Final Practice Test Questions Flashcards
Which of the following situations would be acceptable under RESPA?
A. A mortgage loan originator requires all borrowers to use an appraisal company which is owned by the mortgage loan originator’s mortgage company, though this ownership is not disclosed
B. A mortgage loan originator requires all borrowers to use his son’s title company and takes an undisclosed share in profits from that company
C. A mortgage loan originator refers all borrowers to use the title company which is located in the same building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage loan originator’s company has no other relationship
D. A mortgage loan originator does not require the use of a certain title company, but receives a financial bonus from a certain title company if the borrowers that she refers use that provider
The answer is a mortgage loan originator refers all borrowers to use the title company which is located in the same building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage loan originator’s company has no other relationship. An affiliate relationship exists when one company controls, is controlled by, or is under common control of another company. Under RESPA, when a settlement service provider refers a borrower to one or more affiliates with whom it has an ownership or other beneficial interest, an Affiliated Business Arrangement (AfBA) Disclosure Statement must be given on a separate piece of paper to the borrower. Among other things, the AfBA Disclosure informs the borrower that he/she is generally not required to use the affiliate and is free to shop for other providers. Kickbacks and referral fees are also prohibited under RESPA.
Which of the following contains only items which should be used in calculating a borrower’s debt-to-income ratio?
A. Monthly rent expense on current home, credit card payment, car insurance
B. Car payment, boat payment, child support obligations
C. Property tax payment, utility payment, cable bill
D. Mortgage insurance payment, average grocery costs, electric bill
The answer is car payment, boat payment, child support obligations. A debt-to-income ratio compares an applicant’s total monthly debt to his or her total monthly income. Total monthly debt would include simultaneous loans, debt obligations, alimony, and child support. Typical living expenses (e.g., utilities, health and disability insurance, food, phone or cable bills, etc.) are not included when calculating DTI.
Which of the following would NOT be required if a mortgage company wishes to utilize electronic signatures on required disclosures?
A. Borrowers must be given the option to receive the disclosures in paper form
B. Borrowers must be able to withdraw their consent to receive the disclosures electronically
C. The company must record the IP address from which the documents were accessed
D. The company must disclose hardware and software requirements to borrowers
The answer is the company must record the IP address from which the documents were accessed. Under the Electronic Signatures in Global and National Commerce Act (the E-SIGN Act), before obtaining a consumer’s consent, a financial institution must provide a clear and conspicuous statement to consumers, informing them of their right or option to have the record provided or made available on paper or in a non-electronic form. The statement must also explain the consumer’s right to withdraw consent, including applicable conditions, consequences, and fees. Consumers must also be provided with information about the hardware and software required to allow them to access and retain the electronic records.
Under the S.A.F.E. Act, a licensed loan originator’s responsibilities with regard to recordkeeping include all of the following, except:
A. Not knowingly withholding, removing, or destroying any books or records
B. Making all of the licensee’s records available to borrowers upon demand
C. Permitting interviews of principals, loan originators, and independent contractors by state regulators
D. Making records and books available to the state regulator
The answer is making all of the licensee’s records available to borrowers upon demand. Licensed loan originators and those required to be licensed must make records and books available to their state regulator and permit interviews of officers, principals, employees, independent contractors, agents, and customers. They may not knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, or other information during an investigation or examination. Loan originators are not required to make all of their records available to borrowers upon demand.
Ethics:
A. Is a branch of philosophy dealing with legal behavior
B. Provides a guideline for answering questions when a choice of actions is available
C. Defines how a person must act
D. Is set out in law
The answer is provides a guideline for answering questions when a choice of actions is available. Ethics goes beyond what is required under the law, so ethical rules extend beyond the minimum legal standards in providing guidance for one’s actions. Ethics goes into the realm of what should be done, providing guidelines for answering questions when a choice of actions is available. As a result, ethical rules are often not as clear-cut as the legal rules.
Under the S.A.F.E. Act, a loan originator:
A. Can be an individual or a business entity
B. Is any person who takes loan applications secured by personal property
C. Is an individual who takes residential mortgage loan applications
D. Is any individual who takes loan applications secured by either real estate or personal property
The answer is is an individual who takes residential mortgage loan applications. The S.A.F.E. Act defines a mortgage loan originator as an individual who takes residential mortgage loan applications, or offers or negotiates terms of residential mortgage loans for compensation or gain.
Which of the following is not a required element of a company’s safeguard policy, as required by the GLB Act?
A. Designate one or more employees to coordinate safeguards
B. Evaluate and adjust procedures in light of relevant circumstances
C. Select appropriate service providers and contract with them to implement safeguards
D. Contract with a federally-insured company to destroy documents
The answer is contract with a federally-insured company to destroy documents. Under the GLB Act, a financial institution must have a written information security program that is appropriate to its size and complexity, to the nature and scope of its activities, and to the sensitivity of the customer information it handles. As part of its program, the financial institution must assign one or more employees to oversee the program; conduct a risk assessment; put safeguards in place to control the risks identified in the assessment and regularly test and monitor them; require service providers, by written contract, to protect customers’ personal information; and periodically update its security program. There is no requirement to contract with any external company to handle information security issues of any kind.
The purpose of the Truth-in-Lending Act is to do which of the following?
A. Ensure meaningful disclosure of credit terms to consumers
B. Prevent lenders from charging interest rates that are unfair to consumers
C. Protect consumers from abusively high interest rates
D. Require consumers be provided with a good faith estimate of closing costs at the time of loan application
The answer is ensure meaningful disclosure of credit terms to consumers. The purposes of TILA include assuring a meaningful disclosure of credit terms so that the consumer will be able to more readily compare the various credit terms available to him or her and avoid uninformed use of credit.
Which of the following is most likely to be a violation of the Equal Credit Opportunity Act?
A. Failing to give a borrower notice of the right to rescind
B. Denying an application based on economic characteristics
C. Requiring a borrower to verify residency or citizenship status
D. Declining a loan due to the borrower’s race
The answer is declining a loan due to the borrower’s race. The Equal Credit Opportunity Act (ECOA) ensures that all persons, consumers, and businesses are given an equal chance to obtain credit by prohibiting discrimination based on criteria including race, color, religion, national origin, sex, marital status, and age (provided the individual is of age to enter into a contract). Declining a loan due to the borrower’s race is a violation of ECOA.
For an FHA loan, how much may the seller contribute toward the borrower’s closing costs? A. Nothing B. 6% of the sales price C. 3% of the sales price D. 3% of the loan amount
The answer is 6% of the sales price. The FHA allows the seller to contribute up to 6% of the purchase price toward the buyer’s actual closing costs, prepaid taxes and insurance, discount points, buydown fees, mortgage insurance premiums, and other financing concessions, but nothing toward the down payment.
Which of the following is most true concerning a VA funding fee?
A. It is always refundable
B. It is nonrefundable
C. It is not charged to veterans
D. It is not charged to active members of the military
The answer is it is nonrefundable. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender’s exposure to loss in the event of a borrower’s default that results in foreclosure. However, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed, instead of a mortgage insurance premium for the guarantee. A veteran receiving VA compensation for a service-connected disability is exempt from the fee requirement.
Under HOEPA, a high-cost loan may have a balloon payment under all of the following circumstances, EXCEPT:
A. The loan satisfies the requirements of a balloon payment qualified mortgage
B. A nine-month bridge loan is obtained for the construction of the borrower’s primary dwelling
C. The borrower’s income is seasonal
D. The borrower signs a waiver consenting to the balloon payment
The answer is the borrower signs a waiver consenting to the balloon payment. A high-cost loan may not provide for a payment schedule with regular periodic payments that result in a balloon payment, unless the payment schedule is adjusted for the irregular or seasonal income of the borrower; the loan is a bridge loan with a term of 12 months or less, taken in connection with the acquisition or construction of a dwelling that will be the borrower’s principal residence; or the loan satisfies the requirements of a balloon payment qualified mortgage.
When would ARM disclosures be required?
A. If the initial term on an ARM is more than one year
B. If the initial term on an ARM is less than five years
C. For all ARMs
D. If the initial term on an ARM is less than one year
The answer is for all ARMs. For an ARM, the interest rate will change periodically, based on an index to which the rate is tied and the margin added to cover the creditor’s expenses and profit. Therefore, the borrower must be given information about the index, the margin, and the frequency of rate adjustments, in addition to other pertinent facts about the loan. For an ARM secured by a borrower’s principal residence with a term exceeding one year, additional disclosures must be provided either at the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier.
On the Loan Estimate, fees related to third-party service providers chosen from the provider list and not affiliated with the creditor are grouped with the recording fees and subject to a: A. No tolerance limitation B. 10% tolerance C. 15% tolerance D. Zero tolerance
The answer is 10% tolerance. In regard to tolerances related to settlement costs, fees related to third-party service providers and recording fees are grouped together and subject to a 10% tolerance. The creditor may charge more for a particular service or recording fee than initially disclosed as long as the total for all such charges, when added together, does not exceed 10% of the amount disclosed.
A borrower makes $60,000 per year. The borrower's spouse makes $3,000 per month. The borrowers' monthly housing expense is $1,500. They have a car payment of $500, a boat payment of $350, a phone bill of $150, and a car insurance payment of $100. What is the couple's back-end DTI? A. 30.6% B. 31.25% C. 32.5% D. 29.38%
The answer is 29.38%. Monthly Housing Costs + Monthly Liabilities / Gross Monthly Income = Debt-to-Income Ratio. Borrower 1’s annual income is $60,000, divided by 12 = $5,000. The spouse’s gross monthly income of $3,000 is added to $5,000, for a total monthly income of $8,000. The monthly housing expense ($1,500) is added to the car payment ($500) and the boat payment ($350), totaling $2,350. This figure, divided by $8,000, equals 29.38%. Typical living expenses, such as a phone bill or car insurance, are not included when calculating DTI.
On an ARM loan, which of the following will not be found on the note? A. Fully-indexed rate after one year B. Margin C. Adjustment parameters D. Identification of index
The answer is fully-indexed rate after one year. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. For an ARM loan, it will typically identify the index, specify the margin, and list adjustment parameters, but will not specify the fully-indexed rate after one year.
Which of the following is true regarding a creditor’s duty to give a copy of an appraisal to a borrower?
A. The lender is always required to provide a copy of the appraisal promptly upon completion
B. The lender is only required to give a copy of the appraisal for closed-end credit
C. The lender is never required to give a copy of the appraisal to the borrower
D. The lender is required to provide a copy of the appraisal promptly upon completion or three business days prior to consummation for closed-end credit, whichever is earlier
The answer is The lender is always required to provide a copy of the appraisal promptly upon completion or three days prior to consummation for closed-end credit, whichever is earlier. A creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion, or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit.
Redlining is addressed in which federal law? A. RESPA B. HOEPA C. FCRA D. ECOA
The answer is ECOA. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in extension of credit based on race, color, religion, national origin, sex, marital status, age, potential to have or raise children, the fact that the applicant receives income from a public assistance program, or the fact that the applicant has exercised his or her rights under the Consumer Credit Protection Act. This includes the discriminatory lending pattern of redlining, in which a lender refuses to provide lending products and services on an equal basis to residents of minority neighborhoods (the term is derived from the practice of drawing red lines around minority areas on a map.)
A mortgage which is amortized for a longer period than the actual term of the loan can best be described as what type of mortgage? A. Balloon mortgage B. Hybrid ARM C. Graduated Payment Mortgage (GPM) D. Fixed period ARM
The answer is balloon mortgage. A partially amortized or balloon mortgage provides for some, but not total, amortization during the mortgage term. It has payments that are equal and regular in nature. However, the loan term is shorter than the time needed to repay the full loan balance by making those payments. Therefore, at the end of the loan term, a large balloon payment is needed to pay off the remaining balance.
Under Fannie Mae guidelines, the amount of hazard insurance must be equal to:
A. The appraised value
B. The purchase price
C. The lower of the replacement cost or the unpaid loan amount
D. 80% of the replacement cost
The answer is the lower of the replacement cost or the unpaid loan amount. Fannie Mae requires that for any first-lien mortgage (excluding a reverse mortgage), the minimum hazard insurance coverage required is the lesser of 100% of the insurable value of the improvements, as established by the property insurer, or the unpaid principal balance of the mortgage, as long as it equals the minimum amount (80% of the insurable value of the improvements) required to compensate for damage or loss on a replacement cost basis. If it does not, then the coverage that does provide the minimum required amount must be obtained.
A lender charges 6% interest on a $200,000, 30-year fixed-rate loan, for a property purchased for $220,000. What is the annual interest on the loan?
$6,000
$12,000
$1,600
$1,200
The answer is $12,000. To calculate the annual interest: 6% × $200,000 = $12,000.
Which of the following would not be on a promissory note?
Amount owed
Rate of interest and whether the loan is fixed or adjustable
Borrower’s Social Security Number
Loan terms
The answer is borrower’s Social Security Number. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, amount owed, rate of interest and whether the loan is fixed or adjustable, due dates for payment, and the loan terms.
Which of the following does not appear in the Loan Estimate?
The anticipated ARM rates for the first five years
The loan term
Whether the subject loan is assumable
The property purchase price
The answer is the anticipated ARM rates for the first five years. In the heading of the Loan Estimate, the licensee must indicate the property address and its sale price, as well as the loan’s term. The Other Considerations table provides the applicant with information on appraisals, the homeowner’s insurance requirement, the lender’s late payment policy, loan servicing information, and whether the loan may be assumed or refinanced. Anticipated ARM rates for the first five years of the loan are not disclosed, although the total the applicant will have paid in principal, interest, mortgage insurance, and loan costs for that time period is, in the Comparisons table.
Which of the following would not be considered a settlement service?
Servicing
Escrow services
Origination services
Appraisal services
The answer is servicing. Settlement services include a variety of services related to the origination, processing, or funding of a loan, including, among others, rendering credit reports and appraisals, and conducting settlement by a settlement agent (e.g., the originating lender, an attorney, or a licensed escrow agent) and any related services. They do not include loan servicing.
If a consumer contacts a mortgage company, for how long does the established business relationship exemption exist?
Nine months
Six months
24 months
Three months
The answer is three months. Under the Do-Not-Call-Act, a company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an “established business relationship” exists. An established business relationship means a relationship between the company and a consumer based on the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the 18 months immediately preceding the date of a telemarketing call. This may also include an inquiry or application regarding an offered product or service, within the three months (90 days) immediately preceding the date of a telemarketing call.
A scenario in which a person forces the sale of a home at a much lower value than its true worth, then resells the home at its true value, is known as:
Property flipping
A short sale
An air loan
Property flopping
The answer is property flopping. Property flopping is associated with short sales, and it typically occurs when a short sale is approved based on a misrepresentation of the value of the property. The fraud is usually perpetrated by the buyer purchasing the property from the short sale seller. In some cases, the seller’s real estate agent is the buyer. The buyer presents a low offer to purchase the property to the lender along with an artificially low valuation of the property, in order to convince the lender that the property is worth less than it really is. Any higher offers from bona fide buyers are withheld from the lender, who would most likely reject the low offer if it knew that higher offers were on the table. Once the lender approves the short sale at the artificially-low price, the fraudster contacts the bona fide buyer or markets the property at its true market value.
The agency that focuses its actions directly on consumers, consolidates responsibilities and supervision of financial entities, products, and services, and protects consumers from unfair, deceptive, and abusive acts and practices is the:
Consumer Protection Agency
Consumer Financial Protection Bureau
Federal Housing Administration
Department of Housing and Urban Development
The answer is Consumer Financial Protection Bureau. The mission of the CFPB is to make markets for consumer financial products and services work for Americans. It is focused on one goal: watching out for American consumers in the market for consumer financial products and services. This includes ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families by making sure prices are clear upfront, risks are visible, and nothing is concealed in fine print. A working market allows consumers to make direct comparisons among products and prohibits providers from using unfair, deceptive, or abusive practices.
Which of the following may be a qualified mortgage?
A 30-year adjustable-rate mortgage loan granted to a borrower with a debt-to-income ratio of 45%
A 40-year fixed-rate mortgage
A 35-year fixed-rate mortgage with points and fees equaling 3.75% of the loan amount
A 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan
The answer is a 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan. A qualified mortgage is a covered transaction that provides for substantially-equal, regular periodic payments that do not provide for negative amortization, payment deferral, or (generally) a balloon payment. To be a qualified mortgage, the lender must determine the borrower’s repayment ability based on the monthly payment for mortgage-related obligations, the consumer’s reasonably-expected income and assets, and existing debt obligations. A qualified mortgage may not have a term that exceeds 30 years, provide for points and fees that exceed 3% of the total loan amount, or be granted to a borrower who has a monthly debt-to-income ratio exceeding 43%.
Which of the following would not be on a deed of trust?
Legal description
Loan amount
Interest rate
Borrower’s name
The answer is interest rate. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. The mortgage or trust deed secures repayment of the note. Housing costs, including principal, interest, taxes, and insurance, are not typically specified on the deed of trust.
Assume that the Loan Estimate is mailed on Tuesday. The office is open six days a week and closed on Sundays. What is the earliest day on which the transaction could close?
Wednesday of the following week
Friday of the following week
Monday of the following week
Tuesday of the following week
The answer is Wednesday of the following week. A creditor must provide the Loan Estimate either in person, via overnight delivery, or by placing it in the mail or delivering it no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. For the purposes of determining the waiting period that must elapse between providing a Loan Estimate and consummation, a “business day” is defined to mean all calendar days except Sundays and legal public holidays. Here, the Loan Estimate is mailed on Tuesday. Seven business days from Tuesday would be the following Wednesday (Wednesday, Thursday, Friday, Saturday, Monday, Tuesday, Wednesday).
Each of the following is true about the Department of Housing and Urban Development (HUD), except:
The Federal Housing Administration, with its liberal-eligibility FHA loan programs, operates under HUD’s authority
It provides or makes referrals related to housing counseling for loan applicants seeking a HECM or high-cost home loan
Public housing and multi-family housing fall under its purview
It has a major role in overseeing the mortgage industry
The answer is it has a major role in overseeing the mortgage industry. Although the federal Department of Housing and Urban Development (HUD) no longer oversees the mortgage industry (that job has been taken over by the Consumer Financial Protection Bureau, or CFPB), it continues to operate in a number of important areas relating to housing. These areas include programs related to community planning and development, public housing and multi-family housing, and providing counseling for those seeking to purchase a home. The Federal Housing Administration (FHA) also operates under HUD; the FHA sponsors loan programs with relatively liberal qualification requirements, insuring financial institutions that offer loans to individuals who might not qualify for a prime loan.
Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet the requirements of the Act, while overall responsibility for interpretation, implementation, and compliance currently lies with:
The NMLS
The Federal Reserve
HUD
The CFPB
The answer is the CFPB. Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet S.A.F.E. Act requirements. Overall responsibility for interpretation, implementation, and compliance with the S.A.F.E. Act was originally delegated to the U.S. Department of Housing and Urban Development (HUD). However, effective July 21, 2011, all of HUD’s authorities and duties were delegated to the Consumer Financial Protection Bureau (CFPB).
Which of the following issues is not addressed in the standard deed of trust and note for an owner-occupied primary residence?
Insurance on the property
How quickly a borrower must occupy the property
Keeping hazardous substances on the property
Actual amounts for taxes and insurance
The answer is actual amounts for taxes and insurance. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, the amount owed, the rate of interest and whether it is fixed or adjustable, the due date(s) for payment, and the terms of the loan. The mortgage or trust deed secures repayment of the note. Its covenants address topics that include occupancy, insurance, and hazardous materials, but it does not typically specify actual amounts for taxes and insurance.
In order to qualify for an adjustable-rate mortgage, a consumer must be able to show that he or she can:
Make regularly scheduled payments that are calculated using the loan’s introductory rate
Make amortizing payments that are calculated using the fully indexed rate for the ARM
Make amortizing payments that are calculated using the loan’s rate after the first interest rate adjustment occurs
Make regularly scheduled payments that are calculated using the fixed interest rate for which the consumer would be eligible
The answer is make amortizing payments that are calculated using the fully indexed rate for the ARM. Qualifying for an ARM requires a consumer to demonstrate an ability to make amortizing payments that are calculated at the loan’s fully indexed rate.
In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for:
Twelve months
Three years
Two years
Five years
The answer is three years. In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for three years.
Mortgage loan originator Trevor Tibbs has accepted a loan application for a dwelling that is a mobile home not permanently affixed to the land. Does this mobile home meet the requirements necessary for it to be considered security for a residential mortgage loan?
Yes, a dwelling includes a structure whether or not that structure is attached to real property
No, dwellings must be permanently attached to real property
No, mobile homes are classified as personal property, not real property
Yes, as long as the real property upon which the mobile home will be located is in the borrower’s name, the loan may be a residential mortgage loan
The answer is yes, a dwelling includes a structure whether or not that structure is attached to real property. A residential mortgage loan is any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or will be constructed a dwelling. A dwelling is a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home and trailer, if it is used as a residence.
Lester is calculating prepaid finance charges that will be withheld from the proceeds of the loan. These direct loan charges paid by the borrower must be included in computing the:
Annual percentage rate
Broker fees and the amount charged by a third party
Amount of the payment
Length of the loan
The answer is annual percentage rate. A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at the consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower that must be included in computing the annual percentage rate.
Sue Ellen has been a mortgage loan originator for nine years and knows her hometown very well. She meets with a couple who have moved to her town from Ecuador. Checking their application, Sue Ellen sees that the neighborhood they are hoping to move to is higher-income and predominantly white. Without discussing it or checking their financial paperwork, Sue Ellen tells the couple they are likely “aiming too high” in their requested loan amount, and she suggests that they keep looking “elsewhere” for “something more appropriate.” Sue Ellen is engaging in:
Streamlining
Discouragement
Steering
Redlining
The answer is discouragement. Discouragement is a form of discrimination in which borrowers belonging to certain protected classes are discouraged from applying for a loan on the basis of their personal characteristics. Here, Sue Ellen has no idea as to the couple’s financial qualifications to purchase a property in their desired neighborhood. She bases her discouragement solely on perceived racial characteristics, which is a discriminatory act that is prohibited under federal law.
If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer at what point?
Within seven business days of a customer providing nonpublic personal information sufficient to pull a credit report
Within three business days of initial contact between the consumer and the financial institution
No later than three business days prior to settlement
No later than the time at which a customer relationship is established
The answer is no later than the time at which a customer relationship is established. If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer no later than the time at which a customer relationship is established.
How many total hours of ethics are required, at minimum, for pre-licensing education?
20
8
16
3
The answer is 3. The NMLS requires, as a federal minimum, at least three hours of ethics training within the total 20 hours of education required for pre-licensing education.
The Dodd-Frank Act listed the creation of financial education programs as one of the primary functions of:
NMLS
CFPB
FHA
HUD
The answer is CFPB. The Dodd-Frank Act listed the creation of financial education programs as one of the primary functions of the CFPB.
Which of the following may be considered an appraisal red flag?
An appraiser’s resume shows substantial experience in the area
Property owner and seller are not the same
Appraisal is dated after the sales contract
Comparables are located within one mile of the subject
The answer is property owner and seller are not the same. If the property owner and property seller are not the same, it is likely more questions should be asked about the deal.
If a consumer submits a complaint about a mortgage lender to the CFPB, the lender has _____ days to respond before the CFPB publishes the complaint in its public complaint database and pursues a potential investigation.
7
10
20
15
The answer is 15. If a consumer submits a complaint about a mortgage lender to the CFPB, the lender has 15 days to respond before the CFPB publishes the complaint in its public complaint database and pursues a potential investigation.
All of the following are considered involuntary liens, except:
Mortgage
Mechanic’s lien
Tax lien
Judgment
The answer is mortgage. An involuntary lien is “imposed” on a borrower. In the case of a mortgage, a borrower would “consent” to having a lien on his/her home.
Which of the following is not permitted for a HOEPA loan?
Documenting a borrower’s ability to repay the loan
Requiring a balloon payment after the first five years
Refinancing into another HOEPA loan within 12 months if it is in the borrower’s best interest
Making a loan solely based on the collateral value of the property
The answer is making a loan solely based on the collateral value of the property. Under HOEPA, you may not make a loan solely based on the value of the borrower’s collateral without considering his/her ability to repay the loan.
A lending transaction has been rescinded by a consumer with cold feet. What happens as a result?
The lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process
The rescission may be challenged by the lender as long as it is within seven business days
The lender no longer has security interest in the property, and the borrower is liable for any finance charges and appraisal costs
After cancellation, the lender retains any money or property paid by the borrower
The answer is the lender no longer has security interest in the property, and the borrower is refunded any and all charges paid during the loan process. TILA requires that, in the event of rescission, the lender relinquish security interest in the property and return any and all money or property paid by the borrower. All parties are placed back in the exact position they were in before the transaction took place.
All but which of the following prohibitions or requirements apply to HPMLs?
The loan cannot include prepayment penalties after the first two years of the loan term
The loan cannot include prepayment penalties
The borrower must have an escrow account for taxes and insurance
Consideration of repayment ability must include verification of income using documents such as IRS W-2 forms
The answer is the loan cannot include prepayment penalties after the first two years of the loan term. HPMLs cannot include prepayment penalties at all, so it is false to say that the loan cannot include prepayment penalties after the first two years of the loan when they are prohibited altogether.
Which of the following loans requires the collection of HMDA data?
Refinance of a second home
Financing of a recreational vehicle
Student loan
SBA loan
The answer is refinance of a second home. HMDA data is required for purchase loans, refinance loans, and home improvement loans, as long as the loans are secured by a dwelling.
The federal agency that implements and enforces rules related to the origination of FHA loans is the:
Consumer Financial Protection Bureau (CFPB)
Department of Housing and Urban Development (HUD)
Federal Trade Commission (FTC)
National Credit Union Administration (NCUA)
The answer is Department of Housing and Urban Development (HUD). The Department of Housing and Urban Development implements and enforces rules related to FHA lending.
Which of the following is true?
Open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule
Open-end credit plans, timeshare plans, and closed-end consumer credit loans are exempt from the ATR Rule
Open-end credit plans are covered by the ATR Rule
Reverse mortgage loans are covered by the ATR Rule
The answer is open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule. Open-end credit plans, timeshare plans, and reverse mortgage loans are excluded from the ATR Rule. The ATR Rule applies to almost all closed-end consumer credit transactions secured by a dwelling, including attached real property.
The reporting form used to communicate HMDA data is called what?
1073
Loan/Registration Application
1004
Loan/Application Register
The answer is Loan/Application Register. The form used for reporting HMDA data is called the Loan/Application Register (LAR).
Disclosures for high-risk loans required by the Homeowners Protection Act inform the borrower that:
The loan is considered a high-cost loan because it trips thresholds related to title insurance fees
Termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments
There may be a loan more suited for the borrower that is much less expensive
Payment amounts may change based on interest rate changes
The answer is termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments. The term “high-risk loans” pertains specifically in this case to legislation related to the HPA which facilitates the cancellation of private mortgage insurance. The HPA requires PMI on high-risk loans to be terminated automatically at the midpoint of the amortization schedule, when the borrower is current.
A lender who refuses to originate loans in a particular neighborhood or ZIP code because of the perceived creditworthiness of consumers living in the area is in violation of:
FCRA
ECOA
HOEPA
RESPA
The answer is ECOA. Refusing to originate loans in a particular neighborhood or ZIP code because of perceived creditworthiness is a practice known as “redlining” and is a violation of ECOA.
Which law restricts the sharing of nonpublic personal information given when a consumer applies for a mortgage loan?
Fair Credit Reporting Act
FTC Disposal Rules
Gramm-Leach-Bliley Act
Consumer Regulatory Protection Act
The answer is Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act is the federal law that limits or restricts the use of a consumer’s nonpublic personal information.
In the absence of caps, adjustments on an ARM loan would be determined solely by:
The index
The margin
The fully-indexed rate
The lifetime rate
The answer is the fully-indexed rate. If there were no caps involved, an ARM would adjust based on the movement of the fully-indexed rate (margin + index). It would not be adjusted based on index alone or margin alone. While the margin does not change over time, it must be combined with the fluctuating index to find the new rate. It is not sufficient to apply only the index or only the margin to the adjustment - they must be combined into the fully-indexed rate.
HMDA data is collected and aggregated to determine:
The success rate of nontraditional mortgage loans
Whether the success of lending terms varies in different geographic areas
The extent of creditor compliance with privacy protection laws
Whether different credit terms are offered to members of protected classes
The answer is whether different credit terms are offered to members of protected classes. HMDA data is collected and aggregated to determine whether different credit terms are offered to members of different protected classes.
Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is considered illegal under:
TILA
Homeowners Protection Act
HOEPA
RESPA
The answer is HOEPA. HOEPA prohibits the intentional targeting of poor or underserved areas with expensive high-cost loans, which is a practice known as reverse redlining.
