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NMLS Exam > Exam 5 > Flashcards

Exam 5 Flashcards

1
Q

According to the federal guidance’s on nontraditional lending, all of the following loan programs are considered to be nontraditional, except:

  1. Interest-only
  2. Payment-option ARM
  3. Hybrid ARM
  4. Stated income
A

The answer is Hybrid ARM. The term “nontraditional” primarily refers to payment structure or qualification documentation. In other words, traditional loans will include a payment structure that regularly decreases the principal balance and will require a borrower to prove that he/she can pay off the loan to qualify.

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2
Q

The primary reason for adopting special appraisal requirements for HPMLs was to:

  1. Discourage the use of inflated appraisals to flip properties
  2. Discourage subprime lending
  3. Ensure that appraisals include a physical inspection of the interior and exterior of a home securing a loan
  4. Encourage the use of certified and licensed appraisers
A

The answer is discourage the use of inflated appraisals to flip properties. The primary reason for adopting special appraisal requirements for HPMLs was to discourage the use of inflated appraisals to flip properties.

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3
Q

Which of the following prefixes indicates the purchase of flood insurance is mandatory?

  1. A and D
  2. A and V
  3. V and D
  4. B, C, and D
A

The answer is A and V. The “A” and the “V” prefixes indicate the zones in which flood insurance is mandatory. In zone “D,” flood insurance is available if a homeowner chooses it, but no other zones require flood insurance.

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4
Q

Sam Slezee was found to be providing mortgage loan origination services without a state license. A temporary order to cease and desist engaging in such activities was issued against Sam. While under the order, Sam completed three transactions. What is the maximum fine a state licensing agency may impose on him?

  1. $25,000
  2. $50,000
  3. $75,000
  4. $100,000
A

The answer is $75,000. The maximum amount of penalty for each act or omission is $25,000. Each violation or failure to comply with any directive or order of the state licensing authority is a separate and distinct violation.

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5
Q

Which of the following statements would be permissible when communicating with an appraiser?

  1. “Can you explain why this property is valued so low, compared to the current market?”
  2. “Your appraisals have been coming in lower than expected lately. We are going to start using another appraiser.”
  3. “Your last appraisal did not meet the minimum value we expected. We are going to have to wait on paying your invoice until we obtain a second opinion.”
  4. “I need this property to value at a minimum of $200,000.”
A

The answer is “Can you explain why this property is valued so low, compared to the current market?”. When communicating with an appraiser, it would be permissible to ask the appraiser to provide more information about appraisal results.

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6
Q

Servicers are required to respond to a _____ from a borrower within five days.

  1. Loan application
  2. Qualified written request
  3. Request for servicing transfer
  4. Notice of rescission
A

The answer is qualified written request. Servicers are required to respond to a qualified written request from a borrower within five days.

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7
Q

The provisions of the GLB Act specifically require compliance with the:

  1. MARS Rule
  2. Safeguards Rule
  3. PATRIOT Act
  4. Truth-in-Lending Act
A

The answer is the Safeguards Rule. The provisions of the GLB Act specifically require compliance with the Safeguards Rule.

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8
Q

Which of the following documents connects the promissory note to the collateral?

  1. Note
  2. Commitment letter
  3. Mortgage
  4. Broker agreement
A

The answer is mortgage. A mortgage connects the promissory note (the borrower’s promise to pay) with the collateral.

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9
Q

Borrowers have the right to rescind a transaction in which a security interest is given in their primary residence until the later of midnight on the _____ business day following the consummation of the transaction or delivery of the required disclosures and rescission forms.

  1. Fifth
  2. Third
  3. Seventh
  4. Tenth
A

The answer is third. Borrowers have the right to rescind a transaction in which a security interest is given in their primary residence until the later of midnight on the third business day following the consummation of the transaction or delivery of the required disclosures and rescission forms.

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10
Q

A due-on-sale clause requires:

  1. That the loan be paid off if the property is sold
  2. That all moneys be transferred at closing
  3. That consummation take place within 30 days of the date on which the borrower receives the Loan Estimate
  4. That the seller address any issues arising from the home inspection prior to closing
A

The answer is that the loan be paid off if the property is sold. A due-on-sale clause requires that the loan be paid off if the property is sold. If the loan is assumable, the new borrowers must qualify with the lender.

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11
Q

The responsibilities of a loan servicer include:

  1. Disbursing escrow funds, managing trust accounts, and adjudicating foreclosure proceedings
  2. Sending closing documents, collecting escrow funds, and obtaining loan funds for clients
  3. Accepting payments, disbursing escrow funds, maintaining records, and managing delinquent accounts
  4. Accepting applications, disbursing interest and principal, and maintaining origination records
A

The answer is accepting payments, disbursing escrow funds, maintaining records, and managing delinquent accounts. Loan servicers handle many tasks, including accepting payments, disbursing escrow funds, maintaining records, and managing delinquent accounts.

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12
Q

An underwriter would expect to see _____ in order to document the income of a commissioned borrower.

  1. Two years’ tax returns if the borrower’s commissions represent 20% of his/her income
  2. 1099s from the previous year
  3. Profit and loss statement and two years’ tax returns
  4. Two years’ tax returns and all schedules if the commission income is more than 25% of income
A

The answer is two years’ tax returns and all schedules if the commission income is more than 25% of income. Commissioned borrowers must show two years’ tax returns if their commission income is more than 25% of their total income.

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13
Q

Which of the following best describes the types of conventional mortgages that are available?

  1. Forward mortgages and reverse mortgages
  2. Prime loans and subprime loans
  3. Conforming loans and nonconforming loans
  4. Traditional mortgages and nontraditional mortgages
A

The answer is conforming loans and nonconforming loans. There are two types of conventional mortgage loans: conforming loans, which meet GSE loan limits and standards, and nonconforming loans, which do not meet GSE loan limits and standards (for example, “jumbo” loans).

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14
Q

When a lender on a loan in default is forced to go to court and request an order of foreclosure, this is called:

  1. Comeuppance
  2. Equity call
  3. Judicial foreclosure
  4. Nonjudicial foreclosure
A

The answer is judicial foreclosure. If a mortgage or deed of trust does not include a power of sale clause, a lender must request a court order for foreclosure. This is known as a judicial foreclosure.

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15
Q

The URLA is also known as:

  1. The application
  2. The appraisal
  3. The 1004
  4. 4506-T
A

The answer is the application. The URLA stands for “Uniform Residential Loan Application.”

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16
Q

Under the GLB Act, a customer relationship is established:

  1. As soon as a borrower inquires about a loan
  2. When the borrower’s loan is funded
  3. Once the loan servicing begins
  4. Upon application
A

The answer is upon application. Under the Gramm-Leach-Bliley Act, a customer relationship begins as soon as a borrower provides non-public personal information. For the purposes of mortgage lending, this happens at application.

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17
Q

Two types of loans used to finance the construction of a property are:

  1. Pre-construction and full construction
  2. Fully-amortized and interest-only
  3. Interim and permanent construction
  4. Construction-to-permanent and stand-alone construction
A

The answer is construction-to-permanent and stand-alone construction. Construction-to-permanent and stand-alone construction loans are two options used to finance the construction of a home being built. Both have advantages and disadvantages based on the borrower’s needs and the timeline of the construction.

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18
Q

When dealing with third-party service providers, banks and nonbanks must establish risk management programs that include all but which of the following elements?

  1. Conducting due diligence to assess the service providers’ ability to comply with the law
  2. Entering contracts with service providers that include enforceable consequences for failing to comply with the law
  3. Establishing compensation programs that withhold payment for services until the service provider can demonstrate compliance with the law
  4. Reviewing the service provider’s employee training programs, particularly for those employees that have direct contact with consumers
A

The answer is establishing compensation programs that withhold payment for services until the service provider can demonstrate compliance with the law. Establishing compensation programs to withhold payment for services is not a required element of a risk management program.

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19
Q

Businesses that conduct telemarketing are required to access the Do-Not-Call Registry every _____ in order to maintain an updated database of people on the Do-Not-Call List.

  1. 31 days
  2. 60 days
  3. 3 months
  4. 45 days
A

The answer is 31 days. A business must update its Do-Not-Call data every 31 days to remain compliant.

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20
Q

Of the following, which factor may lawfully be considered when evaluating an applicant’s eligibility for a mortgage loan?

  1. Visa or immigration status
  2. None of these factors may be considered
  3. Sexual orientation
  4. Marital status
A

The answer is visa or immigration status. ECOA does not allow for the denial of credit to creditworthy applicants. Basing a decision on someone’s sexual orientation or marital status would be considered discriminatory. However, someone’s visa or immigration status can certainly be questioned, as it may help to determine if additional items are needed to document a borrower’s qualifications.

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21
Q

It is a violation of TILA for a loan originator to collect _____ before providing a loan applicant with _____.

  1. A fee for a credit report/a Loan Estimate
  2. An origination fee/a Closing Disclosure
  3. Information on income and assets/a Good Faith Estimate
  4. An origination fee/a Loan Estimate
A

The answer is an origination fee/a Loan Estimate. The collection of an origination fee prior to providing a Loan Estimate is illegal.

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22
Q

Nontraditional credit includes all of the following, except:

  1. Payments to a landlord
  2. Car loans
  3. Electric bills
  4. Telephone bills
A

The answer is car loans. Nontraditional credit includes payments for things not traditionally tracked by or reported to the credit bureaus. This includes things like rent and utility bills.

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23
Q

If a borrower sells personal property in order to raise money for down payment, and the underwriter questions whether the value of the items sold is realistic, the underwriter may:

  1. Deny the loan until another source of down payment can be identified
  2. Take the item in trade for cash value
  3. Have an appraisal done on the item, or ask for further documentation
  4. Add the value in question to the loan amount if further documentation cannot be provided
A

The answer is have an appraisal done on the item, or ask for further documentation. The underwriter will ask to see documentation if the value of personal property being sold is called into question. This may include an appraisal of the property, and/or some further documentation.

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24
Q

Before engaging in a refinance transaction, consumers and mortgage professionals should consider whether the transaction:

  1. Is for a qualified mortgage
  2. Has a tangible net benefit to the loan originator
  3. Has a tangible net benefit to the borrower
  4. Will reach closing in time for the borrower to use the funds as he or she wishes
A

The answer is has a tangible net benefit to the borrower. Before engaging in a refinance transaction, consumers and mortgage professionals should consider whether the transaction has a tangible net benefit to the borrower.

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25
Q

Government monitoring information regarding applicant demographics is found where?

  1. The HUD-1
  2. The 1003
  3. The broker agreement
  4. The 4506-C
A

The answer is the 1003. Demographic information collected for government monitoring purposes (HMDA info) is found on the application, or 1003.

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26
Q

The Phillips family has a joint gross monthly income of $11,300. The $499 lease payment for their car expires in four months. A student loan that has been deferred will kick in at the end of the year, and payments will be $210 monthly. Joe Phillips pays child support for his children with his first wife in the amount of $2,200 per month, but $600 of that will drop off in four months when his oldest son turns 18. They are buying a new home with a loan that carries a $2,700 a month payment. What is their housing ratio?

  1. 29%
  2. 24%
  3. 38%
  4. 41%
A

The answer is 24%. Housing ratio is only concerning the ratio between housing expenses and gross monthly income. In this case, their housing expenses ($2,700), divided by gross monthly income ($11,300) equals 24%

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27
Q

The Comparisons table on the Loan Estimate provides all of the following information, except:

  1. The amount of loan costs paid in the first five years of the loan term
  2. The amount paid for private mortgage insurance before the LTV ratio reaches 78%
  3. The amount of principal paid in the first five years of the loan term
  4. The amount of total interest paid over the loan term
A

The answer is the amount paid for private mortgage insurance before the LTV ratio reaches 78%. The comparisons table does not show the amount paid for PMI before the LTV ratios reaches 78%.

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28
Q

In order to comply with the advertising rules found in Regulation Z, creditors that advertise rates and payments for mortgages must:

  1. Make the required disclosures with equal prominence and in close proximity to the advertised rates or payments
  2. Use model forms
  3. Follow the rules for formatting advertisements that the CFPB prescribes
  4. Disclose all of the terms for the mortgage loan that the creditor is advertising
A

The answer is make the required disclosures with equal prominence and in close proximity to the advertised rates or payments. In order to comply with the advertising rules found in Regulation Z, creditors that advertise rates and payments for mortgages must make the required disclosures with equal prominence and in close proximity to the advertised rates or payments.

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29
Q

Which of the following is not prohibited under the Telemarketing Sales Rule?

  1. Threatening to arrest a borrower if he/she does not pay a bill
  2. Making misleading statements
  3. Transmitting a telephone number so that the recipient can identify it through Caller ID
  4. Placing calls before 8:00am or after 9:00pm
A

The answer is Transmitting a telephone number so that the recipient can identify it through Caller ID. It is not prohibited under the TSR to call a consumer and have the number able to be read on the Caller ID. In fact, it is required.

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30
Q

All of the following are prohibited practices under the FCRA, except:

  1. Allowing the FBI access to a borrower’s file for an investigation
  2. An auto finance company knowingly reporting a borrower late when the payment was accepted on time
  3. A CRA releasing a credit report containing disputed information without marking it as such
  4. Releasing a credit report without written permission
A

The answer is allowing the FBI access to a borrower’s file for an investigation. Exceptions to the FCRA allow for FBI access to a consumer report for the purposes of investigations.

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31
Q

A property is valued at $295,000. The property is subject to a first mortgage and a second mortgage, with a CLTV of 77%. The current balance on the second mortgage is $29,500. What is the approximate amount of the first mortgage?

  1. $256,650
  2. $227,150
  3. $204,435
  4. $197,650
A

The answer is $197,650. The approximate amount of the first mortgage is $197,650. This can be calculated using the information given here, according to the following formula: [first mortgage + second mortgage] / appraised value = CLTV. In this case, the question provides the amount of the second mortgage ($29,500), the appraised value of the property ($295,000), and the CLTV (77%); the amount of the first mortgage (x) must be determined. Using this formula would result in the following equation: [x + $29,500] / $295,000 = .77. First, multiply $295,000 by .77 ($227,150). This figure is equal to the first mortgage (x) plus the second mortgage ($29,500). Subtract $29,500 from $227,150 to find the amount of the first mortgage ($197,650).

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32
Q

Which of the following claims, if used in an advertisement, is not a violation of Regulation Z or the MAP Rule?

  1. Using images, such as American eagles and flags, to suggest that a loan is offered through a federal program
  2. Using language to suggest that the loan is from the borrower’s current lender
  3. Stating that a borrower can take advantage of an opportunity to refinance an ARM with a fixed-rate loan
  4. Claiming that a borrower will not have to make mortgage loan payments anymore
A

The answer is stating that a borrower can take advantage of an opportunity to refinance an ARM with a fixed-rate loan. Regulation Z and the Map Rule prohibit misleading practices. These prohibitions do not include advertising the availability of refinances from adjustable- to fixed-rate products, unless the ad includes misleading or inaccurate information in the benefits of a refinance.

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33
Q

Which of the following is considered a loan primarily for personal, family, or household use that is secured by a mortgage or deed of trust?

  1. Nontraditional mortgage product
  2. Residential mortgage loan
  3. Commercial mortgage loan
  4. Residential real estate
A

The answer is residential mortgage loan. The phrase “primarily for personal, family, or household use” is legal terminology commonly used to identify a residential mortgage loan.

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34
Q

Which form of fraud is most prevalent involving borrowers in the mortgage process?

  1. Falsified applications
  2. Foreclosure rescue scams
  3. Identity theft
  4. Straw sellers
A

The answer is falsified applications. Applications using fraudulent information are the most common type of mortgage fraud involving borrowers. Inconsistent information is present in over 35% of cases.

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35
Q

Before accepting a loan that is a high-cost mortgage, borrowers must complete counseling with a counselor approved by:

  1. CFPB
  2. HUD
  3. FTC
  4. HOEPA
A

The answer is HUD. Before accepting a loan that is a high-cost mortgage, borrowers must complete counseling with a counselor approved by HUD.

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36
Q

The max seller concession that a borrower may receive on a conventional loan when making a 20% down payment is:

  1. 6%
  2. 0%
  3. 3%
  4. 9%
A

The answer is 6%. On conventional loans, a borrower may receive a seller concession of as much as 6% for an LTV at 90% or less.

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37
Q

In most cases, a mortgage loan requires monthly payments. All of the following loan types require monthly payments, except:

  1. HECMs
  2. ARMs
  3. Fixed-rate loans
  4. HELOCs
A

The answer is HECMs. The home equity conversion mortgage (HECM) does not require repayment as long as the borrower continues to live in the home.

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38
Q

“MBS” stands for:

  1. Mortgage borrowing standards
  2. Mortgage balance subordination
  3. Mortgage beneficiary securitization
  4. Mortgage-backed securities
A

The answer is mortgage-backed securities. In the secondary mortgage market, mortgage-backed securities are an investment vehicle in which expected payment streams from mortgage loans make up the profit paid out to investors. MBSs are a product of the secondary market.

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39
Q

A state is conducting an examination of mortgage loan originator Basil Thyme. During the examination, the agency is authorized to do all of the following, except:

  1. Administer oaths or affirmations
  2. Control access to Basil’s office
  3. Subpoena witnesses
  4. Require production of relevant documents
A

The answer is control access to Basil’s office. In conducting an examination or investigation, the state licensing agency is authorized to administer oaths or affirmations; subpoena witnesses; require the production of relevant documents; and control access to any documents and records of any person under examination or investigation.

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40
Q

The practice of intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is known as:

  1. Reverse redlining
  2. Steering
  3. Misappropriation
  4. Redlining
A

The answer is reverse redlining. HOEPA prohibits the intentional targeting of poor or underserved areas with expensive high-cost loans, which is a practice known as reverse redlining.

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41
Q

The Loan Estimate must be provided at least how many days prior to consummation?

  1. Seven days
  2. Three days
  3. Seven business days
  4. Three business days
A

The answer is seven business days. The Loan Estimate must be provided at least seven business days prior to consummation.

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42
Q

Underwriting guidelines for conforming loans are created by:

  1. Fannie Mae and Freddie Mac
  2. HUD
  3. FHA
  4. Freddie Mac and Ginnie Mae
A

The answer is Fannie Mae and Freddie Mac. Conforming loans are subject to loan limits, down payment requirements, income requirements, debt-to-income ratios, and other underwriting guidelines established by Fannie Mae and Freddie Mac.

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43
Q

Conforming loan guidelines generally include DTI ratios of:

  1. 26% / 38%
  2. 31% / 43%
  3. 28% / 41%
  4. 28% / 36%
A

The answer is 28% / 36%. The standard conforming DTI ratios for Fannie Mae and Freddie Mac are 28% (housing) and 36% (total debt).

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44
Q

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

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

The answer is threaten or pressure an appraiser to promise a specific value. It is unlawful to threaten or pressure an appraiser to promise a specific value for an appraisal.

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45
Q

When a mortgage or deed of trust contains a power of sale clause:

  1. The lender can sell the home at its discretion
  2. A judge must enter an order of foreclosure before the home can be sold
  3. The lender may foreclose without first obtaining a court order
  4. The lender is made whole for losses by MIP
A

The answer is the lender may foreclose without first obtaining a court order. When a mortgage or deed of trust contains a power of sale clause, the lender is authorized to sell the property through foreclosure steps without having to obtain a court order first. This is known as a non-judicial foreclosure.

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46
Q

Which of the following is true regarding acceptable sources for down payment?

  1. All gifts may be used, regardless of source
  2. Gifts from relatives are permitted
  3. Gifts from the seller are permitted
  4. No gifts may be used, regardless of source
A

The answer is gifts from relatives are permitted. Acceptable sources for down payment include gifts from relatives and gifts from domestic partners (although Fannie Mae and Freddie Mac require a 12-month relationship history). Gifts from the seller are not an acceptable source of down payment.

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47
Q

Annual insurance for USDA/RHS guaranteed loans is:

  1. More expensive than those for private mortgage insurance
  2. Equal to that charged for mortgage insurance for FHA loans
  3. More expensive than the premiums for FHA loans
  4. Less expensive than that charged for FHA loans and for private mortgage insurance
A

The answer is less expensive than that charged for FHA loans and for private mortgage insurance. USDA/RHS guaranteed loans require payment of upfront and annual mortgage insurance, but the premiums are less than those for other types of mortgage insurance. For USDA/RHS loans, the insurance charge is referred to as the “guarantee fee.”

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48
Q

The _____ is responsible for determining if a property is in a flood zone, and the _____ is responsible for verifying that proper flood insurance is in place.

  1. Underwriter; appraiser
  2. Appraiser; underwriter
  3. Appraiser; title insurer
  4. Underwriter; title insurer
A

The answer is appraiser; underwriter. The appraiser is responsible for determining whether a property is located in a flood zone, and the underwriter verifies that proper flood insurance is in place.

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49
Q

The Peterson family is buying a new home and their new P&I payment totals $1,800 per month. Their annual tax bill is $3,000, and their annual homeowner’s insurance premium is $720. The family’s annual income totals $98,520. What is their housing (i.e., front-end) ratio?

  1. 22%
  2. 32%
  3. 36%
  4. 26%
A

The answer is 26%. The Petersons’ housing ratio - also known as the front-end ratio - is 26%. This is calculated by comparing monthly housing expenses, such as flood insurance, homeowners insurance, and other monthly housing costs, to gross monthly income. In this case, add together the $1,800 mortgage payment with the $250-per-month tax payment and $60-per-month homeowner’s insurance payment. Divide that total ($2,110) by the total monthly income of $8,210 (annual income of $98,520, divided by 12), equaling 26%.

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50
Q

In the event that a real estate agent is also permitted to serve as the broker on a transaction, the person with the dual role must:

  1. Limit earnings to just 1% from the loan
  2. Give the borrower/consumer full disclosure of the relationship
  3. Give the borrower a 10% discount on the cost of the loan
  4. Only share the borrower’s information with unaffiliated third parties
A

The answer is give the borrower/consumer full disclosure of the relationship. In states where it is allowable for a real estate licensee to also act as the mortgage originator, the borrower must be made fully aware of the relationship and advise consumers of the potential conflict of interest.

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51
Q

The purpose of the S.A.F.E. Act is to:

  1. Protect consumers by ensuring that the mortgage lending industry operates without unfair and deceptive practices
  2. Provide the opportunity for credit to all creditworthy applicants
  3. Provide information about closing costs to the consumer
  4. Protect consumers by creating privacy provisions for mortgage lenders
A

The answer is protect consumers by ensuring that the mortgage lending industry operates without unfair and deceptive practices.

52
Q

A covered loan under HOEPA is commonly known as a:

  1. Non-prime
  2. Non-conventional
  3. Low-cost, high-fee
  4. High-cost mortgage
A

The answer is high-cost mortgage. Section 32 of the Truth-in-Lending Act contains information and provisions with regard to high-cost mortgage loans. These loans are identified by APR, points and fees, and/or prepayment penalties that meet or exceed thresholds set to a level deemed excessive.

53
Q

Under ECOA, when is a notice concerning the right to obtain a copy of the appraisal due to a consumer?

  1. Within 90 days of loan application
  2. Within three business days of loan application
  3. Within 30 days of closing
  4. At the time of Notice of Action Taken
A

The answer is within three business days of loan application. Under ECOA, a notice concerning the applicant’s right to obtain a copy of the appraisal is due within three business days of receiving a loan application.

54
Q

For the purposes of providing a Loan Estimate, a “business day” is:

  1. Any day except for Sundays
  2. Any day except for Sundays and legal public holidays
  3. Any day on which the creditor’s offices are open to the public for carrying out substantially all business functions
  4. Any day of the week
A

The answer is any day on which the creditor’s offices are open to the public for carrying out substantially all business functions. For the purposes of providing a Loan Estimate, a “business day” is any day on which the creditor’s offices are open to the public for carrying out substantially all business functions.

55
Q

Creditors must make a(n) _____ of a borrower’s ability to repay a loan.

  1. Probable, estimated determination
  2. Reasonable estimation
  3. Absolute guarantee
  4. Reasonable, good faith determination
A

The answer is reasonable, good faith determination. Creditors must make a reasonable, good faith determination of a borrower’s ability to repay a loan.

56
Q

An upfront mortgage insurance premium is required for _____ loans, and borrowers can pay this amount directly or finance the cost.

  1. VA
  2. USDA
  3. FHA
  4. Conventional
A

The answer is FHA. UFMIP is required for FHA loans, and borrowers can add this cost to the loan amount.

57
Q

Which of the following is offered on conventional mortgages?

  1. UFMIP
  2. Guarantee fee
  3. COE
  4. PMI
A

The answer is PMI. Private mortgage insurance (PMI) is required on conventional mortgages where the LTV is more than 80%. PMI is not used for government loans. MIP is used for FHA loans.

58
Q

XYZ Mortgage is transferring servicing rights for all of its mortgages to a new servicer. RESPA requires what disclosure to be sent to the borrowers affected?

  1. Affiliated Business Disclosure
  2. Servicing Transfer Statement
  3. Escrow Servicing Notice
  4. FTC Service Disposal Notice
A

The answer is Servicing Transfer Statement. RESPA requires that a client be provided a Servicing Transfer Statement at least 15 days prior to the transfer of the loan to a new servicer.

59
Q

An ARM loan has a 4.00% start rate, and it is time for the first adjustment to be made. It has a periodic cap of 1% and a lifetime cap of 5%. What is the highest that the interest rate could be after the first adjustment?

  1. 9%
  2. 7%
  3. 5%
  4. Impossible to answer without the margin and index known
A

The answer is 5%. An ARM with a start rate of 4.00% and a periodic cap of 1% (no initial cap) could move no higher than 5% on its first movement.

60
Q

The Nationwide Multistate Licensing System and Registry was developed and is maintained by:

  1. The FHFA and CFPB
  2. The CSBS and AARMR
  3. The CFPB and CSBS
  4. The AARMR and CFPB
A

The answer is The CSBS and AARMR. The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) are the two organizations responsible for creating and implementing the NMLS.

61
Q

Qualifying ratios consist of which two separate calculations?

  1. Housing expense ratio and total debt ratio
  2. Loan-to-value ratio and qualifying income ratio
  3. Loan-to-value ratio and housing expense ratio
  4. Total debt ratio and qualifying income ratio
A

The answer is housing expense ratio and total debt ratio. Qualifying ratios consist of the housing expense ratio and the total debt ratio.

62
Q

Mary and Larry are purchasing a house for $198,000. They are obtaining a conforming loan and making a down payment of $20,000. How much should they expect to receive in seller help if the seller agrees to contribute the maximum amount?

  1. $11,880
  2. $5,940
  3. $10,680
  4. $12,440
A

The answer is $11,880. The max seller contribution in this scenario is 6% (the down payment is more than 10%). The 6% is taken from the purchase price of $198,000, which is $11,880.

63
Q

A balloon mortgage that includes a conditional refinance provision allows the borrower to:

  1. Request that the loan be refinanced and converted to a 30-year fixed-rate loan
  2. Rescind the transaction if the loan becomes too expensive
  3. Request modification of the terms of the loan when it reaches maturity
  4. Refinance the loan if he or she is in default
A

The answer is request modification of the terms of the loan when it reaches maturity. A balloon mortgage that includes a conditional refinance provision allows the borrower to request modification of the terms of the loan when it reaches maturity.

64
Q

This is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right.

  1. Mortgage fraud
  2. Industry insider fraud
  3. Identity theft
  4. Predatory lending
A

The answer is mortgage fraud. Mortgage fraud is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right.

65
Q

If a borrower selects a mortgage loan covered by HOEPA, he or she:

  1. Can waive the three-day waiting period between the receipt of HOEPA disclosures and consummation of the loan after submitting a written request that is signed by the parties entitled to the waiting period and which describes the emergency and consent to the waiver
  2. Cannot waive the three-day waiting period between the receipt of HOEPA disclosures and consummation of the loan
  3. Can waive the three-day waiting period between the receipt of HOEPA disclosures and consummation of the loan with the creditor’s approval
  4. Can waive the three-day waiting period between the receipt of HOEPA disclosures and consummation of the loan after signing a preprinted lender-provided form which states that the credit is needed to meet a bona fide personal emergency
A

The answer is Can waive the three-day waiting period between the receipt of HOEPA disclosures and consummation of the loan after submitting a written request that is signed by the parties entitled to the waiting period and which describes the emergency and consent to the waiver. If a borrower selects a mortgage loan covered by HOEPA, he/she can waive the three-day waiting period between the receipt of HOEPA disclosures and consummation of the loan after submitting a written request that is signed by the parties entitled to the waiting period and which describes the emergency and consent to the waiver.

66
Q

Which of the following is a lender unable to consider during the qualification process?

  1. The borrower is 65 years old
  2. The borrower has had several jobs in the last two years
  3. The borrower’s credit score is 618
  4. The assets of the borrower are in a retirement account
A

The answer is the borrower is 65 years old. According to ECOA, a lender may not consider a borrower’s age for the purposes of credit qualification.

67
Q

Mortgage insurance premiums are required for:

  1. All conventional loans with an LTV greater than 80%
  2. The first five years of the loan term as long as equity position is less than 20%
  3. All FHA loans
  4. All FHA loans until 20% equity position is attained
A

The answer is All FHA loans. Mortgage insurance premiums are required for all FHA loans.

68
Q

A loss payee clause protects whom?

  1. The lender in the event the property is damaged by fire or other risks
  2. The borrower from losing all of his/her investment
  3. The lender in the event the borrower defaults on the loan
  4. The borrower by using mortgage insurance to offset interest rate adjustment
A

The answer is the lender in the event the property is damaged by fire or other risks. The loss payee clause in a hazard insurance policy protects the lender’s investment in the event that the collateral is damaged by fire or other risks. This means that if there is a fire or other loss, the lender is paid first to cover its investment.

69
Q

A mortgage broker structures a loan priced with two points in borrower credit. He suggests that, based on the limited amount of cash the borrower has on hand to close, it may be best to take a slightly higher rate and use the premium generated to subsidize the closing costs. After consideration, the borrower agrees and moves forward. This is:

  1. Legal and unethical
  2. Legal and ethical
  3. Illegal and ethical
  4. Illegal and unethical
A

The answer is legal and ethical. The primary argument against YSP, prior to changes made in 2011, was that borrowers often had no idea that it was being charged. In scenarios like the one described here, the borrower has the option as to how he/she would like to structure his/her own loan, and the originator abides by the borrower’s decision. This is a legal and ethical use of what is now known as borrower credit.

70
Q

The Qualified Mortgage Rule applies to which of the following?

  1. Bridge loans of 12 months or less
  2. Open-end home equity loans
  3. Reverse mortgages
  4. Loans secured by non-owner-occupied homes
A

The answer is loans secured by non-owner-occupied homes. The Qualified Mortgage Rule applies to a broad range of loans including those secured by second homes or investment properties, but does not apply to open-end home equity loans, bridge loans of 12 months or less, reverse mortgages, or mortgages for timeshares.

71
Q

Frank Stein is a loan originator for a county housing finance agency whose function is to help meet the affordable housing needs of the residents of the state. Is Frank required to be licensed under the S.A.F.E. Act?

  1. He is not required to be licensed if he is registered
  2. Yes, all loan originators must be licensed
  3. He must be licensed only if he represents that he can and will perform the services of a mortgage loan originator
  4. No, he is exempt from the requirement to be licensed
A

The answer is no, he is exempt from the requirement to be licensed. A state is not required to license an individual who is an employee of a federal, state, or local government agency or housing finance agency who acts as a loan originator in the course of his/her employment.

72
Q

“PITI” stands for:

  1. Prime intended tax index
  2. Principal index of taxable investments
  3. Principal, interest, taxes, and insurance
  4. Principal, insurance, taxes, and investments
A

The answer is principal, interest, taxes, and insurance. “PITI” stands for principal, interest, taxes, and insurance, and is the basis for calculation of the front-end debt-to-income ratio (though other monthly housing payments may need to be included).

73
Q

Jesse James was convicted of felony assault eight years ago. Billy Kidd was convicted of fraud 17 years ago. Both have made application to their state to be licensed as mortgage loan originators. What effect will their past records have on their license applications?

  1. Jesse may be granted a license; Billy will not
  2. Both Jesse and Billy will be denied a license because of their felony convictions
  3. Billy may be granted a license; Jesse will not
  4. Both Jesse and Billy may be granted a license
A

The answer is Jesse may be granted a license; Billy will not. To have a license application approved, an applicant may not have been convicted of, or pled guilty, or nolo contendere to, a felony during the seven-year period preceding the date of the application, or at any time if the felony involved an act of fraud, dishonesty, a breach of trust, or money laundering. Even though Billy’s conviction occurred long before the seven-year window, it was a conviction for fraud, making him ineligible for a license.

74
Q

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

  1. Property flopping
  2. Property flipping
  3. Short sale
  4. Air loan
A

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

75
Q

The priority of liens is based on:

  1. The order of recordation
  2. The newest debt paid first
  3. Lien holders must file for payment after a default
  4. The order of recordation, unless a tax lien or subordination agreement changes the order
A

The answer is the order of recordation, unless a tax lien or subordination agreement changes the order. Liens are paid in order based on the recording date, oldest first. However, tax liens take priority, and a subordination agreement can change the order between creditors.

76
Q

As an industry partner in mortgage lending transactions, investors in the secondary mortgage market have an obligation to:

  1. Conduct an adequate review of the loans that they purchase to ensure that the underlying transactions are stable and safe
  2. Purchase as many loans as possible
  3. Purchase an equal number of prime and subprime loans to promote lending in all communities
  4. Restrict their purchases to those loans that are guaranteed by Ginnie Mae
A

The answer is conduct an adequate review of the loans that they purchase to ensure that the underlying transactions are stable and safe. As an industry partner in mortgage lending transactions, investors in the secondary mortgage market have an obligation to conduct an adequate review of the loans that they purchase to ensure that the underlying transactions are stable and safe.

77
Q

When a creditor revises a Loan Estimate, the revised version must be received by the consumer:

  1. No later than seven business days prior to consummation
  2. On the same date that it delivers a Closing Disclosure
  3. No later than four business days prior to consummation
  4. At the same time that the revisions are made
A

The answer is no later than four business days prior to consummation. When a creditor revises a Loan Estimate, the revised version must be received by the consumer no later than four business days prior to consummation.

78
Q

An ARM that allows a borrower the opportunity to convert the loan to a fixed rate has a:

  1. Conversion option
  2. Conditional provision
  3. Conversion rider
  4. Conversion requirement
A

The answer is conversion option. The option on an ARM that gives a borrower the opportunity to convert his/her loan to a fixed rate is called a conversion option.

79
Q

A lender is trying to lure customers with advertisements for “Minimum Monthly Payments to Meet Any Budget!” This advertisement must also include an equally prominent statement in close proximity which alerts consumers that:

The loan may not be paid off by the end of the loan term
The loan is only advised for borrowers with a short-term interest in the dwelling used to secure the loan
The borrower should seek homeownership counseling prior to applying for the loan
A balloon payment may result from minimum periodic payments

A

The answer is a balloon payment may result from minimum periodic payments. The advertisement must include a statement that a balloon payment may result from minimum periodic payments.

80
Q

Which of the following is a limit on the amount that the interest rate can change, up or down, on any adjustment date?

  1. Initial rate cap
  2. Periodic rate cap
  3. Lifetime rate cap
  4. Payment cap
A

The answer is periodic rate cap. The periodic rate cap is a limit on the amount by which the interest rate can change, up or down, on any adjustment date.

81
Q

All of the following may be considered employment red flags, except:

  1. Credit history is missing entirely
  2. Paystub check numbers that are out of sequence or do not correspond with payroll dates
  3. W-2s that are handwritten and may not include a company logo
  4. Social Security Numbers on the application which do not match those on the income documents
A

The answer is credit history is missing entirely. Missing credit history is a credit report red flag, not an employment red flag.

82
Q

Lisa and Ryan are moving out of state and have sold their home. Unfortunately, the closing on their old home is not for another two months, and they need funds to begin making payments on their new home, which they have closed on and plan to move into immediately. Their lender is likely to suggest that they secure:

  1. A construction-to-permanent loan
  2. A subprime loan
  3. An interest-only loan
  4. Bridge financing
A

The answer is bridge financing. Bridge financing is used to help homeowners who are selling one home and buying another to make payments on their new home loan while waiting for the closing date on their old home to arrive.

83
Q

Which of the following is not a consideration when determining the financial responsibility of a licensee?

  1. Net worth
  2. Surety bond or state fund
  3. Credit score
  4. Felony convictions of company officers
A

The answer is felony convictions of company officers. While felony convictions are certainly a consideration in determining license eligibility, it is not considered in determining financial responsibility.

84
Q

Pamela has taken the NMLS-approved licensing test for the second time and received a score of 74%. What is the result of Pamela’s attempt?

  1. Pamela has earned a passing score
  2. Pamela’s score is close enough to the required score that she can ask for exemption from testing again
  3. Pamela has failed the test and must wait at least 30 days before retaking it
  4. Pamela has failed the test again and must wait at least six months before taking it
A

The answer is Pamela has failed the test and must wait at least 30 days before retaking it. An applicant for a loan originator license must pass the examination with a score of at least 75%. If the applicant fails the test, he/she may take it two additional times, if necessary, with at least 30 days between each attempt. After failing three consecutive tests, however, the applicant must wait at least six months before taking the test again.

85
Q

After an escrow account is established for an HPML, it:

  1. May not be canceled
  2. Will cancel automatically in five years after consummation unless the borrower is in default
  3. May be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan
  4. Will cancel automatically in five years after consummation if the unpaid principal balance is less than 80% of the original value of the home securing the loan
A

The answer is may be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan. After an escrow account is established for an HPML, it may be cancelled at the borrower’s request five years after consummation if the borrower is not currently delinquent or in default and the loan balance is less than 80% of the original value of the home securing the loan.

86
Q

Once a state licensing agency has provided private or confidential information to the NMLS, what is the status of the information?

  1. Privacy and confidentiality requirements continue to apply
  2. It becomes a matter of public record
  3. It remains confidential only if the state requests it
  4. States do not provide private or confidential information to the NMLS
A

The answer is privacy and confidentiality requirements continue to apply. The requirements under any federal or state law regarding the privacy or confidentiality of any information or material provided to the NMLS continue to apply after such information has been disclosed to the NMLS.

87
Q

The GLB Act gives loan applicants the ability to opt out of the sharing of their nonpublic personal information with:

  1. Third-party settlement service providers
  2. Affiliates of the creditor
  3. Affiliates and nonaffiliates of the creditor
  4. Nonaffiliates of the creditor
A

The answer is non-affiliates of the creditor. Loan applicants may opt out of the sharing of their nonpublic personal information with non-affiliates.

88
Q

An underwriter examines title documents for issues that may cloud the title or affect marketability. All of the following are items that may affect title, except:

  1. Easements
  2. Land locks
  3. Leaseholds
  4. Completion notice
A

The answer is completion notice. A completion notice is required of an appraiser, typically to document the completion of new construction prior to closing a loan on the property. Easements, land locks, and leaseholds are all examples of title issues that may affect marketability or cloud title.

89
Q

The FCRA places all of the following limitations on the inclusion of negative information in credit reports, EXCEPT:

  1. A limit on bankruptcies that are more than ten years old
  2. A limit on accounts placed for collection that are more than seven years old
  3. A limit on civil lawsuits that are more than seven years old
  4. A limit on bankruptcies that are more than seven years old
A

The answer is a limit on bankruptcies that are more than seven years old. Most negative information that is more than seven years old is not included in a credit report; however, bankruptcies may be reported for up to ten years.

90
Q

Marketing campaigns for the solicitation of credit are covered by the provisions of:

  1. GLB
  2. TILA
  3. RESPA
  4. ECOA
A

The answer is TILA. General marketing and advertising for credit is covered by TILA.

91
Q

Underwriting of non-qualified mortgages must compute periodic payments that:

  1. Include consideration of periodic rate caps
  2. Do not take periodic rate caps into consideration
  3. Do not take lifetime rate caps into consideration
  4. Include consideration of the value of the dwelling as a borrower asset
A

The answer is do not take periodic rate caps into consideration. Underwriting of non-qualified mortgages must compute periodic payments that do not take periodic rate caps into consideration.

92
Q

The primary purpose of ECOA is to:

  1. Make credit available to borrowers who are less than qualified
  2. Make sure credit is available to all creditworthy applicants
  3. Make sure credit is not denied because of a lack of income stability
  4. Prevent denial of credit due to a potential borrower’s past credit history
A

The answer is make sure credit is available to all creditworthy applicants. The primary purpose of ECOA is to promote the availability of credit for all creditworthy applicants.

93
Q

When Connie’s sister Callie loses her job due to downsizing, Connie suggests that Callie work with her in originating mortgages while she looks for another position. Callie could originate loans using Connie’s unique identifier, saving Callie the time and expense of obtaining her own loan originator license. Connie would then split the fees with her sister. Which of the sisters would be guilty of engaging in a prohibited act if they pursue this scheme?

  1. Connie, but not Callie
  2. Callie, but not Connie
  3. Both Connie and Callie
  4. Neither sister
A

The answer is Both Connie and Callie. Both Connie and Callie would be guilty of engaging in a prohibited act. Callie would be conducting loan origination business without holding a valid license, while Connie is assisting Callie, an unlicensed individual, in conducting loan origination business.

94
Q

Doug and Carrie bought their house using a three-year ARM with a start rate of 3.00%. They are making plans for the first rate adjustment on the loan after receiving a notice from their lender informing them of the impending change. The letter states the margin of 3.00% and the current value of the index as 3.75%. It also states that they are protected by a periodic adjustment cap of 2% and a lifetime cap of 6%. What will the adjusted rate be?

  1. 9%
  2. 5%
  3. 6.75%
  4. 6%
A

The answer is 5%. The ARM adjustment would be controlled by the periodic cap, because the “true rate” or “fully-indexed rate” is 6.75% (margin + index). Because the periodic cap prevents the start rate from moving any more than 2% at any given adjustment, the first move can only go as high as 5.00%.

95
Q

Which legislation sets the disclosure requirements for the Affiliated Business Arrangement Disclosure?

  1. TILA
  2. RESPA
  3. ECOA
  4. HOEPA
A

The answer is RESPA. RESPA determined that the Affiliated Business Arrangement Disclosure should be provided to the borrower at the time of referral to the affiliated third party.

96
Q

Which of the following inquiries is considered lawful when asked for the purposes of credit approval as governed by ECOA?

Years on the job
Race
Marital status
Age

A

The answer is years on the job. ECOA protects against discrimination in credit transactions. Asking how many years someone has been at their job is not considered discriminatory. It is a gauge of income stability.

97
Q

During a routine examination, a state licensing agency discovered that mortgage loan originator Karen Villmer routinely overcharged borrowers for third-party services and pocketed the difference for herself. In terms of an enforcement action, the state licensing agency may do all of the following, except:

  1. Seize Karen’s bank accounts
  2. Suspend or revoke Karen’s license
  3. Require restitution be paid to the borrowers
  4. Impose a civil penalty
A

The answer is Seize Karen’s bank accounts. In order to ensure effective supervision and enforcement of the S.A.F.E. Act, the state licensing agency may deny, suspend, revoke, condition, or decline to renew a license for a violation of the state’s S.A.F.E. Act, rules and regulations issued under the Act or any order or directive entered under the Act; order restitution be paid by persons who have violated the state’s S.A.F.E. Act; and/or impose a civil penalty on a mortgage loan originator.

98
Q

Second appraisal requirements for higher-priced mortgage loans were put in place in an attempt to curb the practice of:

  1. Reverse redlining
  2. Property flipping
  3. Equity stripping
  4. Steering
A

The answer is property flipping. Second appraisal requirements were put in place under the HPML Rule for certain higher-priced mortgage loan transactions in an attempt to curb the practice of property flipping.

99
Q

Which of the following entities or individuals is responsible for determining financial responsibility requirements for state-licensed originators, lenders, or brokers?

  1. The NMLS
  2. The state regulator
  3. The governor
  4. The legislature
A

The answer is the state regulator. The NMLS consolidates and makes licensing records available to state regulators to use for licensing decisions.

100
Q

The implementing regulations for the Home Mortgage Disclosure Act are known as:

  1. Regulation X
  2. HDA
  3. Regulation C
  4. Section 32
A

The answer is Regulation C. The regulations promulgated under HMDA are known as Regulation C.

101
Q

A _____ is an individual who, in exchange for a fee, allows his or her qualifying information to be used on an application for a loan he or she has no intention of repaying.

  1. Straw seller
  2. Straw buyer
  3. Air loan
  4. Identity thief
A

The answer is straw buyer. A straw buyer is an individual who, in exchange for a fee, allows his or her qualifying information to be used on an application for a loan he or she has no intention of repaying.

102
Q

The mandatory waiting period between issuance of disclosures and consummation may be waived:

  1. Using a preprinted form from the lender
  2. If the loan originator waives it for the consumer
  3. If the consumer requests a waiver due to a bona fide financial emergency
  4. If the loan is a qualified mortgage
A

The answer is if the consumer requests a waiver due to a bona fide financial emergency. The mandatory waiting period between issuance of disclosures and consummation may be waived if the consumer requests a waiver due to a bona fide financial emergency.

103
Q

What is the name of the rule that increases requirements for the consideration of a borrower’s ability to repay?

  1. The HOEPA Rule
  2. The Valuations Rule
  3. ATR/QM Rule
  4. The HPML Appraisal Rule
A

The answer is ATR/QM Rule. The ATR/QM Rule expanded requirements for the consideration of a borrower’s ability to repay when originating closed-end loans.

104
Q

The first step in the closing process is:

  1. Rescission
  2. Funding
  3. Application
  4. Steering
A

The answer is funding. The first step in the closing process is funding. This occurs when the lender wires funds to the title company or closing attorney. Once the closing has occurred, the title company is authorized to release funds to the parties (disbursement). Depending on state law and the type of transaction, disbursement could occur at closing or several days later.

105
Q

All of the following correctly pair federal laws with their implementing regulations, except:

  1. The Equal Credit Opportunity Act and Regulation B
  2. The Real Estate Settlement Procedures Act and Regulation X
  3. The Gramm-Leach-Bliley Act and Regulation V
  4. The Truth in Lending Act and Regulation Z
A

The answer is The Gramm-Leach-Bliley Act and Regulation V. The Gramm-Leach-Bliley Act is implemented by Regulation P.

106
Q

Which of the following would not be considered in the loan application process?

  1. Previous housing payment history
  2. Income history
  3. Current liabilities
  4. A bankruptcy from 15 years ago
A

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.

107
Q

Which of the following is true with regard to VA loans and qualified mortgages?

  1. VA loans are not qualified mortgages
  2. VA loans are temporary qualified mortgages
  3. VA loans have a rebuttable presumption of compliance under the QM Rule
  4. VA loans are safe harbor qualified mortgages
A

The answer is VA loans are safe harbor qualified mortgages. VA-guaranteed loans that are made in compliance with VA standards are safe harbor qualified mortgages.

108
Q

Annual PMI is determined by multiplying:

  1. The loan amount and the interest rate
  2. The mortgage insurance rate and the number of months in a year
  3. The interest rate and the number of months in a year
  4. The loan amount and the mortgage insurance rate
A

The answer is the loan amount and the mortgage insurance rate. Annual PMI is determined by multiplying the loan amount and the mortgage insurance rate.

109
Q

For ARMS characterized by figures like “3/1,” “5/1,” “7/1,” or “10/1,” the first number represents _____, and the second number represents _____.

  1. The start rate; the periodic cap
  2. The locked term; the adjustment frequency
  3. The initial cap; the periodic cap
  4. The locked term; the adjustment cap
A

The answer is the locked term; the adjustment frequency. ARMS are often named for their features. In other words, a 3/1 ARM is locked for three years, and then adjusts annually each year thereafter. The first number represents the locked term and the second number represents the adjustment frequency.

110
Q

April Byrd’s work in the mortgage industry requires her to work at a specific location and be present at specific hours in exchange for a salary. April is a(n):

  1. Independent contractor loan processor
  2. Loan processor consultant
  3. Exclusive agent
  4. Employee
A

The answer is employee. An employee is an individual whose manner and means of performance of work are subject to the right of control of, or are controlled by, a person, and whose compensation, for federal income tax purposes, is reported on a W-2 form issued by the controlling person.

111
Q

What was the first law that Congress enacted to combat predatory lending?

  1. TILA
  2. Fair Housing Act
  3. HOEPA
  4. RESPA
A

The answer is HOEPA. The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 and was the first legislation specifically created to combat the practice of predatory lending.

112
Q

A wholesale lending arrangement that permits a mortgage broker to originate, close, and fund a loan using a warehouse line of credit is called:

  1. Warehouse lending
  2. Table lending
  3. Table funding
  4. Warehouse servicing
A

The answer is table funding. Table funding essentially allows a broker to act as the lender on the transaction, prior to transferring the loan immediately after closing to the lender that extended the credit line. The credit line used for funding is then replenished.

113
Q

All of the following are true regarding the origination of non-qualified mortgages, except:

  1. Non-QMs may include features such as balloon payments or negative amortization
  2. Borrowers are not held to the 43% debt-to-income ratio limitation
  3. Non-QMs may include features such as interest-only payments or payment-option provisions
  4. Analysis of borrower repayment ability is not required
A

The answer is analysis of borrower repayment ability is not required. Non-qualified mortgages may include features such as balloon payments, negative amortization, interest-only payments, or payment-option provisions. Borrowers are not held to a debt-to-income ratio limitation. Analysis of borrower repayment ability is still required.

114
Q

How often must a borrower renew owner’s title insurance?

  1. With each refinance
  2. When the house is sold to the next owner
  3. Owner’s title insurance expires every seven years
  4. It is not necessary to renew
A

The answer is it is not necessary to renew. Owner’s title insurance is good for the period of time that a borrower owns the home, meaning it must only be purchased once and does not require renewal.

115
Q

An independent contractor is required to:

  1. Become state-licensed as a loan originator
  2. Pay a registration fee to the NMLS to be included in the state fund
  3. Complete six additional hours of education annually
  4. Originate loans within the limitations of the requisite surety bond
A

The answer is become state-licensed as a loan originator. An independent contractor is required to become state-licensed in order to increase accountability within the NMLS system.

116
Q

In a title theory state, title to residential real estate is granted with a _____, naming the lender as the beneficiary of the trust, the borrower as the trustor, and the third party that holds the deed until the loan is fully paid as the _____.

  1. Mortgage / assignee
  2. Deed of trust / assignor
  3. Mortgage / trustor
  4. Deed of trust / trustee
A

The answer is deed of trust / trustee. In a title theory state, title to residential real estate is granted with a deed of trust, naming the lender as the beneficiary of the trust, the borrower as the trustor, and the third party that holds the deed until the loan is fully paid as the trustee.

117
Q

In a transaction for a fixed-rate mortgage to finance a home purchase, the loan applicant should receive:

  1. The CHARM Booklet
  2. Your Home Loan Toolkit: A Step-by-Step Guide
  3. What You Should Know about Home Equity Lines of Credit
  4. The Consumer Handbook on Fixed-Rate Mortgages
A

The answer is Your Home Loan Toolkit: A Step-by-Step Guide. In a transaction for a fixed-rate mortgage to finance a home purchase, the loan applicant should receive Your Home Loan Toolkit: A Step-by-Step Guide.

118
Q

In calculating an adjustment for an ARM, the fully-indexed rate is determined by adding:

  1. The margin to the start rate
  2. The start rate to the index
  3. The index to the lifetime cap
  4. The margin to the index
A

The answer is the margin to the index. The fully-indexed rate determines the movement of an ARM (absent the caps). In order to arrive at the fully-indexed rate, you simply add the margin and index together.

119
Q

Title searches and title insurance:

  1. Are covered under the provisions of RESPA, but are not considered settlement services
  2. Are not covered under the provisions of RESPA but are considered settlement services
  3. Are covered under the provisions of RESPA and are considered settlement services
  4. Are not covered under the provisions of RESPA and are not considered settlement services
A

The answer is are covered under the provisions of RESPA and are considered settlement services. The provisions of RESPA cover settlement services including title searches, title examinations, and title insurance.

120
Q

An originator’s unique identifier must be shown on all but which of the following documents?

  1. Business signage
  2. Mortgage loan applications
  3. Advertisements
  4. Business cards
A

The answer is business signage. The unique identifier of any person originating a residential mortgage loan must be clearly shown on all residential mortgage loan application forms; solicitations or advertisements, including business cards or websites; and any other documents as established by rule, regulation, or order of the state licensing agency (MSL.210).

121
Q

If a broker is preparing to publish an ad to bring in new clients, with which law should he/she be familiar?

  1. TILA
  2. FNMA
  3. FCRA
  4. FACTA
A

The answer is TILA. The Truth-in-Lending Act governs advertising for credit. Ads for mortgages fall under this legislation.

122
Q

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

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

The answer is mortgage fraud. The intentional misrepresentation of material information needed for underwriting approval is considered mortgage fraud.

123
Q

A VA loan referred to as an “IRRRL” is an:

  1. Interest Rate Refinance Return Loan
  2. Interest Reduction and Refinance Loan
  3. Interest Rate Reduction Refinance Loan
  4. Interim Rate Refinance Reduction Loan
A

The answer is Interest Rate Reduction Refinance Loan. In terms of VA loans, IRRRL stands for Interest Rate Reduction Refinance Loan, often referred to as “streamline” or a “VA to VA.”

124
Q

A conditional refinance provision might be a feature of what type of loan?

  1. Option ARM
  2. 15-year fixed
  3. Interest-only ARM
  4. Balloon
A

The answer is balloon. A balloon loan may be eligible for refinance if it carries a conditional refinance provision. This means the loan may qualify for refinance if certain conditions are met, including: borrower must live in the house; no second liens in place; must be current and not have been late in 12 months; new rate cannot exceed 5% over the note; docs must be signed and fees paid.

125
Q

The Telemarketing Sales Rule prohibits calls:

  1. Made to a customer after 8:00 a.m. or before 9:00 p.m.
  2. Made to consumers who have specifically asked a mortgage professional not to contact them
  3. To consumers not listed on the Do-Not-Call Registry
  4. To customers who established a business relationship within the last 12 months
A

The answer is made to consumers who have specifically asked a mortgage professional not to contact them. The Telemarketing Sales Rule prohibits calls made to consumers before 8:00am or after 9:00pm. Also, mortgage professionals may not make calls to consumers listed on the Do-Not-Call List or if an established business relationship is over 18 months old. Finally, mortgage professionals must respect a consumer’s specific request to be removed from a contact list.

NMLS Exam (8 decks)

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