Exam 8

Question 1

If a first-time homebuyer wishes to use his/her VA loan privilege for the first time and is not planning to make a down payment, what is the amount of his/her funding fee?

2. 30%
3. 30%
4. 50%
5. 25%

Answer 1

The answer is 2.30%. The funding fee for a first-time user who is regular military, purchasing a home using a VA loan, is 2.30%.

Question 2

The back-end ratio compares:

Monthly mortgage payments to monthly gross income
Total monthly housing expenses (including principal, interest, taxes, and insurance) to monthly gross income
Total monthly debts (including housing expenses plus other debts) to monthly gross income
Total monthly debts unrelated to housing expenses to monthly gross income

Answer 2

The answer is total monthly debts (including housing expenses plus other debts) to monthly gross income. Unlike the front-end ratio, which focuses only on housing-related expenses, the back-end ratio focuses on housing expenses plus other debts.

Question 3

All of the following are true of FHA fixed-rate loans, except:

Borrowers are only required to carry MIP until the LTV reaches 78%
They are available in 15- and 30-year terms
They require upfront MIP on all loans
Borrowers must make at least a 3.5% investment

Answer 3

The answer is borrowers are only required to carry MIP until the LTV reaches 78%. A borrower with an FHA loan is required to pay both upfront and annual MIP. After June 3, 2013, FHA loans with an LTV less than or equal to 90% will require MIP until the end of the loan term or the first 11 years, whichever comes first. For FHA loans with an LTV greater than 90%, MIP will be required until the end of the loan term or the first 30 years, whichever comes first.

Question 4

If an ARM loan starts at 3%, is locked for five years, and then adjusts annually, how many adjustments will occur by the end of year seven?

Two
Five
One
Impossible to determine

Answer 4

The answer is two. If an ARM loan starts at 3%, is locked for five years, and then adjusts annually, two adjustments will have occurred by the end of year seven (once at the start of year six and once at the start of year seven).

Question 5

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 5

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 6

After meeting with the Rolles to discuss their mortgage needs, loan originator Gerta Grimm reviews various available loan products. After selecting what she thinks would best fit their needs, she arranges another meeting to present the terms of each product for the Rolles’ consideration. This is an example of:

Taking a mortgage loan application
Facilitating a mortgage loan
Arranging mortgage loan terms
Offering or negotiating mortgage loan terms

Answer 6

The answer is offering or negotiating mortgage loan terms. An individual offers or negotiates terms of a residential mortgage loan for compensation or gain if the individual presents for consideration by a borrower or prospective borrower particular residential mortgage loan terms.

Question 7

Unilateral increases in the cost of settlement services made by another provider with the intention of retaining the additional fees are referred to as:

YSP
Markups
SRP
Unearned fees

Answer 7

The answer is markups. The earning of additional revenue through the practice of one settlement service provider increasing the fees of another settlement provider with the intention of retaining the additional fees is a practice known as markup.

Question 8

Loans that do not meet the guidelines set by Fannie Mae and Freddie Mac are considered to be:

Conventional
Nonconforming
Government
Unconventional

Answer 8

The answer is nonconforming. Loans that do not meet Fannie Mae and Freddie Mac guidelines are considered “nonconforming.”

Question 9

If two appraisals are necessary in order to complete a transaction, these appraisals must meet all but which of the following requirements?

The loan applicant must pay for both appraisals
Each appraisal must be performed by a different appraiser
Both appraisals must include a physical visit of the interior of the dwelling used to secure the loan
Both appraisals must be performed by a certified or licensed appraiser

Answer 9

The answer is the loan applicant must pay for both appraisals. When two appraisals are required, the creditor may not charge the consumer for the second appraisal.

Question 10

An originator uses a contracted processor who charges $500 per file. The fee disclosed to the borrower for processing is $800, a difference of $300 which the originator keeps for himself. This is:

A violation of RESPA’s prohibition against fee-splitting
Permitted only as long as receipts are kept from the processor for five years
A unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees
A violation of ECOA

Answer 10

The answer is a unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees. RESPA requires compensation for settlement services to be earned. Any compensation not in direct correlation with an actual service is likely a violation. However, according to a 2012 case, the act of unilaterally marking up a fee and retaining the additional earnings is not illegal, as long as fee-splitting is not involved.

Question 11

What characteristic, when used in deciding whether or not to grant credit, is not considered discriminatory?

Income
Race
Marital status
Religion

Answer 11

The answer is income. The provisions of ECOA are meant to promote the availability of credit to all creditworthy applicants, regardless of race, color, religion, national origin, sex, marital status, or age. A lender must consider a person’s income when determining his/her creditworthiness.

Question 12

The process of releasing a lien on a property is called:

Deliening
Title restoration
Encumbrance
Reconveyance

Answer 12

The answer is reconveyance. Reconveyance is the process of releasing a lien on a property.

Question 13

The ethical reason that loan processors are prohibited from negotiating a mortgage loan for a consumer is:

To ensure that the individuals guiding consumers through lending transactions are educated and qualified individuals
To ensure that only licensed originators receive commissions from creditors
To reduce the competition between employees of depository and non-depository institutions
To steer consumers towards lending transactions with depository institutions

Answer 13

The answer is to ensure that the individuals guiding consumers through lending transactions are educated and qualified individuals. The ethical reason that loan processors are prohibited from negotiating a mortgage loan for a consumer is to ensure that the individuals guiding consumers through lending transactions are educated and qualified individuals.

Question 14

Enhancing protection and reducing fraud by directing states to adopt minimum uniform standards for the licensing and registration of residential mortgage loan originators was the purpose of the federal act known as the:

S.A.F.E. Act
Federal Trade Act
Consumer Financial Protection Act
Dodd-Frank Act

Answer 14

The answer is S.A.F.E. Act. The purpose of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) was to enhance consumer protection and reduce fraud by directing states to adopt minimum uniform standards for the licensing and registration of residential mortgage loan originators and to participate in a Nationwide Multistate Licensing System and Registry database.

Question 15

ACME Home Loans is a private lender with a strict policy of limiting originations to conventional qualified mortgages with minimum loan amounts of $300,000. To ensure compliance with this policy, loan originators are instructed to refuse to accept applications from consumers who want loan amounts of less than $300,000, or who have debt-to-income ratios of 44% or more. This policy is:

Not a violation of any federal fair lending law
Potentially unlawful under the disparate impact theory
An example of disparate treatment of consumers
Legal if there is no discriminatory intent

Answer 15

The answer is potentially unlawful under the disparate impact theory. Even when there is no intent to discriminate, lending policies are potentially unlawful if they could adversely impact creditworthy consumers who belong to a protected class. For example, the lending standards described in this question could adversely impact younger applicants, thereby violating ECOA’s prohibition against age-based discrimination.

Question 16

Mr. Jones’s loan application has been denied and he is provided with an Adverse Action Notice as required by ECOA. Which of the following pieces of information would not be included on the notice?

Information on the credit reporting agency if the adverse action is based on his credit report
Reasons for the denial of credit
His credit score
A referral to another potential creditor

Answer 16

The answer is a referral to another potential creditor. An adverse action notice contains a statement of the action taken; a prescribed ECOA Notice regarding the prohibition of discrimination; the name and address of the federal agency that administers compliance with respect to the loan originator; a statement of the specific reasons for the adverse action or a disclosure of the applicant’s right to be given such a statement and the identity of the persons or office from which the statement may be obtained; and, if a credit score is used, FCRA requires that it also include the actual numerical credit score, the range of credit scores possible under the model used, all key factors that adversely affected the credit score, the date of the credit score, and the name of the entity that created the score or the credit file upon which the score was based.

Question 17

A couple is buying a house with a sale price of $187,500 on a conventional loan, putting 3% down. The seller has agreed to pay the allowable 3% seller concession. How much should the seller expect to pay of the buyer’s cost?

$5,456
$5,625
$10,912
$4,325

Answer 17

The answer is $5,625. The seller would pay 3% of the sales price, not 3% of the borrower’s loan amount. 187,500 × 3% = $5,625.

Question 18

Which of the following is true regarding ATR standards for consideration of borrower repayment ability?

General ATR standards require a consideration of DTI ratio and residual income; the DTI ratio threshold is 60%
General ATR standards require a consideration of DTI ratio and residual income; there is no DTI threshold or minimum required residual income
General ATR standards require a consideration of DTI ratio and residual income; the DTI ratio threshold is 40%
General ATR standards require a consideration of DTI ratio and residual income; residual income must equal at least the monthly loan payment amount, plus 5%

Answer 18

The answer is General ATR standards require a consideration of DTI ratio and residual income; there is no DTI threshold or minimum required residual income. General ATR standards require a consideration of DTI ratio and residual income. However, there is no DTI ratio threshold or minimum required residual income.

Question 19

If an appraiser considers the value of the land and the cost of improvements as a means to arrive at an estimate of value for a property, he/she is using the _____ approach.

Sales comparison
Income
Cost
Investment

Answer 19

The answer is cost. The cost approach uses the value of the land and the reproduction cost of any improvements.

Question 20

Mr. Bob Brown earns $12.00 per hour and works 38 hours each week for his job at a retail store. His wife Matilda is paid $680 bi-weekly as a medical technician. What is their combined monthly qualifying income?

$3,553.33
$3,449.33
$3,940.00
$3,336.00

Answer 20

The answer is $3,449.33. Mr. Brown’s monthly income can be calculated by multiplying his hourly base pay rate wage ($12.00) by the average number of hours worked per week (38), yielding a weekly income of $456.00. To determine his monthly income, weekly income ($456.00) is multiplied by the average number of weeks worked per year (52) and then divided by 12. ($456.00 × 52)/12 = $1,976.00. Mrs. Brown’s income can be determined by multiplying her biweekly salary ($680) by 26 and then dividing by 12. ($680 × 26) / 12 = $1,473.33. Adding the two incomes together ($1,976.00 + $1,473.33), yields a combined monthly income of $3,449.33.

Question 21

Don is refinancing his home in order to save money. If the loan goes through, his payment will drop from $2,000/month (PITI) to $1,500/month (PITI). Don’s gross income each month is $6,800, but he has a $300 car payment, a $150 credit card payment, and monthly alimony payments of $1,300. What is Don’s housing ratio on the proposed loan?

29%
48%
31%
22%

Answer 21

The answer is 22%. “Housing ratio” refers to the cost of Don’s housing expenses monthly divided by his gross monthly income. In this case, his proposed housing expense (PITI) will be $1,500/month. $1,500 / $6,800 = 22%.

Question 22

A loan with a fixed rate at the start that will adjust regularly after a certain period is commonly referred to as a(n):

Traditional ARM
Nontraditional ARM
Hybrid ARM
Option ARM

Answer 22

The answer is Hybrid ARM. A hybrid ARM is a mortgage loan with a fixed rate during the first few years of the loan. After the initial fixed-rate period expires, the loan becomes an adjustable-rate loan.

Question 23

HUD is still responsible for implementation of:

RESPA
The Fair Housing Act
TILA
The Equal Credit Opportunity Act

Answer 23

The answer is The Fair Housing Act. HUD is still responsible for implementation of the Fair Housing Act.

Question 24

When a fixed-rate qualified mortgage includes a prepayment penalty, that penalty may not be charged:

Until after the first three years of the loan term have passed
After the first three years of the loan term
Until there are three years left in the loan term
Prepayment penalties may not be charged on fixed-rate qualified mortgages

Answer 24

The answer is after the first three years of the loan term. When a fixed-rate qualified mortgage includes a prepayment penalty, the penalty may not be charged after the first three years of the loan term.

Question 25

Fiduciary duties include all but which of the following?

Creating a zero-cost borrower credit
Loyalty
Good faith
Putting the borrower’s interests first

Answer 25

The answer is creating a zero-cost borrower credit. A broker under the Law of Agency has a fiduciary duty to represent the borrower with loyalty, good faith, and should always put the borrower’s best interest ahead of his/her own.

Question 26

The implementing regulations for the MAP Rule are known as:

Regulation N
Regulation Z
Regulation C
Regulation X

Answer 26

The answer is Regulation N. The implementing regulations for the MAP Rule are known as Regulation N.

Question 27

Which of the following is true?

Unethical practices in lending transactions do not lead to legal consequences
Federal lending laws do not address the issues of ethical lending practices
Ethical issues are the basis of both state and federal laws and can have legal consequences
Only state laws address the issue of ethical lending practices

Answer 27

The answer is ethical issues are the basis of both state and federal laws and can have legal consequences. Ethical issues are the basis of both state and federal laws, and violating these laws can have serious legal consequences.

Question 28

An advertisement that states “Refinance with 30 year fixed rates as low as 4.25%!” is:

A violation of TILA
A TILA violation only if the loans are not available
A TILA violation because it targets struggling homeowners
Not a violation of TILA if it provides information on APRs and payments with equal prominence, as long as the statement is true

Answer 28

The answer is not a violation of TILA if it provides information on APRs and payments with equal prominence, as long as the statement is true. An advertisement that states “Refinance with 30 year fixed rates as low as 4.25!” is not a violation of TILA if it provides information on APRs and payments with equal prominence, as long as the statement is true.

Question 29

In the practice of table funding, what is used to protect the lender against fraudulent activity?

Rigorous income analysis
Documentation of repayment ability
Buy-back provisions
Line of credit

Answer 29

The answer is buy-back provisions. A warehouse lender often uses buy-back provisions in the agreements with brokers to assure themselves some protection against fraudulent activity during the loan process.

Question 30

All of the following loans are covered by the requirements of the Home Mortgage Disclosure Act, except:

A loan to purchase a property in an urban area
A home improvement loan
A loan for an RV which the borrower uses as his/her primary housing six months a year
Refinance of a property owned by an elderly couple who are both over the age of 62

Answer 30

The answer is a loan for an RV which the borrower uses as his/her primary housing six months a year. HMDA reporting is not required for loans for personal property; loans to purchase RVs are personal loans and therefore not subject to mortgage lending laws.

Question 31

Property that is transitory and can be moved is known as:

Real property
Diminishing property
Personal property
Depreciated property

Answer 31

The answer is personal property. Personal property is property that is transitory and can be moved.

Question 32

How much hazard insurance does FNMA require on a property?

100% of the lesser of the loan amount or the cost to restore the improvements to the property
100% of the appraised value
80% of the value of the property
100% of the replacement cost

Answer 32

The answer is 100% of the lesser of the loan amount or the cost to restore the improvements to the property. Fannie Mae requires hazard insurance in place of at least 100% of the lesser of the loan amount, or the cost to restore the improvements to the property.

Question 33

Which of the following statements regarding the calculation of finance charges is not true?

Premiums for optional insurance products are always included
Premiums for optional insurance products are not included if the creditor discloses that coverage is optional and does not extend through the full loan term
Reasonable charges for title insurance that do not result in direct or indirect compensation for the creditor are not included
Charges paid to a title insurer that is not affiliated with the creditor are not included

Answer 33

The answer is premiums for optional insurance products are always included. Charges that result in compensation for creditors and affiliates are included in finance charges, but when required disclosures are provided, charges for optional insurance products are not.

Question 34

On which section of the application would a borrower be asked to attest to legal issues that could impact repayment ability, such as outstanding judgments, tax liens or delinquencies on other debts?

Section 1
Declarations
Assets and Liabilities
Information for Government Reporting

Answer 34

The answer is Declarations. The Declarations Section (Section 5) asks the borrower for information regarding any judgments, citizenship, default status, occupancy status, and other questions that may affect underwriting.

Question 35

Attorney Mike Hammer has an arrangement with Godfrey Lending to fund all loans that Hammer negotiates on behalf of his clients. In exchange, Godfrey pays Hammer a finder’s fee. Under the S.A.F.E. Act:

As a licensed attorney, Mike is exempt from licensing requirements
Mike must employ a state-licensed loan originator on his staff to engage in this practice
Mike must be licensed as a loan originator
Mike may engage in this practice if the property involved is located outside the state in which he is licensed to practice law

Answer 35

The answer is Mike must be licensed as a loan originator. A licensed attorney is exempt from the requirement to be licensed as a mortgage loan originator if he offers or negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to his/her representation of the client, unless the attorney is compensated by a lender, mortgage broker, or other loan originator, or by any agent of the same.

Question 36

Xavier has been charged with alleged violations of his state’s S.A.F.E. Act. Before a civil penalty may be imposed on him, the state is required to:

Request an accounting of Xavier’s assets
Determine a payment plan
Provide Xavier notice and an opportunity for a hearing
Submit a claim against Xavier’s surety bond

Answer 36

The answer is provide Xavier notice and an opportunity for a hearing. The state licensing agency may impose a civil penalty on a mortgage loan originator or person subject to the S.A.F.E. Act if it finds, after notice and an opportunity for hearing, that the mortgage loan originator or person subject to the Act has violated or failed to comply with any requirement of the Act or any regulations prescribed by the state licensing agency.

Question 37

Loan originators are required to complete _____ hours of pre-licensing education to satisfy the federal requirement under the S.A.F.E. Act.

20
8
16
24

Answer 37

The answer is 20. The NMLS requires that a minimum of 20 hours of pre-licensing education be completed before an application will be considered.

Question 38

The general acceptable front-end housing ratio for a USDA loan is:

29%
28%
31%
Front-end ratios are not considered for USDA loans

Answer 38

The answer is 29%. USDA loans use a front-end ratio of 29%.

Question 39

Which of the following would not be considered an appraisal red flag?

Appraisal dated prior to the sales contract
Blurry photos or photos that appear to be downloaded
Comparables within one mile of the subject property and sold within one year
Adjustments that exceed guideline

Answer 39

The answer is comparables within one mile of the subject property and sold within one year. Comparables located within one mile of the subject property and sold within one year are not considered an appraisal red flag.

Question 40

The Walkers are purchasing a home for $300,000. Their down payment is $60,000. What is the percentage of the down payment the Walkers are making?

30%
20%
15%
25%

Answer 40

The answer is 20%. The Walkers are making a down payment equal to 20% of their loan amount.

Question 41

An individual who is an employee of a depository institution or a subsidiary of a depository institution meets the definition of a loan originator, defined as a(n):

Licensed mortgage loan originator
Exempt mortgage loan originator
Registered mortgage loan originator
Qualified mortgage loan originator

Answer 41

The answer is registered mortgage loan originator. A “registered mortgage loan originator” is an individual who is employed by an exempt depository institution and is therefore also exempt from licensure as a loan originator. The registered mortgage loan originator is merely required to be registered with the NMLS.

Question 42

Which of the following occurs when the parties to a loan transaction meet to execute documents, and immediately afterwards, funds are disbursed?

Dry settlement
Wet settlement
Table funding
Rescission

Answer 42

The answer is wet settlement. Wet settlement occurs when the parties to a loan transaction meet to execute documents, and afterwards, funds are disbursed. In contrast, at a dry settlement, parties meet to execute documents but funds are not disbursed until certain specified conditions are met.

Question 43

The conclusive presumption of compliance applies to:

Subprime loans that meet the qualified mortgage standards
Prime and subprime loans that meet the qualified mortgage standards
Prime loans that meet the qualified mortgage standards
Fixed-rate prime loans that do not meet the qualified mortgage standards

Answer 43

The answer is prime loans that meet the qualified mortgage standards. The conclusive presumption of compliance applies to prime loans that meet the qualified mortgage standards.

Question 44

What is not required for a VA loan?

Certificate of Eligibility
Mortgage insurance premium
Primary residence
Total debt ratio

Answer 44

The answer is mortgage insurance premium. A VA loan does not require mortgage insurance premium. VA loans use a funding fee.

Question 45

Dividing the PITI by the amount of a borrower’s monthly gross income determines the:

Total debt ratio
Loan suitability
Net tangible benefit
Housing expense ratio

Answer 45

The answer is housing expense ratio. PITI divided by gross monthly income calculates the housing expense ratio.

Question 46

The types of high-cost mortgages that may be subject to HOEPA include all of the following, except:

Refinances
Reverse mortgages
Home equity lines of credit
Loans to purchase a home

Answer 46

The answer is reverse mortgages. The Dodd-Frank Act broadened the scope of HOEPA to cover almost all mortgage types, except for reverse mortgages.

Question 47

This is the term for the ability to cancel a transaction.

Subordination
Redlining
Rescission
Prioritization

Answer 47

The answer is rescission. Rescission is the term for the ability to cancel a transaction.

Question 48

Why might a borrower take a piggyback loan?

To avoid MIP
To get a lower rate on his or her first mortgage
To shorten the term of his or her first mortgage
To limit the cash necessary to bring to the table

Answer 48

The answer is to limit the cash necessary to bring to the table. A borrower may take on a piggyback loan to avoid mortgage insurance, but not “MIP,” because that is required for FHA loans. Of the answers given, the best is to limit the cash necessary to bring to the table.

Question 49

Two brothers, Tom and Jim, purchase homes on the same block where they grew up. They knew the sellers, having grown up on the block, and both obtain $200,000 loans to purchase their new homes. Jim chose a “traditional” loan – 30-year fixed, while Tom would rather pay his loan off more quickly. He decided on a 15-year mortgage. Which of the two will pay more principal?

Both Jim and Tom will pay the same amount of principal
Jim
Tom
It depends on their rates

Answer 49

The answer is Both Jim and Tom will pay the same amount of principal. Both brothers will pay the same amount in principal, though Jim will pay much more in interest over the longer term.

Question 50

Title insurance is required for all loans by the:

Borrower’s attorney
Lender
Lender’s title company
Borrower

Answer 50

The answer is lender. Title insurance provides coverage for undisclosed liens or other title defects that may not turn up on a title search and is required by the lender. Lender’s insurance is mandatory for loan approval, but owner’s insurance is voluntary.

Question 51

The minimum standards for license renewal include all but which of the following?

Continuing to meet the minimum standards for license issuance
A production report for all licensed originators
Satisfaction of annual continuing education requirements
Payment of renewal fees

Answer 51

The answer is a production report for all licensed originators. Production information pertaining to individual originators is not a necessary requirement as a condition of license renewal.

Question 52

When may a homeowner request that PMI be cancelled?

When the lender informs him/her that it is terminating PMI
As soon as the five-year required minimum is met
As soon as his/her equity position reaches at least 22%
As soon as his/her equity position is 20% or greater

Answer 52

The answer is as soon as his/her equity position is 20% or greater. The Homeowners Protection Act states that a homeowner may request a lender/servicer cancel PMI as soon as the equity position is at 20% or greater (80% LTV or less). The PMI is automatically terminated by the lender/servicer at 78% LTV or when the loan reaches the midpoint in its amortization.

Question 53

If a loan originator has not renewed his/her license by December 31st, he/she may:

Only see through completion of those loans originated prior to license expiration
Not continue to conduct any loan originator activities until the license has been renewed
Continue to honor existing contracts and be compensated only for those loans already in the pipeline
Continue to conduct business as normal as long as a renewal application is submitted prior to the “late renewal” deadline

Answer 53

The answer is not continue to conduct any loan originator activities until the license has been renewed. While some state regulators will allow for a “late renewal,” after December 31st the license is expired. Therefore, the originator is technically unlicensed and may not continue to engage in any activities that require a license to conduct business.

Question 54

Lifetime rate caps are used in transactions for adjustable-rate mortgages to limit:

The number of rate adjustments that can occur during a loan’s term
The amount by which periodic payments can change over the loan term
The amount by which an interest rate can change over the loan term
The amount of interest that a borrower can pay during a loan’s term

Answer 54

The answer is the amount by which an interest rate can change over the loan term. Lifetime rate caps limit the amount by which a rate can change during a loan term.

Question 55

Under TILA guidelines, all of the following disclosures are provided for an adjustable-rate loan, except:

Frequency of changes in the annual percentage rate
Statement that the interest rate will be offered for the duration of the loan
Possibility of changes in the payment amount over time
The index used to determine rate adjustments

Answer 55

The answer is statement that the interest rate will be offered for the duration of the loan. Under TILA guidelines, required disclosures for an adjustable-rate loan include the frequency of changes in the annual percentage rate, the index used to determine rate adjustments, and the fact that the payment amount may change over time.

Question 56

A loan feature that is not prohibited for qualified mortgages is:

Points and fees that exceed 9% of the total loan amount
A negative amortization feature
A 30-year loan term
Ability to defer payment of the principal

Answer 56

The answer is a 30-year loan term. A 30-year loan term is not prohibited for a qualified mortgage.

Question 57

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

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

Answer 57

The answer is the applicant appears to be quite young but makes a high salary. An applicant who appears to be young but has a high salary would not necessarily be a sign of mortgage fraud.

Question 58

A lender engaging in telemarketing may be subject to a fine of _____ for violations of federal Do-Not-Call rules.

$43,792
$45,000
$25,359
$25,693

Answer 58

The answer is $43,792. Violations of the federal Do-Not-Call rules can lead to fines of $43,792 per violation, as of 2021.

Question 59

Which of the following individuals performs clerical or support duties as an employee at the direction of a licensed or exempt institution?

A loan processor
A sole proprietor
An underwriter acting as an independent contractor
An attorney representing a client in an ancillary capacity

Answer 59

The answer is a loan processor. A loan processor is an individual who performs clerical or support duties.

Question 60

Housing counselors must generally be approved by:

The CFPB
The Office of Financial Education
HUD
The NMLS

Answer 60

The answer is HUD. Housing counselors must generally be approved by HUD.

Question 61

The Truth-in-Lending Act:

Regulates the time a borrower is required to pay private mortgage insurance
Requires that the borrower be informed of estimated closing costs within three business days of application
Regulates language and terms used in advertising for credit
Prohibits unlicensed brokers from offering government loan products

Answer 61

The answer is regulates language and terms used in advertising for credit. TILA and Regulation Z prohibit the advertisement of lending terms that a lender or creditor is not actually prepared to offer. The law and regulations also seek to prevent publication of advertisements that are deceptive and misleading.

Question 62

Loan products that tempted consumers to misrepresent their loan qualifications during the lending boom included all but which of the following?

No-doc loans
Stated-income loans
Low-doc loans
Prime loans

Answer 62

The answer is prime loans. During the lending boom, products such as no-doc, low-doc, and stated-income loans were offered at subprime rates, and they tempted consumers to secure loans with false information. These types of misrepresentations were far less common when consumers were required to produce all of the full documentation that was required to secure a prime loan product.

Question 63

Where inquiries related to marital status are permitted (e.g., community property states), Regulation B permits the creditor to inquire using any of the following terms, except:

Unmarried
Divorced
Married
Separated

Answer 63

The answer is divorced. Regulation B provides that, when inquiries related to marital status are permitted, the terms that may be used are “married,” “unmarried,” and “separated.”

Question 64

Assessment of borrower repayment ability is not required for:

Closed-end home loans
Adjustable-rate home loans
HOEPA loans
Reverse mortgages

Answer 64

The answer is reverse mortgages. TILA expressly requires an assessment of repayment ability for virtually all transactions other than those for reverse mortgages.

Question 65

The risk of a balloon mortgage may be minimized by including a:

Mandatory arbitration clause
Acceleration clause
Conditional refinance provision
Home equity conversion provision

Answer 65

The answer is conditional refinance provision. The risk of a balloon mortgage may be minimized by including a conditional refinance provision.

Question 66

An originator advertises via the Internet and direct mail a “3.5% fixed payment loan” that was not actually available to any loan applicant. Which federal agency would bring the lawsuit against this originator and his company?

HUD or the FTC
FHFA
FTC or the CFPB
FDIC

Answer 66

The answer is FTC or the CFPB. The CFPB is the federal agency responsible for enforcing violations of TILA prohibitions against misleading advertisements, but shares some enforcement authority with the FTC.

Question 67

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 67

The answer is $3,600. The down payment of 10% ($20,000) is based on the purchase price of $200,000. The down payment must be deducted from the purchase price to find the loan amount. The discount points in this transaction are then based on the loan amount of $180,000. Each point is 1% of the loan amount, so a total of 2%. $180,000 × 0.02 = $3,600.

Question 68

What type of lien takes priority?

A tax lien
The first mortgage
The second mortgage
A mechanic’s lien

Answer 68

The answer is a tax lien. A tax lien takes priority over all other liens, regardless of chronological order.

Question 69

A 7 / 1 ARM has a start rate of 4%, an initial cap of 3%, and a periodic cap of 1%. The lifetime cap is 8%. The margin is set at 4%, and the current index value has risen in the last month to 9.25%. The loan closed four years ago. What is the current rate?

7%
4%
8%
12%

Answer 69

The answer is 4%. This ARM has a start rate of 4.00%, and is locked for the first seven years. The question specifies that the loan is entering into its fifth year. The rate would still be 4.00% until at least the start of the eighth year.

Question 70

An escrow account analysis has been completed on Mary Thompson’s loan. It is discovered that there is a $40 overage in her account. How many days does the servicer have to return the money?

There is no refund
The servicer would not return the money; it would be applied toward the principal amount
The servicer has 30 days from completion of the analysis to return the overage
Ms. Thompson must be refunded within 90 days

Answer 70

The answer is there is no refund. RESPA requires a refund if an escrow analysis uncovers an overage of greater than $50. Smaller overages are applied to the next year’s escrow payments; anything above $50 is then required to be refunded within 30 days.

Question 71

The Truth-in-Lending Act is intended to help consumers by:

Regulating creditors and the rates they can provide
Investigating predatory lending
Limiting the closing costs a broker can charge
Providing the consumer with information on the cost of credit

Answer 71

The answer is providing the consumer with information on the cost of credit. The main purpose of TILA is to provide the consumer protection by requiring disclosure of the cost of credit.

Question 72

The Derringers have rescinded their loan transaction, informing their lender of their decision by mail. They are entitled to a full refund within:

10 days
20 days
30 days
60 days

Answer 72

The answer is 20 days. If a borrower rescinds a transaction, within 20 days of the rescission, he is entitled to a refund of all money or property given to the creditor.

Question 73

In addition to any authority allowed under state law, a state licensing agency must have the authority to:

Approve licensing courses
Conduct examinations and investigations
Collect licensing and renewal fees
Request enforcement action from the NMLS

Answer 73

The answer is conduct examinations and investigations. Under the S.A.F.E. Act, a state licensing agency must have the authority to conduct investigations and examinations of licensed loan originators and individuals required to have a loan originator license.

Question 74

All of the following are common indices used for adjustable rates, except:

London Interbank Offered Rate
Cost of Funds Index
Subordinate Rate Index
Treasury Bill Index

Answer 74

The answer is Subordinate Rate Index. Common indices include the Treasury Bill Index, the 11th District Cost of Funds Indexes (COFI), or the London Interbank Offered Rate (LIBOR).

Question 75

Jimmy has been working with ABC Mortgage for 16 years and has built a strong relationship base with most of his settlement service providers. The Smith file has been a big headache for Jimmy, and it looks like the deal will be very tight. Jimmy shoots an email to his appraiser that reads, “The Smiths believe that their home is worth $250,000 and would like for you to feel the same. How much will the appraisal cost?” This communication may lead to:

An appraisal review
All of these are likely to result
An inflated appraisal
A violation of TILA’s rules pertaining to communication with appraisers

Answer 75

The answer is all of these are likely to result. It is likely that in Jimmy’s long-term relationship with his appraiser, the meaning in this kind of email is very clear to the appraiser. In order to please Jimmy and the borrower, the appraiser is likely to do everything he/she can to arrive at as high a value as possible. This may lead to an inflated appraisal, possibly an appraisal review, and a violation of TILA’s rules regarding communication with appraisers

Question 76

Which of the following is not involved in the bundling of mortgages for sale in the secondary market?

FHA
FNMA
Private-label investors
FHLMC

Answer 76

The answer is FHA. The secondary market includes GSEs, such as Fannie Mae and Freddie Mac (FNMA and FHLMC), as well as private financial institutions, also known as private-label investors.

Question 77

Advantages of VA loans include all of the following, except:

100% financing
More lenient underwriting requirements
No closing costs
No prepayment penalties

Answer 77

The answer is no closing costs. Advantages of VA loans include 100% financing, more lenient underwriting requirements, and no prepayment penalties.

Question 78

A borrower is considered to be self-employed if he or she:

Has not earned W-2 income in the previous two years
Owns more than 1% of a business
Owns more than 25% of a business
Has ownership of at least 51% of a business

Answer 78

The answer is owns more than 25% of a business. A borrower is considered self-employed if he or she owns more than 25% of a business.

Question 79

All of the following methods can be used by an originator to detect fraudulent documents, except:

Verifying that the purchase price is not greater than the average for the area
Check paystubs for watermarks or fraud prevention patterns
Track chain of custody of all verifications
Compare earnings claims to public databases for industry and region

Answer 79

The answer is verifying that the purchase price is not greater than the average for the area. A purchase price that is slightly higher than the average area is not, in and of itself, an indicator of a fraudulent transaction. There are a number of reasons for a higher purchase price, such as property features, age, improvements, and more.

Question 80

A mortgage lender that is conducting telemarketing to generate business will not violate the Telemarketing Sales Rule by calling which of the following individuals?

A borrower who used the broker’s services to secure financing for a home purchase two years earlier
A borrower who used the broker’s services to secure a home equity loan three years earlier
A borrower who accepted but rescinded a home equity loan 24 months earlier
A borrower who contacted the lender three months ago to ask about interest rates for refinances

Answer 80

The answer is a borrower who contacted the lender three months ago to ask about interest rates for refinances. The Telemarketing Sales Rule allows telemarketers to contact consumers with whom they share an established business relationship. An established business relationship exists if a consumer secured a loan from a lender within the past 18 months or contacted it within the past three months to inquire about loan products.

Question 81

The right to rescind a loan applies to which one of the following transactions?

A transaction for a home equity line of credit secured by a principal residence
A transaction involving a loan to purchase a principal residence
A refinancing of credit with the same creditor that made the loan being refinanced
A transaction for the refinance of a loan that is secured by a vacation home

Answer 81

The answer is a transaction for a home equity line of credit secured by a principal residence. The right to rescind a loan applies to a transaction for a home equity line of credit secured by a principal residence.

Question 82

Payments for non-qualified mortgages must be based on:

The maximum interest rate that will apply over the life of the loan
The maximum interest rate that will apply during the first five years after the date of the first payment
The fully-indexed rate
The introductory rate

Answer 82

The answer is the fully-indexed rate. Payments for non-qualified mortgages must be based on the fully-indexed rate.

Question 83

When a creditor takes steps legally to force the sale of a property in an effort to collect on a loan in default, it is known as:

Repossession
Foreclosure
Default
Acceleration

Answer 83

The answer is foreclosure. Foreclosure is the sale of property to satisfy unpaid debt after a borrower’s default on payments.

Question 84

Which of the following scenarios describes a “straw buyer”?

Charlie cuts and pastes her income documentation to reflect a higher income
Tom’s sister has bad credit and cannot qualify for a loan, so he agrees to let her get the loan using his name and allows his sister to live in the house and cover the mortgage payments
Will asks his buddy to be on alert to verify his employment when the lender calls
Cindy asks her father to co-sign a loan for her

Answer 84

The answer is Tom’s sister has bad credit and cannot qualify for a loan, so he agrees to let her get the loan using his name and allows his sister to live in the house and cover the mortgage payments. A straw buyer is someone who agrees to let someone use his/her name, Social Security Number, and other financial information to qualify for a loan he/she has no intention of paying back or occupying the home.

Question 85

Desperate to increase her business, Sandy has advertised a loan product that has very attractive terms but which does not actually exist in the marketplace. She plans on telling consumers who inquire about the product that it was pulled from the market and then steer them to other loan products that are actually available. By doing this, Sandy has engaged in:

Bait-and-switch advertising
Trolling advertising
Fishing advertising
Scamming advertising

Answer 85

The answer is bait-and-switch advertising. Bait-and-switch advertising is advertising a loan at very attractive terms and then informing the potential customer that that loan is not available but that a different loan with different terms is.

Question 86

Which of the following is not a common underwriting pitfall?

Cash-out refinances listed as no cash-out
Income calculated incorrectly
Borrower delayed in returning initial signed docs
Secondary financing not disclosed

Answer 86

The answer is borrower delayed in returning initial signed docs. A borrower being delayed in returning docs would suggest that the file has not even gone into underwriting yet, which would not be an underwriting pitfall.

Question 87

Jenny has applied for a loan to purchase a home and learns that she is unable to qualify for any loan other than a high-cost mortgage. Her lender, MortgageMax, tells her that she must complete pre-loan counseling to obtain the loan. MortgageMax also tells her that it will pay for the counseling if she uses a counselor from its affiliate company, MortgageMax Counseling, and obtains her certification from this company. Which statement is the most accurate assessment of this arrangement?

MortgageMax followed the law when it required Jenny to complete counseling because she cannot get a high-cost loan until she earns her certification of counseling
MortgageMax should have provided Jenny with a list of at least five HUD-approved counselors that offer counseling in the town where she is attempting to purchase a home
MortgageMax may pay the counseling fees, but is prohibited from steering Jenny towards a particular counselor or allowing her to complete counseling from one of its affiliates
MortgageMax may suggest particular counseling agencies, including its affiliates, but is not allowed to pay the cost of counseling

Answer 87

The answer is MortgageMax may pay the counseling fees, but is prohibited from steering Jenny towards a particular counselor or allowing her to complete counseling from one of its affiliates. MortgageMax may pay the counseling fees, but it is prohibited from steering Jenny towards a particular counselor or allowing her to complete counseling from one of its affiliates.

Question 88

All of the following are responsibilities of the underwriter, except:

Confirming that a potential borrower has sufficient cash assets to close
Providing a borrower with a notice of adverse action
Ensuring the property is eligible and meets lender guidelines for collateral
Examining the overall pattern of credit behavior and isolated occurrences of derogatory credit

Answer 88

The answer is providing a borrower with a notice of adverse action. The underwriter is responsible for confirming that a potential borrower has sufficient cash assets to close, ensuring that the property is eligible and meets lender guidelines for collateral, and examining the overall pattern of credit behavior and isolated occurrences of derogatory credit.

Question 89

Slim Tipton, a recent widower, has just refinanced his home, which he has been renting to his son ever since he moved into a beachfront condo two years prior. The purpose of this cash out refinance is to help his son, Tiny, start a printing business. In this scenario, who receives copies of the Notice of the Right to Cancel?

Only Slim, since his wife is no longer alive
Neither Slim nor Tiny receives a Notice of the Right to Cancel
Slim and his son Tiny, since Tiny is living in the home securing the refinance
Slim is the only one to receive a Notice of the Right to Cancel

Answer 89

The answer is Neither Slim nor Tiny receives a Notice of the Right to Cancel. TILA allows for a rescission period on the refinance of a borrower’s principal dwelling. Since Slim has been living in a condo as his primary residence for two years, the refinance of his previous home would be considered non-owner-occupied, which is not subject to the right of rescission.

Question 90

Tom has negotiated a contract for the sale of the Flynns’ home to the Ryders. However, the contract does not involve any financing for the transaction to be completed. Tom has engaged in:

Real estate brokerage activities
Loan origination activities
Loan processing activities
Loan closing activities

Answer 90

The answer is real estate brokerage activities. Real estate brokerage activity is any activity that relates to the offering of or providing real estate brokerage services to the public, including negotiating, on behalf of any party, any portion of a contract relating to the sale, purchase, lease, rental or exchange of real property, other than in connection with providing financing for the transaction.

Question 91

The CHARM Booklet is an educational disclosure required by which piece of federal legislation?

RESPA
Regulation B
TILA
FACTA

Answer 91

The answer is TILA. The Consumer Handbook on Adjustable Rate Mortgages (CHARM) is one of a number of disclosures required by the Truth in Lending Act (TILA) to be provided to any consumer interested in an ARM product.

Question 92

When is it allowable for an originator to provide a real estate agent with a $50 gift card in exchange for a referral?

If the gift card has no dollar amount listed on it
If the real estate agent’s commission was no more than 25% more valuable than the card
As long as the originator provides equal gift cards to each service provider on the loan
It is a violation of RESPA for the originator to provide the card

Answer 92

The answer is it is a violation of RESPA for the originator to provide the card. RESPA prohibits providing a “thing of value” in exchange for a referral.

Question 93

The Barrows applied for a loan to buy a small duplex in a suburb of Springfield. However, shortly after they received the Loan Estimate from their lender, a tornado swept through Springfield and severely damaged the home they are purchasing, requiring construction and repairs. Under these circumstances:

The previous Loan Estimate still applies
The transaction is void
The Barrows must reapply
A revised Loan Estimate may be issued

Answer 93

The answer is a revised Loan Estimate may be issued. In general, a creditor may not make a material change to a Loan Estimate once it is provided to the loan applicant. However, under certain specific “changed circumstances,” a revised Loan Estimate may be provided. These include an extraordinary event beyond the control of any party which specifically affects the transaction, such as a tornado damaging the subject property.

Question 94

Standard income qualification for a salaried borrower applying for a conforming loan typically includes:

Two weeks of paystubs and W-2s for three years
Paystubs for the most recent 30-day period and W-2s for the most recent two years
Tax returns for the past two years accompanied by a 4506-C
Paystubs and tax returns documenting all commission income

Answer 94

The answer is paystubs for the most recent 30-day period and W-2s for the most recent two years. Conforming loan programs meet the guidelines set by Fannie Mae and Freddie Mac. The general guidelines set for salaried income include W-2s from the past two years and paystubs from the past 30 days.

Question 95

The intention of the Safeguards Rule is to:

Require disclosures regarding the use of personal information by third parties
Prohibit lenders from sharing account numbers if they share customers’ information
Restrict the sharing of nonpublic personal information between nonaffiliated financial institutions
Ensure the protection of personal information through an effective security program

Answer 95

The answer is ensure the protection of personal information through an effective security program. The Safeguards Rule requires the creation, implementation, and maintenance of an effective security program that ensures the privacy of clients’ personal financial information. The program must include four key elements, including a program coordinator, identification of risks, regular testing, and oversight of third-party service providers.

Question 96

Which of the following is not an example of an FHA loan product?

Conforming mortgage loan
Cash-out refinance
Home equity conversion mortgage
Streamline refinance

Answer 96

The answer is conforming mortgage loan. Cash-out refinances, home equity conversion mortgages, and streamline refinances are all examples of FHA loan products.

Question 97

The term “maximum guaranty amount” applies to _____ loans, and it refers to _____.

FHA; the lending limit
Fixed-rate; the maximum amount that a bank can lend to a particular consumer
VA; the maximum amount that the VA will pay to a lender if the borrower defaults on a loan
VA; the maximum amount that a lender can loan to a veteran in a transaction for a home purchase

Answer 97

The answer is VA; the maximum amount that the VA will pay to a lender if the borrower defaults on a loan. The VA limits the amount that it can guarantee to repay a lender in the event of a default on the loan. This amount is referred to as the “maximum guaranty amount.”

Question 98

Which of the following is considered an “acceptable” communication with an appraiser?

Implying that the appraiser’s services will no longer be used if a minimum value is not met
Explaining to the appraiser that a minimum value must be given to get the deal done
Refusing payment to an appraiser because of a lower-than-expected value
Requesting that an appraiser consider additional information about a property or comparable

Answer 98

The answer is requesting that an appraiser consider additional information about a property or comparable. With regard to appraiser communication, it is considered acceptable to request that an appraiser consider additional information about the subject property or comparables.

Question 99

If a loan originator license needs amending due to a change of address, the Commissioner would be made aware:

Through submission of documents by the sponsoring employer
At the next renewal date
Only if the address affects the business, not the residence of the loan originator
As soon as is determined in accordance with state regulator notification requirements

Answer 99

The answer is as soon as is determined in accordance with state regulator notification requirements. A change which renders the initial application inaccurate must be made known to the NMLS and the Commissioner through an updated Individual Form.

Question 100

Helena receives a completed application for a 30-year fixed-rate mortgage loan. Which of the following must be provided at least seven business days prior to consummation?

A Closing Disclosure
A CHARM Booklet
A URLA
A Loan Estimate

Answer 100

The answer is A Loan Estimate. For most mortgage loan transactions (unless exempt), a Loan Estimate must be provided no later than three business days after receiving a completed loan application and at least seven business days prior to consummation.

Question 101

All of the following are true of a loan origination fee, EXCEPT:

May be adjusted based on terms of the loan
May be charged by a mortgage broker or a lender
May be paid at closing
Covers the administrative costs of making the mortgage

Answer 101

The answer is may be adjusted based on terms of the loan. A loan origination fee is a charge by a mortgage broker or lender to cover the administrative costs of making the mortgage. It is paid at closing and varies by lender. The origination fee may NOT be based on loan terms as per the Loan Originator Compensation Rule.

Question 102

Bankruptcy cases may stay on the credit report for up to how many years?

Five
Two
Ten
Three

Answer 102

The answer is ten. Bankruptcy cases may stay on the credit report for up to ten years.

Question 103

If a changed circumstance in a mortgage loan transaction occurs fewer than four business days prior to consummation:

Closing must be postponed until the borrower consents to reschedule
The loan must be re-approved
The borrower must sign a waiver consenting to the use of the original Loan Estimate
The revised charges may be provided to the consumer on a revised Closing Disclosure

Answer 103

The answer is the revised charges may be provided to the consumer on a revised Closing Disclosure. If a changed circumstance occurs fewer than four business days prior to consummation, the revised charges may be provided to the consumer on a revised Closing Disclosure.

Question 104

Mortgage loan originator Edna is planning an advertisement that indicates the number of payments required to pay off a specific loan. This statement is a:

Prohibited statement
Trigger term
Permissible representation if it is accurate
Hypothetical only

Answer 104

The answer is trigger term. A trigger term is any of the following specific credit terms: the amount or percentage of any down payment, except when the amount of the down payment is zero; the number of payments or period of repayment; the amount of any payment; and the amount of any finance charge.

Question 105

In what area of the Loan Estimate would a borrower be able to see if their loan has a balloon payment?

The “Projected Payments” table
The “Comparisons” table
The “Loan Terms” section
This is not listed on the Loan Estimate

Answer 105

The answer is the “Loan Terms” section. The Loan Terms section on page 1 of the Loan Estimate includes, among other things, an indication of whether the loan includes a prepayment penalty or a balloon payment.

Question 106

Which of the following transactions would be exempt from the ATR Rule?

A refinance transaction
A first lien on a home
A mortgage secured by a vacation home
An open-end HELOC

Answer 106

The answer is an open-end HELOC. An open-end HELOC would be exempt from the ATR Rule.

Question 107

The Gramm-Leach-Bliley Act requires that a consumer be given an Initial Privacy Notice:

Only if nonpublic personal information is intended to be shared with nonaffiliated third parties
Within three days of application
Within 30 days of application
After information has been shared with an affiliated or nonaffiliated party

Answer 107

The answer is only if nonpublic personal information is intended to be shared with nonaffiliated third parties. Financial institutions are only required to provide an Initial Privacy Notice to consumers if they intend to share their information.

Question 108

What term describes the transfer of ownership of real estate from one owner to another?

Reconveyance
Conveyance
Assignment
Transmittal

Answer 108

The answer is conveyance. A conveyance is the transfer of ownership of real estate from one owner to another.

Question 109

Which of the following statements does not accurately describe a legal obligation that FCRA requires mortgage lenders to meet when using information contained in a credit report?

Lenders must certify that they are using the information in a credit report for a permissible purpose
Lenders must notify the CRA that provided the credit report of any disputes that the loan applicant has with information shown in the report
When providing a notification of adverse action, lenders must include a statement that the CRA did not make the decision to deny a loan application
When denial is based on information from a lender’s affiliate, the lender must notify the loan applicant of the right to know the nature of this information

Answer 109

The answer is lenders must notify the CRA that provided the credit report of any disputes that the loan applicant has with information shown in the report. Lenders do not have a legal obligation to notify CRAs of disputes that loan applicants have with information presented in a credit report.

Question 110

Which of the following is a trigger term for advertisements for both open-end and closed-end mortgage loans?

Finance charge
Amount of down payment
Period of repayment
Number of payments

Answer 110

The answer is finance charge. The finance charge is a trigger term in advertising for both open- and closed-end loans.

Question 111

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

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

Answer 111

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.

Question 112

Income derived from a rental property would be entered in which section of the URLA?

Current Employment/Self-Employment and Income
Income from Other Sources
Financial Information - Real Estate
Borrower Information

Answer 112

The answer is Financial Information - Real Estate. Income derived from a rental property would be entered into the “Financial Information - Real Estate” section of the URLA, under a heading called “Property You Own.” If the applicant owns multiple properties from which they earn rental income, there are additional content boxes in this section to accommodate that information.

Question 113

An advertisement placed by Buster Posey contains a trigger term. As required, Buster has also provided the required additional disclosures. These include all of the following, except the:

Amount or percentage of the down payment
Terms of repayment
Annual percentage rate
Amount of the finance charge

Answer 113

The answer is amount of the finance charge. Additional disclosures required in an ad containing a trigger term include the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate. The amount of the finance charge is a trigger term, not a required additional disclosure.

Question 114

Specific prohibitions in advertising for mortgages include all but which of the following?

Misleading advertisement of a “fixed” rate
Claims of debt “elimination”
Use of the advertiser’s name
Misrepresentation of government endorsement

Answer 114

The answer is use of the advertiser’s name. An advertiser using its own name in an advertisement is actually a requirement, not a prohibition.

Question 115

A balloon loan is defined as:

A loan that has a specific amortization period but matures prior to the time it fully amortizes
A loan that has a specific amortization period but is due at a specific time prior to maturity
A loan whose final payment is smaller than the previous periodic payments
A loan which matures on a date after amortization

Answer 115

The answer is a loan that has a specific amortization period but matures prior to the time it fully amortizes. A balloon loan is a loan that has a specific amortization period but matures prior to the time at which it fully amortizes.

Question 116

All of the following may be reasons why a lender may call a reverse mortgage due and payable, except:

The loan balance increases
The homeowner dies
An act of fraud or misrepresentation occurs
The homeowner declares bankruptcy

Answer 116

The answer is the loan balance increases. Reverse mortgage interest is charged on the outstanding balance and added to the debt, which means the debt increases with each payment or draw. This is how a reverse mortgage is designed to be implemented.

Question 117

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

Fraud for property
Money laundering
Identity theft
Fraud for profit

Answer 117

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

Question 118

A borrower obtains an ARM with a start rate of 2.5% and a periodic rate cap of 1%. The loan adjusts four times. After the fourth adjustment, the rate is expected to be 6.5%. However, due to the lifetime cap on the loan, the rate is not permitted to exceed 5%. What is the lifetime rate cap?

1%
3.50%
5%
2.50%

Answer 118

The answer is 2.50%. For this ARM, the lifetime cap is 2.5%. The lifetime cap limits the maximum amount by which the rate on an ARM may increase. Here, the rate is not permitted to exceed 5%. To determine the lifetime rate cap, subtract the start rate (2.5%) from the maximum rate (5%). This results in the lifetime rate cap of 2.5%.

Question 119

For an adjustable-rate mortgage, the interest rate that should be listed on the Loan Terms table of the Loan Estimate is:

The rate at consummation
The fully-indexed rate
The rate after the first adjustment
The average of all rates that may apply over the life of the loan

Answer 119

The answer is the fully-indexed rate. For an adjustable-rate mortgage, the interest rate that should be listed on the Loan Terms table of the Loan Estimate is the fully-indexed rate.

Question 120

The underwriting process:

Evaluates a borrower for loan approval
Uses ratios and other criteria to approve a borrower
Evaluates collateral for deficiencies and borrowers for solvency
Examines whether the collateral and applicant meet lender guidelines

Answer 120

The answer is examines whether the collateral and applicant meet lender guidelines. Underwriting is the process of evaluating both the borrower and collateral to ensure that lender guidelines are met.

Question 121

Which of the following best describes the fiduciary duty that a loan originator owes to a consumer?

It is imposed by federal law and means that the principal (the loan originator) must act in the best interests of the agent (the borrower)
It is imposed by federal law and means that the agent (the loan originator) must act in the best interests of the principal (the borrower)
It is imposed by state law and means that the principal (the loan originator) must act in the best interests of the agent (the borrower)
It is imposed by state law and means that the agent (the loan originator) must act in the best interests of the principal (the borrower)

Answer 121

The answer is it is imposed by state law and means that the agent (the loan originator) must act in the best interests of the principal (the borrower). Fiduciary duty is imposed by state law in some jurisdictions and means that the agent (the loan originator) must act in the best interests of the principal (the borrower).

Question 122

An ARM is beginning its adjustment period and has a margin of 3.00% set at the start of the loan. The current index value is 2.50%. The caps on this ARM are set to 2% and 5% for periodic and lifetime, respectively. What is the highest value the margin can reach during this initial adjustment?

5%
5.25%
3%
8%

Answer 122

The answer is 3%. A margin value will never change once set on a loan. Therefore, this margin is set at 3.00% and will remain at 3.00% during each and every adjustment.

Question 123

In the verification and documentation process of loan application, “VOD” means:

Void of default
Verification of deposit
Verification of documentation
Verification of disclosure

Answer 123

The answer is verification of deposit. “VOD” means verification of deposit. It is the verification of banking or asset information while qualifying a borrower.

Question 124

When a lender is forced to go before a judge to enter an order of foreclosure, it is referred to as:

Non-judicial foreclosure
Judicial foreclosure
Power of sale
Acceleration

Answer 124

The answer is judicial foreclosure. A mortgage or deed of trust that does not contain a power of sale clause requires the lender to go before a judge to have an order of foreclosure entered. This process is called a “judicial foreclosure.”

Question 125

Which of the following statements accurately describes the scope of HOEPA?

The provisions of HOEPA apply to first-lien loans where the home securing the loan is located in a neighborhood targeted by subprime lenders
The provisions of HOEPA apply to first- and subordinate-lien transactions that are secured by a borrower’s principal residence
The provisions of HOEPA apply to subordinate-lien loans when the home securing the loan is either owner occupied or non-owner occupied
The provisions of HOEPA apply only to first-lien loans that are secured by a borrower’s principal residence

Answer 125

The answer is the provisions of HOEPA apply to first- and subordinate-lien transactions that are secured by a borrower’s principal residence. HOEPA applies to first- and subordinate-lien transactions that are secured by the borrower’s principal residence.