Exam 3

Question 1

“Equity” is defined as:

1. The difference between the fair market value of a property and the current balances of any liens
2. The difference between the appraised value and the purchase price
3. The relationship between the value of the house and a borrower’s assets
4. The balance of any liens divided by the proposed value of any new loan

Answer 1

The answer is the difference between the fair market value of a property and the current balances of any liens. The equity in a borrower’s home is the difference between the fair market value of a property and the current balance of any liens.

Question 2

In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for:

1. Twelve months
2. Three years
3. Two years
4. Five years

Answer 2

The answer is three years. In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for three years.

Question 3

Under the Truth in Lending Act, a creditor is defined as:

1. A natural person, business, or financial organization that services mortgage loans
2. A natural person that extends at least 10 open-end loans per calendar year
3. A natural person, business, or financial organization that regularly extends credit to consumers
4. A natural person, business, or financial organization that extends at least 15 open-end loans per year

Answer 3

The answer is a natural person, business, or financial organization that regularly extends credit to consumers. A creditor is defined by TILA as “a natural person, business, or financial organization that regularly extends credit to consumers”.

Question 4

Which government agency is responsible for policing and enforcing misleading advertisement for credit?

1. HUD
2. CFPB
3. TILA
4. Federal Reserve

Answer 4

The answer is CFPB. The CFPB now has primary enforcement responsibility over TILA. The FTC does still retain some authority.

Question 5

A fully-documented loan for a salaried borrower should include all of the following, except:

1. Year-to-date profit and loss statements
2. W-2s for the past two years
3. Paystubs for the most recent 30 days
4. Complete employment information for the most recent two years

Answer 5

The answer is year-to-date profit and loss statements. A salaried borrower would generally be asked to provide a lender with documentation of his/her past two years’ employment, W-2s for those years, and paystubs for the most recent 30 days.

Question 6

The size of the government’s guarantee on a VA loan depends on:

1. Whether the interest rate is fixed or adjustable
2. Whether this is the first time a veteran uses the guarantee or a subsequent transaction
3. The length of the loan term
4. The size of the loan being obtained

Answer 6

The answer is the size of the loan being obtained. The size of the government’s guarantee on a VA loan depends on the size of the loan being obtained.

Question 7

For what length of time can a bankruptcy remain on a credit report?

1. No more than ten years
2. No more than one year
3. No more than seven years
4. No longer than three years after it is paid

Answer 7

The answer is no more than ten years. The FCRA requires that outdated negative financial information remain on a consumer’s credit report no longer than seven years, and for bankruptcies, ten years.

Question 8

UFMIP is paid:

1. in full when the loan reaches maturity.
2. at the end of each year of the loan term.
3. in full at the time of closing.
4. at the end of each month.

Answer 8

The answer is in full at the time of closing. UFMIP is paid in full at the time of closing, or may be financed.

Question 9

The most commonly used type of reverse mortgage is known as a:

1. Proprietary loan
2. Home equity conversion mortgage
3. Single-purpose conforming mortgage
4. Interest-only loan

Answer 9

The answer is home equity conversion mortgage. The home equity conversion mortgage (HECM) is the most commonly used of the three forms of reverse mortgages.

Question 10

This is the term for a charge paid by the borrower when repaying loan principal earlier than required by the amortization schedule.

1. Acceleration
2. Prepayment penalty
3. Early termination fee
4. Payoff penalty

Answer 10

The answer is prepayment penalty. A prepayment penalty is a charge paid by the borrower when repaying loan principal earlier than required by the amortization schedule.

Question 11

How many total hours of ethics are required, at minimum, for pre-licensing education?

1. 20
2. 8
3. 16
4. 3

Answer 11

The answer is 3. The NMLS requires, as a federal minimum, at least three hours of ethics training within the total 20 hours of education required for pre-licensing education.

Question 12

The “Confirm Receipt” box on the Loan Estimate informs the consumer that:

1. He or she is now obligated to proceed with the loan transaction
2. He or she has agreed to all costs and terms stated in the disclosure
3. He or she is not obligated to accept a loan simply because he or she has signed or received the disclosure
4. He or she may face legal action for failure to pay fees due at the time of receiving the Loan Estimate

Answer 12

The answer is he or she is not obligated to accept a loan simply because he or she has signed or received the disclosure. The “Confirm Receipt” box on the Loan Estimate informs the consumer that he or she is not obligated to accept a loan simply because he or she has signed or received the disclosure.

Question 13

The federal agency that implements and enforces rules related to the origination of FHA loans is the:

1. Consumer Financial Protection Bureau (CFPB)
2. Department of Housing and Urban Development (HUD)
3. Federal Trade Commission (FTC)
4. National Credit Union Administration (NCUA)

Answer 13

The answer is Department of Housing and Urban Development (HUD). The Department of Housing and Urban Development implements and enforces rules related to FHA lending.

Question 14

Which of the following might raise a red flag and suggest that further investigation is necessary to ensure that there is no fraud in an application?

1. The applicant uses a co-borrower with a different last name
2. Information in corporate-produced W-2s matches that given in the application
3. The borrower’s claimed income is not consistent with their employment
4. Savings patterns and accumulated assets make sense considering the borrower’s level of income

Answer 14

The answer is the borrower’s claimed income is not consistent with their employment. In the end, sometimes the “Common Sense Rule” catches incidents of fraud. A borrower who claims to be making hundreds of thousands of dollars a year but whose records show employment as a teacher probably has some explaining to do. Close consideration and comparison of the information available can help detect fraud.

Question 15

When would a license be suspended without a hearing?

1. If a licensee fails to renew
2. If a licensee fails to request a hearing with the state regulator
3. If a licensee has failed to complete pre-licensing requirements
4. If a licensee has already executed a right to a hearing for a previous violation

Answer 15

The answer is if a licensee fails to request a hearing with the state regulator. The NMLS does not require a hearing. Under most circumstances, the licensee has the right to request a hearing with the state banking department. If one is not requested, a hearing is not conducted.

Question 16

Which of the following is not permitted for a HOEPA loan?

1. Documenting a borrower’s ability to repay the loan
2. Requiring a balloon payment after the first five years
3. Refinancing into another HOEPA loan within 12 months if it is in the borrower’s best interest
4. Making a loan solely based on the collateral value of the property

Answer 16

The answer is making a loan solely based on the collateral value of the property. Under HOEPA, you may not make a loan solely based on the value of the borrower’s collateral without considering his/her ability to repay the loan.

Question 17

Stan is a loan processor who works closely with Heidi, who is a licensed loan originator. Both are employed by a state-licensed mortgage broker. While Heidi was out of the office, one of her clients called to ask whether it would be better to apply for an ARM or a fixed-rate loan. How should Stan respond?

1. He should advise the client that he cannot discuss loan terms, but will have Heidi return the call
2. He should only respond to the client’s question if the transaction is for a home purchase and the client needs to expedite loan approval to purchase the home
3. He should refer the client to the Settlement Cost Booklet
4. He should not take the call since the law prohibits him from communicating directly with consumers

Answer 17

The answer is he should advise the client that he cannot discuss loan terms, but will have Heidi return the call. Stan is a loan processor, and therefore, he is not a licensed mortgage loan originator. He should advise the client that he cannot discuss loan terms, but will have Heidi return the call.

Question 18

During initial application for a license, loan originators must make disclosure of all of the following, except:

1. Regulatory history
2. Criminal history
3. Civil and administrative records
4. Three-year history of loan production

Answer 18

The answer is three-year history of loan production. A loan originator is not required to document prior experience or production history as a condition of licensure.

Question 19

The preferred debt-to-income ratio for applicants for VA loans is:

1. 35%
2. 43%
3. 50%
4. 41%

Answer 19

The answer is 41%. The preferred DTI ratio for VA loans is 41%. However, if a veteran cannot meet this limit, creditors may use a residual income analysis.

Question 20

Which of the following would be a red flag concerning occupancy?

1. The borrowers already own and reside in a property in the same neighborhood
2. The subject property is in another state
3. The borrower has not moved in within ten days after closing
4. The property is three hours away and being declared as a second home

Answer 20

The answer is the borrowers already own and reside in a property in the same neighborhood. A borrower is unlikely to purchase a new primary residence in the same neighborhood as his/her current residence, unless one of the two will be an investment property, or he/she may be planning to let the old home go into foreclosure after purchasing the new home at current market values.

Question 21

Those who disagree with the idea of a fiduciary duty in mortgage loan transactions feel that _____ is ultimately responsible for ensuring that a certain loan product has appropriate terms and conditions.

1. The mortgage broker
2. The lender
3. The consumer
4. The underwriter

Answer 21

The answer is the consumer. Those who disagree with the idea of a fiduciary duty in mortgage loan transactions feel that the consumer is ultimately responsible for ensuring that a certain loan product has appropriate terms and conditions.

Question 22

Securitization helps lenders to:

1. Make more loans to lesser-qualified customers
2. Increase the menu of products available to their customers
3. Provide funds to the highest bidder on the secondary market
4. Exchange active loans to another entity to generate new funds to make more loans

Answer 22

The answer is exchange active loans to another entity to generate new funds to make more loans. The securitization process allows lenders to transfer active loans to another entity in exchange for funds to make more loans.

Question 23

Which of the following is true regarding preparation and delivery of the Closing Disclosure?

1. The borrower is ultimately responsible for ensuring he receives the Closing Disclosure.
2. Creditors may not use settlement agents to provide the Closing Disclosure on their behalf.
3. The creditor is ultimately responsible for ensuring that the borrower receives the Closing Disclosure.
4. The settlement agent is ultimately responsible for ensuring that the borrower receives the Closing Disclosure.

Answer 23

The answer is the creditor is ultimately responsible for ensuring that the borrower receives the Closing Disclosure. Creditors are responsible for the preparation and delivery of the Closing Disclosure to the borrower. While they may use settlement agents to provide the Closing Disclosure on their behalf, the creditor is ultimately responsible for ensuring that the borrower receives the document.

Question 24

All of the following requirements are applicable to HECMs, except:

1. The loan must be secured by the borrower’s principal residence
2. The applicant must complete a consumer information session on reverse mortgages loans
3. The applicant must not have an existing mortgage on the residence
4. The applicant must be at least 62 years old

Answer 24

The answer is the applicant must not have an existing mortgage on the residence​. HECMs include several requirements, including that the applicant must be at least 62 years old; the applicant must complete a consumer information session on reverse mortgage loans; and the loan must be secured by the borrower’s principal residence.

Question 25

How long must flood insurance be in place?

1. The borrower can cancel at 80% of the loan balance
2. Until the loan reaches the halfway point in the amortization table
3. It cannot be canceled as long as the property remains in a mandatory flood zone
4. Until the loan balance is completely paid off

Answer 25

The answer is until the loan balance is completely paid off. Flood insurance must stay in place at least until the loan balance is paid off and the lender no longer needs to be protected from the hazard.

Question 26

What document would an underwriter rely on for detailed information concerning the collateral for a mortgage loan?

1. The property appraisal
2. The borrower’s asset statements
3. The URLA
4. The borrower’s employment documentation

Answer 26

The answer is the property appraisal. An underwriter would rely on the property appraisal for detailed information concerning the collateral for a mortgage loan.

Question 27

An underwriter:

1. Is responsible for approving an originator’s license
2. Verifies that the applicant and subject property meet lender guidelines
3. Looks for red flags in marketing
4. Facilitates the Safeguards Rule for the lender

Answer 27

The answer is verifies that the applicant and subject property meet lender guidelines. The underwriter’s responsibility is to make sure that both the applicant and the property meet lender guidelines before approval for the investor.

Question 28

It is ethical for a mortgage broker to offer a loan at 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 fees
4. If the borrower chooses the rate in order to secure a borrower credit for closing costs

Answer 28

The answer is if the borrower chooses the rate in order to secure a borrower credit for closing costs. If the borrower is fully aware of and received all information about the costs of the loan, including borrower credit, and chooses to select a closing cost option that allows for a subsidy using the borrower credit to offset closing costs, then borrower credit has been handled ethically.

Question 29

Typical violations of advertising provisions include the use of trigger terms without:

1. Allowing the borrower to choose another alternative
2. Giving the borrower a chance to choose his/her own service provider
3. Explaining to the borrower how the originator is compensated
4. Stating the less advantageous terms of repayment

Answer 29

The answer is stating the less advantageous terms of repayment. The use of a trigger term in advertising requires the additional disclosure of the less advantageous terms of the agreement, like balloon payments, negative amortization, or interest only payments.

Question 30

If a consumer submits a complaint about a mortgage lender to the CFPB, the lender has _____ days to respond before the CFPB publishes the complaint in its public complaint database and pursues a potential investigation.

1. 7
2. 10
3. 20
4. 15

Answer 30

The answer is 15. If a consumer submits a complaint about a mortgage lender to the CFPB, the lender has 15 days to respond before the CFPB publishes the complaint in its public complaint database and pursues a potential investigation.

Question 31

Which of the following is not a part of the definition of a loan originator?

1. For compensation or gain, takes residential mortgage applications
2. For the expectation of compensation or gain, offers or negotiates terms of a residential mortgage loan
3. Person or entity that only performs real estate brokerage activities
4. For compensation or gain, negotiates residential mortgage loans

Answer 31

The answer is person or entity that only performs real estate brokerage activities. Real estate brokerage activities are not considered within the definition of a loan originator.

Question 32

The Truth in Lending Act protects consumers in the mortgage market by:

1. Using disclosures to ensure that consumers make informed choices for loan products
2. Prohibiting subprime mortgage loan transactions
3. Regulating the interest rates that creditors can charge for conventional mortgage loans
4. Limiting the cost of settlement services by imposing caps on amounts charged

Answer 32

The answer is using disclosures to ensure that consumers make informed choices for loan products. The Truth in Lending Act protects consumers in the mortgage market by using disclosures to ensure that consumers make informed choices for loan products and are given opportunities to understand the fees and charges that accompany mortgage loans.

Question 33

The right to rescind is one that consumers may:

1. Not waive
2. Waive if they notify the creditor at the time of the loan application that they wish to do so
3. Waive if they do so in writing in order to meet a bona fide financial emergency
4. Waive if they complete a printed form

Answer 33

The answer is waive if they do so in writing in order to meet a bona fide financial emergency. The right to rescind is one that consumers may waive if they do so in writing in order to meet a bona fide financial emergency.

Question 34

The reporting form used to communicate HMDA data is called what?

1. 1073
2. Loan/Registration Application
3. 1004
4. Loan/Application Register

Answer 34

The answer is Loan/Application Register. The form used for reporting HMDA data is called the Loan/Application Register (LAR).

Question 35

When a borrower chooses to allow their interest rate to rise or fall with the market until the loan is closed, it is called:

1. A lock-in
2. A variable rate
3. A float
4. An adjustable rate

Answer 35

The answer is a float. If a borrower chooses to float the interest rate, the rate will not be set until closing unless the borrower obtains a lock-in (also called a rate lock or rate commitment).

Question 36

The Foxes are obtaining a mortgage loan of $140,000. They are making a down payment of $35,000, which is 20% of the purchase price. What is the purchase price of the property?

1. $150,000
2. $200,000
3. $175,000
4. $235,000

Answer 36

The answer is $175,000. The purchase price of the home is $175,000. This can be determined by adding together the amount of the mortgage loan ($140,000) and the amount of the Foxes’ down payment ($35,000).

Question 37

A balloon mortgage has a:

1. Short-term payment that can go up or down from month to month throughout the life of the loan
2. Payment that grows with each month as equity decreases
3. Large payment required at the onset of the loan and periodic payments thereafter
4. 30-year amortization period, but a requirement to pay the loan balance within a much shorter period of time

Answer 37

The answer is 30-year amortization period, but a requirement to pay the loan balance within a much shorter period of time. A balloon mortgage requires the borrower to make one large payment at the end of a loan term. This payment may also be referred to as a “call,” a “demand,” or a “bullet.” It often has a 30-year amortization, but is typically due in 5, 7, 10, or 15 years.

Question 38

Lester is calculating prepaid finance charges that will be withheld from the proceeds of the loan. These direct loan charges paid by the borrower must be included in computing the:

1. Annual percentage rate
2. Broker fees and the amount charged by a third party
3. Amount of the payment
4. Length of the loan

Answer 38

The answer is annual percentage rate. A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at the consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower that must be included in computing the annual percentage rate.

Question 39

What is the primary purpose of the Home Mortgage Disclosure Act?

1. Provide borrowers with a clear explanation of the cost of a loan through disclosure of APR and finance charges
2. Allow a borrower the opportunity to remove PMI from his/her loan
3. Identify discriminatory lending practices and determine if financial institutions are meeting the borrowing needs of their communities
4. Use disclosures to help consumers shop for available credit options

Answer 39

The answer is identify discriminatory lending practices and determine if financial institutions are meeting the borrowing needs of their communities. Regulation C pertains to the Home Mortgage Disclosure Act (HMDA). Through the collection of information about loan applications and settlements, HMDA attempts to identify if companies are using discriminatory lending practices and to determine if they are meeting the mortgage lending needs of their communities.

Question 40

A borrower is buying a house with a sales price of $210,000, but the appraisal came in at $200,000. The borrower takes out a loan of $160,000. What is the LTV?

1. 76%
2. 90%
3. 80%
4. 75%

Answer 40

The answer is 80%. The LTV is calculated using the lesser of the purchase price and the appraised value. In this case, the loan amount of $160,000 is divided by the appraised value of $200,000 to get 80% LTV.

Question 41

A lending transaction has been rescinded by a consumer with cold feet. What happens as a result?

1. The lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process
2. The rescission may be challenged by the lender as long as it is within seven business days
3. The lender no longer has security interest in the property, and the borrower is liable for any finance charges and appraisal costs
4. After cancellation, the lender retains any money or property paid by the borrower

Answer 41

The answer is the lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process. TILA requires that, in the event of rescission, the lender relinquish security interest in the property and return any and all money or property paid by the borrower. All parties are placed back in the exact position they were in before the transaction took place.

Question 42

A property has a value of $165,000. The first mortgage has a current balance of $48,000, and there is a HELOC with a limit of $60,000. There is $30,000 drawn on it. What is the CLTV?

1. 47%
2. 29%
3. 40%
4. 65%

Answer 42

The answer is 47%. The CLTV accounts for the total encumbrance on the property, which in this case is $78,000. To calculate CLTV, divide the $78,000 total encumbrance by the value of $165,000. This equals 47%.

Question 43

What federal legislation requires loan originators to collect demographic data to ensure that creditors are not engaging in discriminatory lending?

1. ECOA
2. HMDA
3. GLB Act
4. FCRA

Answer 43

The answer is HMDA. The Home Mortgage Disclosure Act is a reporting law that helps the federal government, among other things, identify discriminatory lending practices.

Question 44

The Jepsons have brought mortgage loan originator Stanley Rothke a check to pay for loan origination fees, the private mortgage insurance premium, and the commitment fee. These charges are:

1. Paid-outside-of-closing charges
2. Prepaid finance charges
3. Third-party charges
4. Mortgage loan transaction fees

Answer 44

The answer is prepaid finance charges. A prepaid finance charge 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 charges paid by the borrower and include loan origination, discount, and commitment fees; any prepaid private mortgage insurance; underwriting, processing, tax service, and courier fees; buy-down funds; and prepaid interest.

Question 45

Which of the following is the least-expensive type of reverse mortgage?

1. HECM
2. Proprietary mortgage
3. Non-recourse
4. Single purpose

Answer 45

The answer is single purpose. A single-purpose reverse mortgage is a low-cost loan offered to low-income borrowers by state and local agencies or non-profit organizations. They are typically made for purposes such as payment of property taxes or payment for home improvements.

Question 46

When a seller provides all or part of the financing for the borrower in order to finance a purchase transaction, it is known as:

1. For sale by owner (FSBO)
2. Seller carry-back
3. Seller concessions
4. Seller self-financed

Answer 46

The answer is seller carry-back. In a purchase transaction involving an assumable mortgage, when the party selling the property provides all or part of the financing, it is referred to as a seller carry-back.

Question 47

Which of the following is not a prohibited practice regarding loan originator compensation?

1. A loan originator receives .5% more compensation if a loan contains a prepayment penalty
2. A loan originator receives compensation for closing over $1 million in volume per month
3. A loan originator receives 10% more compensation if he/she closes more than ten transactions in a month with an interest rate of 6.5% or more
4. A loan originator receives compensation from a consumer and from the creditor

Answer 47

The answer is a loan originator receives compensation for closing over $1 million in volume per month. A loan originator is prohibited from receiving compensation based on the terms of a loan, such as prepayment penalties or interest rates, and is prohibited from receiving dual compensation (i.e., from both the consumer and the creditor).

Question 48

The Loan Estimate is required for:

1. All mortgage loans
2. All closed-end federally related mortgage loans
3. All nontraditional mortgage loans
4. All open-end mortgage loans

Answer 48

The answer is all closed-end federally related mortgage loans. The Loan Estimate is required for all closed-end federally related mortgage loans.

Question 49

Which section of the URLA contains questions which, depending on the applicant’s answer, could result in immediate rejection of the application?

1. Information for Government Monitoring Purposes
2. Declarations
3. Details of the Transaction
4. Acknowledgement and Agreement

Answer 49

The answer is declarations. The “Declarations” section of the URLA contains questions which, depending on the applicant’s answer, could result in immediate rejection of the application.

Question 50

All of the following are considered involuntary liens, except:

1. Mortgage
2. Mechanic’s lien
3. Tax lien
4. Judgment

Answer 50

The answer is mortgage. An involuntary lien is “imposed” on a borrower. In the case of a mortgage, a borrower would “consent” to having a lien on his/her home.

Question 51

Nicole is obtaining a higher-priced mortgage loan to buy a home from a Marine in South Carolina who has been reassigned to a base on the West Coast. The Marine purchased and moved into his home three months earlier. In this transaction, a second appraisal will:

1. Be required because the seller acquired the home 90 days prior to the date that Nicole agreed to purchase the home
2. Be required if there is any evidence that the sale constitutes property flipping
3. Not be required unless Nicole has agreed to purchase it for 20% more than the Marine paid
4. Not be required since purchases from servicemembers are not subject to the requirement for two appraisals

Answer 51

The answer is not be required since purchases from servicemembers are not subject to the requirement for two appraisals. Purchases from servicemembers are not subject to the requirement for two appraisals.

Question 52

Which of the following settlement services would not be covered by RESPA?

1. Services of a real estate agent
2. Office supply provider
3. Processing services
4. Title abstractor

Answer 52

The answer is office supply provider. A company that delivers office supplies is not generally covered by RESPA.

Question 53

Ricky and Lucy are buying a house using a conforming loan, and they have reached an agreement to receive the max concession from their seller. They have agreed on a $230,000 sales price, and are putting down 10%. What is the amount of the seller concession?

1. $6,210
2. $6,900
3. $13,800
4. $12,420

Answer 53

The answer is $13,800. The seller concession allowed on a conforming loan with a 90% (or less) LTV is 6%. This number is taken from the sales price, not the loan amount. $230,000 × 6% = $13,800.

Question 54

Which of the following are considered liens?

1. Judgment, mortgage, flood insurance
2. Mortgage, mechanic’s lien, debentures
3. Chattel, mortgage, attachment
4. Judgment, attachment, mortgage

Answer 54

The answer is judgment, attachment, mortgage. Judgments, attachments, and mortgages are all considered liens.

Question 55

In January of 2021, Wella and Kip agreed to purchase a home at a purchase price of $584,150. They would like to hold on to as much of their savings as they can, but they have chosen to make a down payment sufficient enough to qualify for a conforming loan. What is the minimum down payment they can make to reach the conforming loan limit but still retain savings?

1. $47,900
2. $35,900
3. $95,800
4. $54,900

Answer 55

The answer is $35,900. The down payment in this scenario will be $35,900. This is just enough to keep them at the $548,250 conforming loan limit which was adjusted January 1, 2021. 584,150-548,250 = 35,900.

Question 56

Muny Baggins regularly extends credit that is subject to a finance charge and payable in a written agreement of more than four installments. Under the Truth-in-Lending Act, Muny is a:

1. Mortgage servicer
2. Mortgagee
3. Mortgagor
4. Creditor

Answer 56

The answer is creditor. The Truth-in-Lending Act identifies a creditor as a person, including a lender and a table funding mortgage broker, that regularly extends credit that is subject to a finance charge or is payable by written agreement in more than four installments. A creditor may also be a credit card issuer.

Question 57

A consumer is obtaining a closed-end loan that allows for rescission. The borrower may exercise his or her right to rescind:

1. If he or she collects the signatures of all other parties with an ownership interest in the property
2. Until midnight on the third business day after signing the lending agreement
3. Until midnight on the first business day after signing the lending agreement
4. Only if he or she has a loan contract that explicitly provides for the right to rescind

Answer 57

The answer is until midnight on the third business day after signing the lending agreement. A consumer with a loan for closed-end credit may exercise his or her right to rescind at any time before midnight on the third business day after signing the lending agreement.

Question 58

Entities that gather and sell information regarding an applicant’s credit in the form of credit reports are known as:

1. Consumer finance associations
2. Consumer reporting agencies
3. Consumer reporting associations
4. Consumer finance agencies

Answer 58

The answer is consumer reporting agencies. Consumer reporting agencies (or CRAs) gather and sell information regarding an applicant’s credit in the form of credit reports.

Question 59

Five siblings have ownership rights to a property. If a refinance transaction affecting the property is subject to rescission, how many of these individuals must submit a rescission notice in order to void the loan?

1. All five
2. A majority of the five
3. At least two of the five
4. Any one of the five

Answer 59

The answer is any one of the five. Any one of the five siblings would be able to rescind the loan on their own, as each has an ownership interest in the property and therefore has the right to rescind.

Question 60

The Dodd-Frank Act listed the creation of financial education programs as one of the primary functions of:

1. NMLS
2. CFPB
3. FHA
4. HUD

Answer 60

The answer is CFPB. The Dodd-Frank Act listed the creation of financial education programs as one of the primary functions of the CFPB.

Question 61

When an ARM contains a limit on the amount that an interest rate can adjust, it is called a(n):

1. Cap
2. Index
3. Margin
4. Frequency

Answer 61

The answer is cap. Consumer protections that limit the amount that an interest rate or payment on an ARM may change are known as caps.

Question 62

Conrad began his 20 HR pre-licensing education in one state and ended up moving to another state prior to actually submitting an application for a mortgage loan originator license. What happens to the courses he has completed?

1. The NMLS-approved 20 HR pre-licensing courses are accepted towards credit in any state
2. He must retake them under the requirements of the state in which he currently resides
3. He can petition the state licensing agency for permission to submit those courses towards the requirement
4. The courses may or may not be accepted towards pre-licensing credit, depending on the requirements of the new state

Answer 62

The answer is NMLS-approved courses are accepted towards credit in any state. Any pre-licensing education course in federal law and regulations, ethics, or lending standards for the nontraditional mortgage product approved by the NMLS for any state may be accepted as credit towards completion of pre-licensing education requirements in the licensing state.

Question 63

Jake Pearson applies for a loan with TNT Mortgage on June 1. TNT is required to inform Jake whether it has approved his loan by:

1. June 4th
2. June 15th
3. July 15th
4. June 30th

Answer 63

The answer is June 30th. The Equal Credit Opportunity Act requires lenders to inform applicants of the status of their loan within 30 days of application.

Question 64

Wilbur Green is applying for a loan originator license. His credit report indicates that he has a number of judgments filed against him, all related to a serious medical condition his wife suffered four years prior. Will Wilbur be denied a license because of the judgments?

1. Yes, current outstanding judgments show a lack of financial responsibility
2. Yes, because they indicate a pattern of seriously delinquent accounts within the past three years
3. No, because the judgments are a result of medical expenses, they will not be held against him
4. The judgments will not be held against him because they were entered more than three years ago

Answer 64

The answer is no, because the judgments are a result of medical expenses, they will not be held against him. Evidence that an individual has not shown financial responsibility may include current outstanding judgments, except those solely as a result of medical expenses.

Question 65

All but which of the following prohibitions or requirements apply to HPMLs?

1. The loan cannot include prepayment penalties after the first two years of the loan term
2. The loan cannot include prepayment penalties
3. The borrower must have an escrow account for taxes and insurance
4. Consideration of repayment ability must include verification of income using documents such as IRS W-2 forms

Answer 65

The answer is the loan cannot include prepayment penalties after the first two years of the loan term. HPMLs cannot include prepayment penalties at all, so it is false to say that the loan cannot include prepayment penalties after the first two years of the loan when they are prohibited altogether.

Question 66

Which of the following is true?

1. Open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule
2. Open-end credit plans, timeshare plans, and closed-end consumer credit loans are exempt from the ATR Rule
3. Open-end credit plans are covered by the ATR Rule
4. Reverse mortgage loans are covered by the ATR Rule

Answer 66

The answer is open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule. Open-end credit plans, timeshare plans, and reverse mortgage loans are excluded from the ATR Rule. The ATR Rule applies to almost all closed-end consumer credit transactions secured by a dwelling, including attached real property.

Question 67

The generally-accepted appraisal standards in the United States are known as:

1. ASB
2. USASB
3. USPAP
4. FinCEN

Answer 67

The answer is USPAP. The Uniform Standards of Professional Appraisal Practice (USPAP) are the recognized standards for appraisals in the United States.

Question 68

The process of pooling together similar types of loans to create mortgage-backed securities for sale in the secondary financial markets is called:

1. Diversification
2. Capitalization
3. Securitization
4. Collateralization

Answer 68

The answer is securitization. Securitization is the process of pooling together similar types of loans to create mortgage-backed securities.

Question 69

Which of the following is not a characteristic of an HPML?

1. It is secured by the borrower’s principal dwelling
2. It has an APR that exceeds the average prime offer rate by 1.5 percentage points for a loan secured by a first lien on the home
3. It has an APR that exceeds the average prime offer rate by 3.5 percentage points for a loan secured by a subordinate lien on the home
4. It has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points

Answer 69

The answer is it has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points. Having an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points is not a characteristic of an HPML.

Question 70

The regulations issued for the implementation of ECOA are known as:

1. Regulation E
2. Regulation B
3. Regulation C
4. Regulation X

Answer 70

The answer is Regulation B. The regulations issued for the implementation of ECOA are known as Regulation B.

Question 71

_____ occurs when a loan originator receives direct compensation from a borrower and additional indirect compensation from a creditor in the same mortgage loan transaction.

1. Equity-based lending
2. Steering
3. Dual compensation
4. Yield spread premium

Answer 71

The answer is dual compensation. Dual compensation is an instance in which a loan originator receives direct compensation from a borrower and additional indirect compensation from a creditor in the same mortgage loan transaction.

Question 72

What legislation was enacted because of anecdotal evidence that women were not treated on an equal basis with men in credit markets, particularly in mortgage credit markets?

1. HOEPA
2. FACTA
3. ECOA
4. Fair Housing Act

Answer 72

The answer is ECOA. The Equal Credit Opportunity Act is a fair lending law passed primarily because of anecdotal evidence that women were not treated on an equal basis with men in credit markets.

Question 73

Which of the following mortgage industry documents might the borrower be asked to sign while it still contains blank sections?

1. A broker agreement
2. A TIL disclosure
3. A verification of employment
4. The promissory note

Answer 73

The answer is a verification of employment. Generally, a verification of employment is signed by the borrower with blank spaces remaining, with the understanding the borrower has signed to give permission for the employer to complete it.

Question 74

Which of the following may be considered an appraisal red flag?

1. An appraiser’s resume shows substantial experience in the area
2. Property owner and seller are not the same
3. Appraisal is dated after the sales contract
4. Comparables are located within one mile of the subject

Answer 74

The answer is property owner and seller are not the same. If the property owner and property seller are not the same, it is likely more questions should be asked about the deal.

Question 75

The six factors that constitute the definition of an application are:

1. Name, address, estimated property value, Social Security number, loan amount, loan type
2. Name, Social Security number, address, loan amount, loan type, income
3. Name, address, Social Security number, income, estimated property value, loan amount
4. Name, Social Security number, income, estimated property value, loan purpose, loan amount

Answer 75

The answer is name, address, Social Security number, income, estimated property value, loan amount. The six factors that constitute the definition of an application are name, address, Social Security number, income, estimated property value, and loan amount. If any one of the six factors is missing, the information does not technically constitute an application.

Question 76

Disclosures for high-risk loans required by the Homeowners Protection Act inform the borrower that:

1. The loan is considered a high-cost loan because it trips thresholds related to title insurance fees
2. Termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments
3. There may be a loan more suited for the borrower that is much less expensive
4. Payment amounts may change based on interest rate changes

Answer 76

The answer is termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments. The term “high-risk loans” pertains specifically in this case to legislation related to the HPA which facilitates the cancellation of private mortgage insurance. The HPA requires PMI on high-risk loans to be terminated automatically at the midpoint of the amortization schedule, when the borrower is current.

Question 77

A state licensing agency is conducting an examination of Willow Wand’s loan origination activities. In doing so, it may do all of the following, except:

1. Require her to compile reports related to her mortgage loan transactions
2. Close the business for the period of the examination
3. Subpoena books and records
4. Control access to Willow’s books and records

Answer 77

The answer is Close the business for the period of the examination. In conducting an examination or investigation, a state licensing agency may, among other things, administer oaths and affirmations; subpoena witnesses, as well as books and records; require the production of relevant documents; and control access to any documents and records of the person under investigation. The state licensing agency is not authorized to close the business for any period of time.

Question 78

All of the following are part of the underwriter’s review of collateral, except:

1. Sales contract
2. Bank statements
3. Appraisal
4. Flood zone verification

Answer 78

The answer is bank statements. Bank statement review is part of an underwriter’s assessment of the borrower, not the collateral.

Question 79

Mortgage loan originator Trevor Tibbs has accepted a loan application for a dwelling that is a mobile home not permanently affixed to the land. Does this mobile home meet the requirements necessary for it to be considered security for a residential mortgage loan?

1. Yes, a dwelling includes a structure whether or not that structure is attached to real property
2. No, dwellings must be permanently attached to real property
3. No, mobile homes are classified as personal property, not real property
4. Yes, as long as the real property upon which the mobile home will be located is in the borrower’s name, the loan may be a residential mortgage loan

Answer 79

The answer is yes, a dwelling includes a structure whether or not that structure is attached to real property. A residential mortgage loan is any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or will be constructed a dwelling. A dwelling is a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home and trailer, if it is used as a residence.

Question 80

What is required of a veteran to obtain a VA loan?

1. Approval for mortgage insurance premium
2. 3.5% down payment
3. Eligibility fee
4. Certificate of Eligibility

Answer 80

The answer is Certificate of Eligibility. A VA loan requires the borrower to obtain a Certificate of Eligibility.

Question 81

After a borrower allows the assumption of his or her VA loan, he or she may use his or her VA privilege again only after:

1. Five years have passed
2. The home is sold to a new owner
3. The original VA loan is satisfied
4. The original VA loan is moved from his or her name into the name of the assuming borrower

Answer 81

The answer is the original VA loan is satisfied. A VA loan is assumable; however, the veteran’s VA eligibility is no longer available until the original VA loan has been satisfied. This means that it is paid off, either over the remaining amortization time period, sale of the home, or refinancing out of the VA loan.

Question 82

Which of the following loans requires the collection of HMDA data?

1. Refinance of a second home
2. Financing of a recreational vehicle
3. Student loan
4. SBA loan

Answer 82

The answer is refinance of a second home. HMDA data is required for purchase loans, refinance loans, and home improvement loans, as long as the loans are secured by a dwelling.

Question 83

All of the following loans are covered by RESPA, except:

1. A loan assumption made without lender approval
2. A 30-year fixed loan made by a federally regulated credit union
3. An FHA loan
4. A conforming loan

Answer 83

The answer is a loan assumption made without lender approval. RESPA covers loans secured by first or subordinate liens on residential property but does not extend to an assumable loan which can be assumed without lender approval.

Question 84

VA fixed-rate loans may be made for any of the following terms, except:

1. 20 years
2. 40 years
3. 25 years
4. 30 years

Answer 84

The answer is 40 years. VA fixed-rate loans may be made for terms of 20, 25, and 30 years.

Question 85

Tom and Cindy Lewis are buying a house with a $300,000 sale price, and their LTV will be 80%. They paid $3,600 in discount points. How many total points did they pay?

1. 2
2. 4
3. 2.5
4. 1.5

Answer 85

The answer is 1.5. Points are a percentage of the loan amount: 1 point = 1% of the loan. The loan amount here is $240,000 (80% of $300,000). On a $240,000 loan, one point would cost $2,400 (1% x $240,000). The Lewises are paying $3,600 in points; to determine how many points this represents, divide $3,600 by $2,400. This comes out to 1.5, meaning that Tom and Cindy paid for 1.5 points.

Question 86

Seller concessions for conforming loans are limited to _____ and _____ on LTVs of over 90% and 90% or less, respectively.

1. 6%; 3%
2. 3%; 6%
3. 10%; 20%
4. 3.5%; 10%

Answer 86

The answer is 3%; 6%. Seller concessions for conforming loans are limited to 3% and 6% for LTVs of over 90% and 90% or less, respectively.

Question 87

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

1. The applicant is too young to enter into a contract
2. The applicant is seeking a reverse mortgage and is 62 years old
3. The applicant is too old to survive the term of the loan
4. The applicant is too young to have accumulated savings and requires a gift from his or her parents in order to make a down payment

Answer 87

The answer is the applicant is too young to enter into a contract. According to fair lending laws, age may be considered as a factor in denying a loan application if the applicant is too young to enter into a contract.

Question 88

An interest-only loan might be suitable for any of the following, except:

1. A corporate executive who receives large quarterly bonuses
2. A part-time hourly worker who may get overtime in the summer and plans to pay principal at that time
3. An investor who would prefer to pay as little as possible while holding the property
4. A self-employed borrower whose company is busiest during a six-month period over the holidays

Answer 88

The answer is a part-time hourly worker who may get overtime in the summer and plans to pay principal at that time. An interest-only loan is suitable when a borrower is savvy enough to manage it properly. A part-time, hourly worker who “may” get overtime in the summer likely would not be the best candidate for an interest-only loan.

Question 89

Gift funds may be used as a source for down payment:

1. As long as they are accompanied by a letter including the name of the donor and an indication that the funds are not expected to be repaid
2. As long as it is within the 3.5% minimum; anything more than 3.5% must be the borrower’s own funds
3. As long as the donor documents the debt and it is payable in more than four installments
4. Only for a first-time homebuyer

Answer 89

The answer is as long as they are accompanied by a letter including the name of the donor and an indication that the funds are not expected to be repaid. The donor must provide a gift letter clearly indicating that he/she does not expect repayment.

Question 90

All of the following are TILA-required disclosures, except:

1. CHARM Booklet
2. Notice of Adverse Action
3. Right to Rescind
4. Loan Estimate

Answer 90

The answer is Notice of Adverse Action. The Notice of Adverse Action is a disclosure required by ECOA, not TILA.

Question 91

If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer at what point?

1. Within seven business days of a customer providing nonpublic personal information sufficient to pull a credit report
2. Within three business days of initial contact between the consumer and the financial institution
3. No later than three business days prior to settlement
4. No later than the time at which a customer relationship is established

Answer 91

The answer is no later than the time at which a customer relationship is established. If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer no later than the time at which a customer relationship is established.

Question 92

Bob Bachman is applying for a mortgage with MZ Mortgage. He is referred by MZ Mortgage to a title company in which MZ Mortgage has a 10% ownership interest. At what point must Bob be made aware of the relationship between the two companies?

1. At the time of the referral
2. It is not necessary, because MZ Mortgage owns less than 25% of the title company
3. Within three business days of application
4. Within three business days after the referral

Answer 92

The answer is at the time of the referral. The borrower must be provided with the Affiliated Business Arrangement Disclosure at the time of referral. Only if the referral is made over the phone would MZ Mortgage have three business days to provide disclosure. Considering the information provided, “at the time of the referral” is the best answer.

Question 93

A loan has a rate of 6% for 30 years with a payment of $1,400 per month for the first five years and a payment of $1,800 per month for the remaining 25 years. What type of loan is this?

1. Adjustable-rate
2. FHA buy-down
3. Option ARM
4. Interest-only option fixed-rate

Answer 93

The answer is interest-only option fixed-rate. The loan has a rate of 6% for 30 years, meaning it has a fixed rate. This loan has an interest-only feature for the first five years.

Question 94

In what scenario would a sales comparison approach be appropriate?

1. A condo complex for residents aged 55 and over
2. A bio-dome built in the middle of a residential neighborhood
3. A commercial office building in an area zoned commercially
4. A complex of office units in a business park near a residential neighborhood

Answer 94

The answer is a condo complex for residents aged 55 and over. The sales comparison approach to appraisals is most commonly used for residential properties within an area that has recent sales data to analyze for comparison.

Question 95

Money paid by a buyer to a seller at the time of entering into a contract to indicate intent and ability to carry out the contract is called:

1. Down payment
2. Earnest money
3. Escrow funds
4. Service release premium

Answer 95

The answer is earnest money. Money paid by a buyer to a seller at the time of entering into a contract to indicate intent and ability to carry out the contract is called earnest money.

Question 96

In order for a home loan to be a qualified mortgage, the debt-to-income ratio may not exceed:

1. 43%
2. 28%
3. 36%
4. 46%

Answer 96

The answer is 43%. In order for a home loan to be a qualified mortgage, the debt-to-income ratio may not exceed 43%.

Question 97

Statements in advertising that may lead a consumer to incorrectly assume that a mortgage product or company is directly endorsed by the federal government are in violation of which law?

1. Regulation A
2. Regulation Z
3. Regulation B
4. Regulation X

Answer 97

The answer is Regulation Z. The Truth-in-Lending Act (Regulation Z) covers seven specific prohibitions in advertising for credit, which includes the misrepresentation of government endorsement.

Question 98

Which of the following is not within the authority of the state regulators responsible for the effective system of supervision and enforcement of the SAFE Act?

1. Determine criminal sentences for non-licensed entities under the Act
2. Issue licenses to conduct business under the Act
3. Deny, suspend, revoke licenses issued under the Act
4. Examine, investigate, and conduct enforcement actions

Answer 98

The answer is determine criminal sentences for non-licensed entities under the Act. A state regulator has the responsibility to carry out the administration of the SAFE Act, but is not involved in criminal prosecution or penalty decision making.

Question 99

Which of the following is NOT an example of “liquid assets”?

1. Earnest money
2. Cash value of life insurance policies
3. Net worth of businesses
4. Savings accounts

Answer 99

The answer is net worth of businesses. Liquid assets include things like earnest money, cash, checking or savings accounts, stocks and bonds, and the cash value of life insurance policies. Non-liquid assets include things such as retirement accounts, real estate, and net worth of businesses.

Question 100

Which of the following best describes the LTV ratio?

1. It is the ratio of the borrower’s total debt to monthly income
2. It is the ratio of the borrower’s principal loan balance to the appraised value of the property
3. It is the ratio of the borrower’s monthly loan payment to the principal loan balance
4. It is the ratio of the borrower’s monthly housing expense to monthly income

Answer 100

The answer is it is the ratio of the borrower’s principal loan balance to the appraised value of the property. The LTV ratio is the ratio of the borrower’s principal loan balance to the appraised value of the property.

Question 101

Which of the following is not prohibited by RESPA?

1. Reasonable fees paid for services actually performed
2. Kickbacks
3. Referral fees
4. Premiums charged on fees for third-party services

Answer 101

The answer is reasonable fees paid for services actually performed. RESPA does not prohibit the charging of reasonable fees paid for services actually performed.

Question 102

Mortgage insurance may be cancelled at what LTV percentage on a VA loan?

1. Mortgage insurance is not required
2. 80%
3. 75%
4. After five years

Answer 102

The answer is mortgage insurance is not required. VA loans require a funding fee instead of mortgage insurance

Question 103

The Nationwide Multistate Licensing System and Registry seeks to accomplish all of the following objectives, except:

1. Provide uniform license applications and reporting requirements for state-licensed originators
2. Provide comprehensive training and facilitate responsible behavior to expand the subprime mortgage marketplace
3. Provide increased accountability and tracking of loan originators
4. Facilitate the collection and disbursement of consumer complaints on behalf of state and federal mortgage regulators

Answer 103

The answer is provide comprehensive training and facilitate responsible behavior to expand the subprime mortgage marketplace. The NMLS is a measure aimed at increasing responsible behavior and accountability and protecting consumers, not expanding the subprime marketplace.

Question 104

What information, if found during a title search, is likely to prevent the completion of a transaction to refinance a first mortgage?

1. A deed with conflicting ownership information
2. A utility easement
3. A second mortgage
4. A judgment that was secured by a property lien, but recently paid in full

Answer 104

The answer is a deed with conflicting ownership information. Creditors protect their investment in a mortgage by placing a lien on the home used as security. A title search shows whether other liens are in place that will have priority over the creditor’s lien. When a refinance pays off an existing first mortgage, the second mortgage will have priority, but creditors can use subordination agreements to ensure that the new mortgage has priority over the existing second mortgage. The title search might also uncover problems in the chain of title which could stop a transaction - for instance, a deed with conflicting ownership information (sometimes these are “wild deeds” with names that appear nowhere else on record) will require additional research and might demand legal action or could fully stop the refinance.

Question 105

A consumer report is defined under which of the following federal laws?

1. FACTA
2. FCRA
3. ECOA
4. HMDA

Answer 105

The answer is FCRA. FCRA defines a consumer report as any information from a consumer reporting agency that relates to a consumer’s creditworthiness, credit standing, credit capacity, character, personal characteristics, or mode of living, used or expected to be used, in order to determine eligibility for credit or insurance, or to evaluate a consumer for employment.

Question 106

A mortgage and a lien are both examples of

1. deeds of trust.
2. concepts which are legal in some states but not in others.
3. easements.
4. encumbrances.

Answer 106

The answer is encumbrances. An encumbrance is a claim or liability on the title to a property, such as a lien or a mortgage.

Question 107

In order to qualify for an adjustable-rate mortgage, a consumer must be able to show that he or she can:

1. Make regularly scheduled payments that are calculated using the loan’s introductory rate
2. Make amortizing payments that are calculated using the fully indexed rate for the ARM
3. Make amortizing payments that are calculated using the loan’s rate after the first interest rate adjustment occurs
4. Make regularly scheduled payments that are calculated using the fixed interest rate for which the consumer would be eligible

Answer 107

The answer is make amortizing payments that are calculated using the fully indexed rate for the ARM. Qualifying for an ARM requires a consumer to demonstrate an ability to make amortizing payments that are calculated at the loan’s fully indexed rate.

Question 108

By adding together the margin and index, the result is known as the:

1. True index
2. Rate ceiling
3. Start rate
4. Fully indexed rate

Answer 108

The answer is fully indexed rate. On an ARM loan, by adding together the margin and index, the result is called the fully indexed rate, which indicates the adjusted rate.

Question 109

Sue Ellen has been a mortgage loan originator for nine years and knows her hometown very well. She meets with a couple who have moved to her town from Ecuador. Checking their application, Sue Ellen sees that the neighborhood they are hoping to move to is higher-income and predominantly white. Without discussing it or checking their financial paperwork, Sue Ellen tells the couple they are likely “aiming too high” in their requested loan amount, and she suggests that they keep looking “elsewhere” for “something more appropriate.” Sue Ellen is engaging in:

1. Streamlining
2. Discouragement
3. Steering
4. Redlining

Answer 109

The answer is discouragement. Discouragement is a form of discrimination in which borrowers belonging to certain protected classes are discouraged from applying for a loan on the basis of their personal characteristics. Here, Sue Ellen has no idea as to the couple’s financial qualifications to purchase a property in their desired neighborhood. She bases her discouragement solely on perceived racial characteristics, which is a discriminatory act that is prohibited under federal law.

Question 110

Negative amortization:

1. Describes the result of a default
2. Occurs when the mortgage payment is not sufficient to pay the interest currently due
3. Occurs when a borrower pays only interest due each month
4. Defers principal

Answer 110

The answer is occurs when the mortgage payment is not sufficient to pay the interest currently due. Negative amortization occurs when a mortgage payment is not sufficient to pay the interest currently due.

Question 111

A _____ 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 111

The answer is straw seller. A straw seller is an individual who accepts a fee to falsely claim ownership to a property.

Question 112

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

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

Answer 112

The answer is complete the section based on a visual observation of the borrower during a face-to-face application. When an applicant chooses 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 113

When completing the Loan Estimate, costs must be presented:

1. In dollars and cents
2. In dollars and cents, except for appraisal costs
3. By rounding them to the next whole number, except for estimated principal and interest payments
4. By rounding them to the next whole number, except for third-party costs

Answer 113

The answer is by rounding them to the next whole number, except for estimated principal and interest payments. Except for estimated principal and interest payments, costs on the Loan Estimate are rounded to the next whole number.

Question 114

Under ECOA, it is permissible to do which of the following?

1. Base a credit decision solely on the fact that a borrower was in a consumer credit counseling program
2. Refuse to allow a borrower to use public assistance income to attempt to qualify
3. Make oral or written statements that might discourage a prospective applicant from applying
4. Refuse to consider child support payments that have been made sporadically

Answer 114

The answer is refuse to consider child support payments that have been made sporadically. ECOA prohibits discriminatory practices, such as refusing to consider public assistance as income or declining a borrower solely because of his/her involvement in a consumer credit counseling program. Additionally, ECOA does not allow for discouragement meant to keep a borrower from applying at all. Child support must also be considered, as long as payments are made regularly.

Question 115

If a foreclosure proceeding has been initiated by a creditor, the borrower may exercise his/her three-year right to rescind if the finance charge for the loan was understated by:

1. $35
2. $10
3. More than $35
4. More than $100

Answer 115

The answer is more than $35. If a foreclosure proceeding has been initiated by a creditor, the borrower may exercise his/her three-year right to rescind if the finance charge for the loan was understated by more than $35.

Question 116

Leslee is a loan processor who is not required to perform her duties at the direction of or subject to the supervision and instruction of an individual who is licensed or exempt. Leslee is a(n):

1. Registered loan originator
2. Mortgage loan originator
3. Independent contractor
4. Licensed loan processor

Answer 116

The answer is independent contractor. An independent contractor is an individual who performs his/her duties other than at the direction of and subject to the supervision and instruction of an individual who is licensed and registered as required under the SAFE Act or is exempt from licensing. An independent contractor may not engage in residential mortgage loan origination activities as a loan processor or underwriter unless he/she has a mortgage loan originator license.

Question 117

The Talleys are buying a home for $180,000. What is the minimum possible down payment they could make in order to avoid paying PMI?

1. $36,000
2. $20,000
3. $18,000
4. $32,000

Answer 117

The answer is $36,000. The LTV for the Talleys must be 80% or less. A down payment of 20% exactly would be $36,000.

Question 118

A first-lien mortgage loan will exceed the HOEPA APR threshold and qualify as a high-cost mortgage if its APR is:

1. 1.5 percentage points above the average prime offer rate for a comparable transaction
2. 6.5 percentage points above the average prime offer rate for a comparable transaction
3. 3 percentage points above the average prime offer rate for a comparable transaction
4. 4.5 percentage points above the average prime offer rate for a comparable transaction

Answer 118

The answer is 6.5 percentage points above the average prime offer rate for a comparable transaction. First-lien mortgage loan will exceed HOEPA’s APR threshold and qualify as a high-cost mortgage if its APR is 6.5 or more percentage points above the average prime offer rate for a comparable transaction.

Question 119

Which of the following forms is the appraisal form used for investment properties?

1. 1007
2. 1073
3. 1004
4. 1005

Answer 119

The answer is 1007. The 1004 is the Uniform Residential Appraisal Report, or URAR. There are variations for certain properties; the 1007 is used for single-family properties that are investment properties.

Question 120

Which of the following features would be permitted for a non-qualified mortgage, but not for a qualified mortgage?

1. A term of 15 years
2. An adjustable interest rate
3. A debt-to-income ratio of 43%
4. An interest-only option

Answer 120

The answer is an interest-only option. An interest-only option is permitted for a non-qualified mortgage, but not for a qualified mortgage.

Question 121

With what type of loan do payments, including principal and interest, remain constant throughout the life of the loan?

1. A balloon loan, as long as the maturity date is beyond ten years
2. An ARM with a conversion option
3. Fixed rate
4. An FHA loan

Answer 121

The answer is fixed rate. A fixed-rate loan has its interest rate set at closing and does not change during the life of the loan.

Question 122

What is the minimum time period that MIP must be in place for a USDA loan?

1. Zero years
2. Three years
3. Five years
4. Depends on LTV

Answer 122

The answer is zero years. MIP, or mortgage insurance premiums, are only paid on FHA loans. Some other loan types are subject to PMI (private mortgage insurance). USDA loans use a funding fee and an annual premium rather than the traditional forms of MIP or PMI.

Question 123

An assumption clause

1. allows the seller to reassume the mortgage if the buyer falls behind in his payments.
2. assumes the buyer has the ability to repay the loan based on his credit score.
3. allows a buyer to assume the seller’s mortgage.
4. allows the buyer to sell the mortgage without requiring the seller’s authorization.

Answer 123

The answer is allows a buyer to assume the seller’s mortgage. An assumption clause is a provision in the terms of a loan that allows a buyer to assume the seller’s mortgage.

Question 124

A _____ is defined as any mortgage product other than a 30-year fixed-rate mortgage.

1. Piggyback loan
2. Subordinate lien
3. Nontraditional mortgage
4. Nonconventional mortgage

Answer 124

The answer is nontraditional mortgage. A nontraditional mortgage is defined as any mortgage product other than a 30-year fixed-rate mortgage.

Question 125

The Pois have just closed on their mortgage loan at a formal settlement meeting. What is mortgage loan originator Leilani’s responsibility after loan closing?

1. She must provide any required re-disclosures
2. None; Leilani’s tasks are complete
3. She must provide another set of disclosures, showing final costs and expenses
4. She must record the transaction with the county recorder

Answer 125

The answer is none; Leilani’s tasks are complete. After loan settlement, there are some cases in which additional disclosures are due, however, these would be provided by the creditor rather than the loan originator.