Exam 4 Flashcards
Which of the following debt-to-income ratios is used as a guideline for VA loans?
- 41% back
- 31% front
- 28% front
- 36% back
The answer is 41% back. A VA loan does not require any specific front-end ratio, but does use a general back-end ratio requirement of 41%.
After receiving a mortgage application, a creditor must send a notice of decision to the applicant within:
- 10 days
- 20 days
- 30 days
- 90 days
The answer is 30 days. Notice of action taken on a mortgage loan application is due within 30 days.
Investigations conducted by state licensing authorities may include all of the following, except:
- Interviews with employees of an entity
- Examination of mortgage applications
- Suspension of a license without notice of a right to a hearing
- Scheduling a review of advertising examples used by the licensee
The answer is suspension of a license without notice of a right to a hearing. As a result of an investigation, state licensing authorities may not suspend a license without making the licensee aware of why an action may be taken and that the licensee may request a hearing.
While verifying identity, there are several consistent indicators that suggest identity theft. Which of the following is not an example?
- Co-borrowers call each other by nicknames that do not relate to the names on the application
- Credit history is inconsistent with the borrower’s age
- Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs
- Income documents appear to have poor printer alignment
The answer is Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs. Mortgage fraud can sometimes be difficult to detect; however, checking names on an application against names on credit reports and supporting documentation as well as the borrower’s age is important. Additionally, if the supporting documents appear to be altered or tampered with, further investigation should occur.
John and Tina are purchasing a home using an FHA loan. They are excited because, while the price they agreed to pay is $215,000, they just got word that the appraised value came in at $225,000. What is the minimum down payment that John and Tina must make on this loan?
- $7,875
- $7,255
- $7,525
- $3,500
The answer is $7,525. FHA loans require a minimum borrower investment of 3.5% That amount is calculated by the lesser of the purchase price or the appraised value.
Which of the following might raise a red flag during the underwriter’s review of the appraisal?
- Photos that appear to show the address of the property on the mailbox
- Dated prior to the sales contract
- Effective age of the property aligns with that of comparables
- Completion notice is dated after the original appraisal
The answer is dated prior to the sales contract. An appraisal dated prior to the sales contract is a red flag.
Overtime income may be considered for an hourly employee if:
- It has been consistent for at least two years and is likely to continue
- It is being paid in the same paycheck
- The earnings have been reported as wages
- It has been consistent for less than two years and is likely to continue
The answer is it has been consistent for at least two years and is likely to continue. Overtime income is only considered if it has been consistent for at least two years, and the employer verifies that it is likely to continue.
A creditor that is making an HPML must provide the loan applicant with a disclosure regarding his or her right to a copy of the appraisal no later than ____ after the creditor receives the loan application.
- Three days
- The third business day
- Five days
- The fifth business day
The answer is the third business day. A creditor that is making an HPML must provide the loan applicant with a disclosure regarding his or her right to a copy of the appraisal no later than the third business day after the creditor receives the loan application
All of the following may be considered application red flags, except:
- Reasonable commuting mileage
- Address is a P.O. Box
- Education is not consistent with profession
- Significant changes between handwriting used throughout the documents
The answer is reasonable commuting mileage. If mileage for commuting purposes is realistic, no red flags would be drawn. For example, if the borrower lives relatively close to the workplace, it is acceptable.
Under RESPA, in order to provide the escrow analysis statement, a borrower’s escrow account must be analyzed:
- Annually
- Monthly
- Quarterly
- Twice a year
The answer is annually. The purpose of the aggregate escrow analysis is to ensure that the proper amount is being held in escrow or reserve accounts (i.e., accounts to hold funds on behalf of borrowers for the payment of taxes and insurance). Under Regulation X, a servicer may hold funds to cover two months of taxes, insurance, and mortgage insurance, as applicable, and may only collect one month’s worth of escrowed items in each payment, unless there is a shortage in the account. All accounts must be analyzed once every 12 months and any overage over $50 refunded to the borrower within 30 days or credited towards the borrower’s next year’s escrow payments.
HOEPA is federal legislation enacted by Congress through amendments to:
- FACTA
- ECOA
- TILA
- HMDA
The answer is TILA. The Home Ownership and Equity Protection Act is part of TILA. Created in 1994, it was the first legislation specifically created to combat predatory lending. Its regulations are found in Section 32 of Regulation Z.
Upon meeting all the requirements and being approved by her state for licensing as a mortgage loan originator, Kelly Greene was assigned a number that permanently identifies her as a loan originator. This number is her:
- Unique identifier
- License number
- Authorization number
- Employment number
The answer is unique identifier. The unique identifier is a number that permanently identifies a loan originator, assigned by the NMLS to facilitate electronic tracking of loan originators.
The Talleys are buying a home and do not have a big enough down payment to lower the LTV below the level that would require them to purchase PMI. Their LTV is higher than:
- 70%
- 90%
- 80%
- 95%
The answer is 80%. Private mortgage insurance is required when a borrower’s loan-to-value is above 80%.
The practice of encouraging a consumer to purchase a home based on an inflated appraisal, or steering consumers toward high-cost products with unfavorable terms, is known as:
- Property flipping
- Predatory lending
- Property flopping
- Equity-based lending
The answer is predatory lending. The practice of encouraging a consumer to purchase a home based on an inflated appraisal, or steering consumers toward high-cost products with unfavorable terms, is known as predatory lending.
Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is considered illegal under:
- TILA
- Homeowners Protection Act
- HOEPA
- RESPA
The answer is HOEPA. HOEPA prohibits the intentional targeting of poor or underserved areas with expensive high-cost loans, which is a practice known as reverse redlining.
Loan originator Zena Mendez is preparing an advertisement in which more than one simple interest rate will apply over the term of the loan. In order to be in compliance with Regulation Z, Zena must clearly and conspicuously disclose all of the following, except:
- Each applicable simple annual rate
- The period of time each simple annual rate applies
- The frequency with which the rate will change
- The annual percentage rate for the loan
The answer is the frequency with which the rate will change. If an ad states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the loan, the ad must clearly and conspicuously disclose each applicable simple annual interest rate, the period of time during which each rate will apply, and the annual percentage rate for the loan.
Under the Gramm-Leach-Bliley Act, which of the following is considered nonpublic information?
- Former owners of a particular property
- The street address of the property a borrower intends to purchase
- The assessed value of a subject property
- A loan applicant’s current loan balances
The answer is a loan applicant’s current loan balances. Under the Gramm-Leach-Bliley Act, a loan applicant’s current loan balances would be considered nonpublic information.
Safe harbor qualified mortgages offer a “safe harbor” from:
- Liability for TRID Rule violations
- Liability for ATR Rule violations
- Liability for ECOA violations
- Liability for HOEPA violations
The answer is liability for ATR Rule violations. The Qualified Mortgage Rule extends a safe harbor from liability for ATR Rule violations. The safe harbor is for loans that meet qualified mortgage standards.
Which of the following would not be considered in the loan application process?
- Previous housing payment history
- Income history
- Current liabilities
- A bankruptcy from 15 years ago
The answer is a bankruptcy from 15 years ago. A bankruptcy from over ten years ago would not be considered in a borrower’s credit qualification.
What is a method of transferring property to a new owner who takes over an outstanding mortgage debt, along with the liability of repayment, without incurring a change in terms?
- Conveyance
- Assumption
- Reconveyance
- Seller carry-back
The answer is assumption.Transferring property to a new owner who takes responsibility for the existing mortgage debt without incurring any change in terms is called an assumption.
Misleading claims of debt elimination in an advertisement may lead a borrower to inaccurately believe that:
- Consumer debt is “disappearing” as a result of the new loan
- The borrower’s new loan will lower the overall monthly outlay
- The borrower is extending what may have been a short-term debt out over a longer period
- The borrower may gain some tax benefit by rolling consumer debt into the new mortgage loan
The answer is consumer debt is “disappearing” as a result of the new loan. “Debt elimination” is a regular claim of some mortgage professionals that specialize in consolidation loans, and it is often very misleading. Some borrowers will not understand that by “rolling in” the debt to a new mortgage, they are just extending the term and often paying more in interest.
According to the HPML Rule, which of the following transactions would require a second appraisal?
- A higher-priced mortgage loan that also meets qualified mortgage standards
- The purchase price is 10% higher than the seller’s acquisition price 100 days ago
- All higher-priced mortgage loans are required to have two appraisals
- The purchase price is 20% higher than the seller’s acquisition price 150 days ago
The answer is the purchase price is 20% higher than the seller’s acquisition price 150 days ago. According to the HPML Rule, a transaction will require a second appraisal if the purchase involves a possible case of “loan flipping.” This is true when the consumer’s purchase price is 10% more than the seller’s acquisition price (if the seller acquired the property 90 or fewer days ago) or 20% more than the seller’s acquisition price (if the seller acquired the property 91 to 180 days ago).
Which of the following would prevent the conveyance of title?
- Paid lien
- Owner dies and leaves a legal will
- Encumbrance
- Father passing title to his son while still living
The answer is encumbrance. An encumbrance would prevent the conveyance of title, meaning there is a debt or lien against the property and title may not change hands until the debt or lien is satisfied.
Direct RHS loans may have terms of _____ years.
- 15 and 30
- 21 or 29
- 30 and 40
- 33 or 38
The answer is 33 or 38. Direct RHS loans may have terms of 33 and 38 years.
The VA has stated that loans made in compliance with VA standards and guaranteed or insured by the VA are:
- Small creditor qualified mortgages
- Safe harbor qualified mortgages
- Non-qualified mortgages
- Exempt from qualified mortgage standards
The answer is safe harbor qualified mortgages. The VA has stated that loans made in compliance with VA standards and guaranteed or insured by the VA are safe harbor qualified mortgages.
A loan with a term of less than one year that is related to the purchase or construction of a home is known as:
- A subprime loan
- A bridge loan
- A balloon mortgage
- A nontraditional loan
The answer is a bridge loan. Temporary financing related to the construction or purchase of a home is typically referred to as a bridge loan, although these types of loan may have a balloon feature.
Special second appraisal requirements apply for a loan that is a(n):
- VA loan
- Higher-priced mortgage loan
- Adjustable-rate mortgage
- Refinance
The answer is higher-priced mortgage loan. Special second appraisal requirements apply for a loan that is a higher-priced mortgage loan.
The front-end ratio is also known as the:
- Back-end ratio
- Housing ratio
- Principal ratio
- Total debt ratio
The answer is housing ratio. The front-end ratio is also known as the housing ratio.
Liabilities may include which of the following?
- Real estate
- Net worth of businesses
- Student loans
- Stocks and bonds
The answer is student loans. Liabilities may include student loans.
If a borrower is required to pay alimony or child support, it must be included as a(n):
- Asset
- Liability
- Qualifier
- Mitigating circumstance
The answer is liability. Alimony and child support must be included in a borrower’s liabilities if they are required to pay.
A borrower receives a bi-weekly paycheck in the amount of $2,300. The co-borrower earns a semi-monthly paycheck in the amount of $2,500. What is the monthly qualifying income of this couple?
- $9,983.33
- $10,400
- $9,600
- $10,983.33
The answer is $9,983.33. This question uses both bi-weekly and semi-monthly income, so you must be careful with calculations. The borrower receives bi-weekly pay of $2,300, which must be multiplied by 26, giving an annual salary of $59,800. The co-borrower receives semi-monthly income of $2,500, which must be multiplied by 24, giving an annual salary of $60,000. Combine both, and you have a household salary of $119,800. Divide this by 12, and you arrive at a qualifying income of $9,983.33.
Which of the following is NOT true with regard to TILA disclosures?
- Disclosure rules differ depending on whether the credit being offered is open-end or closed-end
- Everyone with ownership interest receives rescission notices
- Special disclosures are required for adjustable-rate mortgages
- Rules for disclosure are the same whether credit is open-end or closed-end
The answer is rules for disclosure are the same whether credit is open-end or closed-end. This is NOT true because the rules for TILA disclosures differ whether the loan is open-end or closed-end, including rules about disclosing APR and finance charges.
Tina Louise works as a clerk at a law firm and is paid bi-weekly in the amount of $1,700. Each quarter, she also receives a bonus of exactly $3,200 for her share of a program specifically designed to reward the excellent work by the firm’s support staff. This bonus has been consistent for three years. What is Tina’s qualifying monthly income?
- $3,683
- $4,466
- $4,750
- $3,400
The answer is $4,750. To calculate qualifying income, first, annual salary is calculated, including the bonus (in effect for three years), and then divided by 12 months. $1,700 × 26 = $44,200. Then the bonus: $3,200 × 4 = $12,800. Add the two, $44,200 + $12,800 = $57,000. Divide $57,000 by 12 = $4,750.
Which of the following entities, created in 2010, became the new enforcement and regulatory authority for a number of federal laws and regulations?
- The FTC
- The CFPB
- The GNMA
- The FNMA
The answer is The CFPB. The CFPB, created in 2010, has become the enforcement and regulatory authority for a number of federal laws and regulations, though it still shares some authority with the FTC and other entities in certain instances.
An originator uses a contracted processor who charges $500 per file. The fee disclosed to the borrower for processing is $800, a difference of $300 which the originator keeps for himself. This is:
- A unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees
- A violation of RESPA’s prohibition against fee-splitting
- Permitted only as long as receipts are kept from the processor for five years
- A violation of ECOA
The answer is a unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees. RESPA requires compensation for settlement services to be earned. Any compensation not in direct correlation with an actual service is likely a violation. However, according to a 2012 case, the act of unilaterally marking up a fee and retaining the additional earnings is not illegal, as long as fee-splitting is not involved.
A revised Loan Estimate may be provided if an applicant waits more than _____ after the creditor provides a Loan Estimate before indicating an intent to proceed.
- Three business days
- Ten business days
- Five days
- 24 hours
The answer is ten business days. A revised Loan Estimate may be provided if an applicant waits more than ten business days after the creditor provides a Loan Estimate before indicating an intent to proceed.
The term “table funding” refers to:
- A situation in which a loan without a rescission period closes and funds the same day
- A situation in which a loan funds and is returned to the lender because of a borrower refusing to sign at the table
- The funding of pools of loans that create securitization
- A type of lending arrangement where brokers are permitted to originate, close, and fund loans using the lender’s warehouse line of credit
The answer is a type of lending arrangement where brokers are permitted to originate, close, and fund loans using the lender’s warehouse line of credit. Mortgage brokers sometimes engage in table funding which allows them to, in theory, be a lender on a loan and close in their own name. Once the loan closes, it is quickly assigned to another entity.
Which of the following reasons for denying an applicant a loan is a violation of fair lending laws?
- The applicant’s recent marital status may lead to a change in employment
- The applicant’s income does not meet the required level for repayment of the loan
- The applicant’s age is below the minimum age for executing a contract
- The applicant’s credit history includes defaults on many credit payments
The answer is the applicant’s recent marital status may lead to a change in employment. It is a violation of fair lending laws to deny an applicant because his or her recent marital status may lead to a change in employment.
A lender who refuses to originate loans in a particular neighborhood or ZIP code because of the perceived creditworthiness of consumers living in the area is in violation of:
- FCRA
- ECOA
- HOEPA
- RESPA
The answer is ECOA. Refusing to originate loans in a particular neighborhood or ZIP code because of perceived creditworthiness is a practice known as “redlining” and is a violation of ECOA.
Homeownership counseling is required for the following types of lending transactions, except:
- Fixed-rate qualified mortgages
- High-cost mortgages
- FHA HECM loans
- Negative amortization loans
The answer is fixed-rate qualified mortgages. Homeownership counseling is required for high-cost mortgages, FHA HECM loans, and negative amortization loans.
A borrower who owns more than ____ of a business must submit up to two years’ tax returns in providing income documentation.
- 15%
- 25%
- 10%
- 5%
The answer is 25%. A borrower who owns more than 25% of a business must submit up to two years’ tax returns in providing income documentation.
When is it legal to refuse to conduct a lending transaction with a consumer on the basis of their personal characteristics?
- The consumer is a minority who may need assistance with closing costs
- A large percentage of the borrower’s income is from public assistance
- The applicant is married but applying individually
- The borrower is too young to have legal authority to enter a binding contract
The answer is the borrower is too young to have legal authority to enter a binding contract. A creditor may consider the personal characteristics of the applicant if the applicant is not of legal age to enter a binding contract.
RESPA applies to:
- Reverse mortgages
- Construction loans
- Federally-related mortgage loans
- Loans for business, commercial, or agricultural purposes
The answer is federally-related mortgage loans. RESPA applies to federally-related mortgage loans.
Which of the following mortgage broker policies would violate fair lending laws?
- Originating loans only for customers who live within 100 miles of the broker’s location
- Refusing to originate loans in an earthquake zone
- Refusing to originate loans in ZIP codes known to be economically depressed
- Doing business only with customers who are seeking loans for residential properties
The answer is refusing to originate loans in ZIP codes known to be economically depressed. Refusing to originate loans in ZIP codes known to be economically depressed would violate fair lending laws.
When providing services related to a residential mortgage transaction, appraisers have responsibility for all but which of the following?
- Maintaining direct contact with the loan originator that ordered the appraisal
- Refusing to accept assignments in which compensation for services depends on delivering a predetermined value for the property securing the loan
- Performing assignments with impartiality and objectivity
- Complying with Uniform Standards of Professional Appraisal Practice
The answer is maintaining direct contact with the loan originator that ordered the appraisal. When providing services related to a residential mortgage transaction, appraisers are not required to maintain direct contact with the loan originator.
When a consumer is preapproved for a line of credit and can use this line freely, making repeat transactions, and can pay it off at any time without closing the line, this is an example of:
- Subordinate lien
- Reverse mortgage
- Revolving debt
- Mortgage
The answer is revolving debt. Revolving debt allows a borrower to draw from and pay down a credit line at his/her own discretion, as long as the borrower makes timely payments for the interest due.
A state-licensed loan originator is:
- Licensed by the NMLS
- An employee of a non-depository institution
- Identified by the unique identifier of his/her employer
- An employee of a subsidiary which is owned or controlled by a depository institution
The answer is an employee of a non-depository institution. A state-licensed loan originator is an employee of a non-depository institution and is licensed by the state. An originator employed by a depository or the Farm Credit Administration would be registered.
A type of reverse mortgage offered to low-income borrowers for a designated purpose, such as to pay taxes or to complete a home repair, is known as a:
- Single purpose reverse mortgage
- Home equity conversion mortgage
- Proprietary mortgage
- Designated use reverse mortgage
The answer is single purpose reverse mortgage. Low-income borrowers may be eligible for single purpose mortgages that they can use to meet expenses such as taxes and home repairs.
Which of the following pieces of personal information is a borrower asked to provide voluntarily on the loan application?
- Race, age, and marital status
- Race, ethnicity, and sex
- Sex and childbearing plans
- Marital status and age
The answer is race, ethnicity, and sex. Section 8, Demographic Information, of the 1003 requests information regarding the applicant’s sex, race and ethnicity.
In the absence of caps, adjustments on an ARM loan would be determined solely by:
- The index
- The margin
- The fully-indexed rate
- The lifetime rate
The answer is the fully-indexed rate. If there were no caps involved, an ARM would adjust based on the movement of the fully-indexed rate (margin + index). It would not be adjusted based on index alone or margin alone. While the margin does not change over time, it must be combined with the fluctuating index to find the new rate. It is not sufficient to apply only the index or only the margin to the adjustment - they must be combined into the fully-indexed rate.