Mortgage Loan Origination Activities Flashcards
1
Q
Regulation Z offers two different definitions for the term “business day”; often referred to as the “Business Day Rule” and the “More Precise Business Day Rule”. The “Business Day Rule” defines business day as day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. The “Business Day Rule” applies to all of the following disclosures EXCEPT the required number of business days
A
before consummation after a revised Loan Estimate is given to the consumer.
2
Q
An item claimed on a self-employed applicant’s tax returns ________ may be disallowed as income and deducted from total income.
A
for a one-time event
3
Q
When evaluating rental income that is not reported on current tax returns, the lender will use a portion of the gross rental income. The amount of the portion that can be used is
A
75%.
4
Q
Which of the following BEST describes how income is to be evaluated when considering it as a condition to approve or deny a mortgage loan?
A
The lender evaluates the amount of income and the likelihood the income will continue.
5
Q
Sara has been on her job for 10 years. She has a pay stub dated 9/30 with year-to-date income totaling $46,637.50. She received a raise on June 30th, and she always works 40 hours a week. The bi-weekly gross pay on her current pay stub was $2,625.00. What is the monthly income derived from the most aggressive approach that the underwriter may accept?
A
$5,687.50
6
Q
What is the second largest component of a credit score?
A
amounts owed
7
Q
Bob wants to refinance his mortgage and pay off his credit cards without using any personal funds. He owes $75,000 on his first mortgage, $10,000 on his second mortgage, and $3,000 in credit card debt. What would his appraisal value need to be if his closing costs are $4,000 and he qualifies for an 80% LTV?
A
$115,000
8
Q
When title insurance is requested to protect the lender’s interest in a subject property, it is generally called a(n)
A
mortgagee’s policy.
9
Q
The Fannie Mae Selling Guide sets forth requirements for who must sign the security instrument that is part of a mortgage loan transaction. Which of the following is NOT one of the signature requirements?
A
Only persons who have an ownership interest in the security property and also have his/her income used in qualifying for the mortgage must sign.
10
Q
When looking at the loan origination fees paid to the lender/creditor listed in Section A of a Closing Disclosure and comparing the same charges on the Loan Estimate, what is the tolerance for change between the two disclosures?
A
zero
11
Q
Which of the following is NOT a loan disclosure that a lender can provide on a Closing Disclosure?
A
right of lender to change insurance payment
12
Q
At mortgage loan settlement or at least ___ days from settlement, the borrower must receive an Initial Escrow Statement that itemizes the estimated taxes, insurance premiums, and other charges anticipated to be paid from the escrow account during the first 12 months of the loan.
A
45
13
Q
To calculate per diem interest, what calculation should lender Lucy use?
A
Loan amount x note interest rate / days per year
14
Q
Two different definitions for the term “business day” are set forth in Regulation Z; often referred to as the “Business Day Rule” and the “More Precise Business Day Rule”. The “Precise Business Day Rule” defines business day as all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). The “Precise Business Day Rule” applies to all of the following EXCEPT for the required number of business days
A
for providing the consumer with the initial Loan Estimate.
15
Q
Which of the following is a type of liability that is NOT considered to be a reoccurring debt or expense?
A
monthly cable payment
16
Q
What source of income CANNOT be used when qualifying a borrower for a loan?
A
income from a raise expected within a year
17
Q
To determine net worth, subtract ________ from ________.
A
liabilities; total assets
18
Q
Which is the correct formula to use an hourly wage/rate when determining the borrower’s gross monthly income?
A
hourly rate x weekly hours worked x 52 / 12
19
Q
Sally earns $17.20 per hour and typically works 40 hours per week. What is her gross monthly income?
A
$2,981.33
20
Q
Which of the following type of income must NOT be used to qualify for a mortgage loan?
A
one-time capital gains payments on investments
21
Q
A homeowner is refinancing his home loan. What might cause the loan balance shown on the credit report to be different from his payoff?
A
prepayment penalties
22
Q
Steven would like to refinance his second mortgage and obtain an additional $5,000 to replace his roof. His house appraises for $90,000. His first mortgage is $37,000 and his second is currently $7,200. What combined loan-to-value (CLTV) does Steven need in order to reach his goals if the closing costs are $2,200?
A
57%
23
Q
Jacob and Jeremy share part of a driveway. To ensure that each can enjoy use of the driveway and share the maintenance costs, they most likely have what type of easement?
A
easement by agreement
24
Q
The Fannie Mae Selling Guide sets forth requirements for the use of a power of attorney (POA) in obtaining required signatures on a security instrument. Though there are specific exceptions to the requirements, which of the following does NOT accurately reflect a requirement for the use of a POA in most circumstances involved with security instrument signatures?
A
The title agency closing the loan is often used as the POA signer on a security instrument.
25
What document indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments?
mortgage note
26
The ____ clause is a clause in a legal document that states that in the event a stated condition has been fulfilled, the document becomes null and void.
defeasance
27
Lisa is applying for a loan to purchase a home. Under the terms of Reg Z, how long will Lisa have to rescind the loan after she signs the loan closing documents?
0 days; there is no right of rescission
28
A borrower receives a corrected Closing Disclosure due to a change in the loan product on Wednesday, December 24th. What is the earliest date the borrower can possibly close the mortgage loan?
Monday, December 29th.
29
Generally, a lender will not consider installment loan debt with less than ____ payments remaining, except for leases, which always count regardless of how few payments remain.
10
30
A Schedule C is the form used to determine the sole proprietor's income for underwriting purposes. Income for self-employment should be averaged over the last ____ year(s).
two
31
All of this financial information may be included in a borrower's income analysis EXCEPT
sporadic overtime and bonuses.
32
A borrower who is paid $250 gross per week will have a qualifying monthly income of how much?
$1,083.33
33
Cory has been on his job for just under one year. He typically works 42 hours a week making $16 an hour and time and a half for overtime. What is the gross monthly income used to qualify Cory?
$2,773.33
34
Consumer credit reporting agencies generally keep Chapter 13 bankruptcies on a person's credit report for ____ years from the date the bankruptcy was filed.
seven
35
Which of the following represents the formula for calculating the loan-to-value ratio?
Loan Amount / Lesser of Sale Price or Appraised Value
36
The relationship of the borrower's gross monthly income to his total monthly housing expense expressed as a percentage is called the
housing expense ratio.
37
When a mortgage loan meets the criteria of a higher-priced mortgage loan and the price reflected in the consumer's purchase agreement exceeds 10% of the seller's original acquisition price during the first ___ days, creditors are required to obtain a second appraisal.
90 days
38
Which of the following will ALWAYS appear in Section B of both the Loan Estimate and Closing Disclosure as a service a borrower cannot/did not shop for?
lender's title insurance policy
39
In explaining fees to a borrower, which of the following is NOT a prepaid fee that is subject to an unlimited tolerance for change when compared to the same fees on the Loan Estimate?
transfer taxes
40
The _____ clause is the clause in a promissory note that gives a lender the right to declare the entire loan balance due immediately when a borrower defaults or violates other contract provisions.
acceleration
41
Phil is refinancing the mortgage loan secured by his home that is his primary residence. After he signs the loan papers, how much time does he have to change his mind?
3 business days
42
Discount points are
charged to buy down the interest rate on the loan.
43
The Ability to Repay Rule does not need to be applied if the
Loan is temporary or a bridge loan for 12 months or less
44
The relationship of the borrower's total monthly debt obligations (including PITI and long-term debts) to income, expressed as a percentage is referred to as the _____ ratio.
Debt to income
45
Unless there is a signed waiver, a lender must provide an applicant a copy of an appraisal developed in connection with a mortgage loan application promptly upon completion of the report or ______ of a closed-end credit transaction.
3 business days prior to consummation
46
Which form is used most frequently for residential appraisals?
Uniform Residential Appraisal Report
47
An appraiser has been contracted to determine the value of a large apartment building for a potential investor. Which appraisal method is probably the most useful for this situation?
Income Approach
48
An appraiser is BEST defined as
A person who estimates the value of property, especially an expert qualified to do so by education and experience
49
Keith is interested in a particular house. The MLO estimates that, given the down payment and the current interest rate, the monthly mortgage payment (PITI) would be $1,020. Keith's gross stable monthly income is $3,500. What is his housing expense ratio?
29%
50
Which of the following is the formula for calculating a housing expense ratio?
Total Housing Expense / Gross Monthly Income
51
A reduction in a property's value resulting from a decline in physical condition (sometimes caused by the weather or by ordinary wear and tear) is called
Physical Deterioration
52
Which of the following BEST describes the purpose of an appraisal?
Help the lender determine whether the collateral is sufficient security for the loan
53
The market appraisal approach only considers
Past sales that have actually closed
54
Paul is completing an appraisal for Fannie Mae. What is the minimum number of comps he needs to consider when using the market approach?
3 Comps
55
The income approach used in obtaining an appraisal may determine value based on
Rental rates of similar competing properties
56
If Wanda is appraising the value of unusual or special purpose properties that have few or no comparables, what appraisal approach should she use?
Cost approach
57
The formula for calculating a borrower's debt-to-income ratio is
Total Debt / Gross Monthly Income
58
LuAnn has a stable monthly income of $2,500 and the house she wants to buy would have a total monthly housing expense of $600. What is her housing expense ratio?
24%
(Use the formula: Total Housing Expense / Gross Monthly Income = Housing Expense Ratio; $600/$2,500 = .24 or 24%)
59
As set forth by the ATR/QM Rule, to receive safe harbor from liability, a creditor must generally verify and consider eight types of information when establishing the borrower's ability to repay a mortgage loan. Which of the following IS one of the eight types of information that must be considered?
Credit history
60
Which of the following is TRUE regarding adjustable-rate mortgages when qualifying a borrower under the Ability to Repay Rule?
Lenders must use the higher of either the fully indexed rate or introductory rate
61
Which statement BEST describes the cost appraisal approach?
Using plans, specs, and building material costs to determine the total cost to rebuild the property per square foot, plus the site value, and subtracting depreciation
62
What is the most common appraisal approach used in appraising single-family housing?
Market approach
63
Jake has $3,000 in stable gross monthly income. For a conventional loan, what is the maximum total debt allowed?
$1,080
(Use the formula: DTI Ratio x Gross Monthly Income = Total Debt; $3,000 X 0.36 = $1,080. The maximum total debt allowed for Jake is $1,080.)
64
Sue has $5,000 in stable gross monthly income and her total debt is $1,000. What is her debt-to-income ratio?
20%
(Use the formula: Total Debt / Gross Monthly Income = DTI Ratio; $1,000/$5,000 = .20 or 20%)
65
When must an MLO provide a mortgage loan applicant with a disclosure that informs the applicant of his right to receive a copy of the appraisal report used to underwrite the loan?
3 business days after receipt of a complete application
66
A _____ informs parties to a real estate transaction of current property ownership and lien information without providing an exhaustive search.
Preliminary title report
67
Fannie Mae and Freddie Mac require private mortgage insurance on home loans with less than what percentage down?
20%
68
A servicer must deliver to a borrower or place in the mail a written notice requesting the borrower provide hazard insurance information for the borrower's property at least ___ days before a servicer assesses the borrower a fee for force-placed insurance.
45
69
An Up Front Mortgage Insurance Premium does NOT apply to which of the following loan programs?
VA guaranteed loans
70
If a home is in a federally designated Special Flood Hazard Area, the lender will require specific flood insurance
For the life of the loan, as long as it remains in a Special Flood Hazard Area
71
Which statement is FALSE as it relates to hazard (or homeowners) insurance coverage included with a mortgage loan?
A lender should not provide a new homeowner with the lender requirements for hazard insurance until the loan closing
72
Which statement about the MIP on FHA-insured loans is TRUE?
A portion of it could be refunded if the loan is refinanced withing three years
73
With an FHA-insured loan, the Mortgage Insurance Premium (MIP) will remain
For the life of the loan if the LTV ratio at loan consummation is greater than 90%
74
Title insurance protects the title during what time period?
From the time the land was first registered to the time of closing
75
A standard form of title insurance policy does NOT protect against loss resulting from
Encroachment on the property
76
When a mortgage loan meets the criteria of a higher-priced mortgage loan and the price reflected in the consumer's purchase agreement exceeds ___ of the seller's original acquisition price during the first 91-180 days, creditors are required to obtain a second appraisal.
20%
77
The minimum amount of flood insurance required for first mortgages can be the lowest of the following EXCEPT
90% of the purchase cost of the insurable value of the improvements
78
If all other conditions have been met and a new lender-approved appraisal shows that the loan has been paid down to _____ or less, a lender must drop PMI coverage at a borrower's request.
80%
79
A mortgage lender must automatically cancel private mortgage insurance when a home has been paid down to 78% of its original value or has attained ____equity based on the original value, assuming the borrower is not delinquent.
22%
(The Homeowners Protection Act of 1998 requires lenders to automatically cancel PMI when a home has been paid down to 78% of its original value or has attained 22% equity based on the original value, assuming the borrower is not delinquent)
80
When providing private mortgage insurance, the mortgage insurance insurer shares the lender's risk, but only part of the risk. The insurer typically insures the upper portion of the loan that exceeds the standard ___ LTV.
80%
81
_____ is offered by private companies to insure a lender against default on a loan by a borrower where there is a loss of collateral value at the time of the default.
Private mortgage insurance
82
In certain risk categories assigned by FEMA, known as a ________, mortgage loan borrowers are required to purchase flood insurance if federally-guaranteed financing is utilized for buildings and property.
Special Flood Hazard Area
83
The requirements for appraisal independence set forth by Regulation Z, allow a lender to ask an appraiser all of the following EXCEPT to
Report a specific property value
84
The lender must determine whether or not the property is located in a Special Flood Hazard Area by using the Standard Flood Hazard Determination form endorsed by FEMA. No flood insurance is required in areas labeled
Zone C or Zone X
85
What risk is private mortgage insurance intended to cover?
Loss of collateral value at time of default
86
For a mortgage loan to be eligible for sale to a secondary market participant, the flood insurance policy must be a standard policy issued under the ____ or a policy issued by a private insurer as long as the terms and amount of coverage are at least equal to that provided under a _____ policy based on a review of the full policy issued by a private insurer.
National Flood Insurance Program
87
An appraisal
Is an opinion of value based on objective data
88
Settlement agent Angie is organizing the real estate transfer documents for a closing meeting. Which of the following is NOT a real estate transfer document?
Loan Application
89
A mortgage creates a(n)
Voluntary Lien
90
When Jake purchases a house, he gets a mortgage. The mortgage is recorded May 1. Jake builds a deck in July and then goes to Hawaii for several months. He doesn't pay the contractor or his property taxes. His property goes to foreclosure. Generally speaking, in what order will the liens be paid?
Tax lien, mortgage lien, mechanic's lien
91
A ____ is the instrument conveying real property ownership from grantor to grantee that serves as evidence of title.
Deed
92
A lien is a _____ that is described as a nonpossessory financial interest in property.
Financial encumbrance
93
What term is BEST defined as any claim, lien, charge, or liability that affects or limits the fee simple title to real property?
Encumbrance
94
_____ is BEST defined as a nonpossessory interest and an encumbrance on property that grants the right to use another person's real property for a particular purpose.
Easement
95
What document would NOT be required at a mortgage loan closing?
Annual Escrow statement
96
The term that describes a second mortgage holder agreeing to remain in second position in a refinance transaction is
Subordination
97
Which of the following is NOT an expense typically shown on the Closing Disclosure as being directly paid out of an escrow account tied to the mortgage loan transaction?
Closing Costs
98
What is the name of the clause in a contract that obligates a creditor to release a property from a lien and convey title to that part back to the debtor once certain provisions of the note or mortgage have been satisfied?
Reconveyance Clause
99
An option that debtors have to avoid foreclosure is to make a voluntary conveyance to the lender, also called
Deed in Lieu Of Foreclosure
100
What is the clause in a contract that gives the lender certain stated rights when there is a transfer of ownership in a property?
Due on Sale
101
An 80/20 combo loan with the sales price of $175,000, a rate of 6% for the 80% first mortgage, and a rate of 8.5% for the 20% second mortgage will have a first mortgage loan amount of
$140,000
(The first mortgage is 80% of the sale price: $175,000 x 80% = $140,000.)
102
A borrower signs the note and mortgage for a refinance on his principal residence on Thursday, Dec. 31. What is the earliest day the funds for this loan can be disbursed (assuming no bona fide financial hardship)?
Wednesday Jan, 6
(For transactions subject to the Regulation Z right of recession, consumers can exercise the right to rescind until midnight of the third business day following loan consummation, delivery of the required rescission notice, or delivery of all material disclosures, whichever occurs last. Federal holidays and Sundays do not count toward the three business-day rescission period)
103
A borrower with a gross income of $3,000 per month qualifies for a housing payment of what amount--including taxes and insurance--using a conventional conforming mortgage ratio requirement?
$840
(Conventional lenders consider a borrower's income adequate for a loan if the proposed total mortgage payment of PITI does not exceed 28% of stable monthly gross income. $3,000 x .028 = $840)
104
With a fixed-rate mortgage loan, the loan amount (principal) is $50,000 and the annual simple interest paid is $5,500. What is the note interest rate tied to this loan?
11%
(To calculate the interest rate, you take the annual interest amount paid ($5,500) and divide by the loan amount ($50,000) = .11 or 11%.)
105
The minimum down payment on an FHA loan is 3.5% for a borrower with a FICO score of at least 580. Assuming the borrower has a FICO score of 580 or above, the minimum down payment contribution needed for a home with an FHA-appraised value of $132,000 is
$4,620
(The minimum down payment on an FHA loan is 3.5% for a borrower with a FICO score of at least 580; ($132,000 X 3.5% = $4,620).)
106
A loan with a 2/1 buydown, a current market rate of 6.5%, and a start rate of 4.5% would have a payment based on what rate in month 30?
6.5%
(This 2/1 buydown starts at 2% below the end rate for year one, adjusts in year two, and reverts to the end rate for years three through 30 (4.5% + 2% = 6.5%).)
107
The seller accepts a buyer's offer of $161,500 to buy a home. The appraisal on the property comes in at $163,000. If the lender requires an LTV of 80%, how much is the lender willing to lend?
$129,000
(The lender will use the sales price of $161,500 to consider the loan because it is less than the appraised value. Use the formula: LTV x Lesser of Sale Price or Appraised Value = Proposed Loan Amount. With an LTV of 80%, the buyer could borrow $129,200: $161,500 x .80 = $129,200.)
108
Stan makes an offer of $105,000 on a house that was appraised for $112,000. If the seller accepts his offer, how much will Stan have to pay down on an FHA-insured loan assuming he has a FICO score above 580 and a 3.5% down payment is required?
$3,675
(An FHA-insured loan requires at least a down payment of 3.5% of the home's purchase price or appraised value, whichever is less. $105,000 x .035 = $3,675.)
109
Assume a loan amount of $235,000 with a note rate of 6.25%. What is the prepaid interest charge (rounded) per each day (per diem) if a borrower's loan funds on September 13 and September has 30 days in the month, so there are 18 days from the day of funding to October 1?
$40.24
($235,000 loan amount x .0625 interest rate = $14,687.50 annual interest. $14,687.50/365 days per year = $40.2397 per diem interest charge; $40.24 rounded.)
110
Lois is looking at a house with a sale price of $180,000 and an appraised value of $175,000. What is the most the lender will finance on a conventional 80% loan for this property?
$140,000
(The loan-to-value ratio is based on the lower of the appraised value or the sale price: 80% x $175,000 = $140,000.)
111
Rodney's stable monthly income is $7,200 and he has the following monthly bills: credit card, $150; car payment, $325; and child support, $500. How much can he afford for a house payment (including PITI), if qualifying ratios are 28%/36%?
$1,617
(Using the front-end housing expense ratio: $7,200 X 28% = $2,016 is the maximum mortgage PITI payment. Using the back-end DTI ratio: $7,200 X 36% = $2,592 is the maximum debt allowed. $2,592 maximum debt minus $975 debt = $1,617 maximum mortgage PITI payment. When both ratios are used, Rodney must qualify under both ratios, so the lower figure ($1,617) is the maximum monthly mortgage PITI payment he can afford.
112
What is the monthly mortgage insurance payment on a $180,000 loan using a multiplier of 0.65%?
$97.50
(Multiply the loan amount by 0.65% ($180,000 x 0.0065 = $1,170) and remember to divide by the 12 monthly payments ($1,170 / 12 = $97.50).)
113
You are pre-qualifying Amy for a purchase loan. She has debt equaling $950 each month and gross monthly income totaling $5,200 each month. The lender you will place the loan with allows debt ratios of 28% for housing ratio and 36% total debt to income. What is the maximum house payment, including principal, interest, taxes, and insurance that Amy qualifies for?
$922
(Two calculations need to be done: $5,200 x 28% = $1,456, then $5,200.00 x 36% = $1,872 - $950 = $922. Lenders require the lower of the two calculations.)
114
Lester's stable monthly income is $6,800. Every month he pays: $485 car payment, $200 revolving credit payment, and $1,500 alimony. What is the maximum monthly mortgage payment he would qualify for on an FHA-insured mortgage loan?
$739
(Using the front-end housing expense ratio: $6,800 X 31% = $2,108 is the maximum mortgage PITI payment. Using the back-end DTI ratio: $6,800 X 43% = $2,924 is the maximum debt allowed; $2,924 maximum debt allowed minus $2,185 of other monthly debts = $739 maximum mortgage PITI payment. When both ratios are used, Lester must qualify under both ratios, so the lower figure ($739) is the maximum monthly mortgage PITI payment he can afford.)
115
A borrower is purchasing a home for $120,000 and closing costs total 4% of the loan amount. The seller has agreed to contribute half of the buyer's closing costs. How much cash does the borrower need at closing in order to obtain an LTV of 85%?
$20,040
(The borrower needs 15% of the $120,000 purchase price, or $18,000 plus the additional 2% (half of the 4% closing costs) of the loan amount(120,000 - 18,000 = 102,000), or $2,040 for closing costs that the seller is not providing. $18,000 + $2,040 = $20,040.)
116
The seller accepts a buyer's offer of $205,000 to buy a home. The appraisal on the property comes in at $200,000. If the lender requires an LTV of 80%, how much is the lender willing to lend?
$160,000
(The lender will use the appraisal value of $200,000 to consider the loan because it is less than the sales price. Use the formula: LTV x Lesser of Sale Price or Appraised Value = Proposed Loan Amount. With an LTV of 80%, the buyer could borrow $160,000: $200,000 x .80 = $160,000.)
117
Thomas is applying to refinance his mortgage. His first mortgage is $25,000 at a 9% rate. He plans to get cash out, up to $40,000. He qualifies for an 80% LTV and his house appraises for $100,000. Shortly before closing, the title exam shows $23,000 in mechanics liens. Closing costs total $6,000. How much cash will he receive at closing?
$26,000
($100,000 X 80% = $80,000 - $25,000 - $23,000 - $6,000 = $26,000.)
118
Bill wants to buy a house that is selling for $160,000 and the lender has approved him for an 80% conventional loan. What would be the required down payment?
$32,000
(Bill needs to make a 20% down payment of $32,000 ($160,000 x .20))
119
A borrower's stable monthly income is $3,000. He has three monthly debts: $350 car payment, $50 personal loan payment, and $50 credit card payment. What is the maximum monthly mortgage payment he would qualify for using the total debt-to-income ratio of 36% for a conventional loan?
$630
(Total DTI ratio is calculated as: $3,000 (income) multiplied by 0.36, which equals $1,080. From the $1,080, subtract monthly debts ($350 + $50 + $50), which totals $630.)
120
If Wendy pays $500 for P&I every month for 30 years on her $110,000 loan, how much interest will she pay over the life of the loan?
$70,000
(500 x 12 months = $6,000; $6,000 x 30 years = $180,000 total payment; $180,000 minus $110,000 principal = $70,000 interest.
121
In a month with 30 days and a purchase closing on the 15th day of the month, how many days of interest would the title agent be required to collect?
16
(Interest must be collected for the number of days left in the month including the day the loan was funded.)
122
A loan program that has a single ratio of 45% would allow a borrower with $65,000 in annual income and $490 in monthly consumer debt payments to qualify for what principal and interest payment on a home with escrow requirements of $360 monthly?
$1,587
(First determine the gross monthly income ($65,000 / 12 = $5,416). Now, determine the maximum debt ratio allowed ($5,416 x 45% = $2,437). Subtract the current debt to determine what monthly payment for which the borrower would qualify: $2,437 - $490 - $360 = $1,587.)
123
Marylou obtains a $300,000 mortgage loan a 5/1 interest-only ARM with a 10 year balloon at a 3% start rate, a 2% margin, and 2/6 caps. The initial monthly payment for the loan is $750. On the anniversary date of the loan, the index being used adjusts as follows: Year 1: 2.50% (initial year); Year 2: 2.75%; Year 3: 3.25%; Year 4: 3.50%; Year 5: 3.75%; Year 6: 3.00%; Year 7: 2.80%; Year 8: 5.00%; Year 9: 6.50%; Year 10: 7.50%. What is the highest monthly payment attainable during the life of Marylou's loan?
$2,250
(The lifetime cap for this loan is 6%. Add 6% to 3% start rate = 9.00% maximum interest rate. $300,000 x .09 / 12 = $2,250 monthly payment maximum.)
124
When points are paid to a lender to reduce the interest rate and loan payments for the entire life of the loan, it is called a(n)
Permanent buy down
125
What type of appraisal has a value based upon what the property value would be when the listed repairs are finished?
Subject to Appraisal
126
Joe has a property that appraises for $189,000. His first mortgage rate is 4.75% and his second mortgage rate is 15%. He has decided that he wants to leave his $53,000 first mortgage alone and only refinance the second. He qualifies for an 85% CLTV. His second mortgage is for $25,000 but he wants cash to finish his basement. How much cash is available if his closing costs are $1,500?
$81,150
($189,000 x 85% = $160,650 - $53,000 - $1,500 - $25,000 = $81,150. Even though Joe wants to leave his first mortgage alone, it must be subtracted. If it isn't, you are giving the customer too much cash: $134,150 added to the first mortgage leaves an LTV of 99%; the maximum is 85%.)
127
Mortgage applicant Ellen has received a Loan Estimate from lender XYZ. Ellen has ____ days from when the Loan Estimate was provided to respond; otherwise, lender XYZ is no longer bound by the terms.
10
128
In order to complete an appraisal for a construction loan, what specific information does the appraiser need from the builder?
Plans and specs of the project
129
A buydown paid to reduce the borrower's payments early in the loan is called a(n)
Temporary buydown
130
What document does the Veterans Administration use to determine the property value for a mortgage loan?
CRV
(The VA uses a Certificate of Reasonable Value to determine the property value. The VA orders an appraisal from which it determines the property's value, and then issues the Certificate of Reasonable Value.)
131
How many months does a FICO Score consider a credit inquiry in the calculation?
12 months
132
A borrower is buying a house with a sales price of $200,000 and an LTV of 75%. If he paid $3,000 in points, how many points does that represent?
2
(With an LTV of 75%, the loan for this purchase is $150,000. On a $150,000 loan, a point costs $1,500 (150,000 x .01), so the borrower paid for two points ($3,000).)
133
In an explanation of mortgages and lien position, which statement is FALSE?
A HELOC is an example of a mortgage that is typically in the highest senior position
134
Johnny obtains a $300,000 mortgage loan a 5/1 interest-only ARM with a 10 year balloon at a 3% start rate, a 2% margin, and 2/6 caps. The initial monthly payment for the loan is $750. On the anniversary date of the loan, the index being used adjusts as follows: Year 1: 2.50% (initial year); Year 2: 2.75%; Year 3: 3.25%; Year 4: 3.50%; Year 5: 3.75%; Year 6: 3.00%; Year 7: 2.80%; and Year 8: 5.00%. What will be Johnny's monthly payment in year 8?
$1,700
(Normally the interest rate would be calculated by adding the margin to the index rate. In this case that would result in an interest rate of 7.00% (2% + 5%). However, since the periodic cap is 2% and the interest rate in year 7 is 4.80% (2% + 2.80%), the interest rate in year 8 cannot adjust higher than 6.80%. This results in a monthly payment of $1,700; $300,000 x .068 / 12.)
135
Which of the following documents will need to be provided by the seller's lender at the closing meeting?
Discharge of mortgage
136
The document that presents a final, detailed list of the fees and financial accounting of the mortgage loan is known as the
Closing Disclosure
137
For the purposes of a VA-guaranteed loan, what is not subtracted to determine residual income?
W-2 Income
138
William has an adjustable-rate mortgage (ARM). It has an initial interest rate of 6%, adjusted annually with a 2/5 interest rate cap. If the index goes up, what is the most that William's interest rate can increase to over the life of the loan?
11%
(With a 2/5 interest rate cap, the second number shows the maximum increase in the interest rate over the life of the loan. Even if the increase in interest, according to the standard index, is greater than 5%, the interest rate adjustment for the life of the loan is capped at 5% above the initial interest rate. The highest interest rate possible would be 11% (6% + 5% = 11%).)
139
If a buyer buys a $100,000 home and gets an $80,000 mortgage loan at an interest rate of 8%, how much is 4 points?
$3,200
(A point is 1% of the loan amount, so $80,000 x .01 = $800 per point. Four points is $3,200 (800 x 4).)
140
The acquisition cost of a property is $220,000 (sale price is $215,000 and the closing costs are $5,000) and the loan amount is $200,000. The seller is paying $2,000 of the closing costs. What is the total amount the borrower will need to bring to closing if the earnest money is $1,000 and is being credited on the Closing Disclosure at closing?
$17,000
($220,000 - $200,000 - $2,000 - $1,000 = $17,000.)
141
John wants to get a loan to buy a house. Which source of income is LEAST LIKELY to be considered durable?
Temporary unemployment benefits
142
A borrower is buying a house for $150,000 at 6.5%. He provides a down payment of $15,000. How much would he have to pay for three discount points?
$4,050
(A point is 1% of the loan amount, so $135,000 x .01 = $1,350 per point. Three points is $1,350 x 3 = $4,050.)
143
Marian has an adjustable-rate mortgage loan that has an initial interest rate of 4%. The margin on the loan is 2%. If the index is 5% in the second year, what is the interest rate charged to Marian?
7%
(The interest rate adjusts up and down based on the index, but the margin remains the same (2%). If the index is 5% interest rate, add the margin to find the interest rate: 5% + 2% margin = 7% interest rate charged.)
144
A title search typically starts with a _______ search to ensure the person or company claiming to own the property does legally have full ownership of the property.
Chain of title
145
MLO Josh must provide a(n) _____ when quoting an interest rate and terms to a consumer who has inquired about mortgage loan interest rates.
Corresponding annual percentage rate
146
For a self-employed person applying for a mortgage loan, what document identifies net worth by itemizing assets and liabilities?
Financial statements
147
When a consumer calls an MLO with an inquiry about mortgage loan products and terms, what is the name of the process that the MLO can complete that is non-binding on the part of the MLO but allows the MLO to collect basic information to let the consumer know if it looks favorable that she will be approved?
Pre-Qualification
148
Section 5a in the Declaration section of the URLA is where the borrower answers questions about the subject property and finances for the loan. What information is NOT to be included in Section 5a?
The borrower records loan information such as the loan amount, purpose and address
149
When an MLO receives an inquiry related to mortgage loan interest rates, a corresponding annual percentage rate (APR) must be provided to the inquiring consumer at the same time a rate quote is delivered. What document can be used as a tool for explaining the APR to an applicant?
Loan Estimate
150
What is the form number of the Uniform Residential Loan Application?
1003
151
What type of form can be used by an MLO to verify down payment funds that an applicant has listed on the URLA?
Verification of Deposit Form
152
On Form 1003, what section is a lender to record information about the mortgage loan that she believes most suitable based on the application information provided by the prospective borrower?
Section L3: Mortgage Loan Information
153
Potential borrower Lily will have submitted a complete mortgage loan application that requires an MLO to provide application disclosures required by federal laws once it includes her
Name, Social Security number, income, the loan amount sought, estimate of property value, and property address to be financed
154
A borrower of a mortgage loan secured by a principal residence may use donated funds from acceptable entities to fund all or part of a mortgage loan. Donated funds from an acceptable entity are referred to as a grant. All of the following statements about grants are true EXCEPT
Grants are allowed on a second home or an investment property
155
Mortgage loan applicant Wyatt can use a real estate _________to provide an accurate property address to complete his mortgage loan application.
Purchase Agreement
156
If the applicant chooses not to identify his ethnicity, race, or sex on an application taken in person, the lender is to
Identify the applicant's ethnicity, race, and sex on the basis of visual observation or surname
157
As part of the loan application process, there are specific activities that are defined as "offering and negotiating the terms of a loan" that do require a person to have an MLO license. Which of the following activity IS a loan negotiating activity that requires Erin to have an MLO license?
Erin offers a revised interest rate to a consumer who wants to pay fewer discount points
158
A(n) ______ is used by a lender for conventional first mortgage applications to verify an applicant's place of employment and earnings?
Verification Of Employment Form
159
A licensed MLO can take and accept a borrower's application in a variety of ways. Which of the following activity is considered a method of taking or accepting a loan application that requires an individual to have an MLO license?
Asking question to complete a consumer's loan application information within the company's automated system
160
Recording fees fall into the bucket that allows for a _____ tolerance for change between the Loan Estimate and Closing Disclosure.
10% aggregate
161
When comparing the Closing Disclosure to the Loan Estimate, which item is placed in the category of fees that are subject to zero tolerance for change?
Fees paid to a mortgage broker
162
Which statement is TRUE about the mortgage loan pre-approval process that can be conducted by a lender in response to a prospective borrower's inquiry about the potential to be approved for a mortgage loan?
Pre-approval can improve a buyer's negotiating position
163
Per the Fannie Mae Selling Guide, a gift can be provided by any of the following EXCEPT a(n)
Real Estate salesperson affiliated with the transaction
164
Underwriter Stan sends the loan package back to MLO Joe because it is missing Form 4506-T. This form is needed to obtain transcripts of the borrower's
Income tax returns
165
How many years of employment are required to be disclosed on a borrower's mortgage loan application?
Two
166
During the loan application process, the initial application may be inaccurate or incomplete. Once accurate information has been obtained, the original application is to be maintained
In the file with the corrected application
167
Generally, if the settlement service provider is the lender or an affiliate of the lender, good faith is determined using a(n) _____ tolerance for a change in the cost of the service.
Zero
168
A borrower owns several rental properties free and clear of any mortgage payment and does not claim the income from these properties on her tax returns. She doesn't want to list them on her application, as she doesn't have a payment. Is this permissible?
No, because the expenses associated with the properties must be included as a liability
169
Not later than _____ business days after a lender receives a complete application, he must provide the loan applicant with a clear and conspicuous written list of homeownership counseling organizations that provide relevant counseling services in the loan applicant's location that the applicant can shop for.
Three
170
MLO Katie must provide an applicant with a list of ____ HUD-approved housing counseling agencies that he can choose from with three business days of receiving a complete application.
Ten
171
Donna's application for a mortgage loan was denied. In the Adverse Action Statement, the lender must inform Donna that she can request a specific reason for the denial if she does so within ____ days of notification.
60
172
A revised Loan Estimate must be sent within three business days of notice of the changed circumstance and at least _____ business days prior to consummation.
4
173
Which statement is FALSE as it relates to a revised Loan Estimate (LE)?
A lender is prohibited from providing revised LE disclosures for informational purposes only.
(Lenders are not prohibited from providing revised disclosures, as a courtesy, for informational purposes at any time to keep the consumer updated on any changes in fees. However, such a practice may lead to confusion of both the borrower and the lender if it is not made clear that such disclosures do not impact good faith analysis.)
174
Clint needs to add his wife to the loan application so he can use her income to qualify for the loan. Which of the following is a TRUE statement as it relates to the lender providing a revised Loan Estimate (LE)?
This is a changed circumstance in borrower eligibility that allows for a revised LE
175
A revised Loan Estimate is considered received by the consumer on the day it is provided. If it is mailed or delivered electronically (email, fax, etc.), the consumer is considered to have received it ____ after the disclosure is mailed or transmitted.
3 Business days
176
Lender Max must deliver or place a Loan Estimate in the mail within how many business days of receipt of a prospective client's complete application?
3
177
When the application is by phone, Internet, or through a mortgage broker, the ARM disclosures, including the CHARM Booklet, must be delivered or placed in the mail not later than how many business days following receipt of a complete application?
3
178
Consummation may occur on or after the ____ business day (using the precise definition of business day) after the delivery or mailing of the initial Loan Estimate.
7
179
The Loan Estimate disclosure requirement does not apply to all real estate loans. For example, ___ are exempt from the Loan Estimate disclosure requirement.
Commercial loans
180
Although the Initial Escrow Statement is usually given at settlement, the lender has ____ calendar days from settlement to deliver it.
45
181
Burt Reynolds applies for a mortgage loan with Seneca Mortgage for the purchase of his first home. On his initial application submitted to Seneca, Burt forgot to include his Social Security number. Seneca must send Burt a Notice of Incomplete Application within ___ days after receiving his application.
30
182
Which statement is FALSE specific to delivery of the initial Closing Disclosure provided to the borrower?
If mailed, the three business day requirement for a borrower to receive a Closing Disclosure begins immediately
183
When given the option to shop for a settlement service provider from a provided written list and the borrower selects an unaffiliated provider on the list, the fee for this particular settlement service provider is placed in the bucket that allows for a ____ tolerance for change.
10% aggregate
184
If the amounts paid by borrower Kyle at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, lender Lisa must refund the excess and mail corrected disclosures reflecting that refund to Kyle within ___ calendar days after consummation.
60
185
After receiving a complete mortgage loan application from borrower Hank, lenders must notify him of the lender's approval of, counteroffer to, or adverse action on his application within how many days?
30
186
How many additional days must the borrower wait to close on a fixed-rate loan if the annual percentage rate increases more than .125% from the original Closing Disclosure?
3 additional business days
187
Chad is applying for a mortgage loan. If applicable, what disclosure can he expect to receive within three business days of submitting his complete application?
AfBA Disclosure
188
TILA states that if the final annual percentage rate shown on the Closing Disclosure varies by more than ___ for a regular transaction from the initial disclosure on the Loan Estimate, the borrower must be given a corrected Closing Disclosure and an additional three-day rescission period to review the new disclosure.
1/8%
189
In compliance with the "Know Before You Owe" mortgage disclosure rule, the applicant must receive specific disclosures within three business days of a complete application. Of the disclosures listed, the _____ does NOT need to be a disclosure provided to an applicant within three business days of a complete application.
Initial Escrow Statement
190
When evaluating assets, underwriters prefer to see seasoned funds that can be counted as a source for a down payment or reserves, meaning the funds have been in an account for at least
2 Months
191
When a changed circumstance has occurred to the loan product after the Closing Disclosure has been delivered to her borrower, MLO Rachel must
Deliver a revised Closing Disclosure and apply a new three-day waiting period before consummation
192
Real estate licensee Hugh has been asked by his client what changes to the Closing Disclosure require a new three-day waiting period. Which of the following is NOT a reason Hugh would give his client?
A later time or date for the closing meeting
193
Assets are typically classified as liquid or not liquid. Which of the following is a liquid asset?
Cash value of life insurance
194
_____ are items of value that the borrower must have to qualify for a mortgage loan.
Assets
195
Larry has been on his job for one year. He currently makes $12.00 an hour at his retail job. Prior to this, he worked at a shopper's club, making $11.00 an hour. He currently works five hours of OT a week, making time and a half for all overtime. His current pay stub dated 4/15 has a YTD gross of $8,645. What is the monthly income an MLO can use to qualify Larry?
$2,080.00
(Larry has been on his job for less than two years, so overtime cannot be counted - you can only count his base income. Remember to always calculate income to the year and divide by twelve. Here is the calculation: $12 an hour x 40 hours a week = $480; $480 x 52 weeks = $24,960 a year; $24,960 / 12 months = $2,080 a month.)
196
Reserves are cash on deposit or other highly liquid assets a borrower will have available after the loan funds. Though not always required, underwriters prefer borrowers have reserves that cover ____ months of a PITI mortgage payment after the borrower makes the down payment and pays all closing costs.
2
197
When underwriters evaluate assets, they are specifically interested in identifying if there are sufficient liquid assets to make the cash down payment and pay the closing costs and other expenses incidental to the purchase of the property. Typically the source of a borrower's down payment can NOT be
Borrowed funds
198
Assets are typically classified as liquid or not liquid. Which of the following is NOT a liquid asset?
Rent credit
199
If the appraised value of a property is $250,000, the sales price is $235,000, and the loan amount is $200,000, what is the LTV?
85%
($200,000 / $235,000 (the lower of the appraised value and the sale price) = 85%.)
200
What is the loan-to-value if the loan amount is $118,000, the appraised value is $131,000 and the sales price is $135,000?
90%
(To determine the loan-to-value ratio, you need to divide $118,000 by $131,000 (the lowest of the sales price or appraised value) to get an LTV of 90%.)
