Exam 2

Question 1

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

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

Answer 1

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

Question 2

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

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

Answer 2

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

Question 3

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

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

Answer 3

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

Question 4

Which of the following is true regarding APR tolerance levels?

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

Answer 4

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

Question 5

Mortgage insurance insures against losses incurred as a result of:

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

Answer 5

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

Question 6

A “straw buyer” is:

1. A buyer who is a victim of identity theft
2. A buyer who uses another individual’s identity in order to obtain a mortgage for which he or she is not eligible
3. A buyer who accepts a fee for the use of his or her Social Security Number and other personal information on a mortgage application
4. A buyer who intends to purchase property but does not intend to occupy it

Answer 6

The answer is a buyer who accepts a fee for the use of his or her Social Security Number and other personal information on a mortgage application. A straw buyer is a person who purchases the property or applies for the loan in his or her own name for the actual borrower and is typically paid for the use of his or her personally identifying information.

Question 7

Under the Fair Housing Act:

1. Lending decisions cannot be made based on residency status
2. Charging different fees based on race is prohibited
3. Lenders must provide clear, plain-language disclosures
4. Lenders are required to report demographic information to the federal government

Answer 7

The answer is charging different fees based on race is prohibited. The Fair Housing Act prohibits discrimination in the sale, rental, and financing of any residential housing based on race, color, religion, national origin, sex, familial status, or mental or physical handicap, and therefore, prohibits charging different fees based on race. Residency status is not a protected category under the Fair Housing Act. Disclosure requirements are not imposed by the Fair Housing Act. Government reporting requirements are covered under the Home Mortgage Disclosure Act (HMDA).

Question 8

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

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

Answer 8

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

Question 9

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

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

Answer 9

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

Question 10

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

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

Answer 10

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

Question 11

Applicants for FHA loans must meet a back end ratio of:

1. 41%
2. 29%
3. 36%
4. 43%

Answer 11

The answer is 43%. In general, applicants for FHA loans must meet a back end ratio limitation of 43%.

Question 12

Supervisory authority afforded to state agencies over the mortgage industry allows them to impose all of the following sanctions, except:

1. Order the removal and ban of individuals from employment as loan originators
2. Suspend, terminate, or refuse renewal of a loan originator license for a violation of state or federal law
3. Assess jail time for fraudulent activities
4. Impose civil money penalties for individuals acting as loan originators without a valid license or registration

Answer 12

The answer is assess jail time for fraudulent activities. Under the SAFE Act, the authority of state agencies allows them to impose sanctions including suspending, revoking, or refusing to renew a license in response to violations; ordering restitution and imposing fines; and issuing orders or directives, including ordering or directing licensees to cease and desist from conducting business, including immediate temporary orders to cease and desist. The agencies are not authorized to assess jail time to licensees for any reason.

Question 13

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

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

Answer 13

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

Question 14

A husband and wife own their home as joint tenants. When the husband dies, what happens to his share in the property?

1. Transfers according to the probate code
2. Transfers to the husband’s heirs
3. Transfers to the wife
4. Transfers intestate

Answer 14

The answer is transfers to the wife. Joint tenants share equal ownership of the property and have equal, undivided right to keep or dispose of the property. Joint tenancy creates a right of survivorship; if any of the joint tenants die, the remainder of the property is transferred to the survivors. In this case, when the husband dies, his interest in the property would transfer to his wife.

Question 15

When must loan applicants receive an adverse action notice if they cannot qualify for a loan?

1. Within 15 days of loan application
2. Within 60 days of loan application
3. Within 30 days of loan application
4. Within 90 days of loan application

Answer 15

The answer is within 30 days of loan application. An applicant has the right to receive, within 30 days of the creditor’s receipt of an incomplete application, notice of incompleteness with a reasonable time to respond, and within 30 days after receipt of a completed credit application, notice of action taken (i.e., acceptance or adverse action).

Question 16

Which of the following would not need to be included in the notice of servicing transfer?

1. Toll-free number for the old servicer
2. Borrower’s payment amount
3. Toll-free number for the new servicer
4. Effective date of the transfer

Answer 16

The answer is borrower’s payment amount. When a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower must be sent a servicing transfer statement at least 15 days before the effective date of the servicing transfer. This statement must show the name, address, and toll-free telephone numbers of both the old servicer and the new servicer, as well as the date the new servicer will begin accepting payments.

Question 17

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

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

Answer 17

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

Question 18

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

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

Answer 18

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

Question 19

A lender charges 6% interest on a $200,000, 30-year fixed-rate loan, for a property purchased for $220,000. What is the annual interest on the loan?

1. $6,000
2. $12,000
3. $1,600
4. $1,200

Answer 19

The answer is $12,000. To calculate the annual interest: 6% × $200,000 = $12,000.

Question 20

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

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

Answer 20

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

Question 21

Which of the following is NOT required by the BSA?

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

Answer 21

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

Question 22

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

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

Answer 22

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

Question 23

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

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

Answer 23

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

Question 24

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

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

Answer 24

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

Question 25

Loan-to-value ratio is best described as:

1. The loan amount divided by the lower of the appraised value or purchase price
2. The appraised value divided by the loan amount
3. The down payment divided by the appraised value
4. The purchase price divided by the appraised value

Answer 25

The answer is the loan amount divided by the lower of the appraised value or purchase price. The relationship of the loan amount to the value or sales price of the property securing the loan is called a loan-to-value ratio. The loan-to-value ratio (LTV) relates the loan to the lesser of the appraised value or sales price. LTV = loan amount, divided by property value (appraised value) or purchase price, whichever is less.

Question 26

With regard to adjustable loans with interest rate caps, it is true that:

1. The cap period is always one year
2. The cap is lower when the adjustment period is longer
3. The loan payments can go up when the index plus the margin is less than the rate the borrower has been paying before the adjustment
4. The new interest rate cannot exceed the rate ceiling established by the caps

Answer 26

The answer is The new interest rate cannot exceed the rate ceiling established by the caps. When the rate is reset, the index plus the margin cannot exceed the maximum allowable rate which is determined by adding the periodic cap to the current rate.

The cap period is identical to the adjustment period, and does not always equal one year. The cap would be higher when the adjustment period is longer, as the lender cannot make changes as frequently.

Question 27

Which of the following would not be on a promissory note?

1. Amount owed
2. Rate of interest and whether the loan is fixed or adjustable
3. Borrower’s Social Security Number
4. Loan terms

Answer 27

The answer is borrower’s Social Security Number. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, amount owed, rate of interest and whether the loan is fixed or adjustable, due dates for payment, and the loan terms.

Question 28

Which of the following situations would constitute a kickback as defined in the Real Estate Settlement Procedures Act?

1. A mortgage loan originator pays for a borrower’s appraisal because the borrower is the mortgage loan originator’s sister
2. A builder offers clients a free three-car garage if they use the builder’s mortgage company for financing
3. A mortgage loan originator sends a borrower a $250 gift certificate to thank them for doing business with the mortgage loan originator
4. A title company sends a mortgage loan originator a $25 gift certificate, because of the business the loan originator sends the title company

Answer 28

The answer is a title company sends a mortgage loan originator a $25 gift certificate, because of the business the loan originator sends the title company. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, oral or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. A business entity may not pay any other business entity, or the employees of any other business entity, for the referral of real estate settlement service business. Therefore, a title company that sends a mortgage loan originator a gift certificate because of the business the loan originator sends the title company would be guilty of a kickback in violation of RESPA.

Question 29

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

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

Answer 29

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

Question 30

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

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

Answer 30

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

Question 31

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

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

Answer 31

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

Question 32

Your borrower does not wish to complete the demographics questions in the Demographic Information section of the 1003. What should you do?

1. Complete the section based on a visual observation of the borrower during a face-to-face application
2. Leave the section blank
3. Tell the borrower his/her loan cannot be funded until the information is obtained
4. Refuse to take the application

Answer 32

The answer is complete the section based on a visual observation of the borrower during a face-to-face application. The section titled “Demographic Information” is required by the Home Mortgage Disclosure Act to aid the federal government in monitoring compliance with ECOA. Because supplying this information is strictly voluntary, an applicant who does not wish to do so should check the box provided to indicate his/her decision. When an applicant does not provide this information, an originator taking the application on a face-to-face basis must note the applicant’s sex, race, and ethnicity on the form, based on his/her visual observation and/or the applicant’s surname.

Question 33

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

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

Answer 33

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

Question 34

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

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

Answer 34

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

Question 35

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

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

Answer 35

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

Question 36

The S.A.F.E. Act creates several consumer protection provisions. Which of the following is not a provision created through the enactment of the S.A.F.E. Act?

1. Encourages responsible behavior through licensing standards
2. Provides consumers access to information about originators
3. Allows consumers a full refund if the originator is found to have engaged in unethical acts
4. Facilitates collection and distribution of consumer complaints between regulators

Answer 36

The answer is allows consumers a full refund if the originator is found to have engaged in unethical acts. The S.A.F.E. Act includes provisions to enhance professional standards within the mortgage industry by imposing licensing requirements, providing consumers access to information about licensees at no charge through its online registry, and facilitating the collection and disbursement of consumer complaints on behalf of state and federal mortgage regulators. While the S.A.F.E. Act does have provisions ensuring compensation to victims of mortgage law violations, it does not guarantee such consumers a full refund in all cases of unethical conduct.

Question 37

In an FHA loan, which of the following is true regarding the upfront mortgage insurance premium (UFMIP)?

1. A portion of it may be applied to the UFMIP of another FHA-insured mortgage
2. It is refundable
3. It is pertinent to only a small minority of FHA loans
4. It takes the place of the annual mortgage insurance premium

Answer 37

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

Question 38

Every month, a borrower has a car payment of $350, a credit card payment of $50, HOA dues of $35, a cable bill of $40, and a house payment (including taxes and insurance) of $1,250. The borrower’s annual income is $50,000. What is the borrower’s front-end debt-to-income ratio?

1. 41.4%
2. 30%
3. 40.4%
4. 30.8%

Answer 38

The answer is 30.8%. A housing or front-end ratio compares the applicant’s monthly housing costs to his/her gross monthly income. Housing costs are referred to as PITI (principal, interest, taxes, insurance). In addition to PITI, any monthly homeowners’ association (HOA) dues, if applicable, would also be included because they are a housing-related debt. Non-housing-related expenses (car payments, credit cards, etc.) are not included in the housing ratio. Housing ratio = housing debts divided by gross monthly income. In this case, $50,000÷12 = $4,166.66. ($1,250+$35)÷$4,166.66 = 0.308 = 30.8%.

Question 39

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

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

Answer 39

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

Question 40

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

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

Answer 40

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

Question 41

When must a borrower receive notice of whether loan servicing can be assigned, sold, or transferred?

1. Never - this disclosure is not required
2. Within 30 days of the transfer of servicing
3. Within 15 days of the transfer of servicing
4. Either at the time of application or within three business days of application

Answer 41

The answer is either at the time of application or within three business days of application. A mortgage servicing disclosure statement discloses whether the servicing of the loan (i.e., collection of payments) may be assigned, sold, or transferred to any other person at any time while the loan is outstanding. It must be delivered to the borrower at application or within three business days.

Question 42

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

1. The applicant is too young or too old to understand the terms of the contract
2. The applicant is too old to survive the term of the loan
3. The applicant is too young to have accumulated savings and requires a gift from his/her parents in order to make a down payment
4. A creditor cannot legally discriminate against an applicant in any aspect of a credit transaction on the basis of age, provided that the applicant is of age to enter into a contract

Answer 42

The answer is a creditor cannot legally discriminate against an applicant in any aspect of a credit transaction on the basis of age, provided that the applicant is of age to enter into a contract. The Equal Credit Opportunity Act (ECOA) prohibits discrimination on the basis of age against a loan applicant who is of age to enter into contracts.

Question 43

Lucy closes a refinance on Betty’s primary residence. However, Lucy forgets to provide Betty with the proper notice of rescission rights. Which of the following is true?

1. The transaction is rescindable at any time during the life of the loan
2. The transaction is void and should be cancelled
3. Betty can rescind for three years from recording
4. Betty cannot rescind for three days following recording

Answer 43

The answer is Betty can rescind for three years from recording. If the creditor has failed to provide the required disclosures and notice of the right of rescission, the rescission period may be extended up to the date of the first of the following: three years after the consummation of the transaction, transfer of all of the consumer’s interest in the property, or sale of the property.

Question 44

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

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

Answer 44

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

Question 45

What two main aspects of a loan application does an underwriter examine to determine if lender guidelines are being met?

1. Applicant and collateral
2. Applicant and credit
3. Credit and income
4. Credit and collateral

Answer 45

The answer is applicant and collateral. Underwriting is the process of deciding whether to make a loan based on credit, employment, assets, and other factors. To ensure that loans are marketable in the secondary market, the underwriter assesses the borrower’s ability and willingness to repay and the property’s ability to serve as collateral for the debt.

Question 46

If a consumer contacts a mortgage company, for how long does the established business relationship exemption exist?

1. Nine months
2. Six months
3. 24 months
4. Three months

Answer 46

The answer is three months. Under the Do-Not-Call-Act, a company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an “established business relationship” exists. An established business relationship means a relationship between the company and a consumer based on the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the 18 months immediately preceding the date of a telemarketing call. This may also include an inquiry or application regarding an offered product or service, within the three months (90 days) immediately preceding the date of a telemarketing call.

Question 47

Which of the following best describes the market approach to appraisal?

1. A guarantee of value from the appraiser derived by using comparable sales of like properties
2. An estimate of market value derived by comparing the subject property to similar properties which have sold
3. A comparison of similar properties within two miles of the subject property
4. An estimate of value using projected cash flow from the subject property

Answer 47

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

Question 48

What is the maximum number of hours of continuing education that may be carried over from any given year to the next in order to meet requirements for license renewal?

1. Up to four
2. Up to eight
3. Zero
4. Up to sixteen

Answer 48

The answer is zero. Continuing education hours are valid only for the year they are taken, and may not be carried over from year to year.

Question 49

Which of the following terms applies to a VA mortgage?

1. Certificate of eligibility
2. Mortgage insurance certificate
3. UFMIP
4. Insuring fee

Answer 49

The answer is certificate of eligibility. A VA loan is available only to veterans of the armed services, certain active and discharged military personnel, and their spouses; however, the loan is assumable by nonveterans. In order to obtain the loan, the applicant must obtain a certificate of eligibility from the VA (directly online, through the lender online, or by mail). This will determine whether an individual is eligible for a VA loan and whether he/she is eligible for a loan with the full guarantee.

Question 50

Richie Rich has been approved for a 90% loan. Richie is under contract to purchase a home for $400,000 and put $5,000 earnest money down with the contract. If Richie’s lender is charging 1% origination, 1% discount, and the title company fees total $1,350, how much does Richie need to bring to closing?

1. $49,350
2. $46,850
3. $43,550
4. $48,550

Answer 50

The answer is $43,550. 90% LTV means Richie will need to bring 10% of the purchase price, or $40,000, to closing, minus the $5,000 he already paid as earnest money. To this he must add 1% of the $360,000 loan amount, or $3,600, for the 1% origination fee, and an additional 1% of the loan amount ($3,600) for the discount. Finally, he must add the $1,350 title charge: $40,000 − $5,000 + $3,600 + $3,600 + $1,350 = $43,550.

Question 51

Considering the definitions provided by the S.A.F.E. Act, which of the following mortgage industry professionals may legally communicate with a consumer to obtain the information necessary to process a loan application?

1. A state-licensed loan originator
2. An unlicensed loan processor
3. An unlicensed underwriter
4. Any of these

Answer 51

The answer is any of these. An unlicensed loan processor or underwriter may obtain and analyze information (such as verifications of income, employment, and deposits) needed in processing and underwriting a residential mortgage loan, and communicate with consumers in order to obtain that information. However, loan processors or underwriters may not take applications or offer, negotiate, or counsel the consumer about residential loan rates or terms; only licensed loan originators are permitted to do so.

Question 52

A person wanting a loan to build a house would apply for what type of loan?

1. Take out
2. Adjustable
3. Construction
4. Reverse mortgage

Answer 52

The answer is construction. A construction loan or construction financing is high-interest interim (or temporary) financing that serves to finance the cost of labor and materials used during construction. It extends from the start to the completion of the work, when it is paid off, often with the proceeds of a more permanent form of financing (a take-out loan).

Question 53

A mortgage or deed of trust generally includes a clause that requires the loan to be paid off immediately if the property is sold. This is a(n):

1. Assumption clause
2. Due-on-sale clause
3. Defeasance clause
4. Completion clause

Answer 53

The answer is due-on-sale clause. A due-on-sale clause provides that the loan must be immediately paid off if the subject property is sold. These apply to most mortgages/deeds of trust, unless the loan is assumable.

Question 54

ECOA requires that:

1. An incomplete loan application be discarded
2. An applicant be informed whether an application was accepted or rejected within 60 days of filing a complete application
3. Every applicant be granted some type of loan
4. An applicant be given notification of the status of his/her loan application within 30 days

Answer 54

The answer is an applicant be given notification of the status of his/her loan application within 30 days. An applicant has the right to receive, within 30 days of the creditor’s receipt of an incomplete application, notice of incompleteness with a reasonable time to respond, and within 30 days after receipt of a completed credit application, notice of action taken (i.e., acceptance or adverse action).

Question 55

Fannie Mae can best be described as:

1. A government-sponsored, government-owned enterprise, formed to facilitate home ownership
2. A government-sponsored, private, publicly-held corporation, formed to facilitate home ownership
3. A government agency
4. A public corporation with absolutely no ties to the government

Answer 55

The answer is a government-sponsored, private, publicly-held corporation, formed to facilitate home ownership. The Federal National Mortgage Association (FNMA), or Fannie Mae, was established in 1938 by amendments to the National Housing Act, in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing. It is a government-sponsored enterprise (GSE) and, since 1968, a publicly-traded company.

Question 56

It is unethical and illegal to use yield spread premiums for any reason other than:

1. To earn an additional commission on a loan origination
2. To enable a creditor to earn more on a mortgage transaction
3. To enable a loan originator to meet a monthly sales quota
4. To help a borrower pay for settlement costs

Answer 56

The answer is to help a borrower pay for settlement costs. Yield spread premiums (YSPs) are points credited for an interest rate above its par rate. The Loan Originator Compensation Rule, included in Regulation Z, prohibits using YSPs as a form of loan originator compensation. “No closing cost” loans result from applying the YSP to pay the borrower’s closing costs so that they need not be paid upfront. While such loans are not illegal, some states prohibit the use of terms such as “No Cost” or similar claims in mortgage loan advertising, as they are misleading and deceptive.

Question 57

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

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

Answer 57

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

Question 58

A borrower wishes to refinance their home, which appraises for $450,000. If their loan amount is $375,000, what is the LTV?

1. 75%
2. 83.3%
3. 80%
4. 73.3%

Answer 58

The answer is 83.3%. To get the loan-to-value (LTV) ratio, divide the loan amount by the property value: $375,000 / $450,000 = 0.833 = 83.3%

Question 59

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

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

Answer 59

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

Question 60

The agency that focuses its actions directly on consumers, consolidates responsibilities and supervision of financial entities, products, and services, and protects consumers from unfair, deceptive, and abusive acts and practices is the:

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

Answer 60

The answer is Consumer Financial Protection Bureau. The mission of the CFPB is to make markets for consumer financial products and services work for Americans. It is focused on one goal: watching out for American consumers in the market for consumer financial products and services. This includes ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families by making sure prices are clear upfront, risks are visible, and nothing is concealed in fine print. A working market allows consumers to make direct comparisons among products and prohibits providers from using unfair, deceptive, or abusive practices.

Question 61

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

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

Answer 61

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

Question 62

The S.A.F.E. Act defines a loan processor as:

1. An individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator
2. An individual employed by a state-licensed mortgage broker
3. An individual employed by a depository institution
4. An individual who has applied for licensing as a loan originator but has not yet completed all the licensing requirements

Answer 62

The answer is an individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator. Under the S.A.F.E. Act’s definition, a loan processor or underwriter is an individual who, with respect to the origination of a residential mortgage loan, performs clerical or support duties at the direction of and subject to the supervision and instruction of a state-licensed loan originator or a registered loan originator.

Question 63

Which of the following may be a qualified mortgage?

1. A 30-year adjustable-rate mortgage loan granted to a borrower with a debt-to-income ratio of 45%
2. A 40-year fixed-rate mortgage
3. A 35-year fixed-rate mortgage with points and fees equaling 3.75% of the loan amount
4. A 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan

Answer 63

The answer is a 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan. A qualified mortgage is a covered transaction that provides for substantially-equal, regular periodic payments that do not provide for negative amortization, payment deferral, or (generally) a balloon payment. To be a qualified mortgage, the lender must determine the borrower’s repayment ability based on the monthly payment for mortgage-related obligations, the consumer’s reasonably-expected income and assets, and existing debt obligations. A qualified mortgage may not have a term that exceeds 30 years, provide for points and fees that exceed 3% of the total loan amount, or be granted to a borrower who has a monthly debt-to-income ratio exceeding 43%.

Question 64

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

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

Answer 64

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

Question 65

A loan which has an initial fixed-rate period, after which the rate is adjustable for the remainder of the loan term, is called:

1. An I-O ARM
2. A hybrid ARM
3. A subprime loan
4. A conversion loan

Answer 65

The answer is a hybrid ARM. A hybrid ARM is a mix (hybrid) of a fixed-rate loan and an adjustable-rate loan. It has an initial period during which the rate is fixed; after this expires, the rate is adjustable for the rest of the term.

Question 66

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

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

Answer 66

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

Question 67

Which of the following is not true concerning ECOA?

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

Answer 67

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

Question 68

The Special Information Booklet must be delivered to the borrower within how many business days of the creditor’s receipt of an application?

1. Three
2. Five
3. Seven
4. Ten

Answer 68

The answer is Three. A special information booklet, titled “Your Home Loan Toolkit: A Step-by-Step Guide,” must be provided within three business days of the creditor’s receipt of the application for a home purchase loan.

Question 69

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

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

Answer 69

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

Question 70

Assume that the Loan Estimate is mailed on Tuesday. The office is open six days a week and closed on Sundays. What is the earliest day on which the transaction could close?

1. Wednesday of the following week
2. Friday of the following week
3. Monday of the following week
4. Tuesday of the following week

Answer 70

The answer is Wednesday of the following week. A creditor must provide the Loan Estimate either in person, via overnight delivery, or by placing it in the mail or delivering it no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. For the purposes of determining the waiting period that must elapse between providing a Loan Estimate and consummation, a “business day” is defined to mean all calendar days except Sundays and legal public holidays. Here, the Loan Estimate is mailed on Tuesday. Seven business days from Tuesday would be the following Wednesday (Wednesday, Thursday, Friday, Saturday, Monday, Tuesday, Wednesday).

Question 71

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

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

Answer 71

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

Question 72

In the appraisal process, it is unethical and unlawful to:

1. Request an appraiser to consider additional information on the subject property or comparables
2. Threaten or pressure an appraiser to promise a specific value
3. Forward information to an appraiser about recent sales in the area
4. Refuse payment of an appraiser due to breach of contract

Answer 72

The answer is threaten or pressure an appraiser to promise a specific value. Under Regulation Z, no person may, in connection with an appraisal, compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate an appraiser in order to cause the appraised value to be based on any factor other than the appraiser’s independent judgment and the pertinent facts. This does not prohibit a licensee from asking an appraiser to consider additional appropriate property information, provide further detail, or correct errors in the appraisal report.

Question 73

Under TILA’s rules in regard to higher-priced loans, a creditor or servicer may cancel an escrow account only upon the earlier of termination of the underlying debt obligation or _____ years after the loan was consummated, at the request of the consumer.

1. Two
2. Five
3. Three
4. Seven

Answer 73

The answer is five. In regard to higher-priced mortgage loans, under TILA and Regulation Z, a creditor or servicer may cancel an escrow account only upon the earlier of termination of the underlying debt obligation or five years after the loan was consummated, at the request of the consumer.

Question 74

Which of the following loans would not have monthly mortgage insurance at closing?

1. All options would have monthly mortgage insurance
2. 30-year FHA loan, 60% LTV
3. 10-year FHA loan, 85% LTV
4. 20-year FHA loan, 80% LTV

Answer 74

The answer is all options would have monthly mortgage insurance. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV. For all mortgages involving an original principal obligation (excluding financed UFMIP) less than or equal to 90% LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first. For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90%, the FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.

Question 75

What is the specific distinction between state-licensed and registered loan originators?

1. Unlike state-licensed loan originators, registered loan originators are exempt from licensing requirements
2. State-licensed loan originators are only allowed to originate in the states in which they hold a license, while registered loan originators may obtain one license and conduct business anywhere
3. Only state-licensed loan originators carry a unique identifier
4. Registered loan originators need only ten hours of pre-licensing education, while state-licensed loan originators need 20 hours

Answer 75

The answer is unlike state-licensed originators, registered originators are exempt from licensing requirements. A registered mortgage loan originator is an individual who meets the requirements of a mortgage loan originator, is an employee of a covered financial institution, is registered with the NMLS, and maintains an NMLS unique identifier. Unlike state-licensed originators, registered originators are exempt from licensing requirements.

Question 76

Which of the following loans will not require mortgage insurance?

1. FHA loan at 96.5% LTV
2. Conventional loan at 85% LTV
3. VA loan at 100% LTV
4. Conventional loan at 95% LTV

Answer 76

The answer is VA loan at 100% LTV. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender’s exposure to loss in the event of a borrower’s default that results in foreclosure. However, rather than being charged a mortgage insurance premium for the guarantee, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed.

Question 77

Carrie is obtaining a 90% loan for the purchase of her new home, which she is buying for $225,000. One discount point for her loan would be equal to:

1. $1,000
2. $2,025
3. $2,000
4. $2,250

Answer 77

The answer is $2,025. One discount point is equal to 1% of the loan amount. In this case, 90% × $225,000 = $202,500. 1% × $202,500 = $2,025.

Question 78

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

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

Answer 78

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

Question 79

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

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

Answer 79

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

Question 80

A hazard insurance company hosts a dinner for the employees of a mortgage broker. The designated broker encourages the employees to send clients to the insurance company. Who has violated RESPA?

1. The hazard insurance company
2. Both the hazard insurance company and the mortgage broker
3. The mortgage broker
4. Neither the hazard insurance company nor the mortgage broker

Answer 80

The answer is both the hazard insurance company and the mortgage broker. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, verbal or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. Since a free dinner is a thing of value, both the hazard insurance company and the mortgage broker are guilty of violating RESPA and may suffer the legal consequences of this violation.

Question 81

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

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

Answer 81

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

Question 82

A borrower is refinancing their first mortgage, but leaving their second mortgage in place. Which of the following is true?

1. The second mortgage holder will need to agree to a subordination
2. This will not be possible due to lien priority
3. The second lien holder will need to reconvey
4. The second lien holder will need to abrogate

Answer 82

The answer is the second mortgage holder will need to agree to a subordination. A mortgage is a second mortgage when it is recorded after another mortgage that is still outstanding on the same property; or when it has a subordination clause specifying that it has lower priority (i.e., is subordinate) even though it may have had priority based on its date of recording, or will remain subordinate in the event that the first mortgage is refinanced. In order to preserve lien priority under the circumstances described, the second mortgage holder will need to agree to a subordination clause.

Question 83

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

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

Answer 83

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

Question 84

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

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

Answer 84

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

Question 85

Which of the following can usually be added to a self-employed borrower’s net income from the borrower’s tax returns when calculating the borrower’s income?

1. Total from IRS 2106
2. Depreciation
3. Total from IRS 4506
4. State taxes paid

Answer 85

The answer is depreciation. For a sole proprietorship (a self-employed borrower), the income, expenses, and taxable profits are reported on the Profit or Loss from Business (Schedule C) on the owner’s individual tax return (IRS Form 1040). The individual’s actual income would be the net income shown on the Schedule C, plus any recurring capital gains or non-cash expenses, such as depletion and depreciation, that was deducted in arriving at the adjusted income, since the borrower did not actually have to spend the amount claimed for non-cash expenses.

Question 86

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

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

Answer 86

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

Question 87

The residual income method applies to which of the following types of loans?

1. Jumbo
2. Conventional
3. VA
4. FHA

Answer 87

The answer is VA. The VA uses two methods for qualifying its borrowers: a 41% debt-to-income ratio (including housing and fixed debt), and the residual income method, which determines whether the veteran has enough income after paying fixed debts to cover daily living expenses. This method can qualify a borrower whose ratio might exceed the 41% limit.

Question 88

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

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

Answer 88

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

Question 89

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

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

Answer 89

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

Question 90

Which of the following is true when a mortgage product contains a balloon payment?

1. A loan that has monthly payments that are equal and regular in nature will never have a balloon payment owing at the end of its term
2. A high-cost bridge loan may include provision for a balloon payment
3. Under the Dodd-Frank Act, balloon payment loans are no longer permitted
4. A qualified mortgage may provide for a balloon payment as long as its term is no less than 40 years

Answer 90

The answer is a high-cost bridge loan may include provision for a balloon payment. Equal and regular payments still may not fully amortize a loan, thus resulting in a balloon payment. A high-cost home loan may not provide for a payment schedule that results in a balloon payment, unless the schedule is adjusted for the irregular or seasonal income of the borrower; the loan is a bridge loan with a term of 12 months or less, taken for the acquisition or construction of the borrower’s principal residence; or the loan satisfies the requirements of a balloon payment qualified mortgage (among other requirements, the loan must be originated in a predominantly rural or underserved community, have a fixed rate, and be for a term of five to 30 years).

Question 91

What is the maximum cushion that servicers can hold in a borrower’s reserve account?

1. Two months’ taxes, one month insurance
2. One month taxes, one month insurance
3. Two months’ taxes, two months’ insurance
4. Whatever the lender deems as “reasonable under the circumstances”

Answer 91

The answer is two months’ taxes, two months’ insurance. A borrower’s monthly mortgage payment may include a reserve payment (also known as an escrow or impound payment) that represents approximately 1/12 of the estimated annual hazard and flood insurance premiums and property taxes. When there is need of an account, the borrower may be required to make an initial deposit into the reserve account at settlement to ensure that the regular monthly deposits will accumulate enough to pay the property taxes, insurance premiums, or other charges when they are due. The maximum amount that a lender can collect for this deposit cannot exceed the sum of an amount sufficient to pay taxes, insurance premiums, or other charges up to the due date of the new loan’s first full monthly mortgage installment payment, plus an additional amount sufficient to pay future estimated taxes, insurance premiums, and other charges, not in excess of two months’ worth, which is 1/6 of the estimated charges for the following 12 months.

Question 92

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

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

Answer 92

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

Question 93

Which of the following does not control the discount that may be charged on permanent buydowns?

1. Financial markets
2. Lenders
3. Federal Reserve
4. Mortgage companies

Answer 93

The answer is Federal Reserve. A permanent buydown is a payment of discount points to lower the interest rate for the entire term of the mortgage. One discount point is equal to 1% of the loan amount. The interest rate reduction received for buying points is not set and depends on individual lenders and the financial marketplace, rather than being determined by the Federal Reserve.

Question 94

Property flipping occurs when:

1. The title to a property is passed to a family member
2. Someone accepts a fee to falsely claim ownership of a property
3. A property is bought and resold within a very short period of time
4. Someone secures a loan with fictitious property

Answer 94

The answer is a property is bought and resold within a very short period of time. “Flipping” refers to buying and reselling property within a short period of time. In the context of mortgage fraud, flipping, also called churning, is repeated refinancing of a loan within a short period of time without any real benefit to the borrower. The primary objective of the mortgage broker and/or lender is to generate additional loan points, loan fees, prepayment penalties, and fees from financing the sale of credit-related products. When a borrower has to return to a lender to refinance the loan, possibly to avoid foreclosure, he or she is charged additional points and fees. Typically, the new loan is just as unaffordable as the first, and the result may still be foreclosure.

Question 95

Assuming a borrower is not allowed to shop for the credit report provider, which of the following best describes the applicable tolerance?

1. Zero tolerance
2. No tolerance requirement
3. Tolerance depends on certain factors
4. 10% tolerance

Answer 95

The answer is zero tolerance. Fees in the zero-tolerance category, for which the actual charges at settlement may not exceed the amounts included on the Loan Estimate unless there is a change in circumstance, include fees paid to an unaffiliated third-party service provider if the creditor did not permit the consumer to shop for the third-party service provider.

Question 96

A borrower receives $2,500 per month in rental income. How much of the income may be used to qualify the borrower for a loan?

1. $2,500
2. $2,000
3. $1,800
4. $1,875

Answer 96

The answer is $1,875. Generally, 75% of rental income may be used to qualify the borrower for a loan. This formula is based on an industry standard that taxes, insurance, and maintenance costs will equal about 25% of the income that a property generates. In this case, 75% × $2,500 = $1,875.

Question 97

Which of the following describes an air loan?

1. A loan that is obtained with inflated property values
2. A loan that is repeatedly refinanced with no benefit to the borrower
3. A loan that is presented to the borrower with hidden fees
4. A loan that is obtained by a fictitious borrower using a fictitious property

Answer 97

The answer is a loan that is obtained by a fictitious borrower using a fictitious property. Air loans are loans secured by non-existent property (“air”), which leave the lender without collateral. The schemer invents borrowers and properties, establishes fake accounts for payments, and maintains custodial accounts for escrows. He or she may even set up an office with a bank of telephones for verification purposes, with each phone representing the employer, appraiser, credit agency, etc.

Question 98

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

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

Answer 98

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

Question 99

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

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

Answer 99

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

Question 100

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

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

Answer 100

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

Question 101

According to TILA, a variation of up to what amount is permitted for the annual percentage rate in a regular fixed-rate mortgage transaction?

1. 0.25%
2. 0.5%
3. 0.125%
4. .75%

Answer 101

The answer is 0.125%. Under TILA and Regulation Z , the APR is considered accurate generally if it is not more than one eighth of one percentage point (0.125%) above or below the APR determined in accordance with legal requirements (i.e., in accordance with the actuarial method or the United States Rule method), or in an irregular transaction, if it is not more than one quarter of one percentage point (0.25%) above or below the annual percentage rate determined in accordance with legal requirements.

Question 102

A deed of trust requires that borrowers obtaining owner-occupied loans occupy the property within how many days?

1. 30 days
2. 90 days
3. 45 days
4. 60 days

Answer 102

The answer is 60 days. Under most deeds of trust, including most FHA and VA loans, a borrower who intends to occupy the property as his or her primary residence must move in within 60 days after closing.

Question 103

If a borrower waives the right to receive a copy of an appraisal:

1. They must receive a copy within 30 days of closing
2. The lender is never required to give the borrower a copy of the appraisal
3. They must receive a copy seven days before closing
4. They must receive a copy at or before consummation

Answer 103

The answer is they must receive a copy at or before consummation. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. An applicant may waive the timing requirement and agree to receive a copy at or before consummation or account opening.

Question 104

Which of the following fees would NOT be used in calculating the APR?

1. Closing fee
2. Underwriting fee
3. Mortgage insurance
4. Title insurance

Answer 104

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

Question 105

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

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

Answer 105

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

Question 106

Which of the following is true regarding a lender’s ability to collect an appraisal fee?

1. This is not allowed until closing
2. This is allowed as long as the borrower has received the Loan Estimate and expressed an intent to proceed
3. This is allowed as long as the borrower has expressed an intent to proceed
4. This is allowed as long as the Loan Estimate has been mailed

Answer 106

The answer is this is allowed as long as the borrower has received the Loan Estimate and expressed an intent to proceed. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating an intent to proceed with the loan.

Question 107

The Uniform Residential Appraisal Report is commonly known as the:

1. 1003
2. 1040
3. 1004
4. 4506

Answer 107

The answer is 1004. For FHA, VA, and conforming loans, appraisers will use the Uniform Residential Appraisal Report (URAR), also known as Fannie Mae Form 1004 and Freddie Mac Form 70.

Question 108

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

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

Answer 108

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

Question 109

Which of the following in an ad for residential mortgage financing would trigger additional disclosures?

1. “VA financing available”
2. “Affordable payments”
3. “5.75% APR”
4. “5% down payment”

Answer 109

The answer is “5% down payment.” Under TILA, an ad must disclose a number of additional credit terms if it contains a trigger term. A trigger term includes certain credit terms specifically cited in an ad, including the amount or percentage of any down payment (e.g., “5% down,” “95% financing,” “$6,200 down”), except when the amount of the down payment is zero; the number of payments or period of repayment (e.g., “360 monthly payments,” “a 30-year loan”); the amount of any payment (e.g., “payments of less than $1,400 per month”); and the amount of any finance charge (e.g., “total financing costs of less than $3,000”).

Question 110

Under which of the following situations would an appraiser use the income approach to appraise a property?

1. The property is in an area which is primarily rental properties
2. All comparable sales for the property are rental properties
3. The new buyer is going to use the property as a rental property
4. The property is being used by the seller as an investment property

Answer 110

The answer is the new buyer is going to use the property as a rental property. The income (or capitalization) approach is used to appraise properties that produce rental income (e.g., apartments, office buildings, and rental units). It bases the value of the property on the net income the owner will receive and a rate of return (capitalization rate) the owner should find acceptable. The estimated net income is calculated by subtracting an allowance for vacancies and bad debts from scheduled gross income to arrive at effective gross income, and then subtracting fixed expenses, operating expenses, and reserves to replace items that will wear out.

Question 111

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

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

Answer 111

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

Question 112

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

1. VA funding fees are refundable if the borrower is overcharged
2. VA funding fees are refundable if the borrower is active military
3. VA funding fees are never refundable
4. VA funding fees are refundable if the borrower is a wounded veteran

Answer 112

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

Question 113

A lender’s prime rate is determined by:

1. The Federal Reserve
2. Federal law
3. The lender itself
4. The National Association of Underwriters

Answer 113

The answer is the lender itself. While interest rates are affected by actions taken by the Federal Reserve (the Fed), the Federal Reserve does not directly influence the interest rates that lenders charge borrowers. Each lender will set its own prime rates (i.e., the lowest rates it charges for its best customers), as well as rates for loans to other customers based on its costs and desired profit margin.

Question 114

For a face-to-face referral, an affiliate business relationship must be disclosed:

1. At or before the time of the referral
2. At the time of the loan application
3. Within three days of the loan application
4. Within three days of the referral

Answer 114

The answer is at or before the time of the referral. When a settlement service provider refers a borrower to one or more affiliates with whom it has an ownership or other beneficial interest, an Affiliated Business Arrangement (AfBA) Disclosure Statement must be given on a separate piece of paper to the borrower at or before the time the referral is made (if in person, writing, or electronically), within three business days after a referral made by telephone (provided an abbreviated verbal disclosure of the existence of the arrangement and the fact that a written disclosure will be provided within three business days is made during the telephone referral), or at the time the Loan Estimate is provided, in the case of a referral by a lender (including one to an affiliated lender).

Question 115

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

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

Answer 115

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

Question 116

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

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

Answer 116

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

Question 117

Under which of the following scenarios could a borrower cancel a transaction after closing has already occurred?

1. A borrower closes on a refinance transaction for a primary residence on Monday and changes his mind the following Monday. The week contained no holidays and all disclosures were proper.
2. A borrower closes on a refinance transaction for an owner-occupied vacation home on Monday and changes his mind two days later.
3. A borrower closes on a refinance transaction for his primary residence and did not receive the proper rescission notice. The borrower changes his mind and wants to cancel 18 months later.
4. A borrower closes on a purchase transaction for a primary residence, but changes his mind within three days of closing.

Answer 117

The answer is a borrower closes on a refinance transaction for his primary residence and did not receive the proper rescission notice. The borrower changes his mind and wants to cancel 18 months later. TILA gives a consumer a right of rescission, allowing him or her to cancel the loan contract within a specified period of time for any reason if the loan is secured by the borrower’s principal residence and is a refinance transaction for a first or subordinate mortgage. The right of rescission does not apply to a residential mortgage transaction for a purchase or initial construction of a dwelling. In order to rescind, the consumer must forward a completed rescission form to the creditor no later than midnight of the third business day after the last of certain events occur, including consummation of the transaction, delivery of all material TILA disclosures, or delivery of notice of the right to rescind. If the creditor failed to provide the required disclosures and notice of the right of rescission, the rescission period may be extended up to the date of the first of the following: three years after the consummation of the transaction, the transfer of all of the consumer’s interest in the property, or the sale of the property.

Question 118

Which of the following issues is not addressed in the standard deed of trust and note for an owner-occupied primary residence?

1. Insurance on the property
2. How quickly a borrower must occupy the property
3. Keeping hazardous substances on the property
4. Actual amounts for taxes and insurance

Answer 118

The answer is actual amounts for taxes and insurance. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, the amount owed, the rate of interest and whether it is fixed or adjustable, the due date(s) for payment, and the terms of the loan. The mortgage or trust deed secures repayment of the note. Its covenants address topics that include occupancy, insurance, and hazardous materials, but it does not typically specify actual amounts for taxes and insurance.

Question 119

Fiduciary duties include all but which of the following?

1. Loyalty
2. Good faith
3. Creating a zero-cost borrower credit
4. Putting the borrower’s interests first

Answer 119

The answer is creating a zero-cost borrower credit. A licensee’s fiduciary duties toward a client include loyalty and good faith, disclosure of material facts, and holding the client’s interests above those of the licensee.

Question 120

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

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

Answer 120

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

Question 121

Which of the following approaches to appraisal is most commonly used for new construction or for special use properties?

1. Market
2. Comparable
3. Cost
4. Income

Answer 121

The answer is cost. The cost approach can be used for any property, but because of the knowledge of construction costs that is required, it is most often used to appraise value for new buildings, where costs are easy to obtain, and for properties such as churches and public service buildings, which cannot be compared to others that have sold or to those that produce income. The appraiser estimates the value of the land and the depreciated value of the improvements on the land separately, and then adds the two values to arrive at an estimate of the property’s total value. The depreciated value is equal to the cost to replace or reproduce the improvements less depreciation.

Question 122

Which of the following can be used by state regulators to determine whether a licensee demonstrates the financial responsibility and general fitness to command the confidence of the community to engage in the mortgage business?

1. Credit report, net worth, payment of federal licensing fees
2. Credit report, net worth, surety bond, payment into a state fund
3. Credit report, surety bond, payment of exemption fees
4. Credit report, payment into a professional fund, $1 million credit line

Answer 122

The answer is credit report, net worth, surety bond, payment into a state fund. The S.A.F.E. Act mandates that states include a minimum net worth requirement or surety bond requirement for applicants, or require the applicant to pay into a state recovery fund. Licensing requirements also include criminal history and credit background checks, including a credit report. These are all factors used to establish a licensee’s financial responsibility and general fitness.

Question 123

For FHA loans, the annual mortgage insurance premium (MIP) will differ based on whether the term of the loan is greater than or less than/equal to:

1. 15 years
2. 20 years
3. 25 years
4. 30 years

Answer 123

The answer is 15 years. For FHA loans, the annual mortgage insurance premium (MIP) will differ based on whether the term of the loan is greater than 15 years or is 15 years or less.

Question 124

Jimmie is purchasing a home with a purchase price of $350,000. He has been approved for a loan with an 85% LTV. What is his down payment?

1. $52,500
2. $297,500
3. $50,000
4. $35,000

Answer 124

The answer is $52,500. The relationship of the loan amount to the value or sales price of the property securing the loan is called the loan-to-value ratio. The loan-to-value ratio (LTV) relates the loan to the lesser of the appraised value or sales price. If Jimmie has been approved for a loan with an 85% LTV, his down payment must cover the remainder of the purchase price, or 15%: 15% × $350,000 = $52,500

Question 125

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

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

Answer 125

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