MLO-Mortgage Loan Origination Flashcards
The current loan balance is $56,000. The monthly payment is $550 of which $130 applies to the principal. What is the interest rate on this loan?
a. 7.50% b. 9% c. 10% d. 11.80%
Correct answer is (b).
Rate= Interest amount paid per term/(Principal balance on the loan * Term)
The term for one month is 1/12
R = I/(PxT). Principal is $56,000 and Interest is $420($550 - $130). R = I/(PxT). R = $420 / (56,000 x 1/12). R = $420 / 4,666.67. R = 0.09 or 9%.
Which document is given at closing?
a. Loan application b. HUD-1 statement c. Standard fees d. Disclosure statement
Correct answer is (b).
The closing statements include an estimated closing statement, HUD-1 Settlement statement, and a composite closing statement.
Some of the factors private mortgage insurance companies consider when they set their rates and coverage parameters include all of the following, except the:
a. loan amount and loan type.
b. LTV and the borrower’s credit score.
c. borrower’s age and familial status.
d. type of property.
Correct answer is (c).
Private mortgage insurance companies set their rates and coverage parameters based on the type of property, for loan amounts, loan type, LTV, credit scores, and other factors.
What does HUD do?
a. HUD administers mortgage loan insurance through the FHA
b. HUD administers Section 8 rental assistance vouchers for low-income households
c. HUD enforces fair housing laws
d. HUD does all of the above
d. HUD does all of the above
HUD administers mortgage loan insurance through the FHA
HUD administers Section 8 rental assistance vouchers for low-income households
HUD enforces fair housing laws
Correct answer is (d).
The Department of Housing and Urban Development (HUD) is the federal agency responsible for national policy and programs that address America’s housing needs. HUD improves and develops the Nation’s communities, and enforces fair housing laws.
A numerical value that specifies a borrower’s credit rating is a(n):
a. credit bureau. b. letter grade. c. credit score. d. LTV.
c. credit score.
Correct answer is (c).
A credit rating is a formal evaluation given by credit bureaus of a borrower’s ability to handle new credit based on past performance. Typically, credit ratings are provided in the form of a credit score.
What is the Fannie Mae reserve requirement for a mortgage secured by an investment property?
a. 2 months b. 3 months c. 6 months d. 12 months
c. 6 months
Correct answer is (c).
Fannie Mae requires at least six months’ reserves for all mortgage loans secured by an investment property and 2 months of reserves if the property is a second home. Reserves are most often measured by the number of months of principal, interest, taxes, insurance, and association fees (PITIA) that a borrower could pay using his or her financial assets.
On a fixed-rate mortgage, what are the tolerances before a new TIL Statement is required?
a. 1/8% above or below the APR rate on the initial or latest TIL disclosure b. Over $100.00 increase in costs from the initial or latest GFE c. 1/4% above or below the APR rate on the initial or latest TIL disclosure d. Both (a) and (b)
a. 1/8% above or below the APR rate on the initial or latest TIL disclosure
Correct answer is (a).
As a general rule, the annual percentage rate is considered accurate if it is not more than 1/8 of 1 percentage point above or below the annual percentage rate. In an irregular transaction, the annual percentage rate is considered accurate if it is not more than 1/4 of 1 percentage point above or below the annual percentage.
Borrower Brenda makes $5,000 a month. To meet the FHA 29/41 qualifying ratio guidelines, her monthly housing and credit expenditures should not exceed:
a. $1,450. b. $1,500. c. $1,750. d. $2,050.
Correct answer is (d).
$5,000 x 41% = $2,050.
Gross income * back ratio= Maximum Total monthly housing and credit expenditures
If an equity line loan were signed on a Thursday, what day would it fund?
a. The next day b. The following Tuesday c. Wednesday d. Monday
b. The following Tuesday
Correct answer is (b).
3 business days at midnight, day 4, it funds (Saturday banks are open).
The discount rate relates to commercial paper. When the Federal Reserve wants to slow the economy, it:
a. raises the discount rate. b. lowers the discount rate. c. lends money to member banks with no collateral. d. lends money to member banks with 10% reserves.
a. raises the discount rate.
Correct answer is (a).
Member banks slow their sales of commercial paper and obtain less additional funds. If they lower the discount rate, economy would go up
The discount rate is the interest rate at which banks borrow money from a Federal Reserve Bank..
Which of the following is not true, regarding Freddie Mac underwriting guidelines?
a. Freddie Mac guidelines are the same for all products.
b. Freddie Mac guidelines are flexible.
c. Depending on the loan product, the guidelines vary.
d. Freddie Mac guidelines differ according to the product.
Correct answer is (a).
Like Fannie Mae, Freddie Mac’s underwriting guidelines are flexible and vary according to loan program.
A lender will assess a borrower’s character by analyzing his or her:
a. credit history.
b. frequency of borrowing.
c. pattern of living within one’s means.
d. All of the above
Correct answer is (d).
Lenders look at the borrower’s credit history, including the amount of money owed, the frequency of borrowing, the timeliness of bill payment, and a pattern of living within one’s means.
Seller financing concession limitation on a FHA loan is:
a. 3.5%. b. 4%. c. 5%. d. 6%.
Correct answer is (d).
The seller can contribute up to 6% of the sales price or appraised value of the home, whichever is lower, toward the sale of the home. HUD proposed lowering the seller’s contribution rate from 6% to 3% in January 2010, but did not do so.
VA Guaranteed Loans have a current conforming limit of ___________ unless they are located in high cost areas:
a. 417,000 b. 400,000 c. 725,000 d. 625,000
Correct answer is (a). $417,000
It is the same for all conforming products including VA.
The loan administrator is required to give the borrower a(n) _____________ statement that shows deposits into the account, the account balance, and reflects payments of property taxes and homeowners insurance.
a. Initial Escrow b. mortgage interest c. Annual Escrow d. profit and loss
c. Annual Escrow
Correct answer is (c).
The loan administrator is required to give the borrower an Annual Escrow Statement that details the activity in the escrow account. This statement shows deposits into the account and the account balance.
If a borrower has no credit history, the lender may consider:
a. rent payments. b. telephone bills. c. payments on utilities. d. all of the above.
Correct answer is (d).
In the area of credit, the lack of an established credit history should not curb loan approval. As provided in the credit standards, a satisfactory payment history on items such as rent, utilities, phone bills, and other scheduled payments may be used to establish a satisfactory credit history.
Which of the following statements is true regarding underwriting guidelines?
a. They are the same for all lenders.
b. They are similar from one loan program to the next.
c. They are flexible and vary with each loan program.
d. They are not flexible in any loan program.
c. They are flexible and vary with each loan program.
Correct answer is (c).
Underwriting guidelines are principles lenders use to evaluate the risk of making real estate loans. The guidelines are just that—guidelines. They are flexible and vary according to loan program.
The FHA:
a. funds the loan b. guarantees the loan c. insures the loan d. services the loan
Correct answer is (c).
The FHA insures loans, whereas the VA guarantees loans.
DVA commonly referred to as VA guarantees loan programs for qualified veterans. They also require funding fees for these guarantees for each military service. For 100% loan guarantee to a National Guard Veteran, the funding fee would be:
a. 1.25% b. 1.50% c. 2.15% d. 2.40%
Correct answer is (d).
For 100% loan guarantee to a National Guard Veteran, the funding fee would be
d. 2.40%
See VA funding fee schedule
VA has a purchase-funding fee for regular and reserves. What is the current fee for a 100% loan, for active duty personnel for the first time?
a. 2.15% b. 2.40% c. 3.30% d. 1.75%
Correct answer is (a).
The current funding fee for an initial Purchase 100% Loan, active duty is 2.15%.
How does an underwriter know that flood insurance is needed for a property?
a. It is noted in the title insurance policy that flood insurance is required
b. A hazard insurance specialist is engaged to inspect the property
c. It is noted in the appraisal report whether the property is located in a FEMA flood zone area
d. It is a required of the seller to make a flood hazard disclosure
Correct answer is (c).
It is noted in the Site section of the URAR appraisal report whether the property is located in a FEMA flood zone area. If it is, flood insurance is required.
Which of the following does the lender not consider a risk factor when underwriting a borrower?
a. Employment history b. Education c. Credit history d. Income
Correct answer is (b).
b. Education
The risk factors associated with the borrower are employment history, income, assets, credit history, and credit score.
A loan has a start rate of 3.5%, a margin of 1.75% with an annual cap rate of 2%, and a lifetime of 6%. What is the maximum interest rate that can be charged to this borrower on this loan?
a. 5.50% b. 9.50% c. 11.50% d. 8%
Correct answer is (b).
3.5% + 6% = 9.5% (start rate + lifetime cap = maximum interest rate.)
Margin is only used to calculate annual adjustments index + margin = interest rate for that period
Fannie Mae and Freddie Mac use automated underwriting systems (AUS) to evaluate loans and deliver risk assessment to a lender. Freddie Mac uses:
a. DU. b. LP. c. LPA. d. USDA.
Correct answer is (b).
Freddie Mac’s system is called Loan Prospector (LP).
Good __________ creates a solid foundation for loans in which the agreed upon payments of principal and interest are current.
a. loan processing b. mortgage servicing c. loan consultation d. underwriting
Correct answer is (d).
Good underwriting is the foundation of performing loans. A performing loan is a loan on which the agreed upon payments of principal and interest are current.
A borrower’s credit history is considered __________ if the report shows a bankruptcy, late mortgage payments, outstanding collections, judgments, or unpaid federal debt.
a. positive b. good c. poor d. limited
Correct answer is (c).
If the credit report shows a negative borrowing history, the borrower usually must reestablish credit.
A conforming loan product ($417,000) having 80% loan to value, requires how much mortgage insurance coverage to satisfy the lender?
a. None b. A monthly fee based on loan amount c. An annual up-front fee d. .55% of the loan amount
Correct answer is (a).
Not required with 20% down.
The loan processor does all of the following, except:
a. order the appraisal of the property.
b. order a credit report on the borrower.
c. send out necessary verification letters.
d. fill out necessary verification letters.
Correct answer is (d).The processor does not fill out the verification letters.
The loan processor takes four steps to prepare the loan package. These include ordering the appraisal; ordering the credit report; sending out employment, income, and bank account verifications; and verifying information.
When a loan servicer sells or assigns the servicing rights to a loan to another loan servicer, the borrower:
a. has 15 days to acknowledge the transfer. b. has the right to continue paying the previous servicer. c. must be sent envelopes imprinted with the name and address of the new loan servicer. d. must be sent a servicing transfer statement at least 15 days before the effective date of the loan transfer.
Correct answer is (d).
When a loan servicer sells or assigns the servicing rights to a loan to another loan servicer, the borrower must be sent a servicing transfer statement at least 15 days before the effective date of the loan transfer. The borrower cannot be penalized for making a timely payment to the prior servicer within 60 days of the loan transfer.
Which statement is correct regarding the Uniform Residential Loan Application (FNMA/FHLMC Form 1003)?
a. It is used for residential home loans. b. The approval requirements are consistent and conforming so lenders can sell their mortgage loans to the secondary mortgage market. c. It is approved for FHA and VA loans. d. All of the above
Correct answer is (d).
The Uniform Residential Loan Application is the standardized form for residential loan applications. The standardized form makes it possible for lenders to sell their loans on the secondary money market (FNMA, FHLMC, and GNMA), because the approval requirements are consistent and conforming. In 1992, the Departments of Housing and Urban Development (HUD) and Veterans Affairs (VA) also approved the form for use in processing FHA and VA loans.
Stanley is seeking FHA financing on a particular property that he is interested in purchasing. In the near future, Stanley plans to install solar electric panels that will convert sunlight into energy rather than relying strictly on electric power. What FHA program should he look into?
a. Reverse Annuity Mortgage b. Energy Efficiency Mortgages Program c. Graduated Payment Mortgage d. Purchase Rehab Loan
Correct answer is (b).
The Energy Efficient Mortgages Program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost for adding energy-efficient features to new or existing housing.
Can a lender charge a fee for the preparation of a settlement statement?
a. Yes, if the fee is normal and reasonable b. No, a fee cannot be charged c. Yes, if the document needs to be translated d. Not for the 1st copy, but a fee can be charged for a 2nd or 3rd copy
Correct answer is (b).
Hud’s Reg. X [Sec. 3500.12 No fee.] No fee shall be imposed or charge made upon any other person, as a part of settlement costs or otherwise, by a lender in connection with a federally related mortgage loan made by it (or a loan for the purchase of a manufactured home), or by a servicer for or on account of the preparation and distribution of the HUD-1 or HUD-1A settlement statement, escrow account statements, or statements required by the Truth in Lending Act.
The types of lenders that MLOs broker are:
a. Fannie Mae. b. Freddie Mac. c. Farmer Mac. d. competing lenders.
Correct answer is (d).
The three “F”s are not lenders.
They purchase loans in the secondary market
For a credit transaction in which the security interest is a consumer’s principal residence, the consumer can exercise his or her right to rescind the transaction until:
a. midnight of the 3rd day following consummation.
b. midnight of the 3rd business day following consummation.
c. 5:00PM of the 3rd business day following consummation.
d. 5:00PM of the 7th calendar day following consummation.
Correct answer is (b).
The consumer may exercise the right to rescind until midnight of the 3rd business day following consummation, the delivery of the Notice of Right to Rescind, or the delivery of all material disclosures.
There are several income tax forms underwriters analyze. Form 1165 is the:
a. s Corporation Return. b. Corporation Return. c. Partnership Return. d. same as a schedule C.
Correct answer is (c).
IRS Form 1165 is the Partnership Return.
Sally lost her job last year and experienced a few late payments. Sally found another job and is attempting to purchase a condominium. Based upon her low credit score, the lender may charge Sally a higher interest. What does this reflect?
a. Higher lender risk b. Extended credit c. Alignment of credit d. Low rate loans
Correct answer is (a).
Borrowers with high credit scores are usually offered the lowest rates on loans. The lower the credit score, the less likely the lender is to extend credit. However, if the lender does extend credit, borrowers with low credit scores pay higher interest rates. The higher interest rate reflects the higher risk involved in making such a loan.
A lender may require a borrower to maintain an escrow account with them to ensure the payment of taxes, insurance, and other items. This typically occurs when the borrower’s first loan exceeds what percentage?
a. 50% b. 75% c. 80% d. 90%
Correct answer is (c).
A lender may require a borrower to maintain an escrow account with them to ensure the payment of taxes, insurance, and other items. This typically occurs when the borrower’s first loan exceeds 80%.
Which of the following is not a risk factor associated with the borrower?
a. Assets and income b. Employment history c. Insurance history d. Credit history and credit score
Correct answer is (c).
The risk factors associated with the borrower include employment history, income, assets, credit history, and credit score.
A sales person who violates the “do not call” prohibition faces a fine of _________ for two such calls.
a. $1,000.00 b. $10,000.00 c. $11,000.00 d. $22,000.00
Correct answer is (d).
The fine is $11,000 for each violation.
Under RESPA statute, the lender is allowed to maintain a cushion equal to one-sixth of the amount of items paid out of the account, or approximately __________ of escrow payments.
a. 1 month b. 2 months c. 6 months d. 1 year
Correct answer is (b).
Under RESPA statute, the lender is allowed to maintain a cushion equal to one-sixth of the amount of items paid out of the account, or approximately 2 months of escrow payments.
Discharge Papers issued by any US armed service are known as:
a. GI9293. b. DD 214. c. DE 1030. d. DD 212.
Correct answer is (b).
DD214s denote service eligibility and are required to get a C.O.E. (Certificate of Eligibility).
- The responsibility for administration and enforcement of the SAFE Act, as of July 21, 2011, belongs to:
a. FRB.
b. HUD.
c. CFPB.
d. NMLS.
Correct answer is (c).
The Consumer Financial Protection Bureau administers and enforces of the SAFE Act.
43. If a land tract is located in a floodplain, this means that it: a. always floods. b. sometimes floods. c. is designated as such by FEMA. d. cannot be built on.
Correct answer is (c).
Nationwide floodplain studies have been prepared by the Federal Emergency Management Agency (FEMA), and floodplain areas have been documented on FEMA maps. This designation alerts consumers to a potential hazard even if the land never floods.
44. If a Veteran has a Chapter 7 bankruptcy, VA requires \_\_\_\_\_\_\_\_\_\_\_\_\_\_months of timely payments before they will consider the Veteran for a VA loan. a. 12 months b. 24 months c. 36months d. 18 months
Correct answer is (b).
Chapter 13 requires 12 months and Chapter 7 requires 24 months.
45. If an FHA base loan amount is $300,000., what will be the monthly MMI if the upfront mortgage insurance is 1.75% of the loan amount and the monthly insurance premium is 1.25%? a. $317.97 b. $312.50 c. $310 d. $300
Correct answer is (b).
Base Loan $300,000 x 0.01.25/12 = $312.50.
Loan amount * Interest rate as a decimal/12
Term is 12 because it is a monthly installment
46.
On the GFE, how are fees and settlement charges determined?
a. They are the actual cost of vendors
b. They are the average of costs supplied by competitive bid
c. They are the estimated, normal fees for the type of loan as known by the loan originator
d. They are industry wide standard costs
Correct answer is (c).
c. They are the estimated, normal fees for the type of loan as known by the loan originator.
The GFE gives an estimate of the settlement charges and loan terms of a particular loan.
47.
Which of the following statements is true of private mortgage insurance?
a. PMI is extra insurance lenders require from most homebuyers who obtain jumbo loans.
b. PMI is normally paid for by the lender.
c. PMI is only provided by Freddie Mac
d. PMI is normally paid for by the borrower.
Correct answer is (d).
Private mortgage insurance (PMI) is extra insurance that lenders require from most homebuyers who obtain conventional loans that are more than 80% of their new home’s value. Normally, the borrower pays the premium for PMI, not the lender. Many companies nationwide underwrite private mortgage insurance.
48. What is the purpose of PMI? a. Higher down payments b. Lower down payments c. Lower interest rates d. Shorter amortization
Correct answer is (b).
PMI allows lenders to make loans with less than a 20% down payment. The lender is protected in case of foreclosure by a mortgage default insurance policy, which is called private mortgage insurance (PMI).
49.
The standard policy of title insurance represents the result of three successive processes. What would NOT be considered one of the processes?
a. Examination and investigation of title
b. Determination of the amount of insurance
c. Determination of the correct boundary lines by a survey of the insured property
d. Protection of the insured against loss of title
Correct answer is (c).
The title company does not do a survey or check boundary lines when preparing a standard title insurance policy.
They generally go with the boundary lines on record
50.
Does the money for the down payment on an FHA-insured loan need to be seasoned?
a. Yes, it needs to be seasoned for 3 months.
b. No, seasoning is not required for any type of loan.
c. Yes, because the FHA and conforming loans have identical requirements.
d. No, the FHA does not require the money for a down payment to be seasoned.
Correct answer is (d).
The FHA does not require the buyer to have any reserves or available cash on hand during the closing.
51. To evaluate loan applications quickly, real estate lenders use: a. redlining. b. automatic funding. c. automated underwriting (AU). d. distance funding.
c. automated underwriting (AU).
Correct answer is (c).
Real estate lenders using AU systems quickly evaluate a wide range of information, including consumer credit history, property information, and loan type to determine the probability of the borrower repaying the loan.
52. What is the monthly renewal amount of PMI for a loan amount of $150,000 with a PMI factor of 12%? a. $150.00 b. $180.00 c. $18.00 d. $15.00
Correct answer is (d).
$150,000 / 100 = $1,500. $1,500 x .12 = $180 /12 = $15 per month.
PMI Renewal = [(loan amount/100) * factor]/12
53.
Sub Prime loans are those with less than an A rating. A 2/28 loan is a loan that:
a. has a fixed rate for the first two years, then to an ARM where the interest rate may change per index margin and cap.
b. has a fixed rate for the first two years and then adjusted once for the rest of the term.
c. has an adjustable rate for the first two years and then changes to a fixed rate for the rest of the term.
d. has higher interest rates with no pre-payment penalty.
Correct answer is (a).
a. has a fixed rate for the first two years, then to an ARM where the interest rate may change per index margin and cap.
A 2/28 arm is a mortgage that that has a two-year fixed interest rate period after which the interest rate on the mortgage begins to float based on an index plus a margin. The index plus the margin in known as the fully indexed interest rate.
54. Which of the following is not included in Section X. Information For Government Monitoring Purposes of the Fannie Mae form 1003? a. Ethnicity b. Race c. Religion d. Sex
Correct answer is (c). Religion is not included
Only choices (a), (b), and (d) are included on the 1003 form.
Ethinicity, Race Sex are
55. Which IRS form would a MLO give to a borrower authorizing release of named tax year returns to ensure that the information given to the MLO is the same as submitted to the IRS? a. 1040-T b. 1965-T c. 1003-T d. 4506-T
Correct answer is (d).
The 4506-T form authorizes a loan officer or mortgage investor to get electronic transcripts from the Internal Revenue Service covering multiple years of a borrower’s federal income tax filings. The transcript provides most of the line entries from the original tax return and usually contains the information that a third party (such as a mortgage company) requires.
56.
Adam’s lender set a 90% loan-to-value ratio for his conventional loan. The property Adam is purchasing appraised at $300,000 so the maximum loan amount is $270,000 with Adam paying 10% down ($30,000). As a condition of the loan, Adam must have PMI. Adam asked the lender to buy the PMI for his loan. If the lender buys the PMI for the borrower, what will the lender do to cover the cost of PMI?
a. Bargain with the PMI insurance provider to change the quote
b. Change provider’s underwriting criteria and rates
c. Cut losses to make the loan and pay the PMI
d. Quote a higher interest rate to Adam to cover the PMI
Correct answer is (d).
Normally, the borrower pays the premium for PMI, not the lender. The borrower may pay the premium up front, but the lender usually collects monthly PMI payments. Sometimes the lender buys the PMI insurance for the borrower. In this instance, the lender quotes a higher interest rate that covers the PMI. Since the entire payment is now interest, the borrower can deduct it under IRS rules.
57. Appraising is an art, not a science. What Fannie Mae appraisal form is used for single-family dwellings? a. 1004 b. 1004c c. 1004mc d. 1004sfr
Correct answer is (a).
The Fannie Mae form used for single-family dwellings is the Uniform Residential Appraisal Report (URAR) form 1004.
58.
If the loan servicing is going to be sold, the borrower should receive a notice from the new loan servicing company that includes:
a. the new interest rate that the borrower will pay.
b. the amount of costs that the borrower must pay for transferring service.
c. how much the servicer expects to profit from the loan.
d. a statement saying the transfer will not affect any terms or conditions of the loan documents.
Correct answer is (d).
The notice includes a statement that the transfer will not affect any terms or conditions of the loan documents, except the terms directly related to the servicing of the loan.
59.
The Federal Reserve Board’s Consumer Handbook describes terms that must be disclosed on adjustable rate mortgages. They are:
a. start rate, adjustment period, interest rate cap, periodic rate cap, margin, and index.
b. start rate, payments, interest rate caps, adjustment period, payment caps, margin, and index.
c. start rate, margin, adjustment period, index, lifetime cap, interest rate cap.
d. start rate margin, index, lifetime cap, periodic rate cap.
Correct answer is (b).
The CHARM Booklet describes start rate and payments, adjustment period, index, margin, interest-rate caps, and payment caps.
60. In order to document a borrower's employment history, a lender uses the Verification of: a. VOC. b. VOD. c. VOE. d. VOI.
Correct answer is (c).
Lenders use the Verification of Employment (VOE) form as part of the process of documenting the borrower’s employment history.
61.
A standard insurance coverage policy protects against:
a. off-record hazards such as forgery.
b. the expense incurred in defending the title.
c. easements and liens not shown on public records.
d. both (a) and (b)
Correct answer is (d).
A standard title policy protects against off-record hazards such as forgery, impersonation, or failure of a party to be legally competent to make a contract; the possibility that a deed of record was not delivered with the intent to convey title; the loss, which might arise from the lien of federal estate taxes, which is effective without notice upon death; and the expense incurred in defending the title.
62.
Seller Sam prepaid his property taxes for the year. On Sam’s closing statement, this entry will appear as a:
a. debit to the seller, credit to the buyer.
b. debit to both seller and buyer.
c. credit to the seller, debit to the buyer.
d. credit to both seller and buyer.
Correct answer is (c).
Property taxes are often prorated. If the seller prepaid property taxes, he or she expects to get the unused portion back. This shows up as a credit.
63.
Ray is using his VA eligibility to purchase his first home and previews properties with Broker Steve. Ray asks Steve what happens if the appraised value of a home on a fixed-rate VA loan is less than the maximum loan guaranty.
a. Ray will not have to put a down payment on the purchase.
b. Ray may need a down payment.
c. Ray cannot afford the home.
d. Ray can force the seller to reduce the selling price of the home.
Correct answer is (a).
With a fixed-rate VA-guaranteed loan, a qualified veteran can purchase a home with no down payment depending on the appraised value of the property.
If the appraised value came in higher= no down payment required
If the appraised value came in lower=ray would have to pay the difference.
64. Some of the objectives borrowers can meet in using loan products are to: a. get cash out of a property. b. purchase property. c. refinance an existing loan. d. do all of the above.
Correct answer is (d).
Lenders offer a variety of loans to help people purchase a property, refinance an existing loan, or get cash out of a property.
65. The minimum property standards (MPS) assured that the housing used as collateral for FHA-insured mortgages met all of the minimum requirements, except: a. quality. b. aesthetics. c. safety. d. durability.
Correct answer is (b).
The minimum property standards (MPS) assured that the housing used as collateral for FHA-insured mortgages met minimum requirements for construction quality, safety, and durability.
66.
Back-end debt to income (DTI) ratios include:
a. all housing expenses and debts divided by monthly gross income.
b. Principal, interest, taxes and insurance plus credit card debt divided by monthly net income.
c. PITI plus minimum revolving credit and monthly fixed debt if less than 6 months divided by gross monthly income.
d. PITI plus medical debt, and revolving credit cards divided by monthly gross income.
Correct answer is (c).
The back ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs (principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable) and any monthly consumer debt.
67. As of April 9, 2012, FHA charges an upfront insurance premium. It is \_\_\_\_\_\_\_\_\_\_ of the base loan amount. a. 1.75% b. 2.25% c. 1.25% d. 1.20%
Correct answer is (a).
As of April 9, 2012, FHA charges an upfront insurance premium of 1.75% of the base loan amount.
68. Andy, who is processing a loan for Sam, has made sure that the loan application and all supplemental documents are true and complete. Andy's processing checklist is complete. Sam's loan application is ready for what next step in the loan origination process? a. Direct account verification b. Funding and underwriting c. Underwriting and risk analysis d. Verification of employment
Correct answer is (c).
Most processors use a loan application checklist to be sure that all of the documents in the loan package are complete. Once everything is in order, the loan application is ready for loan underwriting, where it will be approved or denied.
69. The insurable value of a property is $90,000 and the unpaid balance of the loan is $95,000. What is the minimum hazard insurance coverage required by Fannie Mae? a. $95,000 b. $90,000 c. $76,000 d. $72,000
Correct answer is (b).
If the insurable value of the improvements is less than the unpaid principal balance, the insurable value is the amount of coverage required.
70.
Upon receiving the loan package, the underwriter begins the process of:
a. evaluating the risk factors of certain elements of the application.
b. closing the loan.
c. gathering information about the borrower.
d. gathering information about the property.
Correct answer is (a).
The underwriter evaluates the risk based on the information in the loan package. Choices (c) and (d) are used to create the loan package. Choice (b) only occurs after the loan is evaluated and approved.
71.
The __________ is a group of documents and verifications prepared that give the prospective lender complete details about the proposed loan.
a. FNMA/FHMLC Form 1003
b. loan package
c. Declarations section of the Form 1003
d. VOD
Correct answer is (b).
A loan package is the file of documents the lender needs to determine whether to fund a loan. The documents in the loan package include the loan application; verifications of employment, income, and bank accounts; and information on the property.
72. The three Cs of credit include all of the following, except: a. capacity. b. collateral. c. character. d. capital.
Correct answer is (d).
Lenders look for the borrower’s ability and willingness to repay debt. They speak of the three Cs of credit: capacity, character, and collateral.
73.
A loan processor who is confirming information on a loan application for a VA loan must send a __________ in addition to the standard verification letters.
a. Request for Verification of Employment
b. Request for Verification of Deposit
c. Request for Certificate of Deposit
d. Request for Certificate of Eligibility
Correct answer is (d).
The processor who is confirming information regarding the borrower of a VA loan must send out a Request for Certificate of Eligibility (COE) in addition to the VOD and VOE. The COE is a form completed by the VA that confirms the borrower is sufficiently entitled to a VA loan.
74.
Sally, a loan mortgage originator, earns between $2,500 and $4,500 for each transaction. She originated a $300,000 loan for her brother and charged him a $450 processing fee and is getting a .75% rebate. Did her brother receive preferential treatment?
a. No, the fee charged is in the normal range that Sally earns
b. No, because exceptions are made for family members
c. Yes, the brother paid 50% less than other consumers
d. Yes, the brother simply paid a loan processing fee
Correct answer is (a).
Rebate (yield spread) = $2,250 ($300,000 x .75%). $2,250 + $450 = $2,700. This fee is in keeping with the other fees Sally earns.
75. Under FHA underwriting guidelines, what does a lender focus on when examining a borrower's ability to repay the loan? a. High credit scores b. Stability of income c. Ability to make timely payments d. Both (b) and (c)
Correct answer is (d).
Unlike Fannie Mae/Freddie Mac loans, FHA underwriting looks at the stability of income and the borrower’s ability to make timely payments. An important aspect of FHA underwriting is that FHA loans are not credit score driven.
76. Good underwriting is the foundation of current mortgage payments or: a. deficiencies. b. delinquent loans. c. efficient loan processing. d. performing loans.
Correct answer is (d).
Good underwriting is the foundation of performing loans. A performing loan is a loan on which the agreed upon payments of principal and interest are current.
77. The debt-to-income ratio is an underwriting guideline that measures a borrower's: a. capacity. b. capital. c. character. d. credit.
Correct answer is (a).
A borrower’s financial ability to repay a mortgage is one of the three determining factors of credit. In general, lenders assess capacity by using the debt-to-income ratios.
78. A credit report includes data such as personal information, credit information, public record information, and: a. income. b. moral character. c. inquiries. d. ancestry.
Correct answer is (c).
A credit report includes four categories of data that have been collected and reported to the credit bureaus. They are (1) personal information, (2) credit information, (3) public record information, and (4) inquiries.
79.
Which of the following items can be used as an alternate form of documentation to verify deposits?
a. Most recent 3 months’ depository institution statements
b. Average balance for past 2 months listed
c. 2 years of signed tax returns with schedules
d. None of the above
Correct answer is (a).
The borrower may provide the most recent 3 months’ statements from the depository institution the borrower uses as an alternative way to document the Verification of Deposit.
80. What form is used for the Interest Rate Reduction Refinancing VA Loan Worksheet? a. 26-8923 b. 26-8937 c. 26-1802a d. 26-1817
Correct answer is (a).
The VA Worksheet Number is 26-8923.
81. Which is a common debt-to-income ratio? a. Front 28% / Back 36% b. Front 29% / Back 41% c. Back 41% d. All of the choices are debt-to-income ratios.
Correct answer is (d).
Common DTI Ratios include: conforming loans - 28% front ratio and 36% back ratio (28/36), FHA - 29% front ratio and 41% back ratio (29/41), and VA only uses back ratio of 41% as a guideline.
82. A borrower is qualifying for a $150,000 loan amount on a property with a value of $200,000. What is the loan-to-value (LTV) ratio? a. 70% b. 75% c. 80% d. 85%
Correct answer is (b).
The loan-to-value ratio (LTV) is the relationship between the loan (amount borrowed) and the value of the property. If the property in question is valued at $200,000 and the loan amount requested is $150,000, the loan-to-value ratio is 75% (150,000 ÷ 200,000 = .75).
83.
All of the following are true regarding Freddie Mac underwriting guidelines, except:
a. Freddie Mac guidelines are the same for all products.
b. Freddie Mac guidelines are flexible.
c. depending on the loan product, the guidelines vary.
d. none of the statements are correct.
Correct answer is (a).
Like Fannie Mae, Freddie Mac’s underwriting guidelines are flexible and vary according to loan program.
84. A VA loan amount is $230,000 and includes a 1.75% funding fee in the loan amount. What is the first month’s interest if the interest rate is 2.75% on a 15-year fixed rate loan? a. $6,325 b. $527.08 c. $6,435.69 d. $536.31
Correct answer is (d). $230,000 x.0175 = $4,025. $4,025 + $230,000 = $234,025 x .0275/12 =$536.31. Loan * funding fee=cost of funding 230000*.0175=4025 loan+cost of funding= Total loan 230000+4025=234025 Total loan *interest rate/term=first month's interest $234,025 x .0275/12 =$536.31.
85. What is the funding fee for a National Guard/Reserve loan with 5% down? a. 1.50% b. 1.75% c. 2.40% d. 1.25%
Correct answer is (b).
The funding fee for a National Guard/Reserve loan with 5% down is 1.75%.
86. Which document must contain the same fees as the HUD-1, but shown as estimates? a. ARM Disclosure b. Good Faith Estimate c. Model Disclosure Form d. Preliminary Cost Worksheet
Correct answer is (b).
The GFE contains the same itemized fees as the HUD-1, but shows them as estimates instead of as final actual figures.
87. The acronym “RESPA” refers to: a. a federal law. b. ethics. c. the California Financial Association. d. NAMB.
Correct answer is (a).
RESPA is a federal law.
88. VA request for an appraisal is secured by form number: a. 26-1805. b. 26-8937. c. 26-8320. d. 26-0286.
Correct answer is (a).
VA Appraisal Request Form #26-1805.
89. What is the annual amount of PMI for a loan of $100,000 with a PMI factor of 35%? a. $2,916.67 b. $35,000.00 c. $350.00 d. $243.96
Correct answer is (c).
$100,000/100 x .35 - $350.
loan/100 * factor=annual amount
90. Which of the following is not included on the TIL Statement? a. Annual percentage rate b. Amount financed c. Breakdown of PITI d. Payment schedule
Correct answer is (c).
The amount of the total payment is shown, but not how principal, interest, taxes, and insurance (PITI) are allocated.
91. According to the Fannie Mae guidelines, the dollar amount of the net adjustments for each comparable sale should not exceed \_\_\_\_\_\_\_\_\_\_ of the sales price of the comparable? a. 10% b. 15% c. 20% d. 25%
Correct answer is (b).
The dollar amount of the net adjustments for each comparable sale should not exceed 15% of the sales price of the comparable. The dollar amount of the gross adjustments for each comparable sale should not exceed 25% of the sales price of the comparable.
92. Bob has a 5% interest-only $120,000 loan. How much is 7 months interest? a. $2,500 b. $3,487 c. $3,500 d. $6,000
Correct answer is (c).
7 months of interest is $3,500. ($120,000 x 5% = $6,000 for 12 months. $6,000/12 months = $500 per month. $500 x 7 = $3,500)
93. Greg is a peacetime Veteran who is using a VA-guaranteed home loan to purchase a house near his work. Based on the many advantages the DVA offers, what is the main benefit of a VA-guaranteed loan to Greg? a. DVA value memorandum b. Low PMI charge c. No down payment in most cases d. VA maximum property requirements
Correct answer is (c).
VA-guaranteed home loans offer many benefits and advantages. The main benefit is that veterans may not need to make a down payment. Instead of the down payment from the borrower, lenders receive a certificate of guaranty from the DVA. In appreciation for honorable military service, the DVA vouches for the veteran’s trustworthiness to repay the loan.
94. A point is 1% of the loan amount. A 1 point discount is equated to raising the yield on a loan by: a. 1/8 of 1%. b. ¼ of 1%. c. 1% of the loan amount. d. 1/8% of the loan amount.
Correct answer is (a). 1/8 of 1%.
8/8 equals 1 point.
95.
When obtaining a conventional loan, what type of documentation is required to verify the income of a self-employed person?
a. Signed and dated tax returns for the two previous years
b. Year-to-date income statement and balance sheet
c. Document showing ownership percentages if business is owned by more than one person
d. All of the above are required
Correct answer is (d).
All of the choices are needed to verify income for a self-employed person according to Freddie Mac Self-employment indicator and additional requirements (Guide Sections 37.13)
96.
All of the following are eligible alternative documents that can be used for the verification of home loan payments, except:
a. a credit report reference for the last 12 months.
b. the most recent 3 months’ depository institution statements.
c. a home loan payment history for the last 12 months.
d. a copy of all canceled checks for the most recent 12-month period.
Correct answer is (b).
The eligible alternative documents that can be used to verify home loan payments include a credit report reference for the last 12 months, a home loan payment history for the last 12 months, and a copy of all canceled checks for the most recent 12-month period.
97. A veteran applying for VA financing can expect to obtain a maximum guaranty of \_\_\_\_\_\_\_\_\_\_ of the single-family conforming loan amount. a. 25% b. 50% c. 75% d. 100%
Correct answer is (a).
For loans in excess of $144,000 to purchase or construct a home the entitlement increases up to an amount equal to 25% of the Freddie Mac conforming loan limit for a single-family home.
98.
Prorations are part of closing costs. Which of the following items are always prorated?
a. Property taxes and insurance
b. Property taxes, insurance, and MMI
c. Property taxes, insurance, PMI, and homeowners dues
d. Property taxes
Correct answer is (d).
Even if a cash transaction, property taxes will always be prorated.
99. What would be the first month’s payment on an interest only loan on a 30-year $340,000 VA loan with a funding fee of 1.75% at 3.5% interest? a. $1,009.02 b. $1,006.10 c. $1,011.94 d. $1,009.05
Correct answer is (a).
loan * premium=cost to fund +loan=total loan
(340,000 x .0175) + 340000 = 345,950. Take $345,950 x .035 divided by 12 = $1,009.02.
total loan*interest/term=interest payment
term= 12 (12 months per year)
100.
An abstract of title is a(n)
a. brief description of the subject property.
b. summary of all facts regarding evidence of title.
c. guarantee of the validity of the title to property.
d. informal description of the vesting.
Correct answer is (b).
An abstract of title is a written summary of all useful documents discovered in a title search. The abstract of title together with an attorney’s opinion of the documents appearing in the abstractor’s chain of title was the source of our earliest basis for establishing marketable title. The chain of title is the public record of prior transfers and encumbrances affecting the title of a parcel of land
101. If the principal and interest payment is $1,347.13 on a 30-year fixed $300,000 loan, what portion of this payment will go toward the principal on the second payment if the interest rate is 3.5%? a. $875.00 b. $472.13 c. $873.62 d. $473.51
Correct answer is (d).
loan * interest/term=first months interest
$300,000 x .035/12 = $875
payment-1st mo. interest=principal reduction
(1,347.13 – 875 = 472.13).
loan-principal reduction=new balance
$300,000 - $472.13 = $299,527.87
balance*interest/term=second mo. interest
$299,527.87x .035/12 = 873.62.
$1347.13 (P & I) less $873.62 = $473.51.
102. Pledged assets, alimony, and child support paid by the borrower to someone else are listed as \_\_\_\_\_\_\_\_\_\_ on the Uniform Residential Loan Application. a. assets b. declarations c. liabilities d. housing expenses
Correct answer is (c).
Credit card accounts, pledged assets, alimony or child support owed, job-related expenses, and any other amounts that may be owed are listed as liabilities on the Uniform Residential Loan Application.
103. Fannie Mae has maximum limits for \_\_\_\_\_\_\_\_\_\_ conforming loans. a. single-family b. two-family c. four-family d. all of the above
Correct answer is (d).
= Loan limits change with market conditions. Fannie Mae has specific limits for single-family, two-family, three-family, four-family, and second conforming loans.
104. Which appraisal method determines the market value of a property by substituting one similar property for another and comparing sales prices? a. Competitive sales approach b. Cost approach c. Income approach d. Sales comparison approach
Correct answer is (d).
The sales comparison approach is based on the principle of substitution. The appraiser finds comparable properties that have recently sold and adjusts their sales prices to determine a reasonable value for the subject property.
105. Which Government Sponsored Enterprise (GSE) was initially created by Congress in 1938 to buy and sell FHA-insured loans from lenders, but since 1972, was permitted to buy and sell conventional conforming mortgages in the secondary mortgage market? a. Fannie Mae b. Freddie Mac c. Ginnie Mae d. Munie Mae
Correct answer is (a).
Fannie Mae is a major participant in the secondary mortgage market. It is currently regulated by the Federal Housing Finance Agency.
106.
Lenders use credit scores as part of the underwriting process. Which statement regarding credit scoring is true?
a. FICO® scores range from 500 to 950.
b. FICO® scores range from 300 to 850.
c. A FICO® score of 300 denotes low risk to the lender.
d. A FICO® score of 850 denotes high risk to the lender.
Correct answer is (b).
A FICO® score is one example of a credit bureau score. FICO® scores range in value from about 300, which denotes the highest risk, to about 850, which indicates the lowest risk.
107.
Which of the following is an FHA guideline?
a. Possession of a Certificate of Eligibility
b. Three months cash reserves in bank
c. May use a non-traditional credit history
d. Minimum length of time at job
Correct answer is (c).
For those borrowers who do not use traditional credit, the lender may develop a credit history from utility payment records, rental payments, automobile insurance payments, or other means of direct access from the credit provider.
108. There are funding fees required for VA IRRRLS, the fee is: a. 1% of the loan amount. b. ½% of the loan amount. c. 1.5% of the loan amount. d. 2.15% of the loan amount.
Correct answer is (b).
The percentage fee for either type of Veteran, either first time or subsequent use is ½% of the loan amount.
109. Of the following, which factor is considered the most important when qualifying a borrower? a. Payment history b. Property and assets c. Employment history d. Debt-to-income level
Correct answer is (a).
Several risk factors are taken into consideration when evaluating a borrower for a loan, such as the borrower’s debt-to-income level, employment history, stability of income, type of property, and assets. The most important factor is the payment history.
110. How many hours of continuing education are required every year to maintain an MLO license? a. 6 hours b. 4 hours c. 8 hours d. 10 hours
Correct answer is (c).
An 8 hour survey course is required.
111.
A borrower may use a rate commitment to lock in an interest rate and number of points:
a. when the borrower files the application.
b. during the processing of the loan.
c. only during the lender’s office hours.
d. Both (a) and (b)
Correct answer is (d).
Depending on the lender, borrowers may be able to lock in the interest rate and number of points charged on the loan. This may be done at the same time they file the application, during the processing of the loan, when the loan is approved, or later.
112.
Which section of the Uniform Residential Loan Application gives evidence that the borrower can repay the loan?
a. Borrower Information
b. Assets and Liabilities
c. Employment Information
d. Property Information and Purpose of Loan
Correct answer is (c).
Evidence that a borrower can pay back the loan is shown by his or her employment. The Employment Verification section of the application asks for the name and address of the borrower’s employer, the borrower’s position, and length of employment.
113. The maximum guaranty that the DVA will provide for the veteran's home loan is the: a. certificate of value. b. entitlement. c. eligibility. d. endorsement.
Correct answer is (b).
The entitlement is the maximum guaranty that the DVA will provide for the veteran’s home loan.
114. FHA DTI ratios are: a. 41 b. 33/41 c. 29/41 d. 28/36
Correct answer is (c).
Standard FHA ratios are 29/41.
115. Jim is processing an application for a loan for a property valued at $275,000. The loan amount requested is $220,000. What is the loan-to-value ratio? a. 65% b. 75% c. 80% d. 85%
Correct answer is (c).
$220,000 / $275,000 = 80%
116.
When a creditor offers to extend a loan with specified terms and conditions, the amount of the MLO compensation:
a. is subject to change.
b. is not subject to change.
c. depends on the lender.
d. depends on the size or amount of the change.
Correct answer is (b).
Section 1403 of the Dodd/Frank act added a new section 129B (c) to TILA. It prohibits a creditor or any other person compensation other than the amount of the credit extended.
