Exam 6

Question 1

A fee may be charged for preparing or delivering a Closing Disclosure if:

The consumer requests a revised copy
The consumer requests one or more duplicate copies
A fee may not be charged for preparing or delivering a Closing Disclosure
The fee does not exceed .5% of the loan amount

Answer 1

The answer is a fee may not be charged for preparing or delivering a Closing Disclosure. A fee may not be charged for preparing or delivering a Closing Disclosure.

Question 2

A creditor must provide an Affiliated Business Arrangement Disclosure to a loan applicant:

Only if the creditor will receive a referral fee from the provider of settlement services
At the same time that it refers a loan applicant to any provider of settlement services
Only if the loan applicant was referred to the creditor as a provider of mortgage credit
At the same time that it refers a loan applicant to an affiliated provider of settlement services

Answer 2

The answer is at the same time that it refers a loan applicant to an affiliated provider of settlement services. Creditors are required to offer an Affiliated Business Arrangement Disclosure at the same time that they refer a consumer to an affiliated provider of settlement services.

Question 3

A fee that lenders may receive for selling or transferring their right to service a mortgage loan is called:

Yield spread premium
Margin
Service release premium
Finance charge

Answer 3

The answer is service release premium. When a lender gives up its right to service a loan through sale or transfer of that loan, the lender may receive a service release premium in exchange for relinquishing its right.

Question 4

For which of the following reasons would a borrower be more likely to choose a 15-year fixed loan over a 30-year fixed?

To minimize the monthly payment amount
To maximize the tax credit for mortgage interest
To minimize closing costs
To pay less interest over the life of the loan

Answer 4

The answer is to pay less interest over the life of the loan. A 15-year mortgage shortens the amortization period and therefore decreases the amount of interest paid over the life of the loan. While the term of the loan would not make a difference in total principal paid back, the interest amount would be considerably less on a $200,000 loan for a 15-year term than for a 30-year term.

Question 5

What is the LTV for a loan in the amount of $525,000 and a property with an appraised value of $750,000?

70%
75%
68%
80%

Answer 5

The answer is 70%. To determine LTV, simply divide the loan amount by the value of the property. $525,000 / $750,000 = 70%

Question 6

Sally and Ben have lived in their home for ten years and are considering shortening their term. Which of the following appraisal approaches would be best?

Income approach
Cost approach
Market comparison approach
Sales comparison approach

Answer 6

The answer is sales comparison approach. The sales comparison approach is most commonly used and involves the comparison of three similar, recently-sold properties.

Question 7

VA loans require a funding fee under all of the following conditions, except:

The veteran makes a 10% down payment
The veteran is disabled
The veteran is using his/her eligibility for a second time
The veteran is using his/her eligibility for the first time

Answer 7

The answer is the veteran is disabled. A veteran who is disabled does not pay a funding fee.

Question 8

Under ECOA, the Attorney General may take action against a creditor who appears to have engaged in:

A pattern or practice of discrimination
Straw selling
Redlining
A pattern or practice of mortgage fraud

Answer 8

The answer is a pattern or practice of discrimination. Under ECOA, the Attorney General may take action against a creditor who appears to have engaged in a pattern or practice of discrimination.

Question 9

In which of the following scenarios would it be appropriate to conduct an appraisal using a cost approach?

An appraisal is done on a new home being built for a first-time homebuyer
A borrower wants to refinance his/her primary residence to lower the cost
An investor is having an appraisal done on his/her rental
A buyer is determining the value of a home he/she has under contract

Answer 9

The answer is an appraisal is done on a new home being built for a first-time homebuyer. The cost approach is generally used on new home construction (among other reasons). This approach arrives at a value by estimating the value of the land, as if vacant, and adding the cost to build the house.

Question 10

What is the name of the disclosure required for HELOCs?

Financial Advantages of Second Mortgages
CHARM Booklet
Your Home Loan Toolkit: A Step-by-Step Guide
What You Should Know about Home Equity Lines of Credit

Answer 10

The answer is What You Should Know about Home Equity Lines of Credit. The disclosure required by TILA for HELOCs is called “What You Should Know about Home Equity Lines of Credit.”

Question 11

If a mortgage broker agrees to serve a loan applicant as his or her agent, the broker owes _____ to the applicant.

A fiduciary duty
A fidelity agreement
A financial partnership
Power of attorney

Answer 11

The answer is a fiduciary duty. If a mortgage broker agrees to serve a loan applicant as his or her agent, the broker owes a fiduciary duty to the applicant.

Question 12

In order to meet the federal S.A.F.E. Act requirements, a state licensing agency must provide for all of the following, except:

Participation in the NMLS
Setting renewal or reporting dates
The creation of a separate agency
Conducting background checks

Answer 12

The answer is the creation of a separate agency. In overseeing mortgage loan originators, a state must provide effective supervision and enforcement. Effective supervision by a state includes participation in the NMLS, the writing of rules and regulations necessary to the licensing of loan originators, conducting background checks, the setting and resetting of renewal or reporting dates, and taking appropriate enforcements actions.

Question 13

Under Regulation Z, an advertisement for a home equity line of credit that exceeds the fair market value of a home must include which of the following statements?

Interest on the portion of the credit that exceeds market value is deductible at 50% of its normal value
Only a portion of interest that is charged in excess of $10,000 annually is deductible from income taxes
The borrower should consult a tax advisor regarding deductibility of interest
The borrower may no longer deduct interest on a home equity line of credit

Answer 13

The answer is the borrower should consult a tax advisor regarding deductibility of interest. An advertisement for a home equity line of credit that exceeds the fair market value of a home must include a statement that the borrower should consult a tax advisor regarding deductibility of interest.

Question 14

Which of the following terms is allowed in a high-cost mortgage?

Terms that permit a payment schedule resulting in negative amortization
An advanced payment
A variable interest rate
A prepayment penalty

Answer 14

The answer is a variable interest rate. High-cost mortgages are permitted to have a variable interest rate, however, negative amortization, advanced payments, and prepayment penalties are not allowed.

Question 15

Which of the following would be subject to the ATR Rule?

A purchase money mortgage
A reverse mortgage loan
A construction loan
A purchase money mortgage made by a housing finance agency

Answer 15

The answer is a purchase money mortgage. A purchase money mortgage would be subject to the ATR Rule.

Question 16

The _____ is ultimately responsible for ensuring that the borrower receives a Closing Disclosure.

Settlement agent
Creditor
Seller
Mortgage broker

Answer 16

The answer is creditor. The creditor is ultimately responsible for ensuring that the borrower receives a Closing Disclosure.

Question 17

For which of the following transaction types would a creditor not be required to provide the consumer with a Loan Estimate?

A purchase money mortgage
A closed-end home equity loan
A home equity line of credit
A refinance of an existing mortgage

Answer 17

The answer is a home equity line of credit. A Loan Estimate would not be required in a transaction for a home equity line of credit.

Question 18

What is the purpose of the Fair Credit Reporting Act?

To prevent lenders from using credit to determine creditworthiness in order to mitigate the losses incurred by borrowers who were under-qualified for loans
To ensure accuracy, fairness, and the privacy of consumers’ personal information assembled and used by consumer reporting agencies
To use special obligations on users and furnishers to limit credit availability
To protect the rights of lenders in the event of default

Answer 18

The answer is to ensure accuracy, fairness, and the privacy of consumers’ personal information assembled and used by consumer reporting agencies. The FCRA was enacted to protect the consumer in any transaction involving the use of credit reports. It is meant to govern the accuracy, fairness, and privacy of a consumer’s information when it is assembled for the purposes of credit evaluation.

Question 19

A home equity conversion mortgage (HECM) is a type of _____ that is made pursuant to guidelines established by the _____.

Reverse mortgage/Federal Trade Commission
Home equity loan/CFPB
Reverse mortgage/FHA
Home equity loan/HUD

Answer 19

The answer is reverse mortgage/FHA. HECMs are reverse mortgages that are offered in compliance with program guidelines set by the FHA and HUD.

Question 20

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?

29%
38%
24%
41%

Answer 20

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%.

Question 21

If a lender is comfortable with existing data on a property being used as collateral for a rate and term refinance, what might be permitted?

A waiver of the rescission period
A silent second
A property inspection waiver
A streamline close

Answer 21

The answer is a property inspection waiver. A property inspection waiver may be allowed if the lender is comfortable with existing data on a property used as collateral for a rate/term refinance.

Question 22

A rent credit is used in a purchase transaction:

If the seller is “renting back” after closing until he/she is ready to move into the new home
If the buyer has to rent a place to live until the purchase is settled
When the seller credits a portion of previous rent paid as a source of down payment
When there is a delay in settling, and the builder is forced to put the buyer up in a hotel

Answer 22

The answer is when the seller credits a portion of previous rent paid as a source of down payment. A rent credit is used to help a borrower with down payment when purchasing a home he/she previously rented. The previous owner would credit a portion of the rent toward the down payment.

Question 23

Cindy bought a home and closed on a 6.0% rate for 30 years. The loan includes a payment feature that allows Cindy to make a $1,400/month payment for the first five years, and a $1,800/month payment for the remainder of the loan. What type of loan is this?

Variable
ARM
Option ARM
Fixed rate

Answer 23

The answer is fixed rate. This loan is a fixed-rate loan (at 6% for 30 years). The payment example shows an interest-only feature for the first five years and then a fully-amortized payment for the remainder of the loan.

Question 24

The term “adjustment interval” refers to:

The amount an ARM can adjust between the start rate and rate ceiling
The time it takes for a margin to move from start rate to rate ceiling
The time period between adjustments for an ARM
The movement of the index to which an ARM is tied

Answer 24

The answer is the time period between adjustments for an ARM. Adjustment interval is the time period between ARM adjustments.

Question 25

Which of the following fees must be included in the calculation of finance charges?

Appraisal fees
Seller’s points
Credit reporting fees
Origination fees

Answer 25

The answer is origination fees. TILA requires charges for origination fees to be included when calculating the finance charge.

Question 26

Which of the following is least likely to happen if a loan is found to be fraudulent by the servicer?

Broker must buy back the loan
Lender calls the loan due
Originator must pay back commissions
Interest rate is increased on the loan

Answer 26

The answer is interest rate is increased on the loan. If a loan is discovered to be fraudulent by the servicer, a broker may be required to buy the loan back, repay any commissions earned on it, and the lender may actually call the loan due. However, it is very unlikely that a lender would raise the rate and continue collecting payments.

Question 27

Which of the following types of loans is not a conventional mortgage?

Nonconforming loan
Non-qualified mortgage
FHA loan
Subprime loan

Answer 27

The answer is FHA loan. Conventional loans include a wide range of loan types except for government-insured and guaranteed loans such as FHA loans, USDA loans, and VA loans.

Question 28

Which of the following is used as a method of identifying and holding licensees accountable, according to the S.A.F.E. Act?

Loan originator financial and ethical disclosures
Records of annual loan originator volume
Unique identifier
CSBS number

Answer 28

The answer is unique identifier. The “unique identifier” is the official description of the NMLS number, which is used to track and hold accountable all licensed entities and individuals in the mortgage lending industry.

Question 29

A licensee may attempt a qualified written exam three consecutive times, each occurring at least _____ days after the preceding test.

30
45
90
180

Answer 29

The answer is 30. A licensee is permitted three total attempts, with at least a 30-day waiting period in between each attempt, after which a 180-day waiting begins before a fourth attempt can be made.

Question 30

Loans are originated and funded in the:

Secondary mortgage market
Reverse mortgage market
Subprime mortgage market
Primary mortgage market

Answer 30

The answer is primary mortgage market. Loans are originated and funded in the primary mortgage market.

Question 31

Which of the following is an example of the discriminatory practice of steering?

Refusing to originate loans for borrowers in a particular ZIP code
Limiting the scope of business to a 100-mile radius of the office
Approving a loan based on the borrower’s equity rather than his or her ability to repay the loan
Showing a borrower of a particular race or ethnicity properties in a specific neighborhood regardless of the borrower’s interests or financial capacity

Answer 31

The answer is showing a borrower of a particular race or ethnicity properties in a specific neighborhood regardless of the borrower’s interests or financial capacity. In fair lending terms, steering is the practice of directing a potential homebuyer in a particular direction based on his or her demographics and without regard to his or her interests or financial capacity. This should not be confused with the separate predatory lending practice called steering, in which mortgage professionals coerce or otherwise guide consumers to accept loan terms that are more expensive than they need in order to increase profits.

Question 32

Sharing a borrower’s personal financial information for purposes other than what it was provided for is a violation of what act?

GLB Act
S.A.F.E. Act
TILA
Homeowners Protection Act

Answer 32

The answer is GLB Act. The Gramm-Leach-Bliley Act governs the use of non-public personal information and how it can be shared amongst affiliated third parties.

Question 33

On which portion of the redesigned loan application would one find a street address of the property and whether it will be a primary or secondary residence?

Section 1
Section 9
Section 8
Section 4

Answer 33

The answer is Section 4. Section 4 of the 1003, “Loan and Property Information,” provides information about the property, including its street address and how it will be used.

Question 34

For a fee, a real estate licensee offers a mortgage company the names and telephone numbers of all of the people who attended an open house, but the mortgage company does not accept the offer. Who is in violation of RESPA?

The mortgage company
The real estate licensee
Both the mortgage company and the real estate licensee
Neither the mortgage company nor the real estate licensee

Answer 34

The answer is the real estate licensee. The real estate licensee is in violation of RESPA. The real estate licensee is attempting to provide referrals of business to a mortgage licensee in exchange for a fee, in direct violation of RESPA’s prohibition against such activity. By refusing to accept the offer, the mortgage company avoids also violating the law.

Question 35

The Equal Credit Opportunity Act requires a Notice of Incomplete Application be provided to a borrower:

Within 15 days of application, if the application is missing required information
Within 30 days of application, if the application is missing required information
If the borrower has provided less than five years’ residence history
Within three days of discovery of incomplete application

Answer 35

The answer is within 30 days of application, if the application is missing required information. ECOA requires the borrower to know the status of his/her loan within 30 days of application. This includes letting the borrower know, within 30 days, that his/her application needs to be completed in order for any further consideration of the file.

Question 36

Which of the following individuals might be involved in appraisal fraud?

Mortgage broker
Borrower
All of these answers are correct
Appraiser

Answer 36

The answer is all of these answers are correct. It is not likely that an appraiser, of his/her own volition, would decide to overinflate a value. Often, inflated appraisals are a result of the conspiratorial efforts of many involved in the process.

Question 37

Which of the following loan types considers residual income in qualification?

VA
HPML
FHA
USDA

Answer 37

The answer is VA. The VA loan considers residual income as part of qualification.

Question 38

The law requires that first-time borrowers complete counseling with a HUD-approved counselor before accepting a loan that features:

Negative amortization
A fixed interest rate
An adjustable interest rate
A 15-year term

Answer 38

The answer is negative amortization. The law requires that first-time borrowers complete counseling with a HUD-approved counselor before accepting a loan that features negative amortization. This is a requirement that applies specifically to first-time homebuyers.

Question 39

Which of the following would not be considered behavior that constitutes honest, fair, and nondiscriminatory lending?

Advertising loans that are not actually available
Charging reasonable fees
Maintaining the confidentiality of a borrower’s personal information
Conducting business fairly and honestly

Answer 39

The answer is advertising loans that are not actually available. Advertising loans that are not actually available is behavior that would not be considered ethical, honest, and fair.

Question 40

Which of the following is considered “reasonably reliable” evidence to verify the repayment ability of a borrower?

IRS W-2s, tax returns, and payroll receipts
IRS W-2s, tax receipts, and bank deposit receipts
Previous mortgage statements and canceled checks
Tax returns, Comptroller’s certification, and CPA letter

Answer 40

The answer is IRS W-2s, tax returns, and payroll receipts. The Ability to Repay Rule requires that a borrower document his/her ability to repay the loan, using “reliable evidence” such as W-2s, tax returns, and payroll receipts.

Question 41

Generally, the first lien recorded has priority, with the possible exception of:

Mortgage liens
Mechanic’s liens
Child support liens
Consensual liens

Answer 41

The answer is mechanic’s liens. The first lien recorded has priority. One possible exception is mechanic’s liens, depending on state law.

Question 42

Tom, a mortgage loan originator, accepts the Carters’ loan application and negotiates the terms of their loan. Mortgages R Us, the lender, prepares all of the required paperwork and arranges for loan closing. Once the documents are signed, Mortgages R Us funds the loan. All of these actions are considered to be part of:

A consumer credit transaction
Completion of settlement services
The origination of a residential mortgage loan
A state licensing agency’s responsibilities

Answer 42

The answer is origination of a residential mortgage loan. Origination of a residential mortgage loan involves all residential mortgage loan-related activities from the taking of a loan application through completion of all required closing documents and the funding of the residential mortgage loan.

Question 43

When a loan originator accepts a referral fee from a real estate agent, both are in violation of what section of RESPA?

Section 10
Section 12
Section 6
Section 8

Answer 43

The answer is section 8. Section 8 of RESPA deals with the prohibition against giving or receiving anything of value pursuant to an agreement or understanding.

Question 44

The primary purpose of the FTC Red Flags Rule is:

Preventing the overvaluation of real estate
Improving the accuracy of information in consumer credit files
Identifying, mitigating, and preventing identity theft
Establishing methods for protecting consumer personal information

Answer 44

The answer is identifying, mitigating, and preventing identity theft. The FTC Red Flags Rule focuses on methods of detecting a security breach that may lead to identity theft within a financial institution that maintains a covered account on behalf of the customer.

Question 45

A state licensing agency granted Crook Cromwell a license to act as a mortgage loan originator. Subsequent to the granting of the license, the agency received a supplemental criminal history report which indicated that Crook had been convicted of a money laundering charge in another state. What action can the state licensing agency take?

Issue a temporary cease and desist order
Refuse to renew Crook’s license
Require a hearing with Crook before any other action can be taken
Condition issuance of the license against future bad acts

Answer 45

The answer is issue a temporary cease and desist order. The state licensing agency may enter a temporary order requiring a person to cease doing business under a license if it determines that the license was erroneously issued.

Question 46

Giani and Maria are attempting to purchase a house in a new neighborhood. Maria is four months pregnant with their first child, and they are making the move to set themselves up in their dream neighborhood to raise a family. Two weeks after the initial interview, their broker calls to inform them that they have been denied for a loan. The broker continues to say that he mentioned to his underwriter that Maria probably planned to stay at home for a year after having the baby. With that, the underwriter did not allow her income to be used for qualification. This broker is in violation of what law?

ECOA
FCRA
HMDA
TILA

Answer 46

The answer is ECOA. The Equal Credit Opportunity Act strictly prohibits the assumption that a woman will discontinue working once she has had a baby.

Question 47

Kelsey is a registered loan originator who is employed by the Your Home Town Bank, a depository institution regulated by a federal banking agency. Each of the following is a federal banking agency, except the:

Board of Governors of the Federal Reserve System
Comptroller of the Currency
Federal Home Loan Mortgage Corporation
National Credit Union Administration

Answer 47

The answer is Federal Home Loan Mortgage Corporation. The federal banking agencies include the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the National Credit Union Administration, and the Federal Deposit Insurance Corporation.

Question 48

Which federal law includes provisions that address misleading and deceptive advertising practices?

TILA
RESPA
HMDA
ECOA

Answer 48

The answer is TILA. TILA includes provisions that address misleading and deceptive advertising practices.

Question 49

Which document actually contains the borrower’s promise to repay the loan?

The deed
The note
The mortgage
The TIL

Answer 49

The answer is the note. Neither the mortgage nor the deed of trust actually contain the borrower’s contractual promise to repay the loan. The note, or promissory note, is the borrower’s promise to repay the loan.

Question 50

Mary is purchasing her first home with an HPML. When her loan officer is reviewing the transaction with her, he tells her that she must establish an escrow account:

Three business days after consummation of the loan
Before consummation of the loan
Before the first periodic payment is due
At the time of consummation

Answer 50

The answer is before consummation of the loan. Mary must establish an escrow account prior to the consummation of the loan.

Question 51

All of the following may affect the amount of a VA funding fee, except:

Marital status
First-time use of the VA eligibility
10% down payment
Disability

Answer 51

The answer is marital status. The funding fee for a VA loan can be affected by a number of factors, which can include previous use of eligibility, any down payment amount, and/or a disability.

Question 52

What is the difference between MIP and PMI?

PMI is applicable to FHA loans; MIP is applicable to conventional mortgages
MIP is applicable to FHA loans; PMI is applicable to conventional mortgages
There is no difference between MIP and PMI
MIP is optional; PMI is not

Answer 52

The answer is MIP is applicable to FHA loans; PMI is applicable to conventional mortgages. Mortgage insurance premium (MIP) is applicable to FHA loans. Private mortgage insurance (PMI) is applicable to conventional mortgages. While they serve a similar purpose, they are not the same.

Question 53

Which of the following best describes what is considered in the calculation of a borrower’s back-end ratio?

Principal and interest payments
The cost of credit in relation to the value of the loan
The total amount of monthly payments made on long-term debt carried by the consumer
Only non-housing consumer debt, such as credit card payments and auto loan payments

Answer 53

The answer is the total amount of monthly payments made on long-term debt carried by the consumer. The back-end ratio is the total amount of monthly payments made on long-term debt carried by the consumer, such as car loans, student loans, and other debt in addition to housing expenses.

Question 54

The promissory note contains all of the following, except:

A legal description of the property
A provision requiring notices be done in writing
The loan amount
The loan terms

Answer 54

The answer is a legal description of the property. The promissory note contains the borrower’s name, loan amount, interest rate, loan terms, and a provision requiring notices be done in writing. It does not contain a legal description of the property.

Question 55

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

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

Answer 55

The answer is to help a borrower pay for settlement costs. It is unethical and illegal to use yield spread premiums for any reason other than to help a borrower pay for settlement costs. Yield spread premiums are now known as “borrower credit.”

Question 56

The factors involved in determining the movement on an ARM loan include:

Frequency of change, caps, index, rate
Rate, caps, index, margin
Frequency of change, caps, index, margin
Rate, index, margin, lifetime cap

Answer 56

The answer is frequency of change, caps, index, margin. There are four factors involved in determining an ARM’s movement. They are frequency of change, caps, index, and margin.

Question 57

Which of the following is a limit on the amount that the interest rate can increase or decrease at the first adjustment date for an ARM?

Initial rate cap
Periodic rate cap
Lifetime rate cap
Payment cap

Answer 57

The answer is initial rate cap. The initial rate cap is a limit on the amount by which the interest rate can increase or decrease at the first adjustment date for an ARM.

Question 58

Bill Grunion is required to renew his license for the coming year. In order to have his renewal approved, Bill must meet all the following requirements, except:

Continue to meet the minimum standards for license issuance
Satisfy the annual continuing education requirement
Pay all required fees for renewal of the license
Have originated at least 15 loans in the preceding license period

Answer 58

The answer is have originated at least 15 loans in the preceding license period. To renew a license, a state-licensed loan originator must continue to meet the minimum standards for license issuance, satisfy the annual continuing education requirements, and pay all required renewal fees.

Question 59

The term “grossing up” means a borrower’s non-taxed income is allowed to be increased by as much as:

125%
15%
28%
25%

Answer 59

The answer is 25%. Borrowers with non-taxed income are allowed to increase their earnings by 25% for qualification purposes. This means they would multiply by 125% - not increase income by 125%.

Question 60

Determining that an individual licensee has not shown financial responsibility includes all but which of the following?

Judgments as a result of medical expenses
A pattern of seriously delinquent accounts in the past three years
Current outstanding tax liens
Foreclosures within the past three years

Answer 60

The answer is judgments as a result of medical expenses. Judgments related to medical expenses are not considered in assessing an applicant’s level of financial responsibility.

Question 61

In an ARM, margin is determined by:

The lender and represents the amount of commission paid to the broker
The lender and represents the lender’s operating costs and profit margin
The broker and is the amount of profit split between the broker and lender
The underwriter and represents the percentage of error allowable for debt-to-income ratio

Answer 61

The answer is the lender and represents the lender’s operating costs and profit margin. The margin is a fixed number set by the lender and is not subject to change. It represents the lender’s operating costs and profit margin, and varies from lender to lender.

Question 62

A borrower of a closed-end loan with a three-day right to rescind may exercise this right at any time until midnight on the third business day after:

Consummation, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever is later
Consummation or delivery of the required rescission notice, whichever is earlier
Delivery of the notice of the right to rescind or delivery of all material truth-in-lending disclosures, whichever is later
Delivery of the notice of the right to rescind or delivery of all material truth-in-lending disclosures, whichever is earlier

Answer 62

The answer is consummation, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever is later. In a closed-end loan transaction that offers the right to rescind, rescission may be exercised at any time until midnight on the third business day after consummation, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever is later.

Question 63

When funds are placed in a separate escrow account to offset the monthly payments required by the terms of a loan, and those funds are used to reduce the payment rate for a period of time, this is known as:

Good faith deposit
Earnest money deposit
Temporary buy-down
Seller concessions

Answer 63

The answer is temporary buy-down. A temporary buy-down occurs when a borrower deposits funds into escrow that are used to offset a portion of the payment for a period of time at the start of a loan. Once the initial buy-down period expires, the payment is then based off of the note rate, which was set at the time the loan was locked and remains the same, even during the lower payment period.

Question 64

Using misleading language in an advertisement (for example, using language that suggests that an advertised loan is “fixed” when it actually is not) is a practice specifically prohibited under:

Regulation B
Regulation Z
FCRA
Regulation C

Answer 64

The answer is Regulation Z. Regulation Z includes prohibitions against misleading and false advertising, including a prohibition against misleading advertising of “fixed” rates and payments.

Question 65

The Notice of Right to Cancel PMI is required by the:

Homeowners Protection Act
Equal Credit Opportunity Act
Truth-in-Lending Act
Real Estate Settlement Procedures Act

Answer 65

The answer is Homeowners Protection Act. The Notice of Right to Cancel PMI is required by the Homeowners Protection Act.

Question 66

_____ are responsible for ensuring that loan applicants meet the requirements established by lenders and investors for loan programs.

Loan processors
Loan originators
Investors
Underwriters

Answer 66

The answer is underwriters. Underwriters are responsible for ensuring that loan applicants meet the requirements established by lenders and investors for loan programs.

Question 67

Once a loan application is received, a creditor may not require additional information or verification until:

The Closing Disclosure is provided
The origination fee is paid
The loan closes
The Loan Estimate is provided

Answer 67

The answer is The Loan Estimate is provided. Once an application is received, a creditor must issue the Loan Estimate to a loan applicant and may not require additional information or verification until that document is provided.

Question 68

The 1004 is the form number for:

URLA
CSBS
FNMA
URAR

Answer 68

The answer is URAR. The 1004 is the form number for the Uniform Residential Appraisal Report (URAR).

Question 69

Which of the following is least likely to be a sign of fraudulent behavior?

The applicant currently rents an apartment, but is purchasing a second home by the beach
The consumer is making a significant cash down payment
Signatures on various documents do not match
Identification documents appear to be smudgy photocopies

Answer 69

The answer is the consumer is making a significant cash down payment. A consumer who makes a significant cash down payment is not necessarily engaging in fraudulent behavior.

Question 70

The state in which Jim Jungle works requires a mortgage loan originator be covered by a surety bond. The bond must be maintained in an amount that reflects:

The dollar value of loans Jim originates annually
The number of loans originated by Jim annually
The number of loans Jim’s employer originates annually
Jim’s experience as a loan originator

Answer 70

The answer is the dollar value of loans Jim originates annually. The penal sum of the surety bond must be maintained in an amount that reflects the dollar value of loans originated.

Question 71

While taking an application, an originator learns that his potential borrower receives income from a public assistance program. Without even running a full pre-qualification, the originator tells the would-be borrower that he cannot help someone who is receiving public assistance. This originator is in violation of the:

Equal Credit Opportunity Act
Fair Housing Act
Equal Housing Act
Fair Credit Transaction Act

Answer 71

The answer is Equal Credit Opportunity Act. Under ECOA, originators may not base a decision to extend credit on the fact that an applicant receives income from a public assistance program.

Question 72

Civil monetary penalties resulting from the failure to report data for HMDA are:

$1,000 per violation, with a maximum of $300,000 in fines annually
Calculated based on a penalty matrix, which considers good faith, previous violations, and financial resources of the entity involved
Calculated based on a percentage of total loan amounts of mortgages in violation
$11,000 per violation, but can be increased to $25,000 for willful and knowing violations

Answer 72

The answer is calculated based on a penalty matrix, which considers good faith, previous violations, and financial resources of the entity involved. HMDA uses a penalty matrix to determine fines for violations. The matrix includes considerations for good faith, previous violations, and the financial resources of the entity involved.

Question 73

“E-Sign Act” is short for:

The Electronic Signatures Legitimization Act
The Electronic Signatures in Global and National Commerce Act
The Electronic Safety of Giving Net Authorization Act
The Electronic Safety in Global and National Transactions Act

Answer 73

The answer is The Electronic Signatures in Global and National Commerce Act. “E-Sign Act” is short for the Electronic Signatures in Global and National Commerce Act.

Question 74

The chain of title shows:

History of ownership of a property
Any existing liens on the property
Reporting format for an abstractor
Method of perfecting a lien

Answer 74

The answer is history of ownership of a property. The “chain of title” shows the history of ownership of a property.

Question 75

Money paid to a mortgage lender for the purpose of paying a third party may not be:

Misrepresented or accounted for untruthfully
Charged in an amount equal to the cost of the third party services
Collected from a borrower to pay for title services
Disclosed to the borrower prior to collection

Answer 75

The answer is misrepresented or accounted for untruthfully. Money paid to a mortgage lender for the purpose of paying a third party may not be misrepresented or accounted for untruthfully.

Question 76

A loan processor or underwriter is exempt from licensure under all of the following circumstances, except:

He/she is employed with a licensed mortgage broker
He/she is employed with an exempt mortgage lender
He/she does not represent to the public that he/she can perform any of the activities of a loan originator
He/she takes applications on behalf of the loan originator

Answer 76

The answer is he/she takes applications on behalf of the loan originator. A processor and/or underwriter may only maintain exempt status from licensure if engaged solely in clerical or support duties while employed with either a licensed or exempt entity. Under no circumstances may a processor or underwriter engage in the activities of a loan originator.

Question 77

Which of the following statements describes the legal relationship between a loan applicant and a mortgage broker?

Under federal law, a mortgage broker has a fiduciary relationship with a loan applicant
Under federal law, a mortgage broker does not have a fiduciary relationship with a loan applicant
Under all state laws, a mortgage broker has a fiduciary relationship with a loan applicant
Under state and federal law, a mortgage broker has a fiduciary relationship with a loan applicant

Answer 77

The answer is under federal law, a mortgage broker does not have a fiduciary relationship with a loan applicant. Federal law does not require a mortgage broker to serve a loan applicant as a fiduciary. Only a few state laws impose this requirement on mortgage brokers and loan originators.

Question 78

All of the following are included within the authority of the Commissioner, except:

Enter a cease and desist order
Order restitution and monetary penalties
Subpoena witnesses and documents
Issuing an order to a former employer of a loan originator to turn over records

Answer 78

The answer is issuing an order to a former employer of a loan originator to turn over records. Commissioner does not have authority to examine records of former employers of a loan originator.

Question 79

The acronym “CHARM” stands for:

Cost Handbook for Adjustable-Rate Mortgages
Credit History on Adjustable-Rate Mortgages
Customer Highlights for Adjustable-Rate Mortgages
Consumer Handbook on Adjustable-Rate Mortgages

Answer 79

The answer is Consumer Handbook on Adjustable-Rate Mortgages. The acronym “CHARM” stands for “Consumer Handbook on Adjustable-Rate Mortgages.”

Question 80

Which of the following may be an indication of predatory lending?

A borrower with a 720 credit score uses borrower credits to offset closing costs
A borrower with a 610 credit score is offered a subprime loan
A borrower with a 580 credit score is offered a loan with credit life premiums included
A borrower with a 560 credit score is given a rate that is 2% above a “standard” rate

Answer 80

The answer is a borrower with a 580 credit score is offered a loan with credit life premiums included. Tacking on unnecessary insurance premiums such as “credit life” is a practice that predatory lenders often use to increase profits.

Question 81

A Loan Program Disclosure must be provided:

For each variable-rate mortgage product available at the time
Only for the product for which the applicant is most likely to qualify
For each variable-rate mortgage product in which the applicant expresses an interest
Only for the product which the lender feels is best for the applicant

Answer 81

The answer is for each variable-rate mortgage product in which the applicant expresses an interest. A Loan Program Disclosure must be provided for each variable-rate mortgage product in which the applicant expresses an interest.

Question 82

What legislation regulates the proper management of escrow accounts?

FHA
Homeowners Protection Act
Regulation X
HMDA

Answer 82

The answer is Regulation X. RESPA (Regulation X) regulates the management of escrow accounts.

Question 83

FACTA requires an initial Fraud Alert to be kept in a consumer’s file for what period of time?

One year
Seven years
One month
Until removed by the borrower

Answer 83

The answer is one year. FACTA requires an initial Fraud Alert to be kept in a consumer’s file for a period of one year. An Extended Fraud Alert, meaning there is an actual identity theft report submitted, is required for seven years.

Question 84

For which of the following does rescission not exist?

A refinance of a principal residence
Opening a home equity line of credit
A refinance in which a husband has requested a rescission waiver without his wife’s signature
A purchase of a principal residence with a conventional loan

Answer 84

The answer is a purchase of a principal residence with a conventional loan. Rescission does not exist for a purchase of a principal residence with a conventional loan.

Question 85

Oversight for FCRA is shared between the FTC and:

Federal Reserve
HUD
TILA
CFPB

Answer 85

The answer is CFPB. Oversight for FCRA is shared between the FTC and the CFPB.

Question 86

Virginia has entered an agreement for a home loan after a contractor came to her door offering home improvement services and a card for a mortgage broker who could help her get a loan. Virginia contacted the mortgage broker and secured the loan. Which of the following arrangements for paying the contractor is not in compliance with HOEPA?

Virginia can pay the contractor directly
Virginia can place the funds with a third-party escrow agent who can disburse them pursuant to a written agreement
Virginia and the contractor can enter an agreement for her to pay him when the work is complete
The mortgage broker can pay the contractor directly

Answer 86

The answer is the mortgage broker can pay the contractor directly. HOEPA prohibits direct payments to home improvement contractors, unless payment is a joint payment to the borrower and the contractor, or is made to a third-party escrow agent pursuant to a written agreement between the lender, borrower, and contractor.

Question 87

The Smiths are buying a house for $200,000. After their 10% down payment, they have also decided to pay two discount points. What is the dollar amount of the discount points?

$4,000
$3,800
$3,600
$2,000

Answer 87

The answer is $3,600. Discount points are calculated based on the loan amount, which is determined by subtracting any down payment (in this case, $20,000) from the purchase price ($200,000). Each discount point is 1% of the loan amount. In this transaction, the Smiths are obtaining a $180,000 loan and buying two discount points, equal to 2% of the loan amount. $180,000 × 0.02 = $3,600.

Question 88

A qualified mortgage may only include a balloon payment if all of the following are true, except:

The consumer has specifically requested a balloon payment
The loan has a term of at least five years
The loan is made by a small creditor
The loan has a fixed interest rate

Answer 88

The answer is the consumer has specifically requested a balloon payment. A qualified mortgage may only include a balloon payment if the loan has a term of at least five years, has a fixed interest rate, and is made by a small creditor.

Question 89

A state licensing agency may conduct examinations and investigations for all of the following reasons, except:

To determine the maximum licensing fees
Initial licensing or license renewal
License suspension, conditioning, revocation, or termination
To determine compliance with state law

Answer 89

The answer is to determine the maximum licensing fees. A state licensing agency may conduct examinations and investigations for the purpose of initial licensing or license renewal; license suspension, conditioning, revocation, or termination; and to determine compliance with state law.

Question 90

Which of the following correctly demonstrates how to calculate the periodic rate on a mortgage loan?

Annual rate / number of payments in a year = periodic rate
Annual rate × number of payments in a year = periodic rate
Loan balance / annual rate = periodic rate
Annual rate × monthly payment = periodic rate

Answer 90

The answer is annual rate / number of payments in a year = periodic rate. The periodic rate is calculated by dividing the annual rate by the number of payments in a year.

Question 91

It is acceptable under RESPA regulations for a title company to provide a mortgage broker with:

Tickets to a pro football game
A weekend stay for two at a spa
Season tickets to a local theater
A notepad imprinted with the title company’s information

Answer 91

The answer is a notepad imprinted with the title company’s information. RESPA prohibits the exchange of “things of value” which can include money, discounts, special rates or terms, stock, tickets to sporting or theater events, or trips at another’s expense. An imprinted notepad is not considered something of value.

Question 92

The diligent matching of loan programs with the current financial circumstances of each customer is known as:

Tangible net benefit
Loan standards
Finance corroboration
Loan suitability

Answer 92

The answer is loan suitability. “Loan suitability” is the term used when matching a borrower’s circumstances with an appropriate product for his/her needs. This also leads to determining whether or not there is an actual tangible net benefit.

Question 93

When a borrower is delinquent, RESPA servicing rules require loan servicers to meet all of the following requirements, except:

Make live contact with the borrower within 36 days of the delinquency
Make written contact with the borrower within 45 days of the delinquency
Make live contact with the borrower within 15 days of the delinquency
Include information on loss mitigation options in written correspondence regarding the delinquency

Answer 93

The answer is make live contact with the borrower within 15 days of the delinquency. Delinquency requires live contact within 36 days, and written contact within 45 days that describes loss mitigation options.

Question 94

Cindy Williams applied for a loan with MPT Mortgage. After 20 days, she received an Adverse Action Notice informing her that she had been denied. Three months later, Cindy received a women’s clothing catalog in the mail at an address only known to MPT Mortgage as a result of her filling out a loan application. The lender has likely violated which federal law?

TILA
GLB Act
FTC Disposal Rule
RESPA

Answer 94

The answer is GLB Act. This scenario implies that the lender shared non-public personal information with a third party for reasons other than the intent with which it was given to the lender. Selling information given to apply for financial products to a third party who intends to market unrelated products or services to the customer is a violation of the GLB Act.

Question 95

Regulations in Section 32 of TILA deal strictly with:

The interactions between mortgage professionals and real estate agents
Consumer protections triggered by high-cost loans covered under HOEPA
The amount a borrower should expect to be charged as an annual percentage rate
Licensing standards placed in effect by the Housing and Economic Recovery Act

Answer 95

The answer is consumer protections triggered by high-cost loans covered under HOEPA. Section 32 of Regulation Z (TILA) deals with added provisions and protections that are required if a loan meets or exceeds any one (or more) of three thresholds: either a points and fees threshold, an APR threshold, or a prepayment penalty threshold. Loans meeting or exceeding any of these thresholds are subject to the provisions required by the Home Ownership and Equity Protection Act (HOEPA, which is Section 32 of TILA).

Question 96

HUD will not insure single-family home loans that:

Meet QM standards
Include points and fees in excess of the limit set by the QM Rule
Are small creditor qualified mortgages
Have a DTI ratio of less than 43%

Answer 96

The answer is include points and fees in excess of the limit set by the QM Rule. HUD will no longer insure single-family home loans that include points and fees in excess of the limit set by the QM Rule.

Question 97

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

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

Answer 97

The answer is an individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator. The S.A.F.E. Act defines a loan processor as an individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator.

Question 98

In addition to information about disciplinary and enforcement action taken against a mortgage loan originator, the NMLS may also make available for public access:

A mortgage loan originator’s home address
The number of loans originated by a loan originator
The mortgage loan originator’s employment history
Former clients of the mortgage loan originator

Answer 98

The answer is the mortgage loan originator’s employment history. Information or material held by the NMLS relating to the employment history and/or disciplinary and enforcement actions taken against a mortgage loan originator is not protected by confidentiality laws. Such information/material is available for public access.

Question 99

Which of the following would be considered a credit report red flag?

Names on credit report match names on application
There is a DBA or an AKA
The debts the applicant disclosed are accurately reflected on the credit report
Paystubs, W-2s, or other income docs are handwritten

Answer 99

The answer is there is a DBA or an AKA. The presence of a DBA (doing business as) or AKA (also known as) would be a credit report red flag.

Question 100

Which of the following describes an air loan?

A loan is obtained with inflated property values
A loan that is repeatedly refinanced with no benefit to the borrower
A loan that is presented to the borrower with hidden fees
A fictitious borrower obtains a mortgage and secures it with fictitious property

Answer 100

The answer is a fictitious borrower obtains a mortgage and secures it with fictitious property. An air loan is an instance in which a fictitious borrower obtains a mortgage and secures it with fictitious property.

Question 101

Which of the following is a description of a permanent buy-down?

A lender pays a broker 25 bps for delivering a loan at a rate higher than par
A borrower pays discount points to lower the note rate from 4.875 to 4.50
A lender accepts funds paid into escrow in order to offset lower interest payments
A real estate agent collects a deposit from a borrower to hold a contract

Answer 101

The answer is a borrower pays discount points to lower the note rate from 4.875 to 4.50. A permanent buy-down is a tool some borrowers use to adjust the price of their loan. It can also be referred to as prepaying interest.

Question 102

A property is encumbered by two mortgages that have a combined loan-to-value of 90%. The LTV of the second mortgage is 12%. If the value of the property is $500,000, what is the approximate amount of the first mortgage, and is it considered a jumbo loan?

$390,000 and no
$450,000 and yes
$450,000 and no
$405,000 and no

Answer 102

The answer is $390,000 and no. The CLTV is 90%, and the second mortgage has an LTV of 12%. This leaves the first mortgage with an LTV of 78%. $500,000 × .78 = $390,000. The value is under the conforming loan limit, so it is not considered jumbo.

Question 103

In which of the following transactions must “Your Home Loan Toolkit” be provided?

A reverse mortgage origination
A purchase transaction
A refinance transaction
When a borrower applies for subordinate financing

Answer 103

The answer is a purchase transaction. The “Your Home Loan Toolkit” disclosure is required for a purchase transaction.

Question 104

Agatha was a licensed loan originator when the housing market slowdown left her with little work. She accepted a job outside the mortgage field over three years ago, and her license expired. Now, Agatha wants to apply for a license again. One of the requirements Agatha must meet in order to be re-licensed is:

Providing proof that she completed all of the continuing education requirements for the year she last held a license
Providing proof that she still meets the qualifications to be a mortgage loan originator
Providing information relating to her previous license
Filing the appropriate paperwork with the NMLS to reinstate her license

Answer 104

The answer is providing proof that she completed all of the continuing education requirements for the year she last held a license. An individual who was previously licensed and is applying to be licensed again must have completed all of the continuing education requirements for the year in which the license was last held.

Question 105

All of the following are included in the calculation of the APR, except:

Underwriting fees
Buy-down fees
Origination fees
Title insurance fees

Answer 105

The answer is title insurance fees. In addition to charges paid over the term of the loan (e.g., interest and mortgage insurance premiums paid over the loan’s term), the calculation of the APR includes many prepaid finance charges, including, among others, underwriting fees, buy-down fees, and origination fees. However, some fees are not included in the prepaid finance charges used in APR calculations, including title insurance fees.

Question 106

Two federal laws that relate to the confidentiality of personal financial information are:

Safeguards Rule and RESPA
RESPA and FTC Disposal Rule
FTC Disposal Rule and FNMA Application Rule
Safeguards Rule and FTC Disposal Rule

Answer 106

The answer is Safeguards Rule and FTC disposal rule. The two important regulations that deal specifically with the confidentiality of personal financial information are the Safeguards Rule and the FTC Disposal Rule.

Question 107

Which of the following statements describes a lending practice that is prohibited by HOEPA and its implementing regulations?

Originating a subprime mortgage
Redlining and reverse redlining as a standard company policy
Offering prime mortgages to borrowers in the subprime mortgage market
Making a lending decision based solely on the amount of equity in a loan applicant’s home

Answer 107

The answer is making a lending decision based solely on the amount of equity in a loan applicant’s home. HOEPA prohibits lending decisions based solely on the amount of equity in a loan applicant’s home and requires consideration of repayment ability. This prohibition is intended to discourage reverse redlining.

Question 108

The lending document that contains the contractual terms for repaying a home loan is the:

Mortgage
Promissory note
Deed of trust
Closing Disclosure

Answer 108

The answer is promissory note. The promissory note is the promise to repay a loan and contains the contractual terms for repayment.

Question 109

When a credit report shows only a balance on a revolving debt, rather than a payment, an originator should:

Eliminate the debt if it is below $300
Use 5% of the debt as the payment
Only use 50% of the debt against the DTI
Divide the total debt by 12 to get monthly payments

Answer 109

The answer is use 5% of the debt as the payment. If reported revolving debt does not show a payment amount, an originator should use 5% of the remaining debt on that account as the monthly payment.

Question 110

Ted Lange wants to build a tiki bar in his backyard next to the pool. In order to do this, he is going to take out a home equity line of credit. He believes that he will need about $20,000 to build the bar as envisioned. His home’s current value is $405,000, and he has a first mortgage with a balance of $130,000. The bank agrees to extend him a line of credit for $50,000, since he has quite a bit of equity in his home. What is Ted’s CLTV if he draws $20,000 as anticipated?

44%
37%
32%
39%

Answer 110

The answer is 37%. Ted’s plan was to build a $20,000 tiki bar. Adding the $20,000 draw to his current $130,000 first mortgage balance leaves a $150,000 total encumbrance. Dividing that by the value of the home ($405,000) brings a combined-loan-to-value of 37%.

Question 111

Fees charged for an early repayment of a debt are known as:

Acceleration
Prepayment penalty
Finance charges
Deferred payment loan

Answer 111

The answer is prepayment penalty. A prepayment penalty is a fee charged to a borrower for early repayment of a loan.

Question 112

According to the Telemarketing Sales Rule, which of the following is permitted?

Trying several times to return the call of someone responding to an advertisement
Not transmitting a telephone number on caller ID
Initiating a call to someone on the Do-Not-Call List
Calling a consumer who did business with the licensee 24 months ago

Answer 112

The answer is trying several times to return the call of someone responding to an advertisement. A mortgage professional is permitted to contact consumers for a period of three months following a relationship that is based on an inquiry by the customer.

Question 113

Equity-based lending is a common predatory lending practice, taking advantage of unsuspecting borrowers by using abusive lending terms for increased profits. Often, borrowers may lose money, home equity, or even their homes. Which federal law was the first to expressly prohibit equity-based lending?

Home Ownership and Equity Protection Act
Homeowners Protection Act
Fair Credit Reporting Act
Home Mortgage Disclosure Act

Answer 113

The answer is Home Ownership and Equity Protection Act. The Home Ownership and Equity Protection Act (HOEPA) was the first legislation to prohibit equity-based lending by requiring a borrower to provide documentation of his or her ability to repay the loan prior to closing.

Question 114

An acceleration clause is sometimes added to reverse mortgages. This means that the loan could become due and payable under certain circumstances, which may include all but which of the following?

A new owner is added to the title
The borrower adds MIP to the loan
New debt against the home is taken out
All or part of the home is rented out

Answer 114

The answer is the borrower adds MIP to the loan. Reverse mortgages may contain acceleration clauses which can cause a loan to become due and payable. Reasons for this may include adding an owner to the title, taking out new debt against the home, or renting out all or part of the home. Some reverse mortgages do include MIP, which helps to guarantee that the borrower will never owe more than the value of the home.

Question 115

An 80-10-10 loan is an example of a:

Construction loan
Reverse mortgage loan
Higher-priced mortgage loan
Piggyback loan

Answer 115

The answer is piggyback loan. An 80-10-10 loan is an example of a piggyback loan.

Question 116

The act of guiding homebuyers in a particular direction based on demographics is prohibited by:

ECOA and RESPA
The Fair Housing Act and ECOA
TILA and RESPA
RESPA and the Fair Housing Act

Answer 116

The answer is The Fair Housing Act and ECOA. The Fair Housing Act and ECOA both prohibit the practice of “steering,” which is directing or recommending a buyer or borrower in a particular direction based on their demographics. This should not be confused with the separate predatory lending practice called steering, in which mortgage professionals coerce or otherwise guide consumers to accept loan terms that are more expensive than they need in order to increase profits.

Question 117

The Qualified Mortgage Rule establishes a debt-to-income ratio standard of _____ for qualified mortgages.

78%
80%
43%
60%

Answer 117

The answer is 43%. The Qualified Mortgage Rule establishes a debt-to-income ratio standard of 43%. For the first seven years during which the Rule is in effect, this ratio will not be enforced for temporary qualified mortgages.

Question 118

Which of the following caps on an ARM would limit the amount that an interest rate could adjust over the life of the loan?

Payment cap
Lifetime cap
Periodic cap
Worst-case cap

Answer 118

The answer is lifetime cap. The lifetime cap sets the “rate ceiling” on an ARM based off of the start rate.

Question 119

A revised Loan Estimate is required when:

There is any change in circumstances
Interest rates drop
Interest rates increase
The loan applicant locks his or her interest rate

Answer 119

The answer is the loan applicant locks his or her interest rate. A revised Loan Estimate is required when a loan applicant locks the interest rate. Offering revised estimates for a change in circumstances is restricted to limited situations.

Question 120

For a conventional, conforming loan, the borrower is making a down payment of 12%. The seller wishes to contribute to closing costs for the transaction. What is the most that the seller can contribute?

Seller concessions of 12%
Seller concessions of 3%
Seller concessions of 6%
Seller concessions of 78%

Answer 120

The answer is seller concessions of 6%. Fannie Mae and Freddie Mac permit seller concessions in conforming loan transactions, to help defray the costs of closing. When the borrower makes a down payment of between 10% and 24.9%, seller concessions of up to 6% are permitted.

Question 121

The Federal Housing Administration does not make loans; it insures loans. What does the FHA insure against?

Foreclosure
The borrower losing his job
Forbearance
Down payment

Answer 121

The answer is foreclosure. The FHA insures loans against foreclosure.

Question 122

When a loan is characterized as “conforming,” this means the loan:

Meets standards for a government program
Meets guidelines established by Fannie Mae and Freddie Mac
Is a 30-year fixed
Requires no PMI

Answer 122

The answer is meets guidelines established by Fannie Mae and Freddie Mac. Conventional loans are separated into two categories: conforming and non-conforming. A conforming loan meets (or “conforms”) with the lending guidelines set by Fannie Mae and Freddie Mac.

Question 123

Wanda had been procrastinating on taking her continuing education courses. As the end of the year approached, she saw a course she had taken the previous year was available. Since she had already mastered the information, she decided to take it again. Will this course count towards her continuing education hours for the current year?

The course will count as long as Wanda receives her certificate of completion
The course will count as long as it is an NMLS-approved course
No, the course will not count towards her continuing education hours
The course will not count only if it is taught by the same instructor

Answer 123

The answer is no, the course will not count towards her continuing education hours. A state-licensed loan originator may not take the same approved course in the same or successive years to meet the annual continuing education requirement of eight hours of coursework.

Question 124

A VA loan that is an IRRRL:

Is a qualified mortgage, but does not have a conclusive presumption of compliance
Is a qualified mortgage, and always has a conclusive presumption of compliance
Is a qualified mortgage, and may have a conclusive presumption of compliance
Is not a qualified mortgage

Answer 124

The answer is is a qualified mortgage, and may have a conclusive presumption of compliance. A VA loan that is an IRRRL may have a conclusive presumption of compliance if certain underwriting standards are met. IRRRLs do not automatically have a conclusive presumption of compliance.

Question 125

Homeownership counseling is required in transactions for all of the following, except:

Higher-priced mortgage loan
High-cost mortgage
Reverse mortgage
Negative amortization loan if the loan applicant is a first-time borrower

Answer 125

The answer is higher-priced mortgage loan. Transactions for higher-priced mortgage loans do not include counseling requirements.