Federal Law Test Questions Flashcards
What is an industry-standard Late Charge terms for a conventional loan?
A) 7 days late and 10% of the monthly payment
B) 3 business days late and 5% of the monthly payment
C) 10 days late and 10% of the monthly payment
D) 15 days late and 5% of the monthly payment You should have checked this.
D) 15 days late and 5% of the monthly payment
Late Charge terms are written on the TILA disclosure. For example, if the borrower is 15 days late they will be charged 5% of the monthly payment. 15 days and 5% is a standard in the industry for a conventional loan only.
If loan officer Sam is creating an advertisement for his loan products in a local family newspaper, he should make sure to _____in order to comply with the Fair Housing Act?
A) Specify in words and pictures that young families living here are happier than other families
B)Say “Perfect for Families here, we have everything you need for your children”
C)Mention all of the protected classes in his advertising and say that all are welcome
D)Say nothing that indicates a limitation or preference based on being in a protected class
D. Say nothing that indicates a limitation or preference based on being in a protected class
It is illegal for anyone to: Advertise or make any statement that indicates a limitation or preference based on race, color, national origin, religion, sex, familial status, or handicap. This prohibition against discriminatory advertising applies to single-family and owner-occupied housing that is otherwise exempt from the Fair Housing Act.
A first lien of $250,000 will meet the APR trigger for a High-Cost loan if the APR exceeds the Average Prime Offer Rate by: A) 8.50% B) 7.50% C) 6.50% D) 5.50%
C. 6.5%
APR Triggers: Effective January 10, 2014 the HOEPA triggers are: (a) For a first lien loan, the APR exceeds the Average Prime Offer Rate by 6.5%; however, (b) For a first-lien transaction where the dwelling is personal property and the loan amount is less than $50,000 the trigger is when the APR exceeds the Average Prime Offer Rate by 8.5% percentage points:
When a MLO orders an appraisal, which of the following is prohibited?
A) Requesting that the appraiser return a minimum value
B) Including the predetermined opinion of the mortgage professional in the appraisal
C) Including the borrower’s opinion of value
D) Providing the appraiser with a list of recent sales
A. Requesting that the appraiser return a minimum value
Uniform appraisal laws and standards promoted by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council, prohibit the requesting of a minimum value. This was a common element of fraud.
RESPA does NOT specifically prohibit which of the following?
A) Fees from joint ventures.
B) Earning a kickback.
C) Making an unearned fee.
D) Earning a fee from a referral.
A) Fees from joint ventures
Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback, or any item of value in exchange for referrals of settlement service business. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed; however, fees allocated to both MLOs and attorneys in a joint venture are not strictly prohibited unless it is considered a sham joint venture.
An early lending prejudice towards women lead to the enactment of which law?
A) TILA- Truth In Lending Act
B) ADLP- Anti-Discriminatory C) Lending Practices
Fair Housing Act
D) ECOA- Equal Credit Opportunity Act
D) ECOA- Equal Credit Opportunity Act
Though not as common as it once was, in the mortgage industry, prejudices can cause unethical business practices whereby lenders will not give creditworthy borrowers credit. Some of the specific circumstances leading to the enactment of ECOA regarded women being unfairly discriminated against.
Which law prohibits discrimination against mortgage applicants?
A) RESPA.
B) SAFE.
C) FCRA.
D) ECOA.
D) ECOA
ECOA (Equal Credit Opportunity Act) prohibits discrimination against mortgage applicants based on race, color, religion, national origin, age and whether they were recipients of welfare. RESPA establishes specific disclosure requirements in the real estate settlement process and prohibits specific practices such as kickbacks. FCRA is designed to promote accuracy and ensure the privacy of consumers with regard to credit report information. SAFE establishes consistent mortgage lender and broker licensing requirements.
A married couple wants to complete a loan application for a refinance transaction in the husband’s name only. The MLO says the spouse must be added to the application. Is the MLO correct?
A) No. The spouse may sign a denial of fiduciary obligation letter to avoid applying jointly.
B) Yes. The MLO cannot risk denial and may feel that the husband will not qualify for the loan without the addition of his spouse.
C) Not likely. A lender should not require the spouse of a borrower to sign an application unless its a joint credit application or required to satisfy state law.
D) Yes. Married couples are considered one household and required to jointly apply for credit, or the loan may be denied.
C) Not likely. A lender should not require the spouse of a borrower to sign an application unless its a joint credit application or required to satisfy state law.
A lender should not require the spouse of a borrower to sign the application unless it is an application for joint credit or unless state laws make it necessary for a community property to be available as collateral. A lender cannot assume that the applicant is applying for a joint credit just by using the fact that the applicant submitted a joint financial statement. On the other hand, a joint application can be required from a spouse or additional parties if the borrower alone cannot satisfy the credit requirements.
Which law is arguably one of the most important US consumer protection laws regarding borrowing?
A) Consumer Protection Act (CPA)
B) Truth In Lending Act (TILA)
C) Fair Credit Reporting Act (FCRA)
D) Home Ownership and Equity Protection Act (HOEPA)
B) Truth In Lending Act (TILA)
“TILA, as implemented by regulation Z, became effective in July of 1969. It is one of the most important US consumer protection laws with regard to borrowing. TILA laws and regulations are generally aimed at protecting consumers, borrowers and creditors.”
Loan officer Sally is taking a loan application from a lovely couple with interesting foreign accents that she has not heard before. LO Sally says “Wow, your accents are amazing, where are you from”? Is this a violation of ECOA?
A) No
B) Yes, she cannot ask about the borrowers race or national origin
C) No, she can ask about an accent as this is not discrimination
D) Yes, she should have waited until they filled out the application and looked at the previous addresses instead
B) Yes, she cannot ask about the borrowers race or national origin
EQUAL CREDIT OPPORTUNITY ACT (REGULATION B) CFR 12 Part § 1002.4 (a)-(e) General rules say • You MAY NOT inquire about a borrower’s race, color, religion, national origin, or sex, unless: you are requesting information for monitoring purposes.
What is the difference between FCRA and the FACTA amendment?
A) FCRA promotes accuracy and privacy of credit information while FACTA regulates lenders’ discriminatory practices related to property types.
B) FCRA promotes accuracy and privacy of credit report information while FACTA allows borrowers to receive documentation of their actual credit score.
C) FCRA promotes accuracy of credit information while FACTA focuses on privacy.
D) FCRA relates to the accuracy of credit information on mortgage transactions while FACTA is related to all credit application types.
B) FCRA promotes accuracy and privacy of credit report information while FACTA allows borrowers to receive documentation of their actual credit score.
FCRA promotes accuracy and privacy of credit report information. FACTA is an amendment to the FCRA, aims to stop identity theft and give consumers more access to more documentation than FCRA did prior to the amendment.
A fraud scheme that usually involves one or more persons who abuse the ‘system’ for financial gain is known as:
A) Identity fraud
B) Fraud for housing
C) Skimming
D) Fraud for profit
D) Fraud for Profit
Fraud for Profit is sometimes referred to as ‘Industry Insider Fraud” and the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties.
A disclosed finance charge that is not considered accurate will extend the right of rescission for 3 years. For a refinance cash-out transaction with a new creditor, an understatement is considered accurate if it is not more than:`
A) $100
B) The greater of $100 or 0.5% of the face amount of the note
C) $35
D) The greater of $100 or 1% of the face amount of the note
B) The greater of $100 or 0.5% of the face amount of the note
$100 is the accuracy tolerance for a violation but not for the right to rescind. The exception of the 1% rule is not met because the transaction is a cash out transaction. More specifically, if the required finance charge disclosures are out of tolerance or disclosures are not delivered, in addition to incurring a violation of TILA, the right to rescind is extended to three years. The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) are considered accurate if the disclosed finance charge is either understated by no more than 0.5% of the face amount of the note or $100, whichever is greater; or is greater than the amount required to be disclosed. Overstatements are not violations. There is an exception in the case of a refinancing of a mortgage with a new creditor as long as there is no cash out and no consolidation of existing loans.
Which of the following gave the FTC the authority to create the Do-Not-Call Registry?
A) Telemarketing Consumer Fraud and Abuse Prevention Act (Telemarketing Act).
B) Fair Credit Reporting Act (FCRA).
C) Equal Credit Opportunity Act (ECOA).
D) Home Mortgage Disclosure Act (HMDA).
A) Telemarketing Consumer Fraud and Abuse Prevention Act (Telemarketing Act).
The Telemarketing Consumer Fraud and Abuse Prevention Act or Telemarketing Act gave the FTC the authority to create the Do-Not-Call Registry. The act applies to any business or individual engaged in telemarketing.
This loan type gave access to consumers who were not previously served by traditional credit markets:
A) FHA-Insured Loans
B) Subprime Loans
C) NACA Home Loans
D) Option ARM Loan Programs
B) Subprime Loans
Much of the recent increase in mortgage lending to previously underserved populations can be attributed to the development of the subprime mortgage market. This rapid growth has given access to consumers who were not previously served by credit markets, either because they had difficulty in meeting the underwriting criteria of prime lenders or for other reasons.
Describe an example of “exploiting the elderly”
A) Offering the borrower a reverse mortgage loan
B) Recommending the borrower sign a power of attorney so that you, the mortgage officer, can sign documents for them because they are having difficulty seeing the documents
C) Showing the borrower how a home equity loan could allow them to purchase medicines and needed personal care and nursing services for an ill spouse
D) Advising the borrower to place a mortgage on a home for the purpose of investments or to buy insurance products
D) Advising the borrower to place a mortgage on a home for the purpose of investments or to buy insurance products
To use a mortgage for investment and insurance products does not fall within the advisory capacity of an MLO. The other choices show normal activities when working with elderly clients.
A lender is reviewing a credit report and observes several medical collections. Should the lender seek more information regarding the applicant’s health status to determine the consumer’s ability to pay?
A) Yes. Any information on collections is critical to a lender’s decision and must be obtained.
B) Yes. If the applicant is willing to sign a medical release form, the lender can assess the impact of future health issues on income.
C) No. Any health status information cannot be used to determine credit eligibility, only the financial impact of the medical collections.
D) No. The lender cannot request this information, but can instead extrapolate from the monthly collections that the applicant’s health is deteriorating and incorporate that into the determination.
C) No. Any health status information cannot be used to determine credit eligibility, only the financial impact of the medical collections.
The creditor uses the medical information in a manner and to an extent that is no less favorable than they would use comparable information that is not medical information in a credit transaction, and the creditor does not take the consumer’s physical, mental, or behavioral health, condition or history, type of treatment, or prognosis into account as part of any such determination. Section 222.30(d). Even if the lender had health status information, it could not use that information in it’s determination.
A mortgage applicant receives an adverse action notice. The applicant states that the denial was due to incorrect information on the credit report. How can the consumer ensure the credit profile is presented fairly?
A) By filing a letter of dispute, which gives the agency 30 days to correct the data after receipt of the letter.
B) By placing a statement on then credit report instructing lenders how to get updated information from the creditor.
C)The consumer does not have an option here. The regulatory presumption is that the credit reporting agency information is correct since agencies face hefty fines if a violation is found.
D) By disputing the inaccurate information with the agency, which will have 30 days to correct the error after the inaccuracy has been verified.
D) By disputing the inaccurate information with the agency, which will have 30 days to correct the error after the inaccuracy has been verified.
FCRA requires lenders to give applicants disclosures about their right to dispute credit agencies’ information. The consumer may dispute the information, though the consumer reporting agency may continue to report information it has verified as accurate; however, once the consumer reporting agency finds that the credit report information is inaccurate, incomplete or unverifiable, the agency then has 30 days to correct the error. The 30 day window does not begin until verification.
Targeted consumers of predatory lending practices often held what common characteristics?
A) National Origin
B) Family size
C) Marital Status
D) Difficulty meeting underwriting criteria of prime lenders typically due to credit histories
D) Difficulty meeting underwriting criteria of prime lenders typically due to credit histories
This rapid growth has given access to consumers who were not previously served by credit markets, either because they had difficulty in meeting the underwriting criteria of prime lenders or for other reasons.
Subpart E of TILA specifically includes rules related to:
A) Unsecured loans
B) HOEPA defined loans
C) Regulation X
D) All amendments to TILA
B) HOEPA defined loans
Subpart E includes coverage of: (a) HOEPA amendments (though not all amendments) (b) Requires certain disclosures for closed-end loans (1026.32 ) (c) Provides limitations for closed-end loans that have rates or fees above specified amounts (1026.33) (d) Prohibits specific acts and practices if the mortgage is subject to HOEPA (1026.4) (e) Higher-Priced Mortgages (f) Prohibits specific acts and practices for closed end higher-priced mortgages. (1026.35) (g) Prohibits specific acts and practices when extending credit secured by a dwelling. (1026.25)
What is Mortgage-Price Low Balling?
A) Competing with other lenders and mortgage brokers on an internet-based mortgage-bidding site to offer the borrower the most competitive rate.
B) Offering the borrower the opportunity to negotiate rate down to a much lower rate if they are able to bring a substantially higher upfront fee and a longer repayment term
C) The act of pulling for a “mortgage ball” lottery that gave the borrower the opportunity to secure extremely low interest rates for their loan
D) Quoting lower YSP than a broker is willing to honor with the intent of changing before the loan closes
D) Quoting lower YSP than a broker is willing to honor with the intent of changing before the loan closes
Excessive yield spread premiums (kickbacks to brokers). Deliberately quoting lower yield spread premiums than the brokers are willing to honor. This practice is sometimes referred to as Mortgage Price Low-Balling.
Amendments to which of the following federal laws created requirements for the verification and documentation of a borrower’s repayment ability?
A) RESPA
B) HOEPA
C) HMDA
D) ECOA
B) HOEPA
HOEPA Requires income verification.
Illegal Discrimination in housing:
A) Causes values to go up
B) Is just part of doing business
C) Gives people more purchasing power
D) Has a negative impact on our communities
D) Has a negative impact on our communities
Discrimination in housing and real estate is having a negative impact on our country and communities. When people are not offered the same opportunities to equal access to the housing of their choice, it violates the principles of freedom and opportunity that we cherish as the cornerstone of our American Dream.
ECOA regulates which group of industry professionals?
A) Everyone who participates in the decision to grant credit or in setting the terms of that credit.
B) Credit card issuers and mortgage lenders who participate in the decision to grant credit or in setting the terms of that credit.
C) Everyone in the financial services industry who offers loans to borrowers in an underserved area.
D) Real estate and mortgage brokers who offer loans to borrowers in an underserved location.
A) Everyone who participates in the decision to grant credit or in setting the terms of that credit.
The law applies to everyone who participates in the decision to grant credit or in setting the terms of that credit, including real estate brokers who arrange financing.
While verifying a payment arrangement with an applicant’s medical facility, the broker learns that the borrower has a terminal illness. How should the broker react to finding out this information?
A) The broker should ignore it. However, the applicant must document other income sources addressing how they will be able to repay the mortgage if they are no longer able to work due to the illness.
B) The broker should terminate the application due to the “uncertainty of future income,” which is allowed under FAAL (Fair Applicant Assessment by Lenders).
C) The broker should inform the underwriter because this will affect the applicant’s ability to make the mortgage payments.
D) The broker should ignore it. Only the payment verification is to be considered in the application process.
D) The broker should ignore it. Only the payment verification is to be considered in the application process.
Under FACTA, creditors must not use medical records to determine a consumer’s eligibility for credit. Note that “medical records” pertains to the medical conditions of the patient; however, and this is an important differentiation, outstanding medical bills can be used as a part of credit assessment.
When can a lender inquire about the credit of an applicant’s spouse or former spouse?
A) If the applicant’s spouse is not authorized to use the line of credit.
B) Never. The inquiry of information about a spouse or former spouse is prohibited.
C) If the applicant does not reside in a community property state.
D) If the applicant relies on child support to apply for credit.
D) If the applicant relies on child support to apply for credit.
In general, the inquiry of information about a spouse or former spouse is prohibited. Exceptions include the following situations: if the spouse or former spouse is permitted to use the credit account; if the spouse or former spouse is liable on the account; if the applicant relies on income from a spouse or former spouse to qualify for credit (such as alimony, child support); and if the applicant resides in a community property state or is relying on property located in a community property states as a basis for repayment of the loan.
An affiliate title company is allowed to collect fees for the service they provide if:
A) The seller pays all closing costs since fees paid by a third party are not subject to these regulations.
B) The arrangement is disclosed to the applicant through the AfBA and the fees are disclosed with an indication that the usage of these services is not required.
C) There is disclosure through the AfBA and the disclosue includes a price range for fees disclosed.
D) The applicant indicates in writing at the time of application a desire to use this provider.
B) The arrangement is disclosed to the applicant through the AfBA and the fees are disclosed with an indication that the usage of these services is not required.
The referring party must give the AfBA disclosure to the consumer at or prior to the time of referral. The only exception is that if the referral is made by phone, the disclosure can be sent to the borrower within 3 business days. This disclosure must describe the business arrangement that exists between the two providers and give the borrower an estimate of the second provider’s charges.
Which of the following descriptions of an ARM appearing on an advertisement would NOT be a clear violation of TILA:
A) “ARM with a standard payment period and using market rates”
B) “3 years of fixed payments”
C) “Fixed for 3 years and then adjustable based on market rates”
D) “Variable rate mortgage with fixed payments for the first 3 years”
D) “Variable rate mortgage with fixed payments for the first 3 years”
Adjustable-rate mortgage, or ARM, or variable-rate mortgage must be included before the word “fixed” in any advertisement covering ARMs. Terms cannot use acronyms.
How can “Help Wanted” Ads assist participation in Mortgage Fraud schemes?
A) Job applicants submit personal identifying information to the “want ad” and this is used to complete fictitious loan application
B) Verbal agreement that borrower will be offered a job at the mortgage company once they close on the loan and this is an ineligible kick-back
C) Borrowers who have “want ads” in their loan documentation may be hiding the fact that they have recently lost their job and unable to make the mortgage payment that they are seeking approval for
D)Causes the borrower to relocate once hired and apply for new loan for new location
A) Job applicants submit personal identifying information to the “want ad” and this is used to complete fictitious loan application
A fictitious/stolen identity is used on the loan application. The applicant may be involved in an identity theft scheme: the applicant’s name, personal identifying information and credit history are used without the true person’s knowledge.
Which of the following is NOT an example of potential violation penalties by the FTC?
A) Court settlement required mortgage company to pay $28 million for consumer redress, not misrepresent amounts consumers owe, and not charge unauthorized fees as documented in monthly report required by regulating agency
B) Real Estate Agent fined $10,000 and given 1 year in jail for giving referrals to Loan Officer of $200 for each client
C) Community Service providing educational services to consumers to deter them from the very activity that the business was found guilty of
D) National Computer company ordered to pay $5 million for consumer redress and barred business from making misrepresentations in marketing
Criminal penalties can also be severe. For example, violation of RESPA with regards to kickbacks can result in up to one year in prison and revocation of a mortgage broker’s license, along with any relevant fines. Certain violations of FCRA can also lead to criminal penalties. Compliance with these laws and conducting business ethically are key to avoiding potentially serious financial or criminal penalties, additional reporting, paperwork and compliance expenditures.
RESPA requires which of the following disclosures after the loan closes?
A) Mortgage repayment conditions.
B) Finalized Closing Disclosure
C) Escrow account statement.
D) ECOA Notice.
C) Escrow account statement.
Loan service providers must deliver an annual escrow statement to the borrowers once a year. This disclosure summarizes all monies coming in and out of the borrower’s escrow account during the 12-month computation year and notifies the borrowers of any shortages or surpluses in the account. Also, if a loan servicer sells or assigns the servicing rights to the borrower’s loan to another loan service, the loan servicer is required to deliver a Servicing Transfer Statement to the borrower 15 days before the effective date of the loan transfer.
Fraud for Housing schemes often involve all of the following, except:
A) Inflated property appraisals
B) Gift funds and/or unsecured loans for down payment
C) Falsified income tax returns
D) Altered verifications of income
A) Inflated property appraisals
Borrowers are not involved in the appraisal ordering process so are not involved in any fraud regarding the appraisal.
Granting a loan to a consumer based on their equity in the property without considering their ability to repay the debt is referred to as:
A) Churning
B) No income verification loan program
C) Flipping
D) Asset based lending
D) Asset based lending
HOEPA prohibits asset based lending.
If a mortgage professional advertises a loan product at 6.25% APR according to TILA what other information must be provided?
A) The payment period
B) The finance charges
C) No other information is required
D) The monthly payment
C) No other information is required
Advertising APR does not require additional information.
Who enforces many of these ethical laws?
A) Federal Trade Commission, Bank regulatory agencies, and National Credit Administration
B) Local Law Enforcement
C) S.A.F.E.
D) National Association of Lending Administration (NALA)
A) Federal Trade Commission, Bank regulatory agencies, and National Credit Administration
The Red Flag Rule is enforced by the Federal Trade Commission (FTC), the various federal bank regulatory agencies, and the National Credit Union Administration. This regulation covers a broad selection of financial institutions.
Based on existing investigations and Mortgage Fraud reporting, approximately what percent of all reported fraud losses involve collaboration or collusion by industry insiders?
A) 80 percent
B) 20 percent
C) 40 percent
D) 60 percent
A) 80 percent
The FBI estimates that 80 percent of all mortgage fraud involves collaboration or collusion by industry insiders.
Which law was enacted to regulate the use of consumer credit reports?
A) TILA
B) FCRA
C) HMDA
D) RESPA
B) FCRA
Fair credit reporting act sets the guidelines for furnishing credit reports.
A borrower refinancing a primary residence can rescind a transaction within how many days after consummation of the transaction?
A) 7 days
B) 3 business days
C) 1 week
D) 5 business days
B) 3 business days
Consumers have 3 business days after consummation of the transaction to evaluate a transaction and terminate the agreement without any further financial obligation. Their reason can be as simple as just a change of heart. ‘Business day’ refers to all calendar days except Sundays and the 10 legal public holidays. Specifically, according to Reg. Z, the consumer may exercise the right to rescind until midnight of the third business day following consummation of the transaction. If the mortgage closed on Monday, then this 3-business-day period ends at midnight on Thursday.
TILA rules are generally enforced by:
A) The Federal Housing Administration
B) The Federal Reserve
C) The Federal Trade Commission
D) The Housing and Urban Development
C) The Federal Trade Commission
TILA rules are generally enforced by the Federal Trade Commission (FTC).
What is the minimum number of items that an MLO must review and verify under the Ability-to-Repay Rule to be confident that a borrower qualifies for a mortgage?
A) 7
B) 6
C) 8
D) 9
C) 8
Under the Ability-to-Repay Rule an underwriter, MLO, creditor, or lender must review and verify financial documents and records. At a minimum, a lender must consider eight underwriting standards.
Which of the following should raise a red flag for potential fraud in a loan transaction?
A) Stated Income Loan
B) Letter of Explanation completed by loan processor or loan originator explaining a scenario for the borrower
C) Non-Occupying Co-Borrowers
D) VORs and VOEs instead of paycheck or pay statements
B) Letter of Explanation completed by loan processor or loan originator explaining a scenario for the borrower
The following is a list of some common mortgage fraud schemes, with brief explanations. Though many types of fraud involve multiple schemes, we have included relevant examples that focus on the specific scheme we are discussing. Also, most schemes include some types of basic criminal acts including: Submitting false information on documents (income, payment history, employment history, etc…); Submitting false documentation (VORs, VOEs, appraisals, credit reports, etc..); Forging signatures on documents (Sales agreements, loan applications, etc..); Receiving monies intended for someone else; Mail fraud; Wire fraud.
Over recent years the concept of _________________________ has been identified as a major source of violations with respect to business ethics in the mortgage:
A) Identity theft
B) Automated underwriting
C) Predatory lending
D) No income verification loans
C) Predatory lending
HOEPA attempts to eliminate predatory lending.
