.S. housing finance system.
To that end, the FHFA has broad powers similar in function and structure to federal banking regulators, including expanded legal and regulatory authority over the secondary mortgage markets and OVERSIGHT of the 14 housing-related GSEs-including Fannie Mae and Freddie Mac-and OVERSIGHT of the eleven FHL Banks.
It currently has CONSERVATORSHIP over _____ and _____.

Answer 22

A. Federal Housing Finance Regulatory Reform Act of 2008
(FHFRRA)
B. Fannie Mae
C. Freddie Mac

Question 23

Oversight of Financial
Institutions:
Federal Housing Finance Agency:
The creation of the Federal Housing Finance Agency (FHFA) MERGED the powers and regulatory authority of the former FEDERAL HOUSING FINANCE BOARD (FHFB) and the OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT (OFHEO) as well as the GSE mission office at HUD. The FIRST was originally established to regulate the FHL Banks that were created in 1932. The SECOND agency was originally established as an independent entity within HUD by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. Both were replaced by the ______.

Answer 23

A. Federal Housing Finance Agency

Question 24

Real Success:
Oversight of Financial
Institutions:
State banking authorities also _______ financial institutions that operate in their states. Regulations, laws, and procedures for mortgage bankers and mortgage brokers may vary from state to state. For that reason, it is important to understand the differences in any state, county, or municipal jurisdiction in which you are doing business.

Answer 24

A. regulate

Question 25

Oversight of Financial
Institutions:
Department of Housing and Urban Development:
The Department of ______, more commonly known as HUD, is a federal CABINET-level agency whose stated mission is to create ____. ____, _____ communities and quality affordable homes for all. HUD was created in 1965 and is dedicated to strengthening the housing market and protecting consumers.
This Department has regulatory authority over a number of programs that address its mission, such as:
• The Federal Housing Administration
• Fair Housing and Equal Opportunity Act
• Public housing initiatives
• Indian housing programs
• Community block grants
• Healthy homes and lead control
HUD is also the agency tasked with ENFORCING the ______ Act.

Answer 25

A. Housing and Urban Development
B. strong, sustainable, inclusive C. Fair Housing Act
HUD>FHA

Question 26

Primary Mortgage Market Lenders:
______ are written instruments using real property to secure repayment of a debt. The process of originating, processing, underwriting, closing, and funding a mortgage occurs in the _____. This is where borrowers and MLOs come together to negotiate terms and to bring about mortgage transactions. The primary market is comprised of various lending institutions; for example, commercial banks, S&Ls, credit unions, mutual savings banks, mortgage bankers, and mortgage brokers.

Answer 26

A. Mortgages
B. primary mortgage market or primary market

Question 27

Primary Mortgage Market Lenders:
Commercial Banks:
Commercial banks are financial institutions that provide a variety of ______ services, including loans.
Although banks remain the largest source of investment funds in the country today, until recently, their activities were focused on relatively short-term commercial and consumer loans.

Answer 27

A. financial

Question 28

Primary Mortgage Market Lenders:
Commercial Banks:
Residential mortgages were not a significant part of their business, primarily due to government regulations that limited the number of long-term investments they could make. These limitations were imposed on commercial banks because the vast majority of the deposits they hold are demand deposits- -money that a customer may withdraw from the bank at any time.
_______ are cash deposits that are immediately accessible-such as consumer checking accounts-these are considered less reliable for REINVESTING in LONG-term real estate loans than other types of bank deposits, such as savings accounts or certificates of deposit (CDs), because customers are expected or REQUIRED to leave their money in the bank for longer periods of time in order to get a return.

Answer 28

A. Demand deposits

Question 29

Primary Mortgage Market Lenders:
Commercial Banks:
Due primarily to changes in the law, commercial banks have increased their participation in home mortgage lending for several reasons:
• Banks want to take advantage of _____ customer relationships built through checking accounts and other traditional services.
• Banks anticipate that mortgage borrowers will become bank ______ for other services.
• Important changes in state and federal banking regulations require banks to hold varied percentages of funds on _____ for different types of loans, based on the perceived risk of those loans. First lien home mortgages with loan-to-value of less than ____% LTV are in the LOWEST risk category. Thus, banks need to maintain FEWER funds on RESERVE to cover losses for THESE home mortgage loans than for OTHER types of loans, leaving MORE funds available for OTHER loans or investments.

Answer 29

A. existing
B. customers
C. reserve
D. 80%

Question 30

Primary Mortgage Market Lenders:
Savings and Loan Associations:
Savings and Loan Associations (S&Ls) which are also called ____- are financial institutions that specialize in taking savings deposits and making mortgage loans.
In the past, S&Ls were the major real estate lending institutions, able to dominate local mortgage markets-even though commercial banks had more assets to invest–mainly because deposits placed with S&Ls were savings deposits LESS frequently subject to immediate withdrawal than _______ (checking) held by banks.

Answer 30

A. thrifts
B. demand deposits

Question 31

Primary Mortgage Market Lenders:
Savings and Loan Associations:
When interest rates surged in the late 1970s and early 1980s, S&Ls, which were limited by law as to how much interest they could pay on savings deposits, were unable to offer attractive returns to depositors. This resulted in widespread _____, which is the loss of deposits to competing investments (e.g., money market funds and government bonds) that offered much higher returns. Worse, S&Ls were saddled with long-term, non-liquid mortgages at low interest rates (by 1980s standards) that they were unable to sell to the secondary market since, at that time, S&Ls were not using the uniform qualifying standards set by major secondary market investors.

Answer 31

A. disintermediation

Question 32

Primary Mortgage Market Lenders:
Savings and Loan Associations: When interest rates surged in the late 1970s and early 1980s, S&Ls, which were limited by law as to how much interest they could pay on savings deposits, were unable to offer attractive returns to depositors. This resulted in widespread ______, which is the LOSS of DEPOSITS to COMPETING investments (e.g., money market funds and government bonds) that offered much HIGHER returns. Worse, S&Ls were saddled with long-term, non-liquid mortgages at low interest rates (by 1980s standards) that they were unable to sell to the secondary market since, at that time, S&Ls were NOT using the uniform qualifying standards set by major SECONDARY market investors.
Many of these loans did NOT contain an ALIENATION or
“______ clause,” allowing for the non-qualifying assumption of a mortgage loan at these lower mortgage rates. The use of an ______ clause became more commonly seen in the late 1980s.

Answer 32

A. disintermediation
B. due on sale clause
C. acceleration clause

Question 33

Primary Mortgage Market Lenders:
Savings and Loan Associations: Management mistakes, risky investments, economic slumps-and sometimes fraud-resulted in a dramatic increase in the failure rate of S&Ls, which cost the federal government and taxpayers billions of dollars, leading to a massive restructuring of the industry.
Despite this crisis, S&Ls continue to participate as home mortgage lenders and now follow ______ market qualifying standards. While perhaps a smaller player in the mortgage industry than in the past, S&Ls are REQUIRED to keep at least _____% of their assets in mortgage-related activities or will be required to CHANGE their charter.

Answer 33

A. secondary
B. 65%

Question 34

Primary Mortgage Market Lenders:
Mortgage Banking Companies:
Mortgage banking companies are institutions that SPECIALIZE in ______ for consumers. Unlike banks and other financial institutions, they do NOT take ______ from customers. They are regulated by federal regulations and the state banking laws applicable to each STATE in which they do business. There are TWO types of mortgage banking companies: Mortgage _____ and mortgage ______.

Answer 34

A. specialize in mortgage loans
B. deposits
C. bankers
D. brokers

Question 35

Primary Mortgage Market Lenders:
Mortgage Banker:
A ______ is a company, individual, or entity that originates, processes, underwrites, closes/funds, and may service mortgage loans. While mortgage bankers close loans in their own name, they may fund loans with the company’s own capital or through a warehouse line of credit until it is sold in the secondary market, often immediately. If they DO sell the loans, they are referred to as ______ lenders.

Answer 35

A. mortgage banker
B. correspondent

Question 36

Primary Mortgage Market Lenders:
Mortgage Banker:
Even if loans are sold on the secondary market, mortgage bankers may continue to act as agents and service the loans for a fee. Alternatively, they can sell the servicing rights and earn a _______, which is the payment received by a lending institution, such as a bank or retail mortgage lender; on the sale of the right to service a closed mortgage loan.

Answer 36

A. service release premium (SRP)

Question 37

Primary Mortgage Market Lenders:
Mortgage Banker:
Mortgage bankers often FUND mortgage loans with their ____ resources. However, when a mortgage loan is funded by an ADVANCE of loan funds and an ASSIGNMENT of the loan is made to the SAME entity ADVANCING the funds, this is known as _____, which is NOT a ______ market transaction. Most often, table funding is used by “______” who are are SMALLER correspondent lenders that have a LESS net worth and increase available funding with INVESTOR relationships.

Answer 37

A. own
B.table funding
C. secondary
D. Mini-correspondents

Question 38

Primary Mortgage Market Lenders:
Mortgage Broker:
A ______ is a company or individual who, for a fee, places loans with wholesale lenders, but does not fund or service such loans. Mortgage brokers do not underwrite or fund loans, but, rather, act as a middleman in originating residential mortgages.

Answer 38

A. mortgage broker

Question 39

Primary Mortgage Market Lenders:
Mortgage Broker:
Some services that a mortgage broker typically provides include:
• ____: financial and other required information from borrowers
• ____: income and debt to determine maximum mortgage amounts the borrower can afford
• _____: borrowers on available loan programs
• _____: the loan process to borrowers
• _____: out a loan application with borrowers
• _____: the required disclosures via mail, hand delivery, or electronic delivery to borrowers
• _____: the completed loan file and then submitting it to lenders for review
• _____: borrowers with retaining a deeper understanding the process and how to respond to lender decisions
• _____: with the borrower and lender in the loan closing process

Answer 39

A. Collecting
B. Analyzing
C. Advising
D. Explaining
E. Filling
F. Providing
G. Processing
H. Assisting
I. Participating

Question 40

Primary Mortgage Market Lenders:
Mortgage Broker:
Mortgage Brokers often have knowledge of and access to ____ lenders who are able to supply a particular type of loan needed to purchase a property:
Example:
A loan from a PRIVATE investor for a buyer who was previously turned down by a TRADITIONAL mortgage lender.
However, mortgage brokers do NOT make _____ decisions.

Answer 40

A. nontraditional
B. underwriting

Question 41

Question: Is this a mortgage broker or mortgage banker?
1. Originates a mortgage loan.
2. Processes a mortgage loan and collects information.
3. Submits the loan to a wholesale lender, who will complete the remaining functions beginning with analyzing/underwriting the loan file.

A. Do they make underwriting decisions?

Answer 41

A. Mortgage Broker
B. No

Question 42

Question: Is this a mortgage broker or mortgage banker?

1. Originates a mortgage loan.
2. Processes a mortgage loan and collects information.
3. Analyzes/underwrites a mortgage loan.
4. Creates and furnishes the loan documents and disclosures for the mortgage loan closing.
5. Fund the mortgage banking loan closing, with its own cash, corporate capital, or funds from a warehouse line of credit.
6. Services the mortgage banking loan for the secondary market purchaser.

A. Do they make underwriting decisions?

Answer 42

A. Mortgage Banker / Wholesale Lender
B. Yes

Question 43

Primary Mortgage Market Lenders:
Other Primary Residential
Mortgage Lenders:
Among the other types of financial institutions that have the ABILITY to originate, process, underwrite, and close/fund loans for residential FIRST or SECOND mortgages are _____ unions, _____ companies, and ______ banks.

Answer 43

A. credit
B. finance
C. mutual savings

Question 44

Primary Mortgage Market Lenders:
Other Primary Residential
Mortgage Lenders:
Credit Unions:
The Credit unions are COOPERATIVE financial institutions owned and CONTROLLED by their members in order to _____ their deposits, receive better _____ rates, and ____ money to fellow members. Traditionally, credit unions made primarily home improvement loans and other types of consumer loans. Today, some credit unions make mortgage loans, including second mortgages (e.g., home equity loans) and first mortgages, since credit unions are able to sell ______ market-qualified loans.

Answer 44

A. Pool
B. interest
C. loan
D. secondary

Question 45

Primary Mortgage Market Lenders:
Other Primary Residential
Mortgage Lenders:
Finance Companies:
Finance companies are organizations that specialize in making HIGHER _____ loans at HIGHER ______.
These companies are sources of second mortgages and home equity loans made _______ to borrowers.
Although banks and other lenders also make these types of loans, FINANCE COMPANIES are often in a position to loan HIGHER ______ of the borrower’s EQUITY with up to _____% LTV and work with borrowers who have BLEMISHED credit by pricing loans accordingly.

Answer 45

A. higher-RISK loans at higher INTEREST rates
B. Directly
C. Percentage
D. 125% LTV

Question 46

Primary Mortgage Market Lenders:
Other Primary Residential
Mortgage Lenders:
Mutual Savings Banks:
Mutual savings banks are STATE- or FEDERALLY-chartered banks that are owned by _____ and ______ for their OWN BENEFIT. They are conservative by nature, and often hold a LARGE portion of their assets in home mortgages. Their activities are usually oriented toward the communities they serve to maintain close supervision of their loans.
However, modern economic realities have forced these banks to INCREASE their POOL of funds and DIVERSIFY their mortgage holdings via the _____ market. While they are found mostly in the northeastern United States, there are a number of savings institutions in other areas that continue to operate as mutuals. Like S&L’s, these mutual banks are categorized as _____.

Answer 46

A. depositors and operate
B. secondary
C. thrifts

Question 47

Real Success:
Primary Mortgage Market Lenders:
______ is a term to describe the strategy where financial institutions that make real estate loans KEEP and SERVICE those loans IN-HOUSE as part of their INVESTMENT portfolios INSTEAD of selling on the secondary market. This type of lending may be practiced by major financial institutions, smaller community banks, or other types of nontraditional lenders or investors.

Answer 47

A. Portfolio lending

Question 48

Real Success:
Primary Mortgage Market Lenders:
_____ lenders can make the independent lending decision to hold on to a mortgage to service or to sell it on the secondary market based on many factors.
Example:
These lenders may CHOOSE to make certain types of loans as a SERVICE to customers who may need a loan amount LARGER than can be sold according to the conforming secondary market guidelines, or as an INVESTMENT because the lender likes the project, RATE of return, or possible future profit SHARING in a particular real estate venture.

Answer 48

A. Portfolio lenders

Question 49

Secondary Mortgage Markets:
Originally, banks and other lenders made home mortgage loans to borrowers from deposits they collected DIRECTLY from other customers. As more people SAVED more money and put it into banks, the lender was able to make more loans due the the large amount of funds he could access. However, if depositors were NOT saving money and maintaining cash DEPOSITS, this made the funds for mortgage loans NOT available.
• This, along with a desire to maximize the lenders _______ dollars and shift ______ from the lender, led to the creation of the ______. These markets are _____ investors, government-______ or government agencies that buy and sell real estate mortgages.

Answer 49

A. returns on investment
B. credit risk
C. secondary mortgage markets or secondary markets
D. private
E. Government-sponsored enterprises

Question 50

Secondary Mortgage Markets: The _______ was established by the federal government in an attempt to MODERATE local real estate CYCLES:
• When secondary market players buy mortgages from local banks, those local banks then have more money to ____ to other potential homeowners in their area.
• When local banks INVEST surplus funds in real estate investments from other regions of the country, the EFFECTS of local real estate _____ can be MODERATED as the banks ALSO have stable INVESTMENTS from other areas that may be going through different phases of the real estate cycle.

Answer 50

A. secondary mortgage market
B. Lend
C. cycles

Question 51

Secondary Mortgage Markets:
An important by-product of secondary mortgage markets is the ______ of loan criteria. Any changes implemented by secondary mortgage markets become requirements around the country for those wanting to sell mortgages in the secondary market.

Answer 51

A. standardization

Question 52

Case in Point:
Secondary Mortgage Markets:
Example A: Tenth Bank is in an area that is booming right now. Businesses are coming to the area and many people are moving there. Many of these people are looking to purchase a home and have come to Tenth Bank to borrow money. The trouble is that most of Tenth Bank’s deposits are already tied up in real estate loans.
However, by selling its current home mortgage loans on the ______, Tenth Bank can get more money to make new loans. Tenth Bank and its customers are happy and the effects of a potential credit crunch in the local real estate market are moderated.

Answer 52

A. secondary market

Question 53

Case in Point:
Secondary Mortgage Markets:
Example B: Later, Tenth Bank finds itself in a different situation. The local community is still doing well, so Tenth Bank has many people depositing money in the bank but there’s LITTLE activity in the LOCAL real estate market. With this SURPLUS of deposits, Tenth Bank may have trouble finding enough LOCAL investments with a high enough RETURN to purchase. In this case, Tenth Bank could buy real estate mortgage loans on the ______ market. Tenth Bank would also then hold real estate investments from across the ____ and would not need to worry as much about a DOWNTURN in the local real estate market.

Answer 53

A. secondary
B. country

Question 54

Case in Point:
Secondary Mortgage Markets:
Example C: Tenth Bank is considering some new home mortgage loan requests. The loans seem to be riskier for several reasons relative to the borrowers and the property. Tenth Bank is not so quick to approve these loans because if they don’t meet the criteria of the ______, Tenth Bank must hold the loans and cannot sell them to the secondary market. This helps stabilize the local real estate market as it discourages banks from making too many risky loans. Furthermore, the _____ criteria help Tenth Bank feel SECURE in the mortgage investments it buys on the secondary market from other areas of the country, even though it may never see the actual borrowers and properties it is helping to finance.

Answer 54

A. secondary markets
B. standardized

Question 55

Case in Point:
Secondary Mortgage Markets: Mortgage-Backed Securities:
Mortgage-backed securities (MBSs) are ______ that provide income from the ____ generated from secondary market loans. Mortgage loans purchased from the PRIMARY mortgage market are assembled into POOLS by a GOVERNMENT/quasi-governmental entity or a private INVESTOR who operates in the _____ mortgage market. Securities are then issued that represent CLAIMS on the principal and interest payments made by BORROWERS on the loans in the POOL (similar to shares in a business), this process of packaging loans to sell is known as _____. Any asset may be securitized if it is _____flowing. The term mortgage-backed security, therefore, is reflective of the underlying _____ in the security.

Answer 55

A. bonds
B. cash flows
C. Secondary
D. securitization
E. cash-flowing
F. asset

Question 56

Secondary Mortgage Markets:
Common types of mortgage-backed securities include:
• _____: these are the most common, they pay interest and principal payments monthly. Some types STILL PAY OUT even if payments are NOT collected from the borrower. The investor does NOT own any specific mortgage, but instead, owns a ______ Interest in the cash flow generated by the entire pool like owning shares in a stock that is making money. The payments of interest, principal, and sometimes prepayment penalties are PASSED THROUGH to the INVESTOR.

Answer 56

A. Pass-through securities
B. Proportionate Interest

Question 57

Secondary Mortgage Markets:
Common types of mortgage-backed securities include:
• _____: are pass-through securities that are created by separating or stripping apart-the principal and interest payments from the underlying mortgages that back standard mortgage-backed securities which is split into principal-only and interest-only _____. They derive their cash flows either from principal OR interest payments on the underlying mortgages, unlike conventional MBSs that generate income from BOTH of these two sources.

Answer 57

A. Stripped mortgage-backed securities (SMBS)
B. Strips

Question 58

Secondary Mortgage Markets:
Common types of mortgage-backed securities include:
• _____: These are bonds that represent CLAIMS to SPECIFIC cash FLOWS from large POOLS of home mortgages. The streams of principal and interest payments on the mortgages are distributed to the different CLASSES of CMO interests, known as _____, according to a complicated deal structure which organizes the mortgages by risk and maturity. Each tranche is categorized by the DIFFERENT ______ balances, ______ rates, ______ risks, and ______ dates. CMOs may be HIGHLY sensitive to changes in _______ rates and any resulting CHANGE in the RATE at which homeowners sell their properties, refinance, or otherwise prepay their loans. _________ that OWN these securities ARE subjected to PRE-PAYMENT risk but ALSO exposed to significant MARKET and LIQUIDITY risks.

Answer 58

A. Collateralized Mortgage Obligations (CMOs)
B. Tranches
C. Principal
D. Coupon
E. Pre-Payment
F. Maturity
F. Interest
G. Investors

Question 59

Secondary Mortgage Markets:
Secondary Market Participants:
The Secondary market participants are generally defined as private _____, government - sponsored ____, and government agencies that buy and sell real estate mortgages, although private investors tend to be a much smaller percentage of the secondary markets.
These Private investors can be ______ stockholders, ______ brokers, _____ investors, _____ companies, or _____ plans, for example.

Answer 59

A. investors
B. government-sponsored enterprise (GSE)
C. Wall Street
D. investment
E. high-risk
F. insurance
G. pension

Question 60

Secondary Mortgage Markets:
Secondary Market Participants: The THREE organizations responsible for the vast MAJORITY of the SECONDARY mortgage market activity include:
• _______
• _______
• _______

Answer 60

A.

• Federal National Mortgage Association (FNMA/
Fannie Mae)
• Government National Mortgage Association (GNMA/
Ginnie Mae)
• Federal Home Loan Mortgage Corporation (FHLMC/
Freddie Mac)

Question 61

Secondary Mortgage Markets:
Secondary Market Participants:
_____ and _____, which are BOTH GSEs, that securitize and keep loans and mortgage-backed securities in their PORTFOLIOS. They BOTH have substantially similar charters and regulatory structures. _____ is a WHOLLY-owned _________, NOT a GSE. Also, UNLIKE Freddie Mac and Fannie Mae, Ginnie Mae does NOT purchase _____ from lenders, NOR does it buy, sell, or issue _______.

Answer 61

A. Fannie Mae and Freddie Mac
B. Ginnie Mae
C. Government Corporation D. Mortgages
E. Securities

Question 62

Secondary Mortgage Markets:
Secondary Market Participants:
Federal National Mortgage Association (FNMA):
Federal National Mortgage Association (FNMA/Fannie Mae) is the nation’s largest ______ in residential mortgages. Fannie Mae was originally chartered by Congress in 1938 to provide LIQUIDITY and STABILITY to the U.S. housing and mortgage markets, PRIMARILY as a place for lenders to sell their FHA-insured loans. In 1968, Fannie Mae became a PRIVATE shareholder-owned company and remains in that structure today. In 2008, Federal National Mortgage Association (FNMA/Fannie Mae) was placed in CONSERVATORSHIP under the ______ Agency because of severe financial and cash flow problems resulting from the declining real estate market and mortgage foreclosure epidemic.

Answer 62

A. INVESTOR
B. Federal Housing Finance Agency (FHFA)

Question 63

Secondary Mortgage Markets:
Secondary Market Participants:
Federal National Mortgage Association (FNMA):
Fannie Mae buys a specific set of mortgages:
•
•
• _____ in pools of mortgages from lenders
The lender, who MUST own a certain amount of stock in Fannie Mae, assembles a pool of loans, and then a ______ interest in that pool usually ____% to ___% is sold to Fannie Mae. Loans sold to Fannie Mae are usually SERVICED by the ORIGINATING lender or another mortgage servicing company called a ______ for which Fannie Mae pays a service FEE.
Fannie Mae POOLS loans that generally conform to its standards and CONVERTS them into mortgage-backed securities for which it _____ TIMELY payment of principal and interest to the LENDER. In this way, BOTH the lender and Fannie Mae OWN an INTEREST in the loans.

Answer 63

A.
• FHA
• VA
• Interests
B. subservicer
C. participation
D. 50% to 95%
E. Guarantees

Question 64

Secondary Mortgage Markets:
Secondary Market Participants:
Government National
Mortgage Association:
The Government National Mortgage Association (GNMA/Ginnie Mae) was created in 1968 as a government-owned ______ operating under the Department of ____.
A primary function of Ginnie Mae is to promote investment by GUARANTEEING the payment of _____ and ______ on FHA, VA, Rural Housing Service, or HUD’s Office of Public and Indian Housing federally-insured or guaranteed mortgages through its mortgage-backed securities program.
Ginnie Mae’s _____ are the ONLY ones that carry the ____ of the United States government. Therefore, EVEN IF the BORROWER doesn’t make mortgage payments, the investors STILL GET PAID.

Answer 64

A. corporation
B. Housing and Urban Development (HUD)
C. principal and interest
D. mortgage-backed securities
E. full faith and credit guarantee

Question 65

Secondary Mortgage Markets:
Secondary Market Participants:
Federal Home Loan
Mortgage Corporation:
The Federal Home Loan Mortgage Corporation (FHLMC/Freddie Mac) was created in 1970 as a nonprofit, federally-chartered institution controlled by ____ Banks. Just like Fannie Mae; Freddie Mac buys mortgages on the ______ market, pools them, and sells them as MBSs to investors on the open market.
Also like Fannie Mae, Freddie Mac was converted to a ____ held stock corporation and is currently under the Conservatorship of the ____.

Answer 65

A. FHL Banks
B. secondary market
C. Privately
D. Federal Housing Finance Agency (FHFA)

Question 66

Secondary Mortgage Markets:
Secondary Market Participants:
Federal Home Loan
Mortgage Corporation:
Federal Home Loan
Mortgage Corporation also known as Freddie Mac actively sells the mortgage loans from its portfolio to investors throughout the world by issuing its own MBSs, thus acting as a ______ for mortgage investments. The funds generated by the sale of the mortgages are then used to purchase more mortgages.
Unlike Ginnie Mae; its MBSs are NOT backed by the ____ of the federal government, BUT Freddie Mac, like Fannie Mae, has special authority to borrow from the ______ to continue operating in the secondary market.

Answer 66

A. conduit
B. full faith and credit
C. U.S. Treasury

Question 67

Secondary Mortgage Markets:
Secondary Market Standards:
An important reason why the secondary market can function as it does is that standardized underwriting criteria are used to qualify borrowers and property. Once lenders realized the advantages of selling their home mortgages in the secondary market, they were quick to conform to the underwriting guidelines–such as loan-to-value and income expense ratios–established by Fannie Mae and Freddie Mac, along with other secondary market agencies. Furthermore, both Fannie Mae and Freddie Mac rely on the ______ they have developed to further streamline and standardize the underwriting process. Fannie Mae uses ________ and Freddie Mac uses
________.

Answer 67

A. automated underwriting systems (AUS)
B. Desktop Underwriter® (DU®)
C. Loan Product Advisor

Question 68

Secondary Mortgage Markets:
Secondary Market Standards: Because the secondary market performs such an important function in providing the SAME cash _____ as PRIMARY mortgage funds, the standards SET by the secondary market have a great INFLUENCE on lending activities in the primary market.
Example: Once secondary agencies BEGAN accepting adjustable-rate mortgages (ARMs), 15-year fixed-rate mortgages, and convertible ARMs, these types of financing became more READILY available in the _____ market. Lenders were MORE willing to make these kinds of loans when they knew the loans COULD be sold to the _____ market. In contrast, _____ ARMs and NO documentation/NO qualification loans are NO longer purchased by the SECONDARY market; therefore, these types of financing are virtually nonexistent.
REMEMBER: That the FHA may allow NO income, NO asset verification to ____ a PRE-existing FHA loans.

Answer 68

A. liquidity
B. primary
C. secondary
D. option
E. refinance

Question 69

Secondary Mortgage Markets:
Secondary Market Standards:
While the agencies may relax or tighten their standards in response to current economic or market factors, the _____ of loan qualifications and lending procedures helped reduce and eliminate most of the LESS conventional loan types across the U.S. The purchasers know that the mortgages backing the securities must be of minimum quality, lessening their risk in investing in properties they can’t view or assess. These STRICT underwriting standards also create some degree of confidence for purchasers of _____.

Answer 69

A. standardization
B. MBSs

Question 70

Mortgage Loan Market History:
Real estate _____ are part of the mortgage industry.
However, in the mid-2000s, the U.S. experienced an unprecedented economic and real estate crisis. The following events led to the mortgage meltdown.
1. Political leaders and housing advocates felt it was everyone’s right to own a home, even when perhaps not everyone was ready for the commitment of home ownership.
2. Over the years, changes in the industry, along with rising interest rates and a desire to shift credit risk, caused lenders to place even greater emphasis on the ability to sell their loans. As more and more options became available, the secondary mortgage market, led by Fannie Mae, grew in importance as a source of funds for lenders and a means of readily available capital for potential homeowners at attractive interest rates.
3. Wall Street and investors paid higher-priced incentives for higher-interest subprime loans, leading to higher-risk loans offered to borrowers who were unable to tolerate the payment shock, or increased payments over time, that were a major component of these programs.
4. The Federal Reserve and the Security Exchange Commission failed to recognize and respond to various mortgage instruments (e.g., collateralized debt obligations, MBSs) that were offered and sold on secondary markets, which added to the risk and collapse in the real estate industry.
5. Government-sponsored enterprises (GSEs) relaxed underwriting standards for conventional mortgage guidelines through automation.
6. To make more residential loans, lenders created many new loan programs that the secondary market players were willing to purchase, some of which had relaxed qualifying standards, such as:
• Requiring little or no income or asset documentation.
• Not considering a borrower’s impaired credit or ability to repay the loan.
• Waiving the need for an appraisal to verify the value of the property being financed.
• Requiring a minimum or no down payment.
• Allowing borrowers to avoid mortgage insurance with a first and second mortgage combined for up to 100% of the value of the property.
7. Unethical appraisers inflated values under pressure from borrowers, MLOs, and mortgage companies.
8. Unethical MLOs placed borrowers in loan programs based on personal profit and not suitability.
9. Consumers purchased homes they could not realistically afford. Some lenders offered adjustable-rate mortgages with negative amortization, excessive prepayment penalties, rate adjustments occurring as often as every six months, and exorbitant interest rate caps. These risky loan programs may have been offered to “subprime” borrowers, who are those who may have poor credit history, higher debt, lower income, previous bankruptcy, short emplovment history, and other less than ideal characteristics.
Some mortgage products allowed financing with no loan documentation, which resulted in many borrower defaults, leading to today’s requirement of assessing a borrower’s ability to repay mortgage debt.
10. While most of these loan programs are no longer offered today, such loans frequently resulted in a high rate of delinquency and foreclosure.

Answer 70

A. cycles

Question 71

Mortgage Loan Market History: Impact of Credit Crunch:
When MBSs declined in value, investors _____ purchasing them, tightening credit around the world. The impact of such a CREDIT CRUNCH on the market is significant.
Example:
• Most high-risk loan programs are no longer available, although a market for _____ loans is emerging.
• ______ -based pricing continues to be a factor.
• Underwriting guidelines remain ________.
• Mortgage insurance availability may be _____ for some property types and occupancies.

Answer 71

A. Stopped
B. subprime
C. Risk-based
D. stringent
E. restricted

Question 72

Introduction to the Dodd-Frank Act:
When the economy slowed in 2007, many homeowners defaulted on their mortgage obligations, whether due to unemployment or because payments rose to UNEXPECTED highs with certain types of loans resulting in ______. Even those who kept current with their mortgage likely suffered from a DECREASE in the value of their homes, leading some homeowners to be ______ with their mortgages, which means they ended up owing more than the property was worth when they initially purchased it resulting in a loss of equity. In response to calls for comprehensive financial reform, the United States Congress passed the ______ Act in July 2010.
The stated purpose of this far-reaching financial legislative Act was “to promote the financial stability of the United States by improving ________ in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”

Answer 72

A. payment shock
B. underwater
C. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
D. “accountability and transparency”

Question 73

Introduction to the Dodd-Frank Act:
Mortgage-Related Legislation
Under the Dodd-Frank Act:
The two titles of the Dodd-Frank Act with the greatest impact on the mortgage industry are Title X, designated as the _____ Act, and Title XIV, designated as the _______ Act.

Answer 73

A. Consumer Financial Protection Act (CFPA)
B. Mortgage Reform and Anti-Predatory Lending Act (MRAPLA)

Question 74

Introduction to the Dodd-Frank Act:
Consumer Financial Protection Act - Title X:
Title X of the Dodd-Frank Act, designated as the Consumer Financial Protection Act, which provides broad authority to ____ and _____ the rules meant to address and prevent what it defines as “ABUSIVE” financial practices.
It also:
• Provides STATES with more Regulatory authority over ______-chartered institutions.
• Imposes additional Requirements related to ____ COLLECTION and REPORTING .
• Mandates STUDIES on certain MORTGAGE -related ISSUES that could result in additional _____.

Answer 74

A. promulgate and enforce
B. federally
C. data
D. legislation

Question 75

Introduction to the Dodd-Frank Act:
Consumer Financial Protection Act (Title X):
Section ______ of Subtitle ___ of Title ___ under the Dodd-Frank Act created the ____, whose task is to enforce CONSUMER FINANCIAL PROTECTION laws. While the CFPB is within the ______, it is intended to function ______ as an Executive agency. The CFPB is charged with supervision, examination, and enforcement over all ______ depository institutions and credit unions with assets over $____; and all ____-depository institutions that broker, originate, or service mortgage loans; as well as any other providers of consumer services at its discretion, with some exceptions such as auto dealers, attorneys, accountants and tax preparers, and real estate brokerage activities.

Answer 75

A. Section 1011
B. Subtitle A
C. Title X
D. CFPB
E. Federal Reserve
F. INDEPENDENTLY
G. insured
H. $10 billion
I. non-depository

Question 76

Introduction to the Dodd-Frank Act:
Regulatory Authority and Enforcement:
The _______ Act consolidated consumer protection responsibilities previously handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development, and Federal Trade Commission.

Answer 76

A. Consumer Financial Protection Act

Question 77

Introduction to the Dodd-Frank Act:
Regulatory Authority and Enforcement:
The CFPB published rules transferred from other agencies with new section numbers. Both the republished regulation rules and their former agency rule designations are provided in a chart as a useful reference for students.
The CFPB has the authority to INVESTIGATE and conduct HEARINGS on VIOLATIONS of most consumer protection laws. If it determines a violation has occurred, the CFPB may issue a _____ or _____. It has NO authority to bring _____ charges, but it could refer cases to the Department of ______ and must refer potential tax law violations to the ______.

Answer 77

A. cease and desist order
B. pursue civil action
C. criminal
D. Justice
E. Internal Revenue Service (IRS)

Question 78

Introduction to the Dodd-Frank Act:
Mortgage Reform and Anti-Predatory Lending Act (Title XIV):
Title XIV of the Dodd-Frank Act is designated as the _____ Act. It takes several steps to address what Congress considers to be abusive or predatory lending practices in the mortgage industry.
For example:
Subtitle _____ of Title XIV:
• Requires MLOs to apply new minimum qualifying standards and defines a new category of “______” loans.
• Requires ______ of the borrower’s ability to repay the loan.
• Establishes ______ for irresponsible lending, including extended foreclosure defense for borrowers.
Subtitle ____ of Title XIV expands CONSUMER protections for HIGH COST mortgages.

Answer 78

A. Mortgage Reform and Anti-Predatory Lending
B. Subtitle B
C. qualified
D. verification/documentation
E. penalties
F. Subtitle C

Question 79

Introduction to the Dodd-Frank Act:
Laws and Regulations Under the CFPB:
There are numerous CONSUMER and PROTECTION laws under the CFPB, which will be discussed in significant detail throughout this course. They can be grouped by the type of issues they address:
• Required Financial _____
> Remember Acronym: _____
• Privacy ___ and consumer ___
> Remember Acronym: _____
• Prohibition of _____ lending
> Remember Acronym: _____

Answer 79

A. Disclosures
B. REHHHLM
C. protection
D. identification
E. FNFUG
F. predatory
G. SHHM(SHHIM)

Question 80

Introduction to the Dodd-Frank Act:
Laws Requiring Financial Disclosures:
An MLO, mortgage broker, mortgage banker, or any other agent of the lender should be aware of the various disclosure requirements when making real estate loans, such as:
• The total loan _____ involved in the transaction
• Any _______ between lending professionals and other service companies to whom a buyer or seller might be referred, including any ______ paid.

Answer 80

A. costs
B. Affiliated Relationship
C. compensation

Question 81

Introduction to the Dodd-Frank Act:
Laws Requiring Financial Disclosures:
Some disclosures are imposed by federal (or state) law, and others are imposed by one’s responsibilities to an employer or lender.
The laws surrounding FINANCIAL DISCLOSURES requirements include:
• ______ Act - Regulation ____
• ______ Act - Regulation ____
• ______ Act
• ______ Act
• ______ Act - Regulation ____
• ______ - Regulation ____
• ______ Act
The CFPB’s rules and laws related to financial disclosure are summarized in a chart as a useful reference.

Answer 81

REMEMBER: REHHHLM
A. Real Estate Settlement Procedures Act (RESPA) - Regulation X
B. Equal Credit Opportunity Act (ECOA) - Regulation B
C. Home Ownership and Equity Protection Act (HOEPA)
D. Homeowners Protection Act (HPA)
E. Home Mortgage Disclosure Act (HMDA) - Regulation C
F. Loan Estimate/Closing Disclosure (TRID) Regulation Z
G. Mortgage Disclosure Improvement Act (MDIA)

Question 82

Introduction to the Dodd-Frank Act:
Laws Regarding Privacy Protection and Consumer Identification:
The PRIVACY PROTECTION and CONSUMER IDENTIFICATION laws include:
• _____ Act
• _____
• _____ Act - _____ Rules
• _____ Act - only the portions that are related to information privacy
• _____ Act
The CFPB’s rules and laws related to privacy protection and consumer identification and prohibiting discrimination are summarized in these charts as useful references.

Answer 82

REMEMBER: FNFUG
A. Fair Credit Reporting Act (FCRA)
B. National Do Not Call Registry
B. Fair and Accurate Credit Transactions Act (FACTA)
- Red Flag Rules
C. U.S.A. PATRIOT Act
D. Gramm-Leach-Bliley Act (GLB)

Question 83

Introduction to the Dodd-Frank Act:
Laws Prohibiting Predatory Lending:
The laws prohibiting PREDATORY LENDING include:
• _______ Act
• _______ Act
• _______ - Regulation ___
• _______ - Regulation ____
The CFPB’s republished rules and laws related to predatory lending are summarized in a chart as a useful reference.

Answer 83

REMEMBER: SHHM (SHHIM)
A. Secure And Fair Enforcement for Mortgage Licensing
Act (SAFE Act)
B. Home Ownership and Equity Protection Act
(HOEPA)
C. Higher-Priced Loan Rule - Regulation Z (TILA)
D. MLO Compensation Rule - Regulation Z (TILA)

Question 84

Chapter Summary: Mortgages are written instruments using real property to secure repayment of a debt. Their use in the home purchasing process continues to evolve. The Federal Reserve Act of 1913 created the ______ , established a federal charter for banks to make real estate loans, and set up a way to influence interest rates. The National Housing Act of 1934 created the _____ to insure banks against losses for defaults on home loans. ______, were established in 1932 by the Federal Home Loan Banking Act, are 11 regional cooperative banks that U.S. lending institutions use to finance housing and economic development in their communities. Fannie Mae was created in 1938 as the first secondary market to address the problem of the uneven supply of money for mortgage loans.

Answer 84

A. Federal Reserve
B. FHA
C. Federal Home Loan Banks (FHL Banks)

Question 85

Chapter Summary: The _____ market consists of lenders making mortgage loans directly to borrowers. Primary Market _____ include commercial banks, S&L’s, savings and mutual savings banks, and mortgage companies, which include mortgage _____ who may originate/fund/service loans and mortgage _____ who place loans with lenders. S&Ls were once the largest providers of home mortgage loans, but regulation and risky investments left many savings and loans insolvent.

Answer 85

A. Primary Market
B. Lenders
C. bankers
D. brokers

Question 86

Chapter Summary: The _____ market consists of private investors, government-sponsored enterprises and government entities that buy and sell home mortgages and this market was created to moderate local real estate cycles, give lenders new money to lend again, and standardize loan criteria. _____ is the largest investor in residential mortgages, buying and selling mortgage-backed securities. ______ also issues mortgage-backed securities. ______ is a government-owned corporation and managed by HUD. Ginnie Mae GUARANTEES payment of principal and interest on government-insured or guaranteed loans (such as _____ and _____) for its mortgage-backed securities.

Answer 86

A. secondary market
B. Fannie Mae
C. Freddie Mac
D. Ginnie Mae
E. FHA and VA

Question 87

Chapter Summary: In addition to the Federal Reserve, oversight of the mortgage industry includes:
• ______ - Insures deposits and examines and supervises financial institutions

Answer 87

A. Federal Deposit Insurance Corporation (FDIC)

Question 88

Chapter Summary: In addition to the Federal Reserve, oversight of the mortgage industry includes:
• ______ - Charters, regulates, and supervises all NATIONAL banks.

Answer 88

A. Office of the Comptroller of the Currency (OCC)

Question 89

Chapter Summary: In addition to the Federal Reserve, oversight of the mortgage industry includes:
• _______ - Charters and supervises FEDERAL credit unions

Answer 89

A. National Credit Union
Administration (NCUA)

Question 90

Chapter Summary: In addition to the Federal Reserve, oversight of the mortgage industry includes:
• ______ -Formal interagency body empowered to prescribe uniform PRINCIPLES , STANDARDS, and make RECOMMENDATIONS
for the Federal Examination of Financial Institutions by the _____ of the Federal Reserve Board (FRB), the FDIC, the NCUA, the OCC, and the CFPB.

Answer 90

A. Federal Financial Institutions Examination Council (FFIEC)
B. Board Of Governors

Question 91

Chapter Summary: In addition to the Federal Reserve, oversight of the mortgage industry includes:
• _______ - LEGAL and REGULATORY authority over the SECONDARY mortgage markets, Fannie Mae/ Freddie Mac, and the FHL Banks

Answer 91

A. Federal Housing Finance Agency (FHFA)

Question 92

Chapter Summary: In addition to the Federal Reserve, oversight of the mortgage industry includes:
• ______ - This is a cabinet-level federal agency dedicated to quality, affordable housing for everyone. This agency also provides oversight and enforcement of the federal Fair Housing Act (FHA).

Answer 92

A. Department of Housing and
Urban Development (HUD)

Question 93

Chapter Summary: The regulations and guidelines that are in place in TODAY’s mortgage industry are a RESULT of events that occurred in the PAST.
Legislation such as the _____ Act, ____ Rule, _____ Act, and others are a result of many EVENTS in the past. Mortgage loan products such as subprime and Alt-A notes experienced a 40% default rate between 2006 and 2010. These toxic loans and the housing crisis led to one of the most economically troubled times of late.

Answer 93

REMEMBER: HLD
A. Home Ownership and Equity Protection Act (HOEPA)
B. Loan Officer Compensation Rule
C. Dodd-Frank Act

Question 94

Chapter Summary: The effects of looser qualifications for home mortgages led to significant increases in borrower DEFAULT on risky loans, which resulted in the ______ CRISIS. As a consequence, qualification standards were TIGHTENED, laws were passed related to PREDATORY lending, high-risk loan programs became UNAVAILABLE, and financing was more difficult to OBTAIN.

Answer 94

A. subprime mortgage crisis

Question 95

Chapter Summary: The Dodd-Frank Act was a significant overhaul of the nation’s financial laws, including those that affect the mortgage industry.
• Title X of Dodd-Frank, titled the _____, created the CFPB within the Federal Reserve that consolidated broad regulatory authority.
• Title XIV of Dodd-Frank, titled the ______, addresses abusive lending practices.
• Consumer protection responsibilities previously handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development, and Federal Trade Commission were consolidated under the _____.

Answer 95

A. Consumer Financial Protection Act
B. Mortgage Reform and Anti-Predatory Lending Act
C. Consumer Financial Protection Bureau (CFPB)

Question 96

Chapter 1:
Chapter Quiz:
1. Which is NOT a function of the secondary market?
A. moderate effects of local real estate cycles
B. provide lenders with money to make more loans
C. serve as a depository for consumer assets
D. standardize loan criteria

Answer 96

C. serve as a depository for consumer assets -
Secondary markets are non-depository entities that purchase closed loans, which conform to the guidelines set by the secondary market. They are not depository institutions and cannot accept consumer deposits.

Question 97

Chapter 1:
Chapter Quiz:
2. The Consumer Financial Protection Bureau was created by the
A. Dodd-Frank Act.
B. Federal Home Loan Bank Act.
C. Federal Reserve Act.
D. National Housing Act.

Answer 97

A. Dodd-Frank Act. - The Dodd-Frank Act established the CFPB.

Question 98

Chapter 1:
Chapter Quiz:
3. Mortgage brokers
A. act as intermediaries between borrowers and lenders.
B. originate and service mortgage loans.
C. provide funding for mortgage loans.
D. underwrite mortgage loans.

Answer 98

A. act as intermediaries between borrowers and lenders. - A lender is a financial institution that makes loans directly to you. A broker does not lend money. A broker finds a lender. A broker may work with many lenders.

Question 99

Chapter 1:
Chapter Quiz:
4. Which entity was established in 1932 as a cooperative to finance housing in local communities?
A. Federal Home Loan Banks
B. Federal Home Loan Mortgage Corporation
C. Federal Housing Finance Agency
D. Government National Mortgage Association

Answer 99

A. Federal Home Loan Banks - Created by Congress, the Federal Home Loan Banks have been the largest source of funding for mortgage lending for eight decades and were established in 1932 as a cooperative to finance housing in local communities.

Question 100

Chapter 1:
Chapter Quiz:
5. Which is NOT a primary lender for residential properties?
A. commercial banks
B. insurance companies
C. mortgage companies
D. savings and loan associations

Answer 100

B. insurance companies - Insurance companies are not primary lenders of residential mortgages.

Question 101

Chapter 1:
Chapter Quiz:
6. Which statement about Ginnie Mae is TRUE?
A. Ginnie Mae buys loans from commercial banks and mortgage companies.
B. Ginnie Mae guarantees mortgage-backed securities.
C. Ginnie Mae is a participant in the primary market.
D. Ginnie Mae is a private corporation.

Answer 101

B. Ginnie Mae guarantees mortgage-backed securities. - Ginnie Mae guarantees investors the timely payment of principal and interest on MBSs backed by federally-insured or guaranteed loans - mainly loans insured by the FHA or guaranteed by the VA.

Question 102

Chapter 1:
Chapter Quiz:
7. The Consumer Financial Protection Act combined consumer protection responsibilities under the CFPB from the following agencies EXCEPT the
A. Department of Commerce.
B. Department of Housing and Urban Development.
C. Federal Deposit Insurance Corporation.
D. Federal Trade Commission.

Answer 102

A. Department of Commerce. - The Consumer Financial Protection Act consolidated consumer protection responsibilities previously handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development, and Federal Trade Commission under the CFPB.

Question 103

Chapter 1:
Chapter Quiz:
8. Which GSE holds the largest amount of home loan mortgages?
A. Federal Agricultural Mortgage Corporation
B. Federal Home Loan Mortgage Corporation
C. Federal National Mortgage Association
D. Government National Mortgage Association

Answer 103

C. Federal National Mortgage Association - The Federal National Mortgage Association (FNMA/ Fannie Mae) is the nation’s largest investor in residential mortgages. Fannie Mae was originally chartered as a GSE by Congress in 1938 to provide liquidity and stability to the U.S. housing and mortgage markets, primarily as a place for lenders to sell their FHA-insured loans.