Loan Inquiry and Application Process Requirements PrepXL

Question 1

Which of the following does not need to be mailed to the borrower within three days of the loan application for a purchase transaction?

A.Loan Estimate
B.Right of Rescission Notice
C.Mortgage Servicing Disclosure
D.Your Home Loan Toolkit: A Step-by-Step Guide

Answer 1

The answer is Right of Rescission Notice. The Right of Rescission Notice must be provided to each borrower who signs on the loan at the time of loan closing. The Right of Rescission is not required for purchase transactions, second homes or investment properties.

Question 2

If a consumer pays more at consummation than what was disclosed in the Loan Estimate and the amounts exceed the tolerances allowed by law, the creditor must:

A.Refund the excess within 60 calendar days of consummation
B.Provide an additional disclosure acknowledging this fact
C.Waive all application fees
D.Refund the excess within five business days of providing the Closing Disclosure

Answer 2

The answer is refund the excess within 60 calendar days of consummation.

If a consumer pays more at consummation than what was disclosed in the Loan Estimate and the amount paid exceeded the allowable tolerances, the creditor must refund the excess to the consumer within 60 calendar days of consummation. For those charges subject to zero tolerance, the full amount in excess of the amount disclosed must be refunded. For charges subject to the 10% tolerance, to the extent the total sum of the charges added together exceeds the sum of all such charges disclosed on the Loan Estimate by more than 10%, the difference must be refunded to the consumer.

Question 3

Which of the following transactions would involve monthly mortgage insurance?

A.VA 100% mortgage
B.Conventional 80/15/5
C.Conventional loan with 20% down
D.FHA 30-year mortgage with 25% down

Answer 3

The answer is FHA 30-year mortgage with 25% down. An FHA-insured 30-year mortgage with 25% down would require mortgage insurance. All FHA forward mortgages must carry mortgage insurance until the end of the loan’s term or for the first 11 years of the loan, whichever occurs first.

Question 4

Assume a borrower was allowed to shop for title insurance and chose a provider listed on the creditor’s preferred provider list. Which of the following best describes the applicable tolerance?

A.No tolerance requirement
B.Zero tolerance
C.10% tolerance
D.Tolerance depends on certain factors

Answer 4

The answer is 10% tolerance. Fees related to third-party service providers and recording fees are grouped together and subject to a 10% tolerance. Charges subject to the 10% tolerance limitation are recording fees and charges for third-party provider services if the charge is not paid to the creditor or its affiliate and the consumer is permitted to shop for a service provider and chooses a provider from the creditor’s written list.

Question 5

The Loan Estimate may be conveyed to a consumer:

A.By telephone
B.By text message
C.In any of these forms
D.By mail

Answer 5

The answer is by mail. The Loan Estimate must be provided to a loan applicant no more than three business days after submission of an application. Provision of this disclosure may be made by personal delivery, overnight delivery, or through the U.S. Mail.

Question 6

Where could a borrower look to determine whether or not their conventional loan, which is not a high-cost loan, contains a prepayment penalty?

A.The CHARM Booklet
B.The deed of trust
C.The assurances of their mortgage loan originator
D.The Loan Estimate

Answer 6

The answer is The Loan Estimate. Whether or not a mortgage loan has a prepayment penalty can be found on the Loan Estimate in the Loan Terms section.

Question 7

The acronym CHARM refers to which of the following?

A.A disclosure law requiring the APR to be disclosed on balloon programs
B.A booklet which must be given to a borrower applying for an adjustable-rate loan
C.A booklet describing the Loan Estimate
D.A disclosure requirement under RESPA

Answer 7

The answer is a booklet which must be given to the borrower applying for an adjustable-rate loan. The CHARM Booklet (Consumer Handbook on Adjustable Rate Mortgages Booklet) is one of the required disclosures which must be provided to a person applying for an adjustable-rate mortgage loan.

Question 8

Which of the following lists contains a piece of information which will usually not be found on the 1003?

A.Mortgage type, borrower’s housing expenses, purchase price
B.Borrower’s name, borrower’s Social Security Number, underwriter’s name
C.Subject property address, PMI, closing costs paid by the seller
D.Borrower’s income, interest rate, loan term

Answer 8

The answer is Borrower’s name, borrower’s Social Security Number, underwriter’s name. The underwriter’s name is not included in the 1003

Question 9

The 1003 form, also known as the Uniform Residential Loan Application (URLA), is a standardized form used by lenders to gather necessary information from borrowers applying for a mortgage. The form was developed by Fannie Mae and Freddie Mac and is widely used in the mortgage industry.

T/F

Answer 9

T

Question 10

Key sections of the 1003 form include:

Answer 10

Key sections of the 1003 form include:

Borrower Information:
Personal details such as name, Social Security Number, and employment information.

Financial Information:
Income, assets, and liabilities.

Loan and Property Information:
Details about the loan being applied for, the property to be purchased or refinanced, and the purpose of the loan.

Declarations:
Information about the borrower’s financial history, including any past bankruptcies or foreclosures.

Acknowledgments and Agreements:
The borrower’s certification and agreement regarding the information provided in the application.

Demographic Information:
Optional section for collecting demographic information for government monitoring purposes.

Question 11

Which of the following best describes the tolerance applicable to the escrow account?

A.Tolerance depends on certain factors
B.Zero tolerance
C.No tolerance requirement
D.10% tolerance

Answer 11

The answer is No tolerance requirement. There is no tolerance requirement for an escrow account. In other words, the creditor may charge more than it discloses in the Loan Estimate as long as the original estimate was based on the best available information at the time. Other charges that do not have a tolerance limitation include prepaid interest and property insurance premiums

Question 12

Which of the following would not be an acceptable source for a down payment?

A.An unsecured loan from the borrower’s father
B.A bonus received from the borrower’s primary employer
C.A loan secured by borrower’s boat
D.A gift from a stepsibling

Answer 12

The answer is an unsecured loan from the borrower’s father. Each of the following would be an acceptable source for a down payment: a savings or checking account, a gift from relatives (a gift letter may be required), the sale of property, a seller contribution, the cash value of a life insurance policy, or a money market account. An unsecured loan to the borrower would not be acceptable as a down payment.

Question 13

In the Loan Estimate, fees related to recording and to third-party service providers the borrower can shop for are grouped together and subject to:

A.No tolerance limitation
B.10% tolerance
C.15% tolerance
D.Zero tolerance

Answer 13

The answer is 10% tolerance. Quotes of recording fees and third-party service provider fees (when the borrower can shop for their own providers) made on the Loan Estimate are subject to the 10% tolerance limitation.

Question 14

The booklet required to be given to borrowers who are contemplating an adjustable-rate loan is referred to as the:

A.CHARM Booklet
B.RESPA Booklet
C.ARM Booklet
D.HMDA Booklet

Answer 14

The answer is CHARM Booklet. A loan originator making an adjustable-rate mortgage loan must provide the borrower with the Consumer Handbook on Adjustable-Rate Mortgages (the CHARM Booklet) at the time of application or before he or she pays any required non-refundable fee.

Question 15

Your borrower does not wish to provide demographic information during the loan application process. What should you do?

A.Complete the section based on a visual observation of the borrower during a face-to-face application
B.Leave the section blank
C.
Tell the borrower that his or her loan cannot be funded until the information is obtained

D.Refuse to take the application

Answer 15

The answer is Complete the section based on a visual observation of the borrower during a face-to-face application. In order for the government to be able to monitor compliance with fair lending laws, as required by the Home Mortgage Disclosure Act, a loan originator may ask an applicant for information about ethnicity, race, and sex. If an applicant chooses not to provide the information, the mortgage loan originator will note the race, ethnicity, and sex on the basis of visual observation.

Question 16

The Uniform Residential Loan Application is also known as the:

A.1008
B.1003
C.4506
D.2106

Answer 16

The answer is 1003. The Uniform Residential Loan Application is also known as the 1003. It is the loan application used when a loan will be sold to Freddie Mac or Fannie Mae, insured by the FHA, or guaranteed by the Veterans Administration.

Question 17

If a lender wished to request copies of tax forms directly from the IRS, they would use IRS form number:

A.4506
B.1040
C.2106
D.2200

Answer 17

The answer is 4506. IRS Form 4506 would be the form used by a lender to secure a copy of a borrower’s tax return.

Question 18

Which of the following events would not warrant the creditor terminating a home equity plan and demanding payment of the entire balance in advance of the original loan term?

A.The consumer has committed fraud
B.The consumer has defaulted on the loan
C.The consumer has expressed an interest in paying off the loan
D.The consumer has taken action that might adversely impact the security for the loan

Answer 18

The answer is the consumer has expressed an interest in paying off the loan. Creditors may not terminate a home equity plan and demand payment of the loan balance prior to the end of the term unless the consumer has committed fraud, defaulted on the loan, or taken any action that might adversely impact the security for the loan. The fact that a consumer has expressed an interest in paying off the loan would not be grounds for the creditor to call the loan due and payable.

Question 19

The section of the Uniform Residential Loan Application titled “Demographic Information”:

A.Must note the applicant’s sex, race, and ethnicity based on the lender’s visual observation or the applicant’s surname if the applicant refuses to provide the information
B.Is included to aid the federal government in monitoring compliance with the Fair Lending Act
C.Is mandatory for consumers, to ensure compliance with federal laws
D.Must be completed only if the applicant is in a protected class

Answer 19

The answer is must note the applicant’s sex, race, and ethnicity, based on the lender’s visual observation or the applicant’s surname if the applicant refuses to provide the information. Completion of Section 8 of the 1003, “Demographic Information,” is required to aid the federal government in monitoring compliance with fair lending laws (the Fair Lending Act is not a federal fair lending law). Completion for the consumer is optional. If the applicant does not choose to provide the required information, the loan originator must note the applicant’s sex, race, and ethnicity based on the loan originator’s visual observation and/or the applicant’s surname.

Question 20

Question
In terms of loan underwriting, which of the following is true concerning self-employment income?

A.A self-employed loan applicant must provide proof of having liquid funds to cover at least six months’ worth of mortgage payments
B.The self-employed applicant must provide proof that he or she has received income sufficient to qualify for the loan on a consistent basis for at least five years
C.Self-employment income may be averaged over the two-year period prior to loan application
D.While untaxed commission income may be grossed up by 25%, income received as a result of self-employment may not

Answer 20

The answer is self-employment income may be averaged over the two-year period prior to loan application. Overtime, bonuses, commissions, and other income may be used in qualifying for a mortgage loan if such income is received on a consistent basis and can be verified. Self-employed or commissioned income is averaged over a two-year period. Income received from self-employment may be verified with the submission of applicable tax returns (e.g., for a sole proprietorship, a profit-and-loss statement attached to the applicant’s 1040; for income derived from a partnership, a Partnership Return of Income [IRS form 1065] attached to the applicant’s 1040).

Question 21

Which of the following would be an acceptable down payment on an FHA-insured loan for a newly-constructed single-family residence?

A.A grant from a nonprofit organization
B.A seller contribution of 5% of the selling price
C.A “bonus” from the mortgage broker associated with the project
D.The builder’s credit

Answer 21

The answer is a grant from a nonprofit organization. Some or all of a down payment on an FHA-insured loan may come from a gift from an immediate relative, a labor union or employer, a government agency or public entity, or a nonprofit charitable organization. A gift donor, or the source of the funds, may not come from a person or entity with an interest in the sale of the property; in other words, it may not come from the seller or builder or mortgage licensee as each would have an interest in the consummation of the deal.

Question 22

In a loan transaction involving a mortgage broker:

A.The Loan Estimate must be provided by the lender
B.The lender is responsible for ascertaining whether the Loan Estimate has been provided
C.The Loan Estimate must be provided by the mortgage broker
D.The mortgage broker is responsible for ascertaining whether the Loan Estimate has been provided

Answer 22

The answer is The lender is responsible for ascertaining whether the Loan Estimate has been provided. A loan applicant must be provided with a Loan Estimate no more than three days after submission of an application. If there is a mortgage broker involved in the transaction, the Loan Estimate may be provided by the broker. However, ultimate responsibility for ensuring that the applicant is provided with the required disclosure falls to the lender.