MLO-Mortgage Loan Origination Flashcards
1
Q
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%
A
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%.
2
Q
Which document is given at closing?
a. Loan application b. HUD-1 statement c. Standard fees d. Disclosure statement
A
Correct answer is (b).
The closing statements include an estimated closing statement, HUD-1 Settlement statement, and a composite closing statement.
3
Q
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.
A
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.
4
Q
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
A
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.
5
Q
A numerical value that specifies a borrower’s credit rating is a(n):
a. credit bureau. b. letter grade. c. credit score. d. LTV.
A
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.
6
Q
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
A
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.
7
Q
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
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.
8
Q
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.
A
Correct answer is (d).
$5,000 x 41% = $2,050.
Gross income * back ratio= Maximum Total monthly housing and credit expenditures
9
Q
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
A
b. The following Tuesday
Correct answer is (b).
3 business days at midnight, day 4, it funds (Saturday banks are open).
10
Q
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
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..
11
Q
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.
A
Correct answer is (a).
Like Fannie Mae, Freddie Mac’s underwriting guidelines are flexible and vary according to loan program.
12
Q
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
A
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.
13
Q
Seller financing concession limitation on a FHA loan is:
a. 3.5%. b. 4%. c. 5%. d. 6%.
A
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.
14
Q
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
A
Correct answer is (a). $417,000
It is the same for all conforming products including VA.
15
Q
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
A
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.
16
Q
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.
A
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.
17
Q
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.
A
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.
18
Q
The FHA:
a. funds the loan b. guarantees the loan c. insures the loan d. services the loan
A
Correct answer is (c).
The FHA insures loans, whereas the VA guarantees loans.
19
Q
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%
A
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
20
Q
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%
A
Correct answer is (a).
The current funding fee for an initial Purchase 100% Loan, active duty is 2.15%.
21
Q
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
A
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.
22
Q
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
A
Correct answer is (b).
b. Education
The risk factors associated with the borrower are employment history, income, assets, credit history, and credit score.
23
Q
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%
A
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
24
Q
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.
A
Correct answer is (b).
Freddie Mac’s system is called Loan Prospector (LP).
25
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.
26
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.
27
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.
28
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.
29
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.
30
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.
31
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.
32
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.
33
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
34
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.
35
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.
36
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.
37
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%.
38
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.
39
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.
40
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.
41
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).
42
42. 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
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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
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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
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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
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
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
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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
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
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
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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
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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
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
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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
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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
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
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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
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
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
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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
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
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
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.
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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.
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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
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
```
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
```
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
```
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
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
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
```
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
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
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
```
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
```
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
```
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
```
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
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
```
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
```
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
```
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
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
```
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
```
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
```
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
```
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
```
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
```
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
```
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
```
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
```
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
```
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
```
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
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
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
```
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
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
```
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
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
```
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
```
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
```
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
```
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
```
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
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
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
```
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
```
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
```
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
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
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
```
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
```
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
```
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
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.
117
117.
A funding fee is required by all Veteran Programs, but maybe exempt for:
a. surviving spouses of veterans who died in the service or from a service connected disability.
b. those on active duty.
c. a national guard retiree.
d. veterans whose VA loan has been restored.
Correct answer is (a).
VA allows an exemption of the funding fee for surviving spouses of veterans who died in the service or from a service connected disability.
118
118.
On the GFE, which fee allows a 10% tolerance when compared to the actual charges on the HUD-1?
a. Origination fee
b. Recording charges required by the government
c. Services required by the lender that borrowers can shop for
d. Transfer taxes
Correct answer is (b).
| Government recording charges may not be greater than 10% above the sum of the amounts included on the GFE.
119
```
119.
Which FannieMae form is used when Desktop Underwriter has judged the reasonableness of the sales price as adequate collateral for the mortgage loan?
a. Form 1004
b. Form 2055
c. Form 2075
d. Form 2090
```
Correct answer is (c).
Desktop Underwriter's enhanced risk assessment capability enables the use of the Desktop Underwriter Property Inspection Report (Form 2075). Form 2075 is not an appraisal report. When Desktop Underwriter recommends Form 2075, it has judged the reasonableness of the sales price as adequate collateral for the mortgage loan. Therefore, a property appraisal is not required for the specific transaction. Form 2075 is used for drive by appraisals.
120
```
120.
John Smith makes $30 per hour, 40 hours per week. His wife makes $18 per hour, 40 hours per week. What is their monthly income?
a. $7,680.00
b. $5,200
c. $8,320
d. $7,280
```
Correct answer is (c).
$5,200 ($30 x 40 x 52/12) plus $3,120 ($18 x 40 x 52/12) = $8,320
a month is 52/12 =4.333 not 4 weeks
121
```
121.
An estimated closing statement serves as a preliminary copy of the HUD-1 Settlement Statement and outlines all credits and debits related to completing the sale. It is highly recommended that the buyer and seller receive the estimated closing statement at least __________ before closing.
a. 24 hours
b. 3 days
c. 5 days
d. one week
```
Correct answer is (a).
An estimated closing statement serves as a preliminary copy of the HUD-1 Settlement Statement and outlines all credits and debits related to completing the sale. It is highly recommended that the buyer and seller receive the estimated closing statement at least 24 hours before closing.
122
122.
The CFPB regulates “covered persons” who engage in offering or providing “consumer financial services or products”. These include:
a. providing check cashing, check collection, or check guarantee services.
b. providing appraisal of real or personal property.
c. Excluding consumer debt and servicing loans.
d. Buying payment instruments.
Correct answer is (a). providing check cashing, check collection, or check guarantee services.
CFPB regulates service providers as well.
123
```
123.
The use of a standardized loan application is useful to the __________ because it helps the __________ gauge the __________ willingness and ability to repay the loan.
a. borrower/lender/lender's
b. lender/lender/borrower's
c. borrower/buyer/borrower's
d. buyer/borrower/buyer's
```
Correct answer is (b).
The information provided on the loan application helps the lender gauge the borrower's willingness and ability to repay the loan.
124
124.
According to Fannie Mae, how should adjustments to comparable sales be determined?
a. Adjustments cannot exceed 10%
b. Adjustments to comparables must be based on instinct
c. Adjustments must be made without regard for the percentage or amount of the dollar adjustments
d. Adjustments should be based on predetermined dollar adjustments
Correct answer is (c).
Adjustments to comparable sales must be based on market data for the particular neighborhood and for competing locations—not on predetermined or assumed dollar adjustments.
125
```
125.
Which appraisal method determines market value of a property by calculating the present worth of the future benefits of ownership of a property?
a. Competitive sales approach
b. Cost approach
c. Income approach
d. Sales comparison approach
```
Correct answer is (c).
The income approach determines market value of a property by calculating the present worth of the future benefits of a property. Methods often used are the gross income multiplier or capitalization of income.
126
```
126.
Fannie Mae and Freddie Mac use automated underwriting systems (AUS) to evaluate loans and deliver risk assessment to a lender. Fannie Mae uses:
a. DU.
b. FHA total score board.
c. LP.
d. LPA.
```
Correct answer is (a).
| Fannie Mae uses Desktop Underwriting (DU)
127
127.
Fannie Mae developed the Desktop Underwriter® system in order to:
a. approve loans at a quicker rate to meet borrower demand.
b. provide underwriting recommendations.
c. help borrowers improve their credit scores.
d. price a loan for purchase in the secondary market.
Correct answer is (b).
Desktop Underwriter does not approve loans. DU provides underwriting recommendations and underwriting reports to the lender, who uses these recommendations to approve or disapprove loans.
128
128.
Which of these are covered by a standard title insurance policy?
a. Defects in title known to seller
b. Easements and liens not shown by public records
c. Expenses incurred in defending title
d. Zoning ordinances, regulation, or plan
Correct answer is (c).
| In addition to matters of record, a standard title policy protects against the expense incurred in defending the title.
129
129.
Qualified Mortgage standards include, but are not limited to:
a. total points and fees that cannot exceed 3% of the total loan amount.
b. total points and fees that cannot exceed 4% of the total loan amount.
c. total points and fees that cannot exceed 2% of the total loan amount.
d. total points and fees that cannot exceed 3.5% of the total loan amount.
Correct answer is (a).
The Dodd-Frank Act sets certain prerequisites and affordability underwriting requirements for qualified mortgages. The CFPB final rule implements the statutory criteria, which generally prohibit loans with negative amortization, interest only payments, balloon payments, or terms exceeding 30 years from being qualified mortgages. So-called ‘‘no-doc'' loans where the creditor does not verify income or assets also cannot be qualified mortgages. Finally, a loan generally cannot be a qualified mortgage if the points and fees paid by the consumer exceed 3% of the total loan amount, although certain ‘‘bona fide discount points'' are excluded for prime loans. [CFPB - 12 CFR Part 1026 Ability to Repay and Qualified Mortgage Standards unter TIL, Final Rule]
130
```
130.
Which of the following items can a lender require to be prepaid?
a. Interest
b. Mortgage insurance premiums
c. Hazard insurance premiums
d. All of the above
```
Correct answer is (d).
A lender may require any or all of the above to be paid in advance. In addition, a borrower may need to put money into a reserve for property taxes. Since taxes and insurance are placed in impound accounts, they are not considered part of the finance charge.
131
131.
Ted is purchasing a single-family home for $300,000 and can only give a 10% down payment. Ted also has some minor problems with his credit history. Under Fannie Mae's underwriting guidelines, which of the following is most likely true?
a. Ted may face stricter underwriting guidelines due to the low down payment and flaws in his credit history.
b. Ted will face less rigid underwriting guidelines if he qualifies for an “A” paper loan.
c. Ted will be required to increase his down payment.
d. Ted's home purchase exceeds Fannie Mae loan limits.
Correct answer is (a).
Guidelines are flexible and vary according to loan program. If a borrower makes a small down payment, the guidelines are more rigid. If a borrower has marginal credit, the guidelines are more rigid. If a borrower makes a larger down payment or has sterling credit, the guidelines are less rigid.
132
132.
Of the following, which is LEAST likely to trigger the need to provide a revised GFE to the borrower?
a. The alimony the borrower receives (not included in the income analysis) will cease after she is married next month.
b. The borrower wants to change to an ARM from a fixed-rate loan.
c. Interest rate increases to 6.5% from 5.75%.
d. A co-borrower loses his job the new debt ratio makes the couple ineligible for the original loan.
Correct answer is (a).
If the loan originator can show that the alimony was never included in the analysis when issuing the original GFE, it would not be considered a changed circumstance.
133
133.
Freddie Mac is able to purchase mortgages in the secondary market by:
a. issuing mortgage-backed securities.
b. selling stock.
c. selling real estate holdings in foreign countries.
d. issuing currency.
Correct answer is (a).
Freddie Mac buys mortgages and sells them in the capital markets. It issues either mortgage-backed securities or a variety of debt instruments.
134
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134.
According to the Fannie Mae guidelines, the dollar amount of the gross 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 (d).
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.
135
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135.
What is the first month’s interest payment on a fully amortized loan of $420,000 at 4.75% interest?
a. $1,990.50.
b. $2,090.50
c. $1,668.50
d. $1,662.50
```
Correct answer is (d).
| $420,000 x 0.0475/12 = $1,662.50
136
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136.
Which is a recurring cost in a closing statement?
a. Attorney fees
b. Escrow account
c. Recording fees
d. Title insurance
```
```
Correct answer is (b).
An escrow (impound) account is a trust account for funds set aside for future, recurring costs relating to a property, such as payment of property taxes and hazard insurance.
```
137
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137.
The purchase price of a property is $125,000 with a 75% LTV first mortgage. Shortly thereafter, a $15,000 second mortgage was added. If the current market value of the property is $135,000, what is the CLTV?
a. 75%
b. 81%
c. 87%
d. 93%
```
Correct answer is (b).
The amount of the first mortgage is $93,750 ($125,000 x 75%). The combined mortgages equal $108,750 ($93,750 + $15,000). The CLTV is 80.6% ($108,750 / $135,000).
CLTV is combined loan to value ratio
138
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138.
Once the processor has made sure that the loan application and all supplemental documents are true and complete, the loan application is ready for:
a. funding.
b. signature.
c. underwriting.
d. recording.
```
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.
139
139.
HOEPA was passed in 1994. Now, High Cost Mortgages, Reform and Anti-Predatory Lending Act is addressed in Title XIV, Sub Title C. To date, it does not include:
a. purchase money mortgages.
b. open end home equity lines of credit.
c. refinances.
d. reverse mortgages.
Correct answer is (d).
| HOEPA does not cover reverse mortgages.
140
140.
Deferred interest occurs when a borrower is paying less than the full interest due. This means:
a. the difference is added to the principal amount of the loan.
b. the difference is subtracted from the principal amount of the loan.
c. there is no problem because the difference is minimal.
d. it is only a problem on a jumbo loan.
Correct answer is (a).
This loan can increase rapidly in a year’s time. If the start rate was 1%, the loan amount, $100,000., and index rate was 3%, you would add 2% of annual interest to the principal amount.
141
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141.
A loan originator was taking an application from a self-employed borrower and requested two years of tax returns. The tax returns will be used to qualify the borrower's income. When reviewing the returns, which of the following does not reduce the borrower's income?
a. Alimony
b. Depreciation
c. Auto expense
d. Rent payment
```
Correct answer is (b).
| Depreciation is not an actual expense.
142
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142.
Lenders speak of and use what three components to determine the borrower's ability and the willingness to repay debt?
a. Cash, class, and carry-over
b. Capacity, credit, and collateral
c. Capacity, character, and collateral
d. Classification, capacity, and cash
```
Correct answer is (c).
Lenders look for the borrower's ability and the willingness of the borrower to repay debt. They speak of the three Cs of credit: capacity, character, and collateral. Lenders use different combinations of the three Cs to reach their decisions.
143
143.
What government agency produces flood maps used to determine flood zone designations and whether a subject property is at risk for flood damage?
a. Various national and state topographic and geological agencies
b. Federal Emergency Management Agency
c. Environmental Protection Agency
d. U.S. Army Corps of Engineers
Correct answer is (b).
| Among other responsibilities, the Federal Emergency Management Agency (FEMA) produces flood maps.
144
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144.
Henry is processing a VA loan for Carl. Henry is sending verification letters to Carl's bank and employer to verify accounts and employment history. In addition to these letters, he sent a request for a __________ from the VA.
a. Certificate of Eligibility
b. Condition of Eligibility
c. Eligibility Certificate
d. Service Entitlement Certificate
```
Correct answer is (a).
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.
145
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145.
A Veteran is discharged from the National Guard must provide adequate documentation to indicate at least _______years of honorable service;
a. 5
b. 4
c. 6
d. 3
```
Correct answer is (c). 6 years
| This information is found in the Eligibility of National Guard/Selective Reserve requirements.
146
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146.
Rehabilitation Mortgage Insurance is available for fixed or adjustable programs. The program is entitled:
a. 203b.
b. 203k.
c. 204k.
d. 234c.
```
Correct answer is (b).
The program is 203k and can be a standard or streamlined refinance loan.
Homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser. Homeowners may make property repairs, improvements, or even prepare their home for sale .
147
147.
Which of the following is true regarding a VA-guaranteed loan?
a. Only VA-approved lenders can make VA loans.
b. VA loans are available only to individuals, not corporations.
c. Along with modern utilities, there must be vehicular access to the property.
d. All of the above are VA guidelines.
Correct answer is (d).
Only lenders who have taken the necessary steps to obtain and keep DVA-approved lender status can make VA loans. Like FHA loans, VA loans are available only for individuals and not partnerships or corporations, although co-borrowers are eligible. Along with modern utilities, there must be vehicular access to the property.
148
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148.
What type of credit score uses an A, B, C, D, and F grade level?
a. AdvantageScore
b. FICO Score
c. VantageScore
d. ZenoScore
```
Correct answer is (c).
VantageScore leverages a consistent scoring methodology across all three credit bureaus. The score range accommodates the natural A, B, C, D, and F grade levels and all scorecards are scaled consistently.
149
149.
If the appraised value of a home for which a veteran has submitted an application for a fixed-rate VA loan is less than the maximum loan guaranty, the veteran:
a. does not have to put a down payment on the purchase.
b. may need a down payment.
c. cannot afford the home.
d. can force the seller to reduce the selling price of the home.
Correct answer is (a).
With the current maximum guaranty, a veteran who has not previously used the benefit may be able to obtain a maximum VA loan with no down payment depending on the borrower's income level and the appraised value of the property.
150
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150.
The VA Certificate of Eligibility form number is:
a. Form 26-8937.
b. Form 26-8320.
c. Form 26-0285.
d. Form 26-1820.
```
Correct answer is (b).
The VA Certificate of Eligibility form #is Form 26-8320. The Automated Certificate of Eligibility is generated through WEBLGY or print screen of Prior Loan Validation.
151
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151.
Which fee would appear in section 800 (Items Payable in Connection with Loan) of the HUD-1?
a. Appraisal fee
b. Hazard insurance premiums
c. Property taxes
d. Title insurance premiums
```
Correct answer is (a).
Section 800 shows Items Payable in Connection with Loan. These are the fees that lenders charge to process, approve and make the mortgage loan, including the loan origination fee, loan discount, appraisal fee, credit report, lender's inspection fee, mortgage insurance application fee, assumption fee and mortgage broker fee
152
152.
What does Fannie Mae require a buyer of a non-owner occupied four-plex to have?
a. Proof that the property produces three times more income than the mortgage payment
b. A mortgage including PITIA that is less than the rental income
c. Buyer must have six months of reserves
d. The buyer must have sufficient savings to pay for the loans
Correct answer is (c).
When the mortgage loan being delivered to Fannie Mae is secured by a 1-4 unit investment property, the borrower must have 6 months reserves.
153
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153.
100 basis points equal 1%. Therefore, 25 basis points equal:
a. ¼ of 1%.
b. 1/8 of 1%.
c. 3/8 of 1%.
d. ½ of 1%.
```
Correct answer is (a).
| ¼ equals 25 basis points.
154
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154.
What does a credit report include?
a. Credit history
b. Inquiries
c. Public record information
d. All of the above
```
Correct answer is (d).
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.
155
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155.
Upon closing, a buyer who wishes to insure title to real property should secure a(n:
a. guarantee of title.
b. abstract of title.
c. certificate of title.
d. title insurance policy.
```
Correct answer is (d).
Title insurance is insurance that protects the policyholder from losses due to a problem in the chain of title. Typically, both the owner and the lender take out separate policies. Often, the previous owner pays for a new owner's policy and the buyer pays for the lender's policy.
156
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156.
Fannie Mae has maximum loan limits for:
a. single-family conforming loans.
b. two-family conforming loans.
c. four-family conforming loans.
d. all of the above
```
Correct answer is (d).
Fannie Mae/Freddie Mac announce new loan limits every year or as market conditions change. Fannie Mae has specific limits for single- family, two-family, three-family, four-family, and second conforming loans.
157
157.
The HUD-1 Settlement Statement shows the:
a. borrower's credit history.
b. borrower's employment history.
c. costs for the buyer to maintain the property.
d. settlement costs for the loan transaction.
Correct answer is (d).
| The HUD-1 Settlement Statement shows the actual settlement costs of the loan transaction.
158
158.
Of the following items, which is not included in the Property Information and Purpose of Loan section of Form 1003?
a. Legal description of property
b. Title information
c. Photograph of property from the street
d. Description of the land and type of improvements
Correct answer is (c).
The borrower is required to include: 1) specific identification of the property, including legal description and common address (street address); 2) title information, such as vesting, claims, encumbrances, liens, and real estate loans; 3) description of the land and type of improvements, including work that might be subject to mechanics' liens; 4) purchase price and terms, such as date purchased, taxes, zoning, and assessments; and 5) present value, which might be different from the purchase price.
159
```
159.
A reverse mortgage acronym is:
a. HPA.
b. HECM.
c. HOEPA.
d. HERA.
```
Correct answer is (b).
| Home equity conversion mortgage is a reverse mortgage.
160
160.
An extended coverage policy of title insurance exceeds the protection afforded by a standard policy in guarding against:
a. errors in the sequence of recording mortgages.
b. deeds of reconveyance issued by a minor or a person not capable to make the transaction.
c. relocation of property lines as a result of a formal survey.
d. existing easements and liens shown in public records.
Correct answer is (c).
An extended coverage policy also covers other unrecorded hazards such as outstanding mechanics' liens, tax liens, encumbrances, encroachments, unrecorded physical easements, facts a correct survey would show, and certain water claims.
161
```
161.
What form is used for the VA Income Verification Form?
a. 26-1880
b. 26-6393
c. 25-1880
d. 26-1817
```
Correct answer is (b).
| The VA Income Verification Form is #26-6393.
162
```
162.
If a borrower is charged $50 for a credit report on a HUD 1 Settlement Statement, but the actual cost was only $20. What section of RESPA was violated?
a. Section 6 (c)
b. Section 8 (b)
c. Section 9 (b)
d. Section 7 (c)
```
Correct answer is (b).
Any deviation of funds, whether it is in a credit report, flood report, hazard report, or an appraisal evaluation fee constitutes a RESPA 8 (b) violation (unearned fees).
163
```
163.
The form included in the loan package that is used to verify an applicant's employment history is the:
a. AfBA.
b. COE.
c. VOD.
d. VOE.
```
```
Correct answer is (d).
The VOE (Verification of Employment) is a form completed by the borrower's employer to confirm the borrower's employment and employment history.
```
164
```
164.
Fannie Mae and Freddie Mac both use the URAL (Uniform Residential Loan Application). Fannie Mae uses:
a. form 65.
b. form 1003.
c. form 442.
d. form 1004.
```
Correct answer is (b).
The Form number is found on the bottom right of the URAL. Freddie Mac uses form 65, which is found on the bottom left of the form.
165
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165.
A subsequent VA cash out refinance also requires a funding fee of _______.
a. 3.30%
b. 2,15%
c. 2.40%
d. 3.50%
```
Correct answer is (a).
| 3.30% This applies to both regular or reserve military.
166
166.
The term “Loan Originator” includes:
a. Mortgage Brokers.
b. Mortgage Loan Officers and Mortgage Bankers.
c. MLOs, Banks and Savings and Loans.
d. Brokers, Loan Officers, and Loan Officers at Banks and Savings and Loans.
Correct answer is (d).
| The term “loan originator” includes brokers, loan officers, and loan officers at banks and savings and loans.
167
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167.
An appraiser must go out to re-inspect property after the appraiser has called for work to be done. This form is:
a. 1003
b. 25-1805.
c. 442
d. Freddie Mac 70.
```
Correct answer is (c).
| The re-inspection form #442 is used.
168
```
168.
On what form does the Tradeoff Table appear?
a. Good Faith Estimate
b. HUD-1 Settlement Statement
c. Truth in Lending Statement
d. Uniform Residential Appraisal Report
```
Correct answer is (a).
The Tradeoff Table is on the GFE to help consumers understand the affect that settlement charges and interest rates have on monthly payments.
169
169.
Which of the following is not considered a liquid financial asset according to Fannie Mae's definition?
a. Checking or savings accounts
b. Cash value of a vested life insurance policy
c. Stock in an unlisted corporation
d. Money market funds
Correct answer is (c).
Liquid financial reserves are those liquid or near liquid assets that are available to a borrower after the mortgage loan closes. They include: checking or savings accounts; investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts; the amount vested in a retirement savings account; and the cash value of a vested life insurance policy.
170
170.
In order to comply with the Patriot Act, lenders must obtain:
a. any 2 forms of ID.
b. a state driver license with photo plus social security card.
c. a state driver license and a birth certificate.
d. a state driver license and a passport.
Correct answer is (b).
At least two forms of identification must be reviewed and documented. For applications taken in person, at least one “Primary” form of ID must be used (List A). For all other applications, any combination of Primary (List A) and Secondary (List B) IDs may be used.
171
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171.
An underwriter reviews the __________ to see if the borrower has a history of meeting payments in a timely manner according to contract terms.
a. Residential Settlement Report
b. employment
c. Residential Mortgage Credit Report
d. personal verifications
```
Correct answer is (c).
An underwriter reviews the Residential Mortgage Credit Report to see if the borrower has a credit history of meeting payments in a timely manner according to contract terms.
172
172.
Loan Prospector® is a tool that does all of the following, except:
a. give lenders access to Freddie Mac's pricing terms.
b. use statistical models based on underwriting factors.
c. take into account a borrower's capacity to repay a loan.
d. assist borrowers with credit repair.
Correct answer is (d).
Loan Prospector® (LP) is a risk assessment tool that gives lenders access to Freddie Mac's credit and pricing terms. Loan Prospector® uses statistical models based on traditional underwriting factors such as a person's capacity to repay a loan, a person's credit experience, the value of the property being financed, and the type of loan product.
173
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173.
Ted purchased a home for $145,000 and deposited $5,000 to open escrow. Excluding closing costs, he needs a total of 15% as down payment to close the transaction. How much more must be deposit into escrow?
a. $15,000
b. $16,750
c. $21,750
d. $26,750
```
Correct answer is (b).
The down payment for the property is $21,750 ($145,000 x 15%). Since he has already deposited $5,000, he needs to deposit an additional $16,750 ($21,750 - $5,000).
174
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174.
If one point raises an effective rate 1/8th% , then a 6 point discount will raise a 4 ¼ % loan to an effective rate of:
a. 4 1/4%.
b. 4 5/8%.
c. 4 7/8%.
d. 5%.
```
Correct answer is (d).
| 1 point equals 1/8%, therefore 6 points equals 6/8% or 3/4%. 4 1/4% plus 3/4% is 5%.
175
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175.
Which appraisal method determines the market value of a property by estimating the replacement cost of the improvements, deducting accrued depreciation and then adding the market value of the land?
a. Competitive sales approach
b. Cost approach
c. Income approach
d. Sales comparison approach
```
Correct answer is (b).
The cost approach estimates the replacement cost of the improvements, deducts accrued depreciation, and then adds the market value of the land.
176
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176.
During the underwriting process, the lender notices that the borrower's application states that the borrower has recently gone through a bankruptcy. This creates a concern for the underwriter, who then looks to see if the usual minimum of 2 years has elapsed since the bankruptcy was:
a. established.
b. granted.
c. filed.
d. discharged.
```
Correct answer is (d).
Bankruptcy creates particular concerns. Most lenders require that a minimum of 2 years elapse between the discharge date (not the filing date) of a Chapter 7 bankruptcy and the submission date of a loan application. The lender also requires a full explanation of the bankruptcy. Finally, the borrower must have re-established good credit.
177
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177.
The Consumer Finance Protection Bureau (CFPB) is charged with combining and simplifying the disclosures required under:
a. TILA/ RESPA.
b. MDIA/GFE.
c. MDIA/RESPA
d. TILA/GFE.
```
a. TILA/ RESPA.
178
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178.
A poor credit history is not characterized by:
a. bankruptcy.
b. collections.
c. lapsed insurance policy.
d. late mortgage payments
```
Correct answer is (c).
Typical items that indicate a poor credit history include late mortgage payments, bankruptcy, collections, judgments, federal debts, and foreclosures.
179
```
179.
The Fannie Mae Appraisal form 1025 is used for:
a. single-family property.
b. multifamily property.
c. short-sale appraisals.
d. condominiums.
```
Correct answer is (b).
| The Fannie Mae 1025/Freddie Mac 72 appraisal forms are used by appraisers for multifamily properties.
180
```
180.
The __________ is the public record of prior transfers and encumbrances affecting the title of a parcel of land.
a. abstract of title
b. chain of title
c. opinion of title
d. assessment of title
```
Correct answer is (b).
| The chain of title is the public record of prior transfers and encumbrances that affect the title of a parcel of land.
181
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181.
Only verified income can be used to analyze a Veteran’s creditworthiness. What VA form is used by the underwriter to determine the qualification?
a. 25-1805
b. 26-1880
c. 26-1817
d. 26-6393
```
Correct answer is (d).
| The underwriter uses Form 26-6393 to verify income
182
182.
If a borrower selects a settlement provider that is on the written list provided by the loan originator, then the:
a. 10% tolerance requirement is nullified.
b. charges shown on the GFE must be within the 10% tolerance.
c. charges shown on the HUD-1 must be within the 5% tolerance.
d. charges shown on the GFE must be within the 15% tolerance.
Correct answer is (b).
Under RESPA, if the lender charges more than the allowable tolerances at settlement, the borrower can file a complaint with HUD's Office of RESPA. When the originator selects and identifies the provider of services, these charges may only increase 10% in the aggregate. If the borrower selects a provider that is not on the written list provided by the loan originator, the lender is not subject to any tolerance restrictions for that service.
183
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183.
There are many kinds of insurance required by lenders. FHA requires:
a. PMI Insurance.
b. MMI Insurance.
c. Liability Insurance.
d. Errors and Omissions Insurance.
```
Correct answer is (b).
| FHA government-backed loans require Mutual Mortgage Insurance (MMI).
184
```
184.
For FHA mortgage loan underwriting purposes, what percentage of business ownership is required for a person to be considered self-employed?
a. 5%
b. 10%
c. 25%
d. 40%
```
Correct answer is (c).
For FHA mortgage loan underwriting purposes, a borrower with a 25% or greater ownership interest in a business is considered self-employed.
185
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185.
To determine a borrower's ability to repay a maximum loan amount, the underwriter uses __________ ratios to calculate the risk of default on the part of the borrower.
a. income-to-value
b. internal rate of return
c. debt-to-income
d. borrower-lender
```
Correct answer is (c).
A lender calculates the maximum loan amount for which a borrower qualifies. To determine the borrower's ability to repay the loan, the underwriter uses debt-to-income ratios to calculate the risk that the borrower will default.
186
186.
TILA disclosures include aggregate costs of settlement changes, amounts paid to creditors, and the total amount of interest paid during the loan term. These disclosures must be made:
a. 72 hours after receipt of loan application.
b. 3 business days after receipt of loan application.
c. 3 days after receipt of loan application.
d. the following day.
Correct answer is (b).
| The TILA disclosures must be made within 3 business days after receipt of loan application.
187
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187.
Which of the following is the lender's primary security for repayment of a real estate loan if the borrower defaults?
a. Borrower's personal assets
b. Property
c. Borrower's promise to pay
d. Promissory note
```
Correct answer is (b).
Real property is the primary collateral for a real estate loan and acts as the security for repayment of the loan in case the borrower defaults. The second section of the application describes the property used as collateral for the loan and states the purpose of the loan.
188
188.
As of July 29, 1999, HPA requires a servicer to automatically terminate PMI for residential mortgage transactions when the principal balance of the mortgage is:
a. 75% of the current value of the secured property.
b. 78% of the original value of the secured property.
c. 80% of the original value of the secured property.
d. 80% of the appraised value of the secured property.
Correct answer is (b).
The Homeowners’ Protection Act (HPA) requires a servicer to automatically terminate PMI for residential mortgage transactions on the date that the principal balance of the mortgage is first scheduled to reach 78% of the original value of the secured property.
189
189.
The Mortgage Disclosure Improvement Act (MDIA) time lines, prevents a lender from collecting any fees with the exception of ______________ until the borrower has acknowledged the disclosure.
a. the credit report
b. credit report and the appraisal report
c. origination fee
d. origination fee and credit report
Correct answer is (a).
The Credit Report
Statement of fact.
190
```
190.
Typically, a loan package includes:
a. the loan application.
b. RESPA disclosures.
c. verifications.
d. both (a) and (c).
```
Correct answer is (d).
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.
191
191.
What is the interest adjustment on the HUD-1 Statement?
a. It is considered a transfer charge
b. It is a prepaid item required by the lender
c. It is a reserve requirement
d. It is a reduction in the amount due to the seller
Correct answer is (b).
Line 901 is used if interest is collected at settlement for a part of a month or other period between settlement and the date from which interest will be collected with the first regular monthly payment.
192
192.
The underwriter is NOT concerned with confirming that the borrower's:
a. employer has signed a Verification of Employment.
b. salary or wages are consistent with the amount stated on the application.
c. overtime or bonus income is likely to continue.
d. residence has been at the same location for at least ten years.
Correct answer is (d).
The underwriter checks the probability that the applicant's employment will continue with the current employer, the dates of employment are consistent with those stated on the application, that the employer has signed the verification of employment, that the salary/wages are consistent with those stated on the application, that the applicant has been employed at the current location for at least 2 years, and that overtime/bonus income is likely to continue.
193
193.
A borrower applied for a 90% first deed of trust with a mortgage loan originator. In addition, the borrower arranged with the seller to carry back a 10% second mortgage without telling the loan originator. When the loan originator found out about this arrangement, he called the borrower's real estate broker, who told the loan originator to “Just make it work.” The loan originator should:
a. disclose the seller financing on the application.
b. “fix” the loan.
c. tell the seller that a silent second loan is illegal.
d. talk to the AE.
Correct answer is (a).
| By disclosing the seller financing on the application, the lender can decide whether to underwrite the loan.
194
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194.
The sales price is $300,000 with 100% VA financing for 30 years fixed at 4% with a funding fee of 2.5%. The P and I payment is $1,468, taxes are 1.25% of loan amount, the insurance is .0035 of the loan amount, and the monthly debt is $700. What would the monthly taxes on this property?
a. $320.31
b. $321.20
c. $312.50
d. $304.69
```
Correct answer is (c).
| $300,000 x .0125/12 =$312.50.
195
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195.
If the MLO receives 1.5% of the loan amount as compensation, how much will the buyer have towards closing costs if the yield spread premium is 2.5% of $200,000?
a. $3,000
b. $2,000
c. $5,000
d. $1,000
```
Correct answer is (b).
Yield spread premium is $5,000 (2.5% of $200.000). Commission is $3,000 (1.5% of $200,000). Buyer’s closing costs are $2,000 ($5,000 - $3,000)
Yield spread premium-commission=closing cost
196
196.
Fannie Mae guidelines cover financing for which of the following properties?
a. Agricultural property
b. Commercial property
c. Condominium units
d. Land specifically designed for dairy farming
Correct answer is (c).
Through a nationwide network of Delegated Underwriting and Servicing (DUS™) and other lenders, FNMA provides financing for apartment buildings, condominiums, or cooperatives with five or more individual units.
197
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197.
What is the acronym for Home Equity Loan?
a. ECOA
b. HEL
c. HELOC
d. MDIA
```
Correct answer is (b).
| HEL stands for home equity loan
198
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198.
An underwriter must be able to assess a borrower's __________ and __________ to repay a debt.
a. ability/worthiness
b. agility/willingness
c. ability/willingness
d. ability/ethics
```
Correct answer is (c).
The underwriter determines whether the borrower has the ability and willingness to repay the debt and if the property to be pledged as collateral is adequate security for the debt.
199
199.
Fannie Mae is able to circulate funds back into the market by:
a. offering competitive financing to prospective borrowers.
b. purchasing subprime loans.
c. purchasing jumbo loans.
d. purchasing loans that meet FNMA guidelines.
Correct answer is (d).
Fannie Mae buys loans from lenders who conform to FNMA guidelines, and, by doing so, puts money back into the system, so lenders can make more home loans.
200
200.
Which of these is not covered by title insurance?
a. Loss due to a missing signature of a spouse on a deed to community property
b. Unpaid county property tax not shown in the policy
c. Easement shown in the policy
d. Zoning ordinance or regulations
Correct answer is (d).
| Generally, title insurance does not cover regulations like zoning laws or ordinances.
201
201.
The purpose of title insurance is to:
a. protect against loss of the investment in a property due to a defective title.
b. cover any losses that may occur because of the buyer's negligence.
c. protect against any loss due to forces of nature.
d. protect the lender and the borrower against any loss caused by fire.
Correct answer is (a).
Title insurance was created in response to the need for reliable assurance of title combined with an insurance against loss caused by errors in searching records and reporting the status of title.
202
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202.
All of the following are sections of the FNMA/FHLMC Form 1003, except:
a. Declarations.
b. Details and Defamations.
c. Acknowledgement and Agreement.
d. Employment Information.
```
Correct answer is (b).
The sections of the FNMA/FHLMC Form 1003 include I. Type of Mortgage and Terms of Loan, II. Property Information and Purpose of Loan, III. Borrower Information, IV. Employment Information, V. Monthly Income and Combined Housing Expense Information, VI. Assets and Liabilities, VII. Details of Transaction, VIII. Declarations, IX. Acknowledgement and Agreement, and X. Information for Government Monitoring Purposes.
203
203.
The primary goal of the Safe Act is to provide:
a. consumer education and protection.
b. consumer protection and transparency.
c. consumer protection, transparency and education.
d. consumer education.
Correct answer is (c).
| The primary goal of the Safe Act is to provide consumer protection, transparency and education.
204
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204.
Most popular FHA Program is the:
a. 201
b. 203b.
c. 203k.
d. HECM.
```
Correct answer is (b).
| Most popular FHA Program is the Standard 203b with 3.5% down.
205
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205.
Before lenders accept an application for a VA-guaranteed loan, they must be sure that the DVA has determined that the applicant is an __________ veteran.
a. edible
b. eligible
c. ineligible
d. elitist
```
Correct answer is (b).
Before lenders accept an application for a VA-guaranteed loan, they must be sure that the DVA has determined that the applicant is eligible. The DVA evaluates each applicant to see if the applicant meets the eligibility criteria established by law.
206
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206.
The DVA guidelines state that applicants who filed Chapter 7 bankruptcy are eligible __________ after the date of discharge.
a. 1 year
b. 2 years
c. 3 years
d. 4 years
```
Correct answer is (b).
The DVA guidelines state that applicants who filed Chapter 7 bankruptcy are eligible 2 years after the date of discharge.
207
207.
An FHA 203b loan has ratios of 31/43; however, housing can frequently exceed 31% DTI, but the total 43, cannot. The front-end ratio includes:
a. principal and interest.
b. principal, interest, taxes, insurance, and medical insurance.
c. principal, interest, taxes, insurance, and MMI.
d. principal, interest, taxes, insurance, MMI, and debt.
Correct answer is (c).
| Debt is only included on the back end ratio.
208
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208.
Experian®, TransUnion™, and Equifax® are:
a. real estate lenders.
b. title companies.
c. credit bureaus.
d. software programs.
```
Correct answer is (c).
Experian®, TransUnion™, and Equifax® are the three major credit bureaus that collect data independently and use the data to create consumer credit reports.
209
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209.
A __________ is a credit score calculated by the Fair Isaac Corporation.
a. FIC Score
b. FICO Score
c. FIO Score
d. VantageScore
```
Correct answer is (b).
The best-known type of credit score is the Fair Isaac or FICO® score. FICO scores are credit scores calculated by the Fair Isaac Corporation.
210
210.
What is the amount of the typical prepayment penalty borrowers are charged on any prepayment that is greater than 20% of the loan balance?
a. 6 months' interest
b. Full balance of the loan
c. 50% of the home loan balance
d. Interest equal to the number of months remaining on the home loan
Correct answer is (a).
Many conventional non-conforming loans carry prepayment penalties. A typical prepayment penalty is equal to 6 months' interest on any prepayment that is greater than 20% of the loan balance.
211
211.
Pre payment penalties, when allowed per Dodd/Frank cannot exceed:
a. 2% of the outstanding loan amount during the first year of the loan.
b. 3% of the outstanding loan amount during the first year of the loan.
c. 1% of the outstanding loan amount during the first year of the loan.
d. 2.5% of the outstanding loan amount during the first year of the loan.
Correct answer is (b).
| 3% the first year, 2% second year, 1% third year, after that, no prepayment.
212
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212.
If borrower Brenda makes $5,000 a month, to meet 29/41 qualifying ratio guidelines, her maximum monthly housing cost should be around:
a. $1,450.
b. $1,600.
c. $1,750.
d. $2,050.
```
Correct answer is (a).
| $5,000 x 29% = $1,450.
213
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213.
Seller concessions on a VA Loan may not exceed ________% of established reasonable value.
a. 6%
b. 5%
c. 4%
d. 3%
```
Correct answer is (c).
| Seller concessions on a VA Loan may not exceed 4% of established reasonable value. See VA sellers concessions.
214
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214.
Advantages of VA-guaranteed loans include:
a. a low down payment.
b. lenient qualifications.
c. no loan charges.
d. no minimum property requirements.
```
Correct answer is (b).
The advantages of VA-guaranteed loans include no down payment (in most cases), lenient qualifications, reasonable loan charges, no PMI or MMI, VA minimum property requirements, variety of loans available, assumable mortgage if VA approves the consumer's credit, and no prepayment penalty.
215
215.
Sometimes the value on the Certificate of Reasonable Value is less than the purchase price. Which of the following actions is not allowed?
a. The veteran can make up the difference in cash.
b. The seller may reduce the selling price of the home.
c. The transaction can be cancelled.
d. The seller can carry back a second for the difference between the sales price and the value indicated on the CRV.
Correct answer is (d).
If the value on the Certificate of Reasonable Value is less that the purchase price, the veteran can make up the difference in cash, the seller may reduce the selling price of the home, or the transaction can be cancelled. The seller cannot carry back a second loan for the difference between the sales price and the value indicated on the CRV
216
216.
When would an Affiliated Business Arrangement (AfBA) Disclosure be required?
a. An owner of the escrow company refers the buyer to a title company in which the escrow company owner has an interest
b. A real estate broker gives the buyer the names of the few painting companies
c. The mortgage loan originator reminded the buyer to obtain adequate hazard insurance and provided a list of companies in the area
d. All of the situations would require an AfBA disclosure
Correct answer is (a).
An Affiliated Business Arrangement (AfBA) Disclosure is required whenever a settlement service provider involved in a RESPA-covered transaction refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest.
217
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217.
Annual PMI is calculated by dividing the loan by 100 and then multiplying it by the PMI factor. What is the monthly premium for a $240,000 loan with a factor of 30%?
a. $720.00
b. $360.00
c. $60.00
d. $120.00
```
Correct answer is (c).
| $240,000 divided by 100 x 0.3 = $720. $720 divided by 12 months = $60 monthly premium for a $240,000 loan.
218
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218.
John is Paula's lender. His goal is to match Paula's financial situation and payments to a loan product she can afford. Paula wants her loan fully repaid at maturity, with equal monthly payments, and periodic reduction of the principal. What will John recommend to Paula?
a. Balloon amortized loan
b. Fully amortized loan
c. Partially amortized loan
d. Straight loan
```
Correct answer is (b).
A fully amortized loan is fully repaid at maturity by periodic reduction of the principal. When a loan is fully amortized, the payments the borrower makes are equal over the duration of the loan.
219
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219.
A(n) _________ of title is a written statement by an attorney or title agent determining whether the property is encumbered or has clear and marketable title.
a. abstract
b. certificate
c. guarantee
d. opinion
```
Correct answer is (d).
An opinion of title is a written statement by an attorney or title agent determining whether the property is encumbered or has clear and marketable title.
220
220.
What is the minimum hazard insurance coverage required by Fannie Mae if the insurable value is $100,000 and the unpaid balance is $75,000?
a. 100% of the unpaid balance of the loan
b. 80% of the property's insurable value
c. 100% of the insurable value of the property
d. 80% of the property's purchase price
Correct answer is (b).
Fannie Mae Selling Guide B7-3-03 and B7-3-03 show how to calculate the minimum hazard insurance required. 80% of the insurable value is $80,000, which is GREATER THAN the unpaid principal balance ($75,000). According to the formula, Fannie Mae will require 80% of the property's insurable value. If the unpaid principal balance of the mortgage loan is less than the insurable value of the improvements, calculate 80% of the insurable value of the improvements. If the result of this calculation is equal to or less than the unpaid principal balance of the mortgage, the unpaid principal balance is the amount of coverage required. If the result of this calculation is greater than the unpaid principal balance of the mortgage, this calculated figure is the amount of coverage required.
221
221.
Loans covered under Title XIV of the Dodd/Frank act are defined as “Residential Mortgage Loans”. They are defined as:
a. consumer credit transactions under an open end credit plan.
b. extensions of credit for time-share plans.
c. transactions secured by a mortgage.
d. transactions secured by a mortgage or a deed of trust.
transactions secured by a mortgage or a deed of trust.
Correct answer is (d).
See Title XIV Dodd/Frank
222
222.
Under TILA, the Right of Rescission applies to:
a. purchase money deeds of trust.
b. refinancings of owner occupied dwelling, or equity loans (1 to 4 units).
c. purchase money deeds of trust or mortgages.
d. equity loans only.
Correct answer is (b).
Under TILA, the right to rescind (cancel) a real estate loan applies to most consumer credit loans (hard money loans) or refinance loans. Loans used for the purchase or construction of the borrower’s personal residence (purchase money loans) have no right of rescission.
223
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223.
The estimate of settlement charges on a GFE must be made available for at least _________ business days.
a. 3
b. 7
c. 10
d. 15
```
Correct answer is (c).
While there are no restrictions on the amount of time an interest rate must remain available, the estimate for all other settlement charges must be available for at least 10 business days.
224
```
224.
Property taxes are paid in:
a. advance.
b. arrears.
c. collections.
d. installments
```
Correct answer is (b).
b. arrears.
Property taxes are paid in arrears (at the end of each tax period).
225
```
225.
The greater the borrower's __________, which lowers the LTV ratio, the less risk the loan is to the lender.
a. income
b. down payment
c. mortgage insurance
d. collateral
```
Correct answer is (b).
| Larger down payments lower the LTV ratio on the loan and reduce risk to the lender.
226
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226.
At what LTV may a borrower ask that PMI is cancelled?
a. 70%
b. 75%
c. 80%
d. 85%
```
Correct answer is (c).
Effective July 29, 1999, the federal Homeowner's Protection Act (HPA) allows the cancellation of private mortgage insurance by sending a written request. The borrower may ask for cancellation of PMI when the mortgage balance reaches 80% of the original value of the property. However, the borrower must have a good payment history and the value of the home must not have declined. The lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage.
227
227.
Those who participate in the secondary mortgage market include:
a. entities that purchase mortgages through issuing debt instruments.
b. financial intermediaries who originate loans.
c. entities that do not originate loans.
d. both (a) and (c).
Correct answer is (d).
Participants in the secondary market purchase existing loans. They do not originate the loans, but buy them with funds they have acquired by issuing bonds or other types of debt instruments.
228
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228.
Title XLV, subtitle C of the Mortgage Reform and Anti- Predatory Act, addresses high cost mortgages. The acronym is:
a. HOEPA.
b. HPA.
c. MDIA.
d. ECOA.
```
Correct answer is (a).
| Subtitle C amended HOEPA and deals with high cost home loans.
229
229.
The continuing education MLO survey course covers:
a. 2 hours ethics, 3 hours SAFE Act, and 3 hours federal fraud.
b. 2 hours mortgages, 2 hours fraud, 3 hours Dodd-Frank Act, and 3 hours ethics.
c. 3 hours ethics, 2 hours federal law, 1 hour non-traditional mortgages, and 2 hours electives.
d. 3 hours Federal law, 2 hours ethics, 2 hours nontraditional mortgages, and 1 hour elective.
Correct answer is (d).
The continuing education MLO survey course covers 3 hours Federal law, 2 hours ethics, 2 hours nontraditional mortgages, and 1 hour elective.
230
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230.
When obtaining a VA-guaranteed loan, a veteran must:
a. pay a funding fee.
b. make a sizeable down payment.
c. pay MIP.
d. select a fixed-rate loan.
```
Correct answer is (a).
| Although the DVA requires that veterans only pay reasonable charges for the loan, the VA funding fee is required by law.
231
```
231.
Which of the following is the most a Veteran may pay for the present VA loan formula?
a. $60,000.00
b. $104,260.00
c. $417,000.00
d. No maximum
```
orrect answer is (d).
| Although VA loan guarantee is limited to 25% of 417,000 ($104,260), the Veteran may pay more with added cash.
232
```
232.
Under Title IX of the Dodd-Frank Act, who is responsible for the implementation and enforcement of the SEC Rules that apply to NRSROs, conduct annual examinations of the NRSROs, impose penalties for violations of the law, and issue public reports on the results of its examinations?
a. Office of Credit Ratings
b. HUD
c. CFPB
d. NMLS
```
Correct answer is (a).
The acronym “NRSRO” stands for Nationally Recognized Statistical Rating Organizations that are registered with the SEC (Securities Exchange Commission). The Office of Credit Ratings (OCR) monitors the activities and conducts examinations of registered NRSROs to assess and promote compliance with statutory and Commission requirements.
233
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233.
At closing, the borrower receives the package of closing documents, some of which must be signed before a(n):
a. attorney.
b. city official.
c. court judge.
d. notary.
```
Correct answer is (d).
| At closing, the borrower receives the package of closing documents, some of which must be signed before a notary.
234
234.
Only verifiable income can be considered in total effective VA income. The following work/time verification is required:
a. minimum of 24 months (may include training), standard income.
b. minimum of 2 years overtime or part time.
c. minimum of 1 year for a second job.
d. continuance of 4 years of public assistance.
Correct answer is (b).minimum of 2 years overtime or part time. OR
minimum verification of 1 year of standard employment. per VA
235
```
235.
Which Government Sponsored Enterprise (GSE) currently participates in the secondary mortgage market, but was initially chartered by Congress in 1970 to help stabilize the mortgage markets and support home ownership and affordable rental housing?
a. Fannie Mae
b. Freddie Mac
c. Ginnie Mae
d. Munie Mae
```
Correct answer is (b).
Freddie Mac is a major participant in the secondary mortgage market. It is currently regulated by the Federal Housing Finance Agency.
236
236.
Regarding prepayment penalties, Title XIV of the Dodd Frank Act:
a. limited any pre-payment penalties.
b. prohibited any pre-payment penalties.
c. allowed 8 months interest.
d. limited the amount to $2,000.
Correct answer is (a).
| After Title XIV there are no prepayment penalties on high cost mortgages.
237
```
237.
Bob's gross monthly income is $4,000. He currently pays $1,400 per month for a 3-bedroom house and has no other obligations except a $300 car payment. Based on this information, would Bob qualify for a $1,300 PITI FHA loan?
a. Yes, Bob meets both ratios.
b. No, Bob only meets the front ratio.
c. No, Bob only meets the back ratio.
d. No, Bob does not meet either ratio.
```
Correct answer is (c).
Unfortunately, Bob meets the back ratio, but exceeds the front ratio. $1,300 ÷ $4,000 = 32.5% (front ratio. $1,600 ($1,300 + $300) ÷ $4,000 = 40% (back ratio).
238
```
238.
If a lender wants to originate more loans, it can ______________ its underwriting and property guidelines.
a. loosen
b. tighten
c. advertise
d. ignore
```
Correct answer is (a).
A lender may decide to stop lending on second homes or may require a larger down payment. If the lender wants to originate more loans, it loosens its underwriting and property guidelines. Conversely, it tightens the standards to decrease lending activity.
239
```
239.
A loan processor does not usually:
a. order the appraisal.
b. order the credit report.
c. send out employment, income, and bank account verifications.
d. fund the loan.
```
Correct answer is (d).
The loan processor orders an appraisal of the property and a credit report on the borrower. The processor also sends out the necessary verification letters to confirm the borrower's employment, income, bank accounts and other liquid assets, and any other claims made by the borrower that need verification.
240
```
240.
The percentage of the borrower's monthly gross income that is used to pay housing costs, including principal, interest, taxes, insurance, and mortgage insurance is the __________ ratio.
a. back
b. forward
c. front
d. end
```
Correct answer is (c).
The front ratio is the percentage of the borrower's monthly gross income (before taxes) that is used to pay housing costs, including principal, interest, taxes, and insurance (PITI). When applicable, it also includes mortgage insurance and homeowner's association fees.
241
241.
The reason for inclusion of the Verification of Deposit (VOD) in the loan package is to confirm the:
a. borrower's credit score.
b. status and balance of the borrower's bank accounts.
c. borrower has a stable job.
d. borrower pays revolving accounts on time.
Correct answer is (b).
The Verification of Deposit (VOD) is a form completed by the borrower's bank to confirm the status and balance of the borrower's bank accounts.
242
```
242.
An underwriter is evaluating the front ratio on a borrower's loan. The borrower has a monthly gross income of $5,000. If the underwriter determines that the maximum payment the borrower qualifies for under the loan's guidelines is $1,450, what is the maximum front-end ratio allowed on the loan?
a. 28%
b. 29%
c. 36%
d. 41%
```
Correct answer is (b).
| To calculate the front ratio, divide PITI by the borrower's gross monthly income ($1,450 ÷ $5,000 = 29%).
243
```
243.
If a homeowner does not have the required hazard insurance, what type of insurance will the lender purchase?
a. Accommodation insurance
b. Force placed insurance
c. Lender-only insurance
d. Temporary insurance
```
Correct answer is (b).
Force placed insurance is insurance coverage obtained by a lender to protect its security interest in a property where the borrower is unable to renew existing coverage.
244
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244.
When calculating the back ratio, a lender uses the monthly PITI plus any consumer debt. Which of the following is considered consumer debt?
a. Car payments
b. Credit card payments
c. Installment loans
d. All of the above
```
Correct answer is (d).
The back ratio is the total monthly PITI and consumer debt divided by the gross monthly income. Consumer debt can be car payments, credit card debt, installment loans, and similar expenses.
245
```
245.
Max wants to increase the initial equity he has in a property. In order to do so, he should allocate more money towards the __________ the property.
a. maintenance of
b. upgrades for
c. down payment for
d. insurance for
```
Correct answer is (c).
| The down payment is the initial equity the borrower has in the property.
246
```
246.
A loan applicant has a monthly income of $10,000 with recurring monthly debt of $1,000. If the loan guidelines state that the DTI ratio cannot exceed 40%, how much is available for PITI?
a. $3,000
b. $4,000
c. $6,000
d. $9,000
```
Correct answer is (a).
The maximum debt including a mortgage can be $4,000 ($10,000 x 40%). Therefore, the PITI cannot exceed $3,000 ($4,000 - $1,000).
247
247.
Jane's loan package is almost complete. She wants to use alternative loan documentation for her rental property loan payments. What eligible documentation can she submit with her application?
a. Any credit report reference for the last 6 months
b. Credit report reference for the last 12 months
c. Canceled checks for the most recent 4-month period
d. Documented telephone verification
Correct answer is (b).
Alternative documentation that a borrower can submit as verification of home loan payments includes a credit report reference for the last 12 months, a home loan payment history for the last 12 months, or a copy of all canceled checks for the most recent 12-month period.
248
248.
Which of the following is an interest only loan?
a. $8,000 at 10%, 5 years, $391 payment
b. $15,000 at 9%, 3 years, $480 Payment
c. $1,000 at 11%, 5 years, $391 Payment
d. $25,000 at 12%, 6 years, $250 Payment
Correct answer is (c).
A borrower with a 25% or greater ownership interest in a business is considered self-employed for loan underwriting purposes.
249
```
249.
A borrower with a __________ or greater ownership interest in a business is considered self-employed for loan underwriting purposes.
a. 15%
b. 20%
c. 25%
d. 30%
```
orrect answer is (c).
A borrower with a 25% or greater ownership interest in a business is considered self-employed for loan underwriting purposes.
250
```
250.
Sandy is shopping for a loan to purchase a lakefront home. She informed one lender that she wants a fully amortized loan and can make a high monthly payment. Furthermore, her payments must apply more money in the early months to the principal. In addition, she wishes to reach free and clear ownership quickly. What fully amortized loan will this lender suggest to meet Sandy's loan needs?
a. Interest-only fixed-rate loan
b. 15-year fixed-rate loan
c. Straight loan
d. 30-year fixed-rate loan
```
Correct answer is (b).
A 15-year fixed-rate loan is repaid twice as fast because the monthly payment is higher. More money applies to the principal in the early months of the loan, which cuts the time it takes to reach free and clear ownership. Additionally, the borrower pays less than half the total interest cost of the traditional 30-year loan.
251
```
251.
Interest is 3.5% on a $300,000 loan, for 30 years. What is the per diem interest if a 360-day banker’s year is used?
a. $29.17
b. $28.77
c. $875
d. $2,916.67
```
Correct answer is (a).
| 300,000 x 3.5% divided by 360 is $29.17
252
252.
In the Property Information and Purpose of the Loan section of the Uniform Residential Loan Application, if it is being completed for an income producing property, the lender may request that the borrower include information regarding:
a. vacancy and collection loss for several years.
b. operating expenses and income for several years.
c. the current balance of the property's reserve fund.
d. None of the above
Correct answer is (b).
= If the property is income producing (apartment or commercial buildings), the lender will want information about operating expenses and income for several years, as well as how any negative cash flow will be covered.
253
253.
The SAFE Act stands for :
a. Safe and Fair Enforcement for Mortgage Loans Act.
b. Safe and Fair Enforcement of Mortgage Loan Originators Act.
c. Secure and Fair Enforcement for Mortgage Licensing Act.
d. Secure Federal Enforcement of Mortgage Lenders Act.
Correct answer is (c).
| The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 is known as the SAFE Act.
254
254.
Why would a lender require a title company to provide them with a 24-month chain of title?
a. The lender is checking for patterns of flipping property
b. The lender is checking for unrecorded liens
c. The policy costs less if it only indicates one owner
d. None of the above are correct
Correct answer is (a).
Some lenders and loan programs only allow one other individual to own the property in the last year. Banks look at the flipping of properties very closely. If a property is flipped too many times, they may decline the loan. There are reported cases of properties being sold to buyer A, then to buyer B, then to buyer C, then back to buyer A, and then to buyer D. All the parties were related in some manner and this fraudulently drove the price and demand up for the property.
255
255.
What is the main difference between the GFE and the HUD-1?
a. The GFE is given at closing and the HUD-1 is given at application
b. The charges on the GFE are actual, whereas those on the HUD-1 are estimates
c. The charges on the GFE are estimated, whereas those on the HUD-1 are actual
d. The only difference between the GFE and the HUD-1 is the timing of their delivery
Correct answer is (c).
The GFE estimates the settlement charges. At settlement, the HUD-1 form lists the actual costs. The GFE is given at the time the application is taken; whereas, the HUD-1 is given at closing.
256
256.
How does an underwriter assess a borrower's capacity or financial ability to repay a mortgage?
a. Check the borrower's family history for wealthy ancestors
b. Utilize debt-to-income ratios
c. Examine the borrower's credit history
d. Ensure that the loan is backed by sufficient collateral
Correct answer is (b).
A borrower's financial ability to repay a mortgage is one of the three determining factors of credit. In general, capacity is assessed using the debt-to-income ratios.
257
257.
Which of the following attributes is not associated with Fannie Mae?
a. Helping others achieve homeownership
b. Providing funds to prospective borrowers
c. Assisting lenders with home loan funds
d. Secondary market participant
Correct answer is (b).
Fannie Mae does not lend money directly to homebuyers. Instead, it works with lenders to make sure they do not run out of available funds, so more people can achieve the dream of homeownership.
258
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258.
In addition to salary income, a borrower is using rental income to qualify for a loan. The rental income is $960 per month. According to FNMA guidelines, how much can be used to help the borrower qualify for the loan?
a. 50% or $480
b. 60% or $576
c. 75% or $720
d. 100% or $960
```
Correct answer is (c).
Fannie Mae calculates the net rental income as 75% of the gross rent from the lease agreements. The remaining 25% is absorbed by vacancy losses and ongoing maintenance expenses. Fannie Mae Guidelines.
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259.
If a regular military veteran wants a guaranteed loan of $350,000 at 100% financing, his funding fee, which can be added to the loan, is:
a. 2.4%.
b. 2.15%.
c. 3.3%.
d. 1.5%
```
b. 2.15%.
Correct answer is (b).
This information is found on the VA Funding Fee Schedule.
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260.
John Brown makes $31 per hour, 40 hours per week, and has had his job for 6years. Mary, his wife, earns $19 per hour, 40 hours per week and has had her job for 3 years. His monthly income is:
a. $3,640.00
b. $4,960.00
c. $5,373.00
d. $5,166
```
Correct answer is (c).
| $31 x 40 hours x 52/12 = $5,373.33.
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261.
If a Veteran puts 5% down on a purchase price of $417,000., what loan amount will be financed if the funding fee of 1.5% is included?
a. $396,150
b. $417,000
c. $5,942.25
d. $402,092.25
```
Correct answer is (d).
| $417,000 x .95% = $396150. $396,150 x .015= $5942.25. $396,150 + $5,942.25 = $402,092. 25.
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262.
The Homeowners Bill of Rights prevents lenders from:
a. dual tack foreclosures.
b. relaxing rules of mortgage servicers seeking non-judicial foreclosures.
c. easing liability to mortgage servicers.
d. allowing lenders to file notices of default, notices of sale, and conduct trustee sales.
Correct answer is (a).
| The Homeowners Bill of Rights prevents lenders from dual tack foreclosures.
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263.
Which of the following is not included in the Monthly Income and Combined Housing Expense Information section of the Uniform Residential Loan Application?
a. Intangible Assets
b. Income
c. Rents
d. Royalties
```
Correct answer is (a).
The Monthly Income and Combined Housing Expense Information section of the Uniform Residential Loan Application informs the lender about the borrower's current income and proposed housing expense. It includes other income such as rents, annuities, and royalties.
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264.
Rachel has a $4,500 gross monthly income. She currently pays $1,000 per month for her apartment and $400 for her car payment and credit cards. She is thinking of buying a small house using a conforming loan. Based on a debt-to-income ratio of 28/36, what is the maximum monthly payment she will qualify for based on her salary and expenses?
a. $1,220
b. $1,260
c. $1,620
d. $2,000
```
Correct answer is (a).
Rachel qualifies for a $1,220 monthly PITI payment. $4,500 Monthly Income x .28 = $1,260 allowed for housing expense. $4,500 Monthly Income x .36 = $1,620 allowed for housing expense and recurring debt. The maximum monthly payment would be $1,220. ($1,620 - $400 recurring debt = $1,220.)
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265.
A lender may agree to a rate commitment with the borrower. This means that the borrower may lock in an interest rate and number of points:
a. after the processor closes the loan.
b. during the processing of the loan.
c. only during the lender's office hours.
d. before filing an application.
Correct answer is (b).
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.
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266.
The minimum down payments for an FHA 203b loan is:
a. 10%
b. 5.00%
c. 3%
d. 3.50%
```
Correct answer is (d).
| The minimum down payments for an FHA 203b loan is 3.5%.
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267.
Computation of late fees on monthly residential mortgages is limited to:
a. 3%of monthly principal and interest payment.
b. 4% of monthly principal and interest payment.
c. 4% of monthly principal, interest, taxes and insurance payment.
d. 5% of monthly principal and interest payment.
b. 4% of monthly principal and interest payment.
Correct answer is (b).
Used to be 4 to 6% on residential (1 – 4) property.
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268.
Fred is ready to purchase a home and is considering various types of available loan products. His credit history is excellent. As a stockbroker, Fred's income is tied to his job performance. Once Fred builds his client base, he expects his income to grow. What is an ideal Freddie Mac loan product for Fred?
a. Adjustable-rate mortgage
b. Fixed-rate loan
c. Affordable Merit Rate® Mortgage
d. Community Home Buyer's Program™
```
Correct answer is (a).
Freddie Mac's adjustable-rate mortgages (ARMs) help borrowers maximize their home buying power with lower interest rates. ARMs offer flexibility for borrowers who relocate frequently or expect their income to increase within the next couple of years.
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269.
The selling price of a single-family residence is $130,000 and as part of the transaction, the seller agrees to pay 3% for closing costs. If the actual closing costs are $4,200, how much will the seller pay?
a. $300
b. $3,900
c. $4,200
d. $8,100
```
Correct answer is (b).
| The seller's 3% closing costs are $3,900 ($130,000 x 3%).
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270.
The index on a $100,000 loan is 3%. The interest rate is 5.5% with an annual cap of 2% and a lifetime of 9%. What is the margin on this loan?
a. 2%
b. 2.50%
c. 6%
d. 5%
```
Correct answer is (b).
| Add index to margin. 3 + 2.5 = 5.5%
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271.
If a VA Purchase Contract is $340,000 and the funding fee is 1.75%, what is the total loan amount?
a. $340,950
b. $345,950
c. $346,960
d. $345,960
```
Correct answer is (b).
| $340,000 x .0175 = $5,950 plus $340,000 = $345,950.
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272.
The __________ ratio is the percentage of the borrower's monthly gross income towards paying any housing costs and PITI.
a. front
b. back
c. loan-to-value
d. debt-to-income
```
Correct answer is (a).
The front ratio is the percentage of the borrower's monthly gross income (before taxes) that is used to pay housing costs, including principal, interest, taxes, and insurance (PITI).
273
273.
FHA Section 251 provides insurance for FHA ARMS for 1-4 residential units with 3.5% down. The Section 251 program allows specific interest rate adjustments and caps. Which of the following statements in incorrect?
a. The 1-year ARMs allow a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5-percentage point interest rate cap over the life of the loan.
b. The 3-year ARMs allow a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5-percentage point interest rate cap over the life of the loan.
c. The 5-year ARMs allow a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5-percentage point interest rate cap over the life of the loan.
d. The 7-year ARMs allow a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5-percentage point interest rate cap over the life of the loan.
Correct answer is (d).
The 1, 3, and 5- year ARMs allow a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5-percentage point interest rate cap over the life of the loan. The 7 and 10 year ARMs allow a 2% annual interest rate adjustment after the initial fixed interest rate period, and a 6-percentage point interest rate cap over the life of the loan.
274
274.
Which of the following sources of funds for the down payment is acceptable for an FHA loan?
a. Money borrowed against household goods
b. Gift from a relative
c. Money borrowed from a neighbor
d. Cash advances on credit cards
Correct answer is (b).
Gift funds must be from an approved source. Funds cannot be borrowed from signature loans, cash advances on credit cards, borrowing against household goods and furniture and other similar unsecured financing.
275
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275.
What type of credit score leverages all three credit bureaus and uses an A, B, C, D, and F grade level?
a. AdvantageScore
b. FICO Score
c. FIO Score
d. VantageScore
```
Correct answer is (d).
VantageScore is the first score of its kind to leverage a consistent scoring methodology across all three credit bureaus to deliver highly predictive and easy to understand risk scores. The score range accommodates the natural A, B, C, D, and F grade levels and all scorecards are scaled consistently.
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276.
Which of the following, if listed on an appraisal report prepared by an FHA-approved appraiser, must be remedied prior to closing the loan?
a. Damaged or worn out counter tops
b. Cracked window glass
c. Leaking or worn out roof
d. All of the above
```
Correct answer is (c).
At one time, the FHA required that even minor defects in the property's condition needed to be remedied prior to closing the loan. Now, the FHA allows “as is” appraisals and requires repairs for only those property conditions that are not cosmetic defects, minor defects, or normal wear and tear.
277
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276.
Which of the following, if listed on an appraisal report prepared by an FHA-approved appraiser, must be remedied prior to closing the loan?
a. Damaged or worn out counter tops
b. Cracked window glass
c. Leaking or worn out roof
d. All of the above
```
Correct answer is (c).
Margins on loans range from 1.75% to 3.5% depending on the index and the total amount financed in relation to the property value. When the margin is added to the index, the result is known as the fully indexed rate on the loan.
278
What is included on a front ratio and how is it calculated?
PITIA= Principal, Interest, Taxes, Insurance, Association Fees (HOA when applicable)
Front ratio= PITIA/Gross monthly income
279
What is included on a back ratio and how is it
| calculated?
Back ratio= PITIA + Consumer Debt/Gross monthly income
PITIA= Principal, Interest, Taxes, Insurance, Association Fees (HOA when applicable)
Consumer debt can be
• Car payments
• Credit card debt
• Installment loans
• Etc.
Auto or life insurance are NOT considered debt.
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What are the front and back ratios for Conforming loans
Conforming loans use 28% front ratio and 36% back ratio (28/36)
281
What are the front and back ratios for FHA loans
FHA uses 31% front ratio and 43% back ratio (31/43)
282
What are the front and back ratios for VA loans
VA only uses back ratio of 41% as a guideline
283
What are the front and back ratios for a non-conforming loan?
Non-conforming loans have very flexible DTI ratios
284
How do you calculate Loan to Value
LTV= Loan amount/Property Value
| Loan amount=Property Value * LTV
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Why is LTV important?
The lender wants to be protected from a loss as a result of default. The lower the LTV means the lower the risk. With an LTV of 80%, the lender can feel reasonably safe it because there is a 20% cushion between the loan amount and the value of the property.
286
What is the Commerical Paper Funding Facility?
Commercial Paper Funding Facility (CPFF) was a system created by the United States Federal Reserve Board during the Global financial crisis of 2008 to improve liquidity in the short-term funding markets
287
VA Funding fee for 100% guarantee for 1st time buyer? Subsequent time buyer?
The fee, currently 2.15% on no down payment loans for a first-time use, is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding fee for second time users who do not make a down payment is 3.3%. The idea of a higher fee for second time use is based on the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a down payment.
288
VA Funding for 90-95% guarantee for 1st time buyer? Subsequent time buyer?
down payment of at least 5 percent but less than 10 percent requires a 1.5% fee for both 1st and subsequent users
289
VA Funding for 90 % of less guarantee for 1st time buyer? Subsequent time buyer?
and down payment of 10% or more requires a 1.25% fee for first and subsequent buyers
290
What is the fee schedule for Reserves/National Guard.
Down payment Fee
0% 2.4%
5-10% 1.75%
10%+ 1.5%
291
Fee for VA interest rate reduction loans
.50% and it is 1.0% Manufactured Home Loans
