New Questions Flashcards
A credit card company has a written policy that anyone between the age of 21-27 can only have a credit limit of $1,000 and anyone over 30 automatically gets a credit limit of $5,000. This is an example of:
Overt discrimination is when a lender openly discriminates on a prohibited basis; this can be in a written policy or an oral statement.
A lender has a minimum loan amount that they will lend on, that minimum loan amount is $150,000. The average home value to a minority in the neighborhood is $100,000, so the lender does not help anyone in that minority lender, this would be:
Disparate impact occurs when a facially neutral policy or practice is applied equally to all applicants, but the policy or practice disproportionately excludes or burdens certain groups of people on a prohibited basis.
Illegal property flipping
Illegal property flipping occurs when the property is purchased and resold quickly at an artificially inflated price by utilizing fraudulently inflated appraisals. Illegal property flips typically have not been improved or renovated since the purchase and are quickly resold at a much higher price.
An MLO leaves a borrower’s file open on his/her desk for just a moment. An Identity thief sees the borrower’s credit report which contains a huge amount of information. Fortunately the MLO quickly returns. What potential Federal laws is the MLO violating?
GLBA requires that we protect our borrower’s non-public personal information. FACTA also includes the Disposal Rule which outlines specific requirements for handling the disposal of a borrower’s personal information.
A potential borrower calls you for rates and programs. Assume that they are on the DNC Registry. You are allowed to call them back for what period of time?
Under the Do Not Call Provision, an MLO can solicit a prospective client who submits an inquiry or application for up to 3 months even if they are on the DNC list. If this was a previous client who the MLO had an established business relationship this goes up to 18 months.
A history showing the title changes regarding a property is required by an underwriter for what purpose?
A title report will show a chain of title, this chain of title will show how often a property has been sold or transferred. This chain of title can show potential illegal property flipping. Illegal property flipping occurs when the property is purchased and resold quickly at an artificially inflated price by utilizing fraudulently inflated appraisals.
Mortgage Assistance Relief Services Rule or the MARs Rule
made it illegal to charge upfront fees and requires specific disclosures in ads for mortgage assistance relief providers. These rules protect distressed borrowers from foreclosure rescue schemes.
Fraud for profit
Fraud for profit may involve a group of industry insiders attempting to defraud lenders for profit. Those who commit this type of mortgage fraud use their specialized knowledge or authority to commit or facilitate the fraud. This collusion by industry insiders may include mortgage loan originators, appraisers, mortgage brokers, attorneys, or other professionals engaged in the industry. Fraud for profit aims not to secure housing, but to misuse the mortgage lending process to steal cash and equity from lenders or homeowners. Fraud for profit is the type of fraud federal agencies target as it does the most damage to consumers and the mortgage industry.
A mortgage broker advertises a 3.5% fixed payment on a 30-year loan implying that the offer was for a 30-year loan with a 3.5% fixed interest rate. The broker instead offered ARMs with an option to pay various amounts, including a minimum monthly payment that represented only a portion of the required interest. This is an example of a:
UDAAPs can cause significant financial injury to consumers, erode consumer confidence, and undermine fair competition in the financial marketplace. This particular act is considered a UDAAP.
Fannie Mae requires that a borrower maintain property insurance equal to:
The property insurance only needs to be able to cover the lesser of the insurable value of the improvements or the loan balance on the property.
Pre-Qualification
Pre-Qualification is an initial evaluation of the credit worthiness of a potential borrower that is used to determine the estimated amount that the person can afford to borrow. Credit is looked at and income and asset information is not verified, information is based on borrower’s information, not a commitment.
Which term is used to describe knowingly advertising or offering one set of terms that are very appealing but are not readily available and then pressuring a person into signing a contract with other, more expensive terms?
An example of bait and switch advertising would be advertising a low-interest rate like 2% on a 30-year fixed-rate mortgage to get people in the door, then providing them something completely different
According to BSA/AML, if insider abuse is involved in any transaction, what must happen?
SARs must be filed if there is insider abuse occurring on a transaction regardless of the amount. SARs must be filed within 30 calendar days after the date of the initial detection of the issue.
The Uniform Residential Loan Application includes a section requesting information for government monitoring. Applicants must complete this section:
An applicant has the right to refuse to answer the HMDA questions.
A low introductory rate on an adjustable-rate mortgage is called:
A teaser rate generally refers to an introductory rate charged on a credit product.
In order for a borrower to obtain a VA loan they will have to:
VA loans require funding fees.
Redlining
Redlining is an unethical practice where a financial institution makes it extremely difficult or impossible for residents of a particular neighborhood to borrower money, gain approval for a mortgage, take out insurance or gain access to other financial services because of a history of high default rates. Redlining typically occurs in poor inner-city neighborhoods.
The Safeguard Rule under GLBA
The Safeguard Rule under GLBA requires companies to establish a written information security plan that describes its program to protect information. The plan must be appropriate to the company’s size and complexity, the nature and scope of its activities, and the sensitivity of the customer information that it handles
Failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and then charging late fees to that consumer would be considered:
UDAAPs can cause significant financial injury to consumers, erode consumer confidence, and undermine fair competition in the financial marketplace. This particular act is considered a UDAAP.
Under what law is a lender required to provide an adverse action disclosure if the borrower’s credit is the reasoning for all or part of the decision to deny the loan application:
Regulation V or Fair Credit Reporting Act requires that an adverse action notice be provided to a borrower within 30 days of a credit decision if the borrower’s credit is the reasoning for all or part of the decision to deny the loan application.
The responsibility of financial institutions to meet both the deposit and credit needs of the community, including the needs of low-income families, is called?
The Community Reinvestment Act (CRA), enacted in 1977, requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods.
What law requires the lender to collect a borrower’s demographic information for first mortgages and home improvement loans?
HMDA requires the collection of a borrower’s demographic information. HMDA known also as Regulation C, requires this information to help prevent things like redlining, reverse redlining and blockbusting.
The practice of getting people to sell their homes at bargain prices by suggesting that certain ethnic groups are going to move into the area is nicknamed:
Blockbusting is the practice of persuading owners to sell property cheaply because of the fear of people of another race or class moving into the neighborhood, and thus profiting by reselling at a higher price.
According to the Fair and Accurate Credit Transaction Act, when are borrowers entitled to get a copy of their credit scores?
FACTA, an amendment to FCRA, implemented the rule that requires the credit bureaus to provide a free credit report to everyone yearly. This does not include their credit scores.
An MLO is required to protect a borrower’s non-public personal information, per what federal law?
Regulation P is also known as the Gramm-Leach-Bliley Act or the Financial Modernization Act of 1999. GLBA restricts the disclosure of borrower’s non-public personal information (NPI).
You and the borrower believe an Adjustable Rate Mortgage would be best for the borrower. What is the name of the booklet you are required to give?
The Consumer Handbook on Adjustable-Rate Mortgages (CHARM Booklet) is a required disclosure per TILA on all adjustable-rate mortgages (regardless of whether they are a purchase or a refinance). This document is also required to be disclosed by the lender within three (3) business days of application.
Which of the following is NOT calculated into the APR?
The realtor’s commission is paid by the seller and not the borrower. It is also not financed into the loan so it would not be calculated into the APR like the interest rate, origination fee and any discount points.
How many days in advance of transferring a loan to another lender must the current mortgage servicer inform that customer of the transfer to another lender who will subsequently be servicing the loan?
Under RESPA, the former servicer is required to provide a disclosure at least 15 days before the effective date of transfer, this letter is referred to as the Goodbye Letter.
Which rule dictates how instructions are required to dispose of consumer’s information?
The Disposal Rule under FACTA dictates how lenders should dispose of consumer information, this includes a requirement for lenders to come up with reasonable measures to protect against unauthorized access. The Disposal Rule is why you are required to shred documents!
What are the penalties for violating Section 8 of RESPA?
If someone violates Section 8 of RESPA, they are looking at a fine of up to $10,000, up to 1 year in prison or both. They also may be required to make payment to damaged parties up to 3 times the original fee that violated the section and if more than one individual is involved, then all parties are liable to the damaged borrower both jointly and separately.
What is the maximum penalty for providing false information on a federally related loan?
The Fraud Enforcement and Recovery Act of 2009 (FERA) implemented additional more stringent penalties to combat mortgage fraud including an increase penalty for providing false information on a federally related loan. The fine is up to $1,000,000 and the perpetrator can also face jail time.
Who of the following would be an appropriate person to discuss the borrower’s credit with to determine whether they qualify for the proposed loan or not?
The underwriter is the individual who analyzes the borrower’s credit profile, income and the appraisal to determine whether a loan is approved or denied.
An MLO is looking over a borrower’s credit report and sees a fraud alert, under the Economic Growth, Regulatory Relief and Consumer Protection Act, how long can a fraud alert be on a borrower’s credit report?
The Economic Growth, Regulatory Relief and Consumer Protection Act amended the fraud alert rules under FCRA and extended the life of a fraud alert from 90 days to 1 year.
After meeting with the borrowers to complete a loan application, you return to your office and order a Tri-Merged credit report. Now that you have a credit report, what Loan Disclosure must you now prepare and mail (or give) to them?
The Notice to Home Loan Applicant is required under FACTA and must provide information like the consumer’s credit score, the range of possible credit scores, any factors that adversely affected the score (up to 4 key factors), the date the score was received and the name of the company that provided the report.
HMDA requires the lenders to obtain what information for each borrower?
HMDA requires the collection of demographic data in order to prevent redlining, reverse redlining, blockbusting and other forms of discrimination in the mortgage industry.
If an applicant has been denied credit, how long does the lender have to get a letter of adverse action to him/her?
Under ECOA, it is the lender’s responsibility to notify an applicant of any action taken on the applicant’s request for credit, whether favorable or adverse, within thirty (30) days of receiving the completed application.
GLBA allows a lender to do which of the following?
GLBA’s privacy rules allows for the sharing of information with those necessary to complete the loan request.
A lender just closed a loan for a borrower, after closing, they realize that there was a tolerance violation. Under TRID, how long does the lender have to provide a corrected CD to correct non-numerical errors and document refunds for tolerance violations?
If something changes after consummation, the lender is required to provide a corrected CD within thirty (30) days. Lenders are required to provide a corrected CD to correct non-numerical clerical errors and document refunds for tolerance violations within sixty (60) calendar days of consummation.
Which of the following does TRID require be disclosed within 3 days of application on a purchase transaction?
The Home Loan Toolkit is another disclosure required by TRID. The lender must provide this document to the borrower within three (3) business days of application for all purchases. This disclosure is a pamphlet created to help a borrower through the mortgage process. It helps the borrower determine what the borrower needs to do to get the best mortgage for their situation, explains closing costs, and what it takes to purchase a home and give suggestions on how to be a successful homeowner.
If a loan is a refinance, and the loan is improperly closed and funded in one day with no three-day rescission period, how long do the borrowers have to rescind the transaction?
If the required rescission notice is not provided to the borrower, or if there are errors on the disclosures, the borrower’s right to rescind expires three (3) years after the closing, transfer of the interest in the property, or sale of the property, whichever occurs first.
“Seller Concessions,” as relates to the mortgage business are:
Seller concessions are costs that the seller or lender are paying. These costs can include title insurance, origination fees, and processing fees.
Which federal law is responsible for the creation of the CFPB?
Title X of the Dodd-Frank Wall Street Reform Act created the Consumer Protection Financial Bureau (CFPB). The CFPB is an individual entity under the control of the president with rule-making and enforcement powers over many different financial laws.
What is the minimum amount of time that a lender has to inform the borrower that they are transferring servicing?
When a mortgage loan is assigned, sold or transferred, the former servicer must provide a disclosure at least fifteen (15) days before the effective date of the transfer. This letter is referred to as the Goodbye Letter.
How often do RESPA regulations require that an escrow statement be provided to the borrower?
RESPA requires the servicer provide escrow statements annually to their borrowers.
If the loan application is incomplete, and the lender sends a letter of incompleteness and the borrower does not respond, an adverse action letter must be sent within:
Per ECOA, the lender may not have to notify the applicant of adverse action if the application was incomplete, and the lender sent the applicant notice that the application was incomplete.
HMDA is the acronym for:
HMDA stands for Home Mortgage Disclosure Act.
Regulation Z requires:
The big thing under TILA is the APR. TILA regulates when the APR must be disclosed on advertisements and how it should be disclosed under TRID.
The Privacy Rule of GLBA requires a lender to provide a borrower with a consumer privacy notice:
GLBA requires privacy notices be provided before disclosing information to non-affiliated third parties.
Which Act requires the Home Loan Toolkit to be sent to the borrower on a purchase?
TRID requires that the Home Loan Toolkit be provided on all purchase transactions within 3 days of application.
A yield spread premium is disclosed on which document?
The Loan Estimate discloses all the costs of the loan, including a YSP.
Regulation B allows all of the following except:
Regulation B is also known as ECOA. ECOA requires that if the application is for joint credit, the lender can ask the applicant’s marital status, but may only use the terms: “married,” “unmarried,” and “separated.” The term “unmarried” may be defined to include divorced, widowed, or never married.
Which of the following is a protected class under the Fair Housing Act?
Disability is a protected class under the FHA but not under ECOA.
Regulations primarily implemented to prevent discrimination consist of:
Whereas HMDA is primarily concerned with identifying and preventing discrimination committed by organizations, ECOA is charged with the responsibility of preventing discrimination by individuals.
A reverse mortgage application is known as a:
Fannie Mae Form 1009 is the Residential Loan Application used for Reverse Mortgages.
Steering
Steering occurs any time a customer is encouraged to pursue a product or pricing structure that is advantageous to the lender but is not in the customer’s best interests.
FHA DTI ratio guidelines are established as:
The FHA allows for slightly higher DTI ratios than its conventional counterpart. FHA guidelines utilize 31/43 as ideal DTI ratios.
Which of the following locations is not considered a high-cost area?
Although home prices in some areas of Colorado may be high, the higher cost areas, as defined by the FHFA, are Alaska, Hawaii, Guam, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
A 3/1 ARM has a 2/2/5 cap structure. Assuming worst-case scenario, in what year would the interest rate reach its maximum?
Years 1 – 3 the rate would be the start rate. Year 4 the rate could increase by 2%. Year 5 the rate could increase by 2%. In year 6 the rate could increase by 1% to its maximum rate.
An individual desires to purchase a home for $300,000. He has $30,000 to use as a down payment but desires to avoid PMI. By using piggyback financing, how would you structure this purchase?
To avoid PMI, the first mortgage must be no greater than 80% LTV (240,000). If the borrower has $30,000 (10%) to spend as a down payment, another 10% will be needed to bridge the gap between the first mortgage, the down payment, and the purchase amount.
The four forms combined into two under TRID are:
Under TRID, the Initial TIL and the GFE were combined to create the Loan Estimate and the Final TIL and HUD were combined to create the Closing Disclosure.
An earnest funds deposit:
When an offer to buy is accepted and a purchase contract signed, the buyer often pays the seller an earnest funds deposit as a measure of good faith. This deposit gives the seller incentive to remove the home from active MLS sales listings knowing that, if the buyer backs out without cause, the seller may retain the deposit. This deposit is ultimately credited back to the buyer at closing as a settlement fee credit.
Which of the following scenarios would be eligible for conventional financing?
Conventional financing finances one-to-four-family, residential, real property intended for primary, secondary, or investment purposes. The four-family property utilizing 55% commercial space would not qualify for conventional financing. The single-wide travel trailer would be ineligible because it is not considered real property. The five-unit property is ineligible due to the number of units. Even though the borrower will not be residing in the four-unit property all year, it can still be considered a primary residence if s/he intends to live there for six months or more each year. Otherwise it could also be financed as an investment property or, if in a resort or vacation area, a second home.
A builder is committing fraud. Inconsistencies that could have uncovered the fraud appear all throughout the appraisal which was initially sent to the loan originator. The loan originator never reviews the appraisal. Who could ultimately be held accountable for the fraud?
All mortgage professionals working on a transaction are expected to identify and address any and all instances of fraud that they are reasonably capable of identifying. Failure to do so could hold the mortgage professionals accountable as accessories in addition to the individual committing the fraud.
If a 5/1 ARM contains a cap structure of 5/2/5 and a start rate of 3.5%, to what rate would the borrower’s interest rate increase if, at the first adjustment period, the index becomes 4 with a margin of 5?
Without a cap, the borrower’s rate would increase from 3.5% to 9% (index + margin = fully indexed accrual rate [FIAR]). Since the loan contains a 5-point initial adjustment cap, however, the highest that the borrower’s rate could increase would be to 8.5%.
According to RESPA, what amount of escrow reserves is a mortgage servicer allowed to retain in a customer’s escrow account?
Under RESPA, mortgage servicers may retain up to two months’ worth of escrow reserves to minimize the impact of remitting higher-than-anticipated escrow disbursements.
An applicant earns $6,000 monthly. His monthly debt amounts to $1,100. For how much of a PITI can he qualify assuming his maximum allowable back-end ratio is 36%?
Monthly earnings amount to $6,000. All qualifying debt can consume no more than 36% (2,160). If his monthly debt amounts to $1,100, the balance of allowable expense is $1,060.
What minimum percentage of ownership interest in one’s employer constitutes self-employment?
Regardless of whether an individual is paid through W-2 wages or otherwise, if s/he has a 25% or greater ownership interest in the business for which s/he works, s/he is to be considered self-employed.
A surety bond:
All licensed loan originators must purchase a surety bond for each state in which they are actively licensed. The surety bond is usually purchased and paid for by the employer on the employee’s behalf. The surety bond provides an insurance policy against which an individual injured by the loan originator’s neglect, incompetence, or wrongdoing may file a claim and seek restitution. If a claim is ever filed or paid against a surety bond, the loan originator would not be permitted to originate again until a replacement surety bond was secured.
A property is valued at $425,000. There is a first and a second mortgage with a CLTV of 85%. The second mortgage’s LTV is 22%. What is the balance of the first mortgage?
Both mortgages together constitute a CLTV of 85% ($361,250). If the second mortgage’s LTV is 22%, the first mortgage’s LTV has to be 63% (85 – 22 = 63). When you multiply 425,000 by 63%, the result is 267,750.
Which of the following is not a bucket item paid for through escrow?
An escrow waiver fee would appear on the Loan Estimate and Closing Disclosure as a cost that the lender charges to waive the escrow account requirement. It couldn’t be an escrow charge because, by charging it, there would not be an escrow account. Although a premium for credit life insurance may never be financed into the loan amount, a monthly premium for this optional insurance is often collected through the escrow portion of the mortgage payment. PMI and flood insurance premiums would always be collected through the escrow portion of the mortgage payment.
Prohibiting loan proceeds from being directly issued to home contractors when the points and fees of the loan exceed certain defined thresholds is a mandate of which of the following regulations?
The Home Ownership and Equity Protection Act, (Section 32 of TILA) prohibits home contractors and builders from directly receiving loan proceeds when the purpose of the financing is for home improvement and the loan meets or exceeds the thresholds for classification as a HOEPA loan. In cases such as this and to prevent unscrupulous contractors from taking the money and not completing the appropriate work, the proceeds must be made payable to the contractor and the homeowner, be issued directly to the homeowner, or be managed by an independent third party agreed to by both the homeowner and the contractor.
If a property is valued at $310,000 and has a first mortgage of $175,000 and a second mortgage of $36,760, what is the LTV of the second mortgage?
When the balance of the second mortgage (36,760) is divided by the property value (310,000), the resulting LTV equals 12%.
If above-par pricing results in a cash credit, who is entitled to receive all or part of that credit?
Any time above-par pricing results in a cash credit, 100% of the cash credit must be provided to the customer. Loan originators may no longer take cash credits generated through above-par pricing as compensation.
Which of the following would not constitute an ethical issue with regard to interacting with an appraiser?
If the appraiser commits a legitimate error in producing the appraisal, asking for an error correction is completely reasonable. The other three options would violate Appraiser Independence Requirements.
A loan that is purchased by or securitized through Fannie Mae is generally referred to as:
A conventional loan is a loan that is purchased, “backed,” or securitized through a non-purely governmental entity. All conforming loans must “conform” to both Fannie Mae or Freddie Mac underwriting parameters and Federal Housing Finance Agency (FHFA)-established annual loan limits. Fannie Mae and Freddie Mac will only purchase or securitize loans that are both conventional and conforming. Fannie Mae and Freddie Mac are “quasi-governmental” agencies because they are both share-holder owned.
Which fee may be collected from a customer prior to issuing a Loan Estimate?
TRID allows for the collection of only a credit report fee prior to issuing a Loan Estimate. A credit report is often secured at the time of application and prior to the issuance of any documents. Lenders are permitted to collect an upfront credit report fee to offset this expense.
ARM component
he four ARM components are: frequency of change, index, margin, and CAPS.
Pre-licensing education requirements must include:
Although pre-licensing education requires 20 hours of material, of those 20 hours, three hours must surround federal law and regulations, three hours must surround ethics, and two hours must focus on lending standards for the non-traditional mortgage product marketplace. The rest is at the discretion of the approved course provider.
A cursory walk-through prior to closing may be an indication of:
A cursory inspection or walk-through is usually a rushed or harried event. Although there may be many reasons for the person conducting the inspection or walk-through to want to move things along, cursory inspections or walk-throughs are often attempts to hide something that someone doesn’t want the buyer to see.
A borrower is buying a home for $110,000 and has $15,000 to put down on a conventional mortgage. The home appraises for $125,000. Will she need to pay PMI?
A purchase loan’s LTV is calculated by dividing the loan’s principal balance by the lesser of the property’s purchase price or appraised value. Even though the home appraised higher than its purchase price, the purchase price will be the basis for calculating the LTV. The homeowner will most likely be unable to access the equity difference for one full year.
If an individual is only an obligated co-signer to a debt, why may they have to qualify for their mortgage counting that debt?
If an individual were to co-sign for another individual’s debt, the co-signer agrees to not only be liable for that debt, but to repay it in the event that the person for whom they co-signed no longer remits payments. Consequently, co-signed debt is always counted in an applicant’s DTI’s unless the applicant can evidence that the person for whom they have co-signed has remitted the previous 12 months’ payments on time and from an account with which the applicant has no affiliation.
For what does VVOE stand?
A verbal verification of employment is usually performed within 10 days of the note date. The lender will contact the applicant’s employer to confirm that the applicant is still gainfully employed.
If a borrower’s income is $6,500 per month, his back-end DTI is 32%, and his monthly, non-housing related expenses amount to $1,115, what is the total of his housing expense?
If the sum total of all expenses (back-end ratio) equates to 32% of the borrower’s $6,500 gross monthly income ($2,080) and, of that, $1,115 is monthly expenses, his housing expense would consume the difference of $965.
A mortgage originator advises a customer to consider accepting a higher interest rate in order to subsidize his settlement charges since he has no other funds. The borrower is qualified for the payment at the higher interest rate. This is:
As long as the borrower is aware that the rate is higher than the rate for which he would otherwise qualify, has explored all other options, qualifies at the higher rate, and receives the entire proceeds from selecting the higher rate, promoting this option is legal and ethical.
Which of the following credit issues is ignored during the licensing review?
Derogatory medical-related issues will not be held against an applicant for mortgage licensing.
A buyer purchases a home for which the seller pledges to fund a 2-1 buydown. The buyer’s note rate results in a payment of $1,200. If the 2-1 buydown would have the buyer remitting a P&I payment of $1,075 for year one and $1,107 for year two, how much did the 2-1 buydown cost the seller?
If the buyer remits $1,075 for the first year, he is saving $125 monthly over his note rate (1,200 – 1,075). If the buyer remits $1,107 for the second year, he is saving $93 per month during the second year (1,200 – 1,107). When 12 payments of $125 ($1,500) are added to twelve payments of $93 ($1,116) the seller will spend $2,616 to fund the 2-1 buydown.
A loan officer takes an application on Friday. His business fully operates Monday through Saturday. By when must the loan estimate be issued?
In accordance with TRID, the loan estimate must be issued within three general business days from the date of application. Since this loan originator’s company fully operates on Saturday, Saturday must be considered as one of the three business days. If he took the loan application on Friday, the loan estimate would have to be issued by the close of business the following Tuesday.
How many pages of a savings account statement must a loan originator request from an applicant?
If an account statement indicates that 12 pages exist, the applicant must provide all 12 pages. Every page of a statement is required regardless of whether or not it is blank.
What is the appropriate documentation to secure from an applicant disclosing that she is a permanent resident alien?
A permanent resident alien is afforded the same rights to receive home financing as a United States citizen. A permanent resident alien would have to produce a legible photocopy of the front and back of their valid permanent resident alien (green) card.
What was one purpose of implementing a centralized system of mortgage licensing?
Prior to the SAFE Act, loan originators were not tightly governed. They could readily commit violations and crimes and sneak away only to emerge elsewhere and continue their unethical activities. The NMLS&R tracks loan originators through a unique identifier so that they can no longer escape their present and past.
By what date would a mortgage loan originator who fails to renew her license by December 31st have to renew it in order to avoid repeating the entire licensing process?
If a licensee does not renew their license by midnight on December 31st, their license expires, and they are immediately rendered inactive. They have until the last day of February to renew their license by paying the appropriate renewal fees, demonstrating completion of the appropriate continuing education, and paying a late charge. Failure to renew by the last day of February requires that the loan originator repeat the entire licensing process.
A borrower purchased a home for $300,000 and their LTV is 80%. They paid $3,600 in discount points. How many points did they pay?
If the purchase price is $300,000, the loan amount, at 80% LTV, would be $240,000. Points are calculated based on the loan amount and the borrowers paid $3,600 for them. Since one point on this loan amount equates to $2,400 and the borrowers spent $3,600, the $3,600 equates to 1.5 points (3,600/2,400).
If a borrower chooses an above-par interest rate that results in a closing cost credit of 2%, how much would her settlement costs be reduced assuming a purchase price of $230,000 and a down payment of 15%?
With a 15% down payment, the loan amount will be $195,500. If the rate generates a 2% settlement cost credit, the borrower will receive $3,910 towards her closing costs (195,500 x 2%).
Reverse Redlining refers to:
Reverse redlining specifically focuses on particular geographic areas to pursue predatory lending practices in order to take advantage of the people living in that area who are often financially naive.
Redlining refers to:
Redlining is the avoidance of conducting business in certain geographic locations due to the perceived characteristics of the area’s inhabitants. Often poorer or economically depressed geographic areas are redlined because of the high likelihood of unqualified inhabitants. Consequently, people who might otherwise be qualified are deprived of opportunities to partake in products and services available to others in “stronger” areas.
Which of the following individuals would be considered a mortgage loan originator?
If a Realtor receives compensation from a mortgage broker for services rendered, many states will consider that Realtor to be a mortgage loan originator.
An ARM is currently at 3.25% and set to adjust. The index is currently at 1.125% and the margin has been established at 4.25%. To what will the borrower’s interest rate adjust?
Index plus margin equals Fully Indexed Accrual Rate (FIAR). Consequently, the sum of the adjusted index of 1.125% plus the established margin of 4.25% equals the new interest rate of 5.375%.
Anyone applying for a reverse mortgage must have:
Independent, third-party homeownership counseling is a mandatory requirement for all reverse mortgages. In the event that a mortgage servicer does not have a certificate of homeownership counseling in the reverse mortgage file, it does not have an enforceable lien.
The term “Caveat Emptor” means:
Let the buyer beware implies that a customer must look out for his or her own interests when entering into a transaction. When the law of agency directs a mortgage professional’s fiduciary responsibility to the customer, the term “caveat emptor” is rendered inapplicable.
What is the definition of a Mortgage Loan Originator in accordance with the SAFE Act?
Both taking a mortgage application and doing so for profit or gain constitutes the SAFE Act’s definition of a mortgage loan originator.
Which of the following debts does not have to be considered in an applicant’s DTIs?
Regardless if a revolving debt is almost repaid, if a debt payment is deferred, or if the debt is installment debt with more than 10 months remaining, the payment must be established and considered in the applicant’s DTI ratios.
How many hours of continuing education are generally needed annually for a licensed loan originator to renew his license?
Although some state requirements may add more hours, the standard requirement for annual continuing education is eight hours.
What is one of the SAFE Act’s main objectives?
“The purpose of (the SAFE) … Act is to protect consumers seeking mortgage loans and to ensure that the mortgage lending industry is operating without unfair, deceptive, and fraudulent practices on the part of mortgage loan originators.”
The National Mortgage Licensing Exam, containing the UST component, consists of how many questions?
The national examination contains 100 multiple choice questions while the UST component adds an additional 25 for a total of 125.
A title company hosts a holiday party and invites members of the real estate community from which it has received and to which it has referred business throughout the previous year. Food and drinks are served at the party. The actions of the hosts and attendees are:
Offering free food and drink to potential or actual referral sources constitutes a violation of RESPA since the food and drink are things of value. As soon as the title company offered the refreshments they violated RESPA and the moment that the guests accepted the offer they violated RESPA.
A buyer wishes to purchase a home for $310,000 and has $30,000 for a down payment. He wishes to avoid paying PMI. What is the easiest way to structure this transaction using piggyback financing?
The $248,000 first mortgage brings the borrower to an 80% LTV negating the need for PMI. Since he only has a $30,000 down payment, a second mortgage of $32,000 will be necessary to bridge the gap.
Which of the following individuals requires a mortgage originator license?
If an individual completes a mortgage application on behalf of an applicant, s/he must be licensed even if s/he takes no further action.
The overall governing entity of the mortgage industry is:
The Consumer Financial Protection Bureau is the regulatory entity overseeing the mortgage industry as empowered by the Dodd Frank Act.
If a buyer refinances his loan, his monthly P&I will drop by $175 to $1,025. If his monthly real estate taxes are $125, his monthly homeowner’s insurance is $60, and his income is $72,000 annually. What was his previous housing expense?
Prior to refinancing, the borrower’s P&I was $1,200. With his monthly taxes being $125 and his monthly insurance $60, he was spending $1,385 per month. With an annual salary of $72,000, the monthly equivalency of which is $6,000, his previous housing expense was 23% (1,385/6000).
If two loans together achieve an 83% CLTV and the second loan is at 23% LTV, what is the LTV of the first loan?
If the two loans together comprise 83% of the property’s value and the LTV of the second loan is 23%, the first loan must equate to a 60% LTV (83 – 23 = 60).
If the closing disclosure is sent to the customer electronically on Monday, when would the first opportunity to close be?
Unless the borrower confirms receipt prior, if the closing disclosure is issued via US mail or electronically, the three-day precise waiting period must be extended to six in order to account for delivery time. If the closing disclosure was issued on Monday, the sixth precise business days thereafter would be the following Monday. The loan, therefore, would be allowed to close no earlier than the next day (Tuesday).
A buyer’s loan amount is $225,000 on a $410,000 purchase price. How much was her down payment and what percent of the purchase price was it?
Purchase price of $410,000 minus her loan amount of $225,000 equals a $185,000 down payment. Down payment of $185,000 divided by the $410,000 purchase price equals a 45% down payment (185,000/410,000).
A home inspector messengers a mortgage company a box of chocolates around holiday time. Upon delivery, the mortgage company’s receptionist politely refuses the delivery. Who has violated RESPA?
The home inspector violated RESPA the moment that she sent the chocolates to the mortgage company. Since the mortgage company refused the thing of value, it remained compliant.
If a HOEPA loan is originated for purposes of home improvement:
To prevent homeowners from being cheated by unscrupulous home improvement contractors, proceeds from the refinancing of a HOEPA mortgage to finance home improvements must either be made payable directly to the customer, jointly to the customer and the contractor, or to a third-party escrow company, agreed upon by all interested parties.
What is the Model State Law?
Model State Law was a document created by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to guide states in implementing legislation required by the SAFE Act.
What is the penalty for violating the Telemarketing Sales Rule?
The penalty for violating the Telemarketing Sales Rule is not cheap! Violators may be fined up to $43,280 per occurrence.
The main objective of HOEPA is to prevent:
HOEPA was implemented as an attempt to protect individuals from unscrupulous financial predators who might otherwise take advantage of them through predatory lending tactics and practices.
A Realtor refers his client to the mortgage originator of a company in which the real estate company has an ownership interest. The Realtor provides an ABAD advising the customer of the ownership interest and makes him aware that he is free to use the services of any mortgage professional. The Realtor:
The Realtor conducted his business ethically while complying with RESPA because he informed the customer of the relationship and gave him other options.
LTV + _____ = 100%
LTV is the lender’s ownership interest in a property. Equity is the homeowner’s ownership interest in a property. LTV plus equity always equals 100%.
A loan originator informs a customer pursuing a stated income loan of what income amount must be stated in order to make the loan work. This is an ethical violation because:
A stated loan program requires the customer to state their income. Even though the income is not necessarily verified, the stated income results in DTIs that often have to be within acceptable parameters. A loan originator may never prompt a customer into saying what is needed versus what may be accurate.
Loan Officer Larry receives a call from Borrower Brandi during which they discuss many aspects of applying for a mortgage to refinance her home. Among other things, Borrower Brandi shares her income, date of birth, bank account balances, social security number, marital status, property address, years of schooling, property value, needed loan amount, and her employer’s name. After the call ends, what, if anything, must Loan Officer Larry do?
The information discussed in their initial conversation included the six pieces of data that, once known, activate a live mortgage application. As soon as Loan Officer Larry had knowledge of all six pieces of information, he became compelled to consider the application live and issue a Loan Estimate (along with other documents) no later than three general business days from the date of their conversation.
All but which of the following are types of QM’s?
Effective January 10, 2014, mortgage lenders are required to demonstrate that they have verified their borrowers’ abilities to repay. The CFPB implemented the Ability to Repay Rule defining all Qualified Mortgages (QMs) as meeting that criteria. Currently, the four types of QMs are: General, Temporary, Small-Creditor, and Balloon-Payment.
A borrower has 10% to put down but desperately wishes to avoid paying a monthly PMI premium. Which of the following options would not be a way for her to avoid paying this monthly expense?
Although above-par pricing would provide funds which could be used to supplement cash towards a down payment, it would be highly unlikely that the credit could equate to 10% of any home’s purchase price. Piggyback financing would provide two loans, one at 80% and one to supplement the other 10% needed to avoid paying PMI. Financed MI would entail a one-time PMI premium financed into the loan amount negating the need for a monthly premium, and Lender Paid Mortgage Insurance (LPMI), would result in the lender paying a one-time PMI premium on the borrower’s behalf, typically in exchange for a higher interest rate.
If an individual were to have her mortgage license revoked in a particular state she:
If an individual were to lose her license in a particular state, she would have to notify the NMLS&R as well as every other state in which she was licensed. Consequently, she would lose her license in every other state and would be prevented from securing a license in any state going forward.
How often must telephone numbers be scrubbed through the Do Not Call Registry in order to ensure compliance?
Since people can be added to and removed from the Do Not Call Registry at any time, outbound callers must scrub their call lists every 31 days.
Identifying and justifying funds appearing on an asset statement is called:
To prevent money laundering and the financing of terrorism, the USA Patriot Act and certain investor criteria require that any funds appearing on an asset statement that do not match disclosed income patterns and/or appear on fewer than the most recent two consecutive asset statements be identified and justified. This is called sourcing and seasoning.
The E-Sign Act requires that all of the individuals needed to electronically sign documentation be provided with:
The E-Sign Act affords individuals who do not wish to receive and sign documents electronically with the right to receive and sign on paper and/or in non-electronic format.
Charlie Chancetaker likes the low interest rate offered by the 360/60 balloon loan on which he settles. He is not worried about going into foreclosure because his company transfers him every four years and he intends to sell the home and pay off the loan well in advance of the balloon call. Which of the following would not represent a possible problem when the time to address the balloon call arrives?
A 360/60 is a balloon loan with a payment calculated at the 30-year amortized rate that contains a call term after five years. As the loan is described by the overall term followed by the balloon call term, this type of balloon loan does not contain a conditional right to modify.
The cost of originating a loan expressed as an interest rate is known as the:
For comparative shopping purposes, as well as to inform customers of their true interest expenses, the government requires lenders to disclose the cost of the credit as both an interest rate and a dollar amount. As an interest rate, this cost is known as the APR or Annual Percentage Rate.
Advertising a product that sounds too good to be true, telling inquirers that the product has been discontinued, and attempting to sell them something else is an unethical example of:
Bait and switch constitutes the unethical and illegal tactic of advertising an extremely appealing product or service only to inform the respondents that the product is no longer available and attempting to sell them something different. Its main objective is to get the phone to ring.
All but which of the following are conditions included in the right to conditionally modify a balloon loan?
The conditions for which a balloon loan may be conditionally modified are: the home must be owner occupied, the loan must be current, there cannot be any subordinate liens attached to the property, and the new rate may not exceed the original rate by more than 5%.
Loan originators may be compensated through all but which of the following methods:
The Loan Originator Compensation Rule defines the terms under which a loan originator may be compensated. Being paid based on the terms of the transaction (mortgage type, interest rate, loan term, etc.) is prohibited.
A mortgage originator conducts a seminar teaching Realtors about a new mortgage product. During this seminar, the mortgage originator serves lunch to the attendees.
Since the purpose of the gathering was educational, providing lunch (or other items of value) was acceptable as long as neither the Realtors nor the loan originator blatantly promoted their services to each other.
Which of the following actions would constitute an ethical violation?
RESPA clearly prohibits the exchange of anything of value between actual or potential referral sources.
An ARM start rate that is more than 3% below FIAR is known as a ______ rate:
ARM start rates that are more than 3% below FIAR as of the lock date are referred to as teaser rates. Discount rates are ARM start rates that are within 3% below FIAR.
When originating an adjustable rate mortgage, the lender’s cost and operating expense is covered via the:
The margin is the component of the adjustable interest rate that, in conjunction with the index, forms the fully indexed accrual rate (FIAR). The margin is the component of the rate that pays the lender and covers its operating expenses.
A purchase price is $400,000 and the buyer wishes to apply $30,000 as a down payment. The seller is offering a 3% seller’s concession. What is the value of the seller’s concessions?
Seller’s concessions are based upon the purchase price. Since the purchase price is $400,000 and the seller is offering 3% in concessions, the seller’s concession will amount to $12,000.
Once a loan estimate has been issued, when is the first opportunity that the loan may close?
Seven precise business days must elapse after the issuance of the loan estimate before the loan would be allowed to close. The purpose of this mandatory waiting period is to ensure that the applicant has ample time to review the loan’s particulars and carefully contemplate the transaction into which they’re considering entering.
Which of the following is permitted when servicing or originating a HOEPA loan?
Charges paid by the creditor, other than loan originator compensation paid by the creditor that is required to be included in points and fees can be excluded from points and fees. HOEPA loans may include pre-payment penalties as long as the pre-payment penalty occurs within the first five years (other conditions also apply). Increasing the rate after default is never permitted. When the purpose of the loan is for home improvement, the funds must be disbursed either directly to the homeowner, in the form of a check made payable to both the homeowner and the contractor, or to a third-party escrow company agreed upon by all parties. HOEPA balloon loans are permitted as long as the balloon component does not call the loan within the first five years.
Barry is told that he is lacking reserves and may not be able to close. What might he use to supplement his assets?
Although they don’t have to be liquidated, reserves need to be liquid and accessible in case they’re needed. A whole life insurance policy carrying a cash value may be the perfect solution to Barry’s needs. He couldn’t use a blood-relative’s asset statement but he could accept an actual monetary gift. A term life insurance policy carries no cash value and, in order to use the value of his car as reserves, he would have to sell it, thoroughly document the transaction, and deposit the cash.
When is an applicant obligated to disclose child support payments as a liability?
Obligated payments of child support stem from court orders and/or divorce decrees. Whether an individual is actively paying it or not is irrelevant. If someone is court ordered or otherwise required to pay child support, that support payment must be included in his or her DTIs and the liability manually entered onto the application. The only time when court ordered child support could be excluded from an applicant’s DTIs is when there are 10 or fewer months left to pay it.
An application is taken on May 1st. By May 30th the customer has not returned most of the documentation needed in order to underwrite the file. What must be issued by the end of the day?
In accordance with ECOA, the applicant must be issued one of three documents within 30 days of application: a Notice of Action Taken advising that his or her loan application was approved, an Adverse Action Notice declining the application, or a Notice of Incomplete Application advising that needed documentation is missing and the applicant must provide it within an allotted timeframe for his or her application to receive further consideration.
One way to safe harbor against steering is to:
Product steering is a practice through which a lender or loan originator encourages a particular product or price point that rewards the lender or MLO at the expense of the customer’s best interests. To ensure that the customer was duly provided with all appropriate pricing options, the customer should be offered three loan scenarios including the highest rate and lowest costs (above-par pricing to offset settlement costs), par pricing, and the lowest rate with the highest costs (discount points). Ultimately the customer decides with which option to proceed and must qualify for whichever options he or she selects.
At the conclusion of the application, a loan officer observes her customer becoming noticeably uneasy after reading the URLA discloser containing the FBI’s fraud warning notice. Additionally, the customer hesitates to sign the 1003 for a few moments after reading it. She finally signs it, thanks the loan officer, gets up, and hurries out of the office. What rule, if any, requires the loan officer to take further action?
The FTC Red Flags Rule makes it compulsory for any mortgage professional to act upon experiencing anything or witnessing behavior that might be considered a red flag. At the very least she should have e-mailed her superior to advise him of what she observed and to ask for his advice. If the loan officer failed to act and the applicant was, in fact, committing fraud or some other offense, the loan officer could be held accountable along with the applicant for aiding and abetting the offense.
The USA Patriot Act is primarily concerned with:
The USA Patriot Act was enacted as a direct result of the terrorist attacks of September 11, 2001. The primary concerns of the Patriot Act are to thoroughly identify each customer in order to ensure that criminals are prevented from receiving loan proceeds (similar to when an individual attempts to purchase an airline ticket and is compared against the no-fly list) along with ensuring that all money utilized in and as a part of any financial transaction are legitimate and have been legally acquired.
What constitutes a good payment history in terms of PMI removal?
According to the Homeowners Protection Act, a good payment history requires a 24-month payment history review. During the most recent 24 months, the customer may not have had any 60-day late payments, and, within the most recent 12 months, the customer may not have had any 30-day late payments.
HECM stands for:
The most common form of Reverse Mortgages is the HECM or Home Equity Conversion Mortgage. This type of loan easily converts a home’s equity into capital for senior homeowners.
The two types of MIP associated with FHA financing are:
Every FHA loan requires both an annual mortgage insurance premium (AMIP) collected through the monthly payment and an upfront mortgage insurance premium (UFMIP) which, although it can be paid in cash at the time of closing, is generally financed into the loan amount.
What does CRA stand for?
CRA stands for Consumer Reporting Agency. The three major CRAs are Equifax, Experian, and Trans Union.
Which of the following is not excluded from higher priced mortgage considerations?
Exclusions from higher priced mortgage loan considerations consist of loans that are used to finance the initial construction of a dwelling, bridge loans with terms of 12 months or less, reverse mortgages, and home equity lines of credit.
Which of the following is not a consideration of HMDA?
HMDA considers much more than race, national origin, and sex. Everything listed in these answers is considered through HMDA with the exception of previous employer.
What is the APR?
The APR is a government-mandated disclosure informing the applicant as to the cost of originating the loan expressed as an interest rate. It is not the rate at which the periodic payment is calculated.
With few exceptions, QMs limit a loan’s back-end DTI to:
In most cases, in order for a mortgage to be considered a Qualified Mortgage (QM), the loan’s back-end DTI can be no higher than 43%.
FACTA affords individuals which of the following considerations?
FACTA’s primary purposes surround affording consumers easy access to accurate credit information along with the prevention of identity theft. Although consumers do have the right to opt out of information sharing, that right is afforded to them through the Gramm-Leach-Bliley Act. The right to know the identity of the credit reporting agency used to render a credit decision along with the right to receive a free copy of one’s credit report in the event of declined credit is afforded through FCRA.
Barry Borrower has a fixed rate loan. After winning big on a scratch-off lottery ticket, Barry wishes to reduce his principal balance by $50,000. After applying the principal reduction, Barry would prefer that his servicer reduce the payment amount and not the overall term. Barry calls his servicer to discuss:
A mortgage servicer may, at its sole discretion, affect a recast by recalculating the payment amount of a fixed-rate loan after receiving a principal pre-payment. Doing so retains the original term at the fixed interest rate while lowering the payment amount. Servicers may do this as a courtesy and may also charge a fee to accommodate this request.
Jennifer is a 30-year old home buyer. In order to close on the purchase of her new home, she will need to bring $65,750 to the settlement table. Her only asset from which she intends to secure this money is her 401(k) account bearing a face value of $75,500. Jennifer demonstrates that she is the owner of the account, confirms that the account is vested, and that it allows for withdrawals regardless of her current employment status. As such, will Jennifer be able to close on her loan?
Investor criteria maintains that, if a borrower intends to use retirement funds as a source of settlement funds, unless the amount contained in any one specific retirement account equates to or exceeds 120% of the total amount of cash needed for the down payment and closing costs, the applicant will have to document that the account is theirs, it is vested, it allows for withdrawals regardless of the applicant’s current employment status, and their actual receipt of funds realized from the sale or liquidation of the asset.
If a buyer decides to buy a home for $175,000, put 10% down, and pay 1.5% in discount points, how much money will he spend on points?
If the purchase price is $175,000 and the buyer puts 10% down, his loan amount will be $157,500. If he purchases 1.5% in discount points, those points will cost him $2,362.50 (157,500 x 1.5%).
The E-Sign Act:
In order to consummate transactions electronically, consumers must first consent to this method and may not have rescinded their consent on, at, or prior to their transaction’s consummation.
PMI Is utilized:
PMI is utilized when a borrower has less than 20% to put down on a conventional loan purchase or when a customer refinances a loan into a new conventional loan with an LTV of above 80%.
Which of the following loans would require MIP?
All FHA loans, regardless of their initial LTV, require MIP. A conventional mortgage at an 85% LTV would require PMI not MIP. USDA and VA loans do not utilize MIP. Only FHA loans utilize MIP.
Joan applies for a mortgage on Tuesday. By the end of what day must the Transfer of Servicing disclosure be issued?
The Transfer of Servicing disclosure must be issued by the releasing entity no later than 15 days prior to a servicing release and by the receiving entity no later than 15 days after the receipt of servicing. The Servicing Disclosure Statement is the disclosure that must be issued within three precise business days of the receipt of an application.
What is the maximum LTV on USDA loans?
One of the primary benefits of USDA financing is its zero-down feature. Although a home buyer utilizing USDA financing may certainly make a down payment, it is never necessary. No down payment equates to a 100% LTV loan.
Of the following choices, which contains information that is not included in the six items constituting a live application?
The six items constituting a live application are social security number, date of birth, income, property address, estimated property value (or property purchase price), and loan amount.
What is another term for the URLA?
FNMA form 1003 is another designation for the uniform residential loan application (URLA).
At what equity position is MIP automatically removed?
MIP is the mortgage insurance associated with FHA loans. MIP is only removed after 11 years as long as the initial down payment was equal to or greater than 10%.
Lucy Loan Shopper wants to secure a $250,000 loan at a 30-year fixed-rate of 3.375%. Par pricing is at 4.125%. In order to reach the rate of 3.375%, Larry Loan Supplier would have to charge Lucy one and a quarter points. How much would Lucy have to pay to secure a rate of 3.375%?
One point equals one percent of the loan amount. Since the cost of the rate that Lucy desires is 1.25% in points, the loan amount (250,000) multiplied by 1.25% results in a points expense of $3,125.
Loan Officer Lenny calls Customer Cathy to attempt to get her to refinance her mortgage. Customer Cathy politely requests not to receive any further sales calls. What, if anything, must Loan Officer Lenny now do?
Although calling a current customer is permitted, if, at any time, that customer requests not to receive further sales calls or solicitations, that customer’s name and number must be added to that company’s internal do not call list. In the event that he or she is called again, the same penalty as if he or she were illegitimately called would apply. All companies must maintain a current internal do not call list.
Which of the following would not be a non-QM loan?
QM loans generally do not contain back-end DTI’s of greater than 43% and are fully income and asset documented.
In order to be eligible for VA financing, the applicant must possess a certificate of eligibility reflecting what entitlement amount?
Answer: d) The certificate of eligibility must reflect an entitlement of $36,000 indicating that the bearer is fully entitled to VA financing. The $36,000 represents ¼ of the guarantee that the VA offers for its financing. It does not limit the applicant, however, to a loan amount of $36,000 or $144,000.
When must a financial institution initially provide its customer with a copy of its privacy notice?
The Gramm-Leach-Bliley Act requires financial institutions to provide all customers with a copy of its privacy notice at the time when the customer relationship is established. This would most often occur at the closing. The financial institution is also required to provide its privacy notice annually thereafter or, in some cases, it may be allowed to post it online.
A/an _________ is an individual who uses a financial institution’s products and services while a/an _________ is an individual who has a formal business relationship with that institution.
The Gramm-Leach-Bliley Act defines a consumer as an individual who uses a company’s products and services but lacks a formal relationship with that business. One example would be an individual who uses the ATM of a bank with which s/he does not conduct business. While a customer may also use that business’ products and services, s/he also has a formal business relationship with that institution.
Which of the following is a major component of the Dodd Frank Act?
Prior to the Dodd Frank Act, borrowers were regularly approved for mortgage loans that they were incapable of repaying. This, in part, led to the mortgage market collapse of the late 2000’s. Dodd Frank ensures that, through its Ability to Repay rule, all mortgage recipients have clearly demonstrated their ability to repay their loan. Positively identifying one’s customer is a requirement established through the USA Patriot Act. Ensuring that a customer’s interest rate is reasonable is governed through TILA.
If a borrower has a mutual fund, how much of the fund’s face value may be used to satisfy reserve requirements?
When used solely to satisfy reserve requirements, 100% of a mutual fund’s face value may be considered.
30/15 refers to:
Balloon loans described by the term first (in years or months) followed by the balloon term (in years or months) lack a conditional right to modify. Describing the balloon term first followed by the difference between that and the 30-year term (ie. 7/23) describes a balloon loan containing a conditional right to modify.
Which of the following would not be considered public, personal information addressed through the Gramm-Leach-Bliley Act?
The Gramm-Leach-Bliley Act protects the sanctity of individuals’ non-public, personal information. Non-public, personal information is information that cannot be secured through a general records search or a Freedom of Information/Privacy Act request. Public personal information is information that may be secured through those means.
Remitting principal pre-payments to an adjustable rate mortgage in addition to the regular periodic payments, affects the ________?
Principal pre-payments remitted against the balance of an adjustable rate mortgage affect the future payment amounts. At the time of the next scheduled interest rate change, the mortgage servicer calculates the new payment amount considering the currently-applicable interest rate, the remaining term, and the existing principal balance. A balance that is lower than it otherwise would be due to the previous remittance of principal pre-payments will cause the new payment to be lower than it would have been had the balance been higher at the time of the interest rate change.
The process by which a fixed-rate loan repays is referred to as:
With each remitted principal and interest payment, more of the payment amount is allocated against the principal balance and less to interest. This process is referred to as amortization.
A 7/1 Hybrid ARM:
When defining a hybrid ARM, the first number appearing in its name represents the initial period of interest rate stability. All ARM loans are originated with 30-year terms. A 7/1 ARM, therefore, has a stable interest rate for the first seven years and adjusts annually thereafter for the remaining 23.
If a loan originator discovers an address on a credit report that the applicant didn’t mentioned, s/he should:
An address appearing on a credit report that was not disclosed on the 1003 is not necessarily an indication of fraud. At the very least it needs to be clarified and the applicant’s explanation noted in the file. If the applicant lived at that address within the previous two years, it would have to be added to the application.
Falsely representing a low property value to a lender is an example of:
Flopping occurs when an unscrupulous individual convinces a lender to release the lien on a property for less than owed based on an artificially deflated value which that individual then pays to the lender to secure ownership of the property. Once the lien is released, the fraudster then sells the property for its higher, true value and pockets the difference.
If a property is worth $750,000 and the borrower has a first mortgage of $227,000 and a second mortgage of $125,000, what is the LTV and CLTV?
The first mortgage of $227,000 divided by the property value of $750,000 results in an LTV of 30%. By adding the two debts ($227,000 + $125,000) and dividing their sum total ($352,000) by the property value ($750,000), the resulting CLTV is 47%.
What would the most ethical response be to a potential mortgage applicant who asks, “How much income do I need to earn in order to qualify for a purchase price of $325,000?”
A loan originator should never guide a customer towards presenting a more approvable application. The loan originator should simply analyze what the customer presents and offer options based on the customer’s true qualifications.
A property is worth $325,000. The homeowners owe a first mortgage of $112,000 along with a $70,000 home equity line of credit of which $45,000 is currently outstanding. What is the property’s TLTV?
The TLTV represents all outstanding encumbrances in relation to a property’s value. When the sum total of the first mortgage ($112,000) and the line of credit amount ($70,000) is divided by the property value (182,000/325,000), the resulting TLTV is 56%.
A buyer buys a home for $395,000 and puts 25% down. What is the amount of his down payment?
Twenty-five percent of a $395,000 sales price equates to $98,750 (395,000 x 25%).
The SAFE Act implements:?
The basic minimum standards are established by the Nationwide Multistate Licensing System and Registry (NMLS&R). States may, and many often do, implement more stringent requirements.
Harry Homebuyer has 7% to put down. He wishes to avoid PMI by pursuing piggyback financing. The scenario for which he decided is:
When structuring a piggyback loan scenario, the first number always represents the LTV of the primary mortgage. Since the primary goal is to avoid paying PMI, that loan must be at or below 80% LTV. The second number represents the LTV of the second mortgage and the third number represents the borrower’s down payment. All three numbers must add up to 100% since LTVs + equity must always equal 100%.
Conventional/conforming DTI guidelines are:
Although conventional/conforming DTI guidelines are established at 28/36, they are just that … guidelines. With compensating factors, conventional/conforming QM loans may be approved up to a 43% back-end DTI ratio.
What was one of the primary motivations for the creation of a UST?
Since most of the states modeled their rules after each other, many of the state exams were basically repetitions of other state exams.
A loan originator advertises that he has the lowest rates for a thousand miles. Which regulation, if any, did he violate by doing this?
The Mortgage Acts and Practices (MAP) Rule along with the Truth-In-Lending Act (TILA) regulate advertising. The loan originator would need to clearly and conspicuously substantiate his claim in equal prominence to the actual claim in order to legitimately advertise this claim, something that he would be hard-pressed to do.
A customer provides two months’ bank statements. The earlier of the two statements shows a $5,000 deposit that does not coincide with the applicant’s defined payment schedule. What, if anything, must the loan originator do?
To prevent money laundering, any deposit or credit that does not correspond with the applicant’s pay schedule needs to be “sourced” to ensure that the funds were received legitimately. In the event that the applicant is unable or unwilling to do so, at the very least, those funds would have to be subtracted from the account balance. The underwriter could also refuse to approve the loan. Technically, Fannie Mae requires that any deposit exceeding 50% of the applicant’s gross monthly income and that does not correspond with the applicant’s standard pay schedule must be sourced.
What is a benefit of securing a balloon loan?
Balloon loans often offer interest rates much lower than ARM initial start rates and those of fixed-rate programs. The balloon component makes the loan fairly risky.
What must a customer be able to demonstrate when requesting PMI be removed at 80% LTV?
At 80% LTV, an individual paying PMI may petition their mortgage servicer for the removal of PMI. In order to successfully petition their servicer, the customer must demonstrate that they have at least 20% equity by purchasing an appraisal from the servicer. In addition, the customer must also demonstrate that they have a good payment history and no subordinate liens.
Which of the following is not an exception to having to scrub a telephone number through the Do Not Call Registry before making an outbound call?
The Telemarketing Sales Rule allows for five exceptions to first scrubbing a telephone number through the Do Not Call Registry before making an outbound call. They are: when the call is made to a current customer, when the call is made to an individual who is not currently a customer but was one within the previous 18 months, when the call is made to someone who initiated an inquiry within the previous 90 days, if the caller is from a charitable organization, and if the caller is or the call involves a politician.
How long does a mortgage license remain in effect before requiring renewal?
Licenses expire annually on December 31st and must be renewed in order for the loan originator to maintain his or her ability to originate mortgages.
If an applicant discloses that she is a party to a lawsuit, what should the loan originator request?
As long as the applicant can demonstrate that she is a plaintiff, the application may be processed without disruption. As a plaintiff, the lender’s lien position is not jeopardized as it could be if the applicant was a defendant.
Which of the following is not a loan type warned about through the Guidance on Non-Traditional Mortgage Product Risks?
The Guidance on Non-Traditional Mortgage Product Risks was published to warn the lending industry of the dangers of continuing to originate mortgage loans that lacked consistent payment amounts and not thoroughly verifying applicants’ abilities to repay. The SAFE Act defines a non-traditional mortgage as any loan other than a 30-year fixed rate program. Even though the 5/1 ARM may have required the applicant to demonstrate their ability to repay, ARM loans were often originated based on the start-rate payment and not based on to what future payments could increase.
A veteran may be exempt from paying the funding fee associated with her VA loan if:
The VA will exempt any eligible veteran pursuing VA financing from having to pay the VA funding fee is s/he has a militarily-incurred disability defined by the VA medical system as 10% or greater.
How do principal pre-payments remitted against a fixed-rate loan balance affect the loan?
Unlike remitting a principal pre-payment against an adjustable rate loan balance, doing so against a fixed-rate loan balance accelerates the amortization while reducing both the loan’s term and overall interest rate expense. The payment amount is never affected.
The Loan Originator Compensation Rule:
Among other things, the Loan Originator Compensation Rule requires that any money resulting from the utilization of above-par pricing gets fully credited to the customer at closing. Prior to this rule, loan originators would often sell higher-than-market interest rates to customers and pocket resulting the “overages.” Because of this rule, that practice that is no longer permitted.
Piggyback financing refers to:
When a purchaser has less than 20% to spend as a down payment, PMI is typically required. To avoid paying PMI, a borrower may opt for a first mortgage at 80% LTV with a second (piggyback) constituting the difference between the 80% first mortgage and their less-than-20% down payment.
ALT-A loan Examples
The NINA is a “no income/no asset” loan. The NINANE is a “no income/no asset/no employment” loan. The SIVA is a “stated income/verified asset” loan. There is no such loan type as the NABA.
Example of disparate treatment
Only conducting business in English is not disparate treatment in and of itself. What causes it to potentially and adversely affect a particular population subset and be considered disparate treatment is the fact that the company is located in an Asian community. By only offering services in English, while located within an Asian community, the Asian population who may not speak English may be adversely affected. The loan originator who refers a customer who does not speak their language is not committing any type of offense because she does not speak their language. She is going the extra mile by referring that customer to someone with whom they can work. Refusing to work with non-U.S. citizens is an example of discrimination not disparate treatment. Operating up until 5:00 p.m. EST is fine because it affects all potential customers nationwide, not just some.
The FHA 203(k) loan is the FHA’s:
The 203(k) is the FHA rehabilitation program allowing for the acquisition of a property along with financing needed renovation. It may be used as both a purchase and refinance option.
Advantage to FHA financing
The minimum down payment permitted through FHA financing is 3.5%, much lower than its standard conventional counterpart’s of 5%.
On a purchase transaction, LTV is defined as
Since purchase prices and property values may differ, the LTV is established by dividing the loan amount by the lesser of the purchase price or appraised property value. The borrower may tap into equity established by a property value higher than the purchase price by selling the home as soon as immediately after purchasing it or by waiting one full year and refinancing or securing a home equity product.
Selling loan packages consisting of funded loans to investors is known as participating in:
The secondary market was established in 1938 with the creation of Fannie Mae. The secondary market provides investment firms with the funds that they need in order to purchase mortgage backed securities and participation certificates to sell to individual investors. This provides the money with which lenders fund homebuyers’ loans.
What is another common term for a home equity loan?
Home equity loans are often originated along with or after the origination of a first mortgage. As such, they take a subordinate lien position against the property’s title and are therefore typically referred to as subordinate liens. Any lien, whether a home equity loan, line of credit, or otherwise occupying a secondary or lower lien position may be referred to as a subordinate lien. A HELOC is a home equity line of credit.
The Dodd-Frank Act is responsible for the creation of the:
The Dodd-Frank Act consolidated many various regulatory authorities and centralized oversight of the U.S. financial industry under the Consumer Financial Protection Bureau (CFPB).
credit types would be governed by TILA?
Financing regulated by TILA involves the extension of credit to individuals for personal, family, or household purposes when the borrower’s dwelling secures the debt. TILA does not regulate loans applicable to business, agricultural, or organizational credit, credit in excess of $25,000 that is not secured by real property or a dwelling, public utility credit, credit extended by a broker registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission, home fuel budget plans, and student loans.
MLO Monica is refinancing the only mortgage secured by her customer’s primary residence. She just realized that the APR of the interest rate that her customer locked exceeds the APOR by 1.625%. Which of the following statements now applies?
With only a few exceptions, when a loan meets the criteria that classifies it as a higher-priced mortgage, an escrow account managing the homeowner’s insurance and real estate taxes becomes mandatory for the first five years. Additionally, a written appraisal with an interior inspection is required. Higher-priced mortgages are permitted as long as the above-referenced conditions apply. Lastly, there is no change to the standard right of rescission requirements.
______________ is the utilization one’s own funds to lend to borrowers. Through this type of lending, the lender earns all of the interest and underwrites based on its own rules.
When a lender lends its own money, it makes its own rules and earns the interest itself. Loans such as these are generally held in “portfolio” and may take a lender a while to achieve its return on investment. Portfolio lenders also usually retain all of the risk.
Gross rental income is considered at what percentage in the absence of a federal income tax return schedule E?
To account for vacancy potential, applicants are credited with 75% of gross rental income earned.
If a customer’s annual income is $75,000 and his housing expense is $2,100, what is his housing expense ratio?
An annual income of $75,000 translates to a monthly equivalency of $6,250. The housing expense of $2,100 divided by the monthly income of $6,250 results in a housing expense ratio of 34%
To be approved for a mortgage, the applicant should be able to demonstrate:
To be approved for mortgage financing, an applicant should be able to clearly demonstrate that s/he is able to repay the loan through a thorough review of his or her income, assets, employment, and credit.
Credit score ranges affords the applicant access to standard mortgage pricing
Standard mortgage pricing is the pricing associated with the highest credit scores. Lower scores result in higher pricing to offset risk.
index utilized in constructing ARMs
The COFI is the Cost of Funds Index. The LIBOR is the London Interbank Offered Rate. The COSI is the Cost of Savings Index. The TIPI is fictional.
At what interest rate tier would a 17-year note be priced?
Mortgage terms typically run between 10 and 30 years in increments of five. If a mortgagor chooses an “odd-year term,” that term is usually priced to the next highest five-year increment.
If a licensed mortgage loan originator acts in the capacity of an approved instructor by instructing approved continuing education courses, she may receive CE credit at a rate of:
A licensed mortgage originator may satisfy their annual eight-hour CE requirement after instructing four hours of approved CE.
If a borrower’s total expense ratio is 45%, her gross monthly income is $12,500, and the housing expense amounts to $1,575, how much is her remaining expense?
All expenses consume 45% of the borrower’s gross monthly income. If the income is $12,500, 45% of that equates to $5,625. If the housing expense consumes $1,575 of the $5,625, the remaining $4,050 is the amount constituting her remaining expense.
actions compromises ethics
If a customer instructs a loan originator to lock in their interest rate, the loan originator may share her suspicions about future rate reductions. The customer, however, ultimately decides when to lock and, if the customer instructs the loan originator to lock in their rate, the loan originator must comply.
A home’s purchase price is $120,000 but the property appraises for $155,000. The customer applies for a $100,000 mortgage. What is his LTV?
LTV consists of the loan amount divided by the lesser of the purchase price or appraised value. Since the purchase price is lower than the appraised value, the 83% LTV Is determined by dividing the loan amount of $100,000 by the purchase price of $120,000.
According to the SAFE Act, when does the fiduciary responsibility towards the customer begin?
The SAFE Act defines the moment that a customer accepts the assistance of a mortgage professional as the moment when that mortgage professional has a fiduciary responsibility towards that customer.
What is a potential drawback associated with a bi-weekly mortgage?
Lenders and mortgage servicers generally charge a one-time and/or periodic service fee to transform a borrower’s loan to and maintain it on a bi-weekly payment schedule. The borrower can achieve the same results, without any added expense, by remitting one extra monthly payment directly against the principal balance each calendar year.
A loan originator, processor, underwriter, appraiser, and closer are all in cahoots to defraud lenders of closing funds for their own personal gain. They fabricate complete files to submit to lenders for funding. This is an example of:
Air loans are loan files submitted to lenders for funding whereby everything contained within the file is false, fabricated, and fraudulent. Air loans are an extreme example of fraud for profit.
