New Questions Flashcards

Question

An MLO is required to protect a borrower's non-public personal information, per what federal law?

Answer 1

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).

Answer 2

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.

Answer 3

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.

Answer 4

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.

Answer 5

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!

Answer 6

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.

Answer 7

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.

Answer 8

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.

Answer 9

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.

Answer 10

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.

Answer 11

HMDA requires the collection of demographic data in order to prevent redlining, reverse redlining, blockbusting and other forms of discrimination in the mortgage industry.

Answer 12

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.

Answer 13

GLBA's privacy rules allows for the sharing of information with those necessary to complete the loan request.

Answer 14

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.

Answer 15

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.

Answer 16

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.

Answer 17

Seller concessions are costs that the seller or lender are paying. These costs can include title insurance, origination fees, and processing fees.

Answer 18

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.

Answer 19

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.

Answer 20

RESPA requires the servicer provide escrow statements annually to their borrowers.

Answer 21

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.

Answer 22

HMDA stands for Home Mortgage Disclosure Act.

Answer 23

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.

Answer 24

GLBA requires privacy notices be provided before disclosing information to non-affiliated third parties.

Answer 25

TRID requires that the Home Loan Toolkit be provided on all purchase transactions within 3 days of application.

Answer 26

The Loan Estimate discloses all the costs of the loan, including a YSP.

Answer 27

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.

Answer 28

Disability is a protected class under the FHA but not under ECOA.

Answer 29

Whereas HMDA is primarily concerned with identifying and preventing discrimination committed by organizations, ECOA is charged with the responsibility of preventing discrimination by individuals.

Answer 30

Fannie Mae Form 1009 is the Residential Loan Application used for Reverse Mortgages.

Answer 31

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.

Answer 32

The FHA allows for slightly higher DTI ratios than its conventional counterpart. FHA guidelines utilize 31/43 as ideal DTI ratios.

Answer 33

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.

Answer 34

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.

Answer 35

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.

Answer 36

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.

Answer 37

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.

Answer 38

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.

Answer 39

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.

Answer 40

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%.

Answer 41

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.

Answer 42

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.

Answer 43

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.

Answer 44

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.

Answer 45

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.

Answer 46

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.

Answer 47

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.

Answer 48

When the balance of the second mortgage (36,760) is divided by the property value (310,000), the resulting LTV equals 12%.

Answer 49

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.

Answer 50

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.

Answer 51

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.

Answer 52

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.

Answer 53

he four ARM components are: frequency of change, index, margin, and CAPS.

Answer 54

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.

Answer 55

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.

Answer 56

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.

Answer 57

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.

Answer 58

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.

Answer 59

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.

Answer 60

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.

Answer 61

Derogatory medical-related issues will not be held against an applicant for mortgage licensing.

Answer 62

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.

Answer 63

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.

Answer 64

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.

Answer 65

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.

Answer 66

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.

Answer 67

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.

Answer 68

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).

Answer 69

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%).

Answer 70

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.

Answer 71

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.

Answer 72

If a Realtor receives compensation from a mortgage broker for services rendered, many states will consider that Realtor to be a mortgage loan originator.

Answer 73

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%.

Answer 74

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.

Answer 75

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.

Answer 76

Both taking a mortgage application and doing so for profit or gain constitutes the SAFE Act’s definition of a mortgage loan originator.

Answer 77

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.

Answer 78

Although some state requirements may add more hours, the standard requirement for annual continuing education is eight hours.

Answer 79

“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.”

Answer 80

The national examination contains 100 multiple choice questions while the UST component adds an additional 25 for a total of 125.

Answer 81

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.

Answer 82

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.

Answer 83

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.

Answer 84

The Consumer Financial Protection Bureau is the regulatory entity overseeing the mortgage industry as empowered by the Dodd Frank Act.

Answer 85

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).

Answer 86

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).

Answer 87

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).

Answer 88

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).

Answer 89

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.

Answer 90

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.

Answer 91

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.

Answer 92

The penalty for violating the Telemarketing Sales Rule is not cheap! Violators may be fined up to $43,280 per occurrence.

Answer 93

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.

Answer 94

The Realtor conducted his business ethically while complying with RESPA because he informed the customer of the relationship and gave him other options.

Answer 95

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%.

Answer 96

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.

Answer 97

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.

Answer 98

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.

Answer 99

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.

Answer 100

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.

Answer 101

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.

Answer 102

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.

Answer 103

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.

Answer 104

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.

Answer 105

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.

Answer 106

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.

Answer 107

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%.

Answer 108

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.

Answer 109

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.

Answer 110

RESPA clearly prohibits the exchange of anything of value between actual or potential referral sources.

Answer 111

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.

Answer 112

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.

Answer 113

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.

Answer 114

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.

Answer 115

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.

Answer 116

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.

Answer 117

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.

Answer 118

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.

Answer 119

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.

Answer 120

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.

Answer 121

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.

Answer 122

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.

Answer 123

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.

Answer 124

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.

Answer 125

CRA stands for Consumer Reporting Agency. The three major CRAs are Equifax, Experian, and Trans Union.

Answer 126

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.

Answer 127

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.

Answer 128

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.

Answer 129

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%.

Answer 130

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.

Answer 131

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.

Answer 132

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.

Answer 133

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%).

Answer 134

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.

Answer 135

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%.

Answer 136

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.

Answer 137

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.

Answer 138

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.

Answer 139

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.

Answer 140

FNMA form 1003 is another designation for the uniform residential loan application (URLA).

Answer 141

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%.

Answer 142

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.

Answer 143

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.

Answer 144

QM loans generally do not contain back-end DTI’s of greater than 43% and are fully income and asset documented.

Answer 145

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.

Answer 146

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.

Answer 147

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.

Answer 148

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.

Answer 149

When used solely to satisfy reserve requirements, 100% of a mutual fund’s face value may be considered.

Answer 150

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.

Answer 151

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.

Answer 152

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.

Answer 153

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.

Answer 154

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.

Answer 155

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.

Answer 156

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.

Answer 157

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%.

Answer 158

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.

Answer 159

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%.

Answer 160

Twenty-five percent of a $395,000 sales price equates to $98,750 (395,000 x 25%).

Answer 161

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.

Answer 162

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%.

Answer 163

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.

Answer 164

Since most of the states modeled their rules after each other, many of the state exams were basically repetitions of other state exams.

Answer 165

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.

Answer 166

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.

Answer 167

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.

Answer 168

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.

Answer 169

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.

Answer 170

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.

Answer 171

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.

Answer 172

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.

Answer 173

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.

Answer 174

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.

Answer 175

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.

Answer 176

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.

Answer 177

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.

Answer 178

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.

Answer 179

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.

Answer 180

The minimum down payment permitted through FHA financing is 3.5%, much lower than its standard conventional counterpart’s of 5%.

Answer 181

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.

Answer 182

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.

Answer 183

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.

Answer 184

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).

Answer 185

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.

Answer 186

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.

Answer 187

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.

Answer 188

To account for vacancy potential, applicants are credited with 75% of gross rental income earned.

Answer 189

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%

Answer 190

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.

Answer 191

Standard mortgage pricing is the pricing associated with the highest credit scores. Lower scores result in higher pricing to offset risk.

Answer 192

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.

Answer 193

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.

Answer 194

A licensed mortgage originator may satisfy their annual eight-hour CE requirement after instructing four hours of approved CE.

Answer 195

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.

Answer 196

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.

Answer 197

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.

Answer 198

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.

Answer 199

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.

Answer 200

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.

Answer 201

Full replacement coverage protects the lender’s interests and covers the replacement cost of the property in the event of a loss.

Answer 202

FHA loan limits vary by geographic location, specifically, the county in which the property is located.

Answer 203

One of ten factors that HUD considers suspect when evaluating an entity for a sham affiliated business arrangement is whether or not that entity conducts business with other members of the lending industry aside from its affiliate. If it does not, that may be an indication of a sham AFBA. It might be a good idea to know those ten factors for this exam!

Answer 204

Although RESPA requires the issuance of HUD’s Home Loan Toolkit, it is only required for purchase-money transactions. The Loan Estimate and Mortgage Servicing Disclosure Statement are required on all transactions, and the ABAD is only required after a referral to a service provider in which the referring party has an ownership interest of 1% or greater or vice versa.

Answer 205

The sum of all encumbrances equates to 71% of the property value. The mortgage balance of $180,000 plus the line amount of $33,000 totals $213,000. The total encumbrance of $213,000 divided by 71% concludes a property value of $300,000.

Answer 206

Fannie Mae considers mortgage fraud to contain the elements of an intent to defraud, a misrepresentation to the consumer or lender, the omission of important and relevant information, and neglect of fiduciary responsibility to the customer or lender.

Answer 207

The Homeowners Protection Act mandates that PMI be automatically removed once a loan reaches 78% LTV as long as the loan is current. Although Lucy is at 78% LTV, she will not be released of her obligation to pay PMI until she either becomes current or reaches her loan’s amortization midpoint.

Answer 208

The VA does not consider a housing expense ratio when analyzing an applicant’s ability to repay. The only ratio guideline applicable for VA financing is the 41% back-end ratio.

Answer 209

Buy and bail is the unethical practice of buying a property as a second home with the intention of using it as a primary residence all the while intending to let the original home go into foreclosure once the buyer is in possession of the new property.

Answer 210

Although a red flag may be something legitimate that simply needs additional explanation, many times red flags are actual attempts to commit fraud. All answers to this question may be easily justified aside from an appraisal listing the property owner as someone other than the seller appearing on the sales contract.

Answer 211

The National Housing Act, establishing the FHA, was one of the federal government’s responses to improve conditions resulting from the Great Depression.

Answer 212

The Truth-in-Lending Act was amended in 1994 when Section 32 was added enacting the Home Ownership and Equity Protection Act (HOEPA). This regulation was enacted to address and stop predatory lending practices in purchases, refinances, open-ended credit plans, and closed-ended home equity loans that abusively charged excessive points, interest rates, and fees.

Answer 213

Mortgage Call Reports are required quarterly of all lenders. The reports transmit details pertaining to the loans originated by that lender during the previous quarter.

Answer 214

If a borrower remits a down payment of less than 10% on a conventional purchase, the seller may offer up to 3% of the purchase price as seller’s concessions. A down payment of 10% or greater but less than 25% would limit the concessions to 6%. Lastly, for down payments of 25% or greater, the seller may contribute up to 9% of the purchase price. If the subject property is intended for investment purposes, seller’s concessions are limited to 2% regardless of the LTV. FHA seller’s concessions are always capped at 6%.

Answer 215

The life-of-loan cap establishes an interest rate ceiling beyond which a particular loan’s adjustable interest rate may not climb. The four types of ARM caps are: initial adjustment, periodic, life-of-loan, and payment.

Answer 216

If a claim is paid out of an individual’s surety bond, the licensee will immediately need to file a new bond.

Answer 217

A common misconception is that gifts valuing $25 or less between actual or potential referral sources are acceptable. RESPA dictates, however, that nothing of any value whatsoever may be offered to or received by any actual or potential referral source unless the interaction involves education without self-promotion or the item is promotional in nature.

Answer 218

The clear and conspicuous disclosure of lending terms resulting from the use of triggering terms must be in the same language in which the main content of the ad appears.

Answer 219

Unscrupulous individuals preying on desperate people often attempt to convince individuals in foreclosure to sign their property rights over under the promise of “rent-to-own” again. Once the deed is transferred, the new owner satisfies the foreclosure and evicts the former owner, essentially stealing their property out from under them.

Answer 220

RESPA strictly prohibits markups to protect consumers from unscrupulous mortgage professionals desiring to profit at their expense. RESPA prohibits markups by classifying them as unearned fees. Markups involve charging a customer more than the cost of a third-party settlement fee and pocketing the difference.

Answer 221

When chartered by former president Lyndon B. Johnson in 1965, HUD was seen as a means to strengthen the federal government’s relationship with states and cities on urban issues. HUD’s mission, as related on its web site, is, “…to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination, and transform the way HUD does business.”

Answer 222

ECOA strictly prohibits denying or hindering access to anyone expressing an interest in applying for credit. Only an underwriter may render the decision as to whether or not to extend credit. Even though it is highly unlikely that a 97-year old will outlive their mortgage commitment, there are processes in place that address when a borrower dies while owing a balance. If the individual is otherwise competent and qualified, they must be given the opportunity to apply and be considered for the credit for which they applied. An indication of a lack of qualification may never preclude someone’s access to applying for credit. A 17-year-old, however, is not of legal age and may not sign legal documents. Although she may very well be 18 at the time of closing, the application is a legal document that must be signed as of the date of completion and, if the applicant is not of legal age, she may not do so.

Answer 223

The GLBA requires financial companies to provide opt out opportunities to their customers along with a reasonable amount of time to opt out before they share their customers’ information.

Answer 224

The aggregate escrow analysis analyzes the money in escrow to ensure that the servicer has enough funds to disburse the anticipated disbursements. The borrower’s payment amount is adjusted accordingly to account for increases or decreases in whatever is paid through the escrow account. If the escrow account contains more money than is needed, the servicer generally must refund or credit that amount back to the borrower. The term “aggregate” refers to the accounting function utilized to detect and eliminate escrow overages.

Answer 225

The four components of an ARM are: frequency of change, index, margin, and caps.

Answer 226

Although the borrower may use the proceeds of his loan for anything he wishes, including to pay for a vacation, refinancing to secure money for a vacation, in and of itself, is not a net tangible benefit. The underwriter would have to see something else of benefit to the borrower in order to approve the loan.

Answer 227

Closed-ended financing is a “one-time” allocation of funds that is repaid systematically under agreed upon terms involving a regular periodic payment amount and an established amortization term. Open-ended financing can be considered “two-way” money. Money may be borrowed against an established credit line amount, repaid, and then borrowed again under the terms of the credit agreement. Loans are typically closed-ended whereas credit lines are typically open-ended.

Answer 228

A tri-merge credit report merges data from all three credit repositories so that a complete credit review may be utilized. Some creditors only report to one or two credit repositories. Failure to review data from all three repositories may result in a lender missing valuable information.

Answer 229

As an exception to accommodate HMDA, ECOA allows mortgage loan originators to ask their customers to self-define their race, national origin, and sex. Inquiring about an individual’s intention to procreate is never acceptable nor is asking an applicant to elaborate about their marital status. Although applicants are required to define themselves as U.S. citizens, permanent resident aliens, or otherwise justify their legitimate presence in the United States, inquiring as to the country of their citizenship is never permitted.

Answer 230

Niche loans offer financing on unique property types or for individuals with unique borrowing needs. They are generally retained in portfolio and not sold into the secondary market.

Answer 231

A loan is deemed suitable for a borrower if her ability to repay is clearly established.

Answer 232

FCRA requires that financial institutions provide their applicants with the name and address of the credit repository from which they secured the applicant’s credit report so that the applicant may request a free copy of their credit report from the credit repository whenever they are denied credit due to credit-related reasons.

Answer 233

The truth-in-Lending Act prohibits advertising and promotion that falsely implies that the government has endorsed a particular program, product, or service.

Answer 234

The three main purposes of TILA consist of disclosing the cost of the credit to the customer, establishing the right of rescission applicable to non-purchase, primary residential transactions, and overseeing advertising. Comparative shopping considerations are addressed through RESPA.

Answer 235

Any NMLS&R-approved education provider may provide pre-licensing and continuing education as long as the offered course is also NMLS&R-approved.

Answer 236

Any licensee must make its books and records available to the Commissioner for review in response to any formal request for cause.

Answer 237

To ensure that borrowers are not being pressured into unnecessarily refinancing for the sole benefit of the lender and/or loan originator, all refinances must demonstrate a net tangible benefit to the borrower. Underwriters must complete a tangible net benefit worksheet for all refinance applications underwritten.

Answer 238

Straw sellers falsely claim ownership to a property for a fee and often appear at closings to act as the legitimate seller.

Answer 239

With a mortgage balance of $179,000 and an appraised value of $224,000, the LTV is 79%. Since PMI would only be required if the LTV was higher than 80%, PMI is not required.

Answer 240

In addition to the VA’s DTI requirement, all VA loan applicants must meet residual income requirements to demonstrate that there will be enough money left over after all monthly expenses are paid. The requirements for residual income are determined based on the household’s size and the location of the property.

Answer 241

The GLBA requires financial institutions to automatically provide their customers with their privacy policies upon opening an account as well as annually. In some cases, the creditor may be allowed to post its privacy policy on its website in lieu of annual notifications.

Answer 242

Upon learning that a claim has been filed against an individual’s surety bond, the Commissioner will require the filing of a new bond in order for the licensee to continue conducting business.

Answer 243

The CLTV constitutes all outstanding debt in relation to the subject property’s appraised value. Since the line of credit does not have an outstanding balance, the LTV of 45% is the same as the CLTV (215,000 + 0 = 215,000 / 475,000).

Answer 244

Owing multiple mortgages is not a concern as long as the borrower is qualified and managing the payments as agreed.

Answer 245

Obtaining personal or professional letters of recommendation is not a pre-requisite to securing a license to originate mortgages.

Answer 246

Although a reverse mortgage will become due and payable upon the death of a borrower, if one borrower dies but leaves a surviving borrower, the loan stays in effect. The loan would become due and payable upon the passing of all obligated borrowers and their spouses. Vacating the property for more than one year, allowing real estate taxes to become delinquent, and the exercising of eminent domain would all trigger the repayment of a reverse mortgage.

Answer 247

RESPA requires mortgage servicers to refund escrow overages amounting to $50.00 or more in the form of a credit to the next periodic mortgage payment or via check to the borrower. Although the servicer may opt to refund the $35.00 overage, it isn’t compelled to do anything since overages of less than $50.00 may stay in escrow to be absorbed by future shortages or added to future overages.

Answer 248

The licensing of mortgage loan originators is the responsibility of the Nationwide Multistate Licensing System and Registry.

Answer 249

With the implementation of QM’s through the Dodd-Frank Act, pre-payment penalties are limited to 2% of the outstanding balance during the loan’s first two years, 1% of the loan’s outstanding balance during the third year, and no penalty thereafter.

Answer 250

Each violation of the Gramm-Leach-Bliley Act may subject the violator to a fine of up to $10,000.

Answer 251

A home equity loan (HEQ) is a closed-ended, fixed-rate financial vehicle whereas a home equity line of credit (HELOC) is an open-ended, adjustable-rate financial vehicle.

Answer 252

Since licensees generally need their documents and records to conduct business, licensees are allowed to maintain access to their documents and records during investigations unless the Commissioner feels that allowing the licensee access would jeopardize the investigation.

Answer 253

TILA regulates creditors that offer credit to consumers, that make the credit subject to a finance charge or payable under the terms of a written agreement requiring repayment in more than four installments, and that regularly extend credit to consumers.

Answer 254

In accordance with the MAP Rule, “A representation, omission, or practice is material if it is likely to affect a consumer’s choice of or conduct regarding a product.” Since the loan being advertised was a standard ARM, by omitting any mention of the two-year pre-payment penalty, the consumer was not given all of the material information necessary to render an educated decision.

Answer 255

Section 35 of TILA addresses the requirements surrounding higher-priced mortgage loans.

Answer 256

Cash on hand is never permitted unless its legitimate source can be clearly identified and the money deposited into a deposit account.

Answer 257

HOEPA applies to primary-residential purchase-money mortgages, refinances, closed-ended home equity loans, and open-ended credit plans. Loans exempt from HOEPA coverage consist of reverse mortgages, construction loans (initial construction phase only), loans originated and directly financed by a Housing Finance Agency (HFA), loans originated under the U.S. Department of Agriculture’s Rural Development Loan Program, and mortgages secured by vacation or second homes and investment properties.

Answer 258

Although the Commissioner’s office may ultimately fine an individual guilty of wrongdoing, a legitimately-earned commission may never be negated.

Answer 259

As a part of the U.S.A. Patriot Act, the Bank Secrecy Act/Anti Money Laundering Rule (BSA/AML)is dedicated to preventing money laundering and the financing of terrorism. All cash transactions amounting to $10,000 or more trigger additional reporting requirements.

Answer 260

Fraud for profit is when some or all of the professional players orchestrating a fraudulent transaction benefit from the fraud. Although artificially-inflated values are often a component to illegal property flipping, that is not the best possible answer since the question did not indicate how long ago the property was initially acquired.

Answer 261

According to 12 CFR 1026.35 – Requirements for higher-priced mortgage loans, a higher-priced mortgage loan is a loan secured by the consumer’s principal dwelling bearing an annual percentage rate (APR) that exceeds the Average Prime Offer Rate (APOR) by 1.5% or more for loans secured by a first lien with a principal obligation that does not constitute jumbo financing, by 2.5% or more for loans secured by a first lien with a principal obligation that constitutes jumbo financing, or by 3.5% or more for loans secured by subordinate liens.

Answer 262

Seller financing occurs when the seller acts as the mortgage holder, attaches a lien to the property, accepts contractually-obligated payments from the buyer, signs ownership rights over to the buyer, and releases the lien upon satisfaction of the debt.

Answer 263

Since the overtime has been increasing and is likely to continue, you may count it as part of the police officer’s annual income. The two years’ gross earnings are averaged together to derive an annual average income of $61,500, the monthly equivalency of which is $5,125. The base salary is $3,900 monthly (1,800 x 26 / 12) and the average monthly overtime is $1,225 (5,125 – 3,900). The base monthly income of $3,900 plus the monthly overtime of $1,225 equates to her gross monthly income of $5,125.

Answer 264

With the 1938 creation of FNMA, the U.S. housing market was introduced to the secondary market. FNMA purchased mortgages originated and underwritten to its standards by saving and loan companies thereby channeling money into the housing market and allowing saving and loans to resume residential lending with mitigated risk.

Answer 265

Although it is never required, owner’s title insurance is always recommended since it protects the homeowner’s ownership interests in the property.

Answer 266

Product steering constitutes guiding a customer towards a product that is more profitable but does not necessarily serve the customer’s best interests. This is a direct violation of a Federal Reserve final rule that went into effect on April 1, 2011.

Answer 267

A balloon loan offers a typically low interest rate with a 30-year amortization in exchange for the balance becoming due and payable in full at an established point prior to the loan’s complete amortization. Balloon loans may or may not include a conditional right to modify.

Answer 268

Although ordering another appraisal in response to a low value is permitted, significant value discrepancies between the two appraisals will likely cause intense scrutiny.

Answer 269

A court order or other legal obligation must be established in order for an individual to have child support considered as qualifying income. The most recent six months’ worth of receipt must be documented along with evidence of continuance for a minimum of 36 additional months.

Answer 270

VA loans generally limit the periodic rate change to 1% above or below the previous rate and the life-of-loan cap to no more than 5% above the initial interest rate.

Answer 271

The NINA stands for “no income/no asset.” It does not conform to FNMA or FHLMC underwriting parameters since the applicant does not have to demonstrate qualification beyond having employment and quality credit.

Answer 272

The U.S.A. Patriot Act requires positive identification of all applicants through the visual inspection of a valid, government-issued, photo identification bearing a picture that closely resembles the person presenting it. By asking to see the husband’s but not the wife’s identification, Sylvia violated the U.S.A. Patriot Act. Loudly discussing their financial affairs would compromise their rights under the Gramm-Leach-Bliley Act. Failing to secure permission before accessing their credit profiles would violate the Fair Credit Reporting Act. Lastly, assuming their financial state without inquiring could be interpreted as steering or violating the Equal Credit Opportunity Act.

Answer 273

If the clerk earns $45,000 annually, this translates to $865.38 weekly (45,000 / 52). The weekly rate of $865.38 is then divided by 37.5 (since each day includes a 1/2-hour unpaid lunch break) to calculate his hourly rate of $23.07.

Answer 274

The E-Sign Act requires that all consumers be made aware of the technical requirements necessary for the utilization of electronic records prior to making the decision as to whether or not they wish to utilize that modality.

Answer 275

The hourly rate of $25 is multiplied by 35 to calculate the weekly rate of $875. The weekly rate of $875 is multiplied by 52 to calculate the annual rate of $45,500. The annual rate of $45,500 is divided by 26 to calculate the bi-weekly rate of $1,750.

Answer 276

Demonstrating constant insurance coverage is a requirement of all mortgages. The investor needs to be assured that its investment is continuously insured against loss. In the event that a borrower fails to maintain continuous insurance coverage or provide continuous evidence of such, the mortgage servicer will purchase a non-underwritten, force-placed insurance policy to protect its interests.

Answer 277

RESPA covers: loans made with funds insured by the federal government, loans made with funds from a lender regulated by the federal government, loans that are intended for sale to Fannie Mae or Freddie Mac, loans made by a creditor regulated under the Truth-in-Lending Act, and loan transactions involving federally related mortgage loans. Loans that are exempt from RESPA coverage consist of loans for 25 acres or more, loans for business, commercial, or agricultural purposes, temporary financing (bridge loans), loans secured by vacant land, loan assumptions that are permissible without lender approval (a simple assumption falls within this category), loans sold on the secondary market, and loan conversions when a new note is not required and the provisions are consistent with those of the original mortgage.

Answer 278

Continuing education must be completed within the year for which it is required. Taking multiple continuing education courses to stockpile CE credit for future years is not permitted.

Answer 279

After failing the exam once, the test taker must wait 30 days before making a second attempt. A second failure requires another 30-day waiting period. Failing it a third time requires a six-month waiting period.

Answer 280

If the two mortgages equate to a 93% CLTV of the $475,000 value and the first mortgage constitutes 56% of that, it stands to reason that the second mortgage constitutes 37% (93 – 56). Multiplying the $475,000 value by 37% concludes the second mortgage balance as $175,750.

Answer 281

Schedule B is the section of the title insurance binder on which any and all outstanding liens and encumbrances appear.

Answer 282

The Federal Housing Finance Agency (FHFA) establishes annual loan limits beyond which jumbo financing would be required. The current conventional/conforming loan limit for single-family properties is $548,250.

Answer 283

The concept of fiduciary duty establishes the loan originator’s responsibility to look out for the customer’s best interests. If the loan originator is able to earn a higher income by charging a higher interest rate, the loan originator receives an incentive to do what is in his or her own best interests versus the customer’s.

Answer 284

Disclosing an interest rate in an advertisement is a trigger term requiring the clear and conspicuous disclosure of the APR, whether the rate is fixed or adjustable and, if adjustable, after what duration of time, and whether or not the rate contains a balloon component.

Answer 285

There are many regulations and state-specific requirements associated with advertising. Loan originators are not necessarily versed on what may and may not be required. Company marketing departments are aware of what is and is not appropriate and required in advertising to maintain compliance.

Answer 286

State Commissioners may retain attorneys to act as examiners and auditors on their behalf. Criminal matters must be referred to the appropriate law enforcement authorities.

Answer 287

If a borrower makes a 25% down payment, his loan amount would be 75% of the purchase price. $350,000 x 75% = $262,500.

Answer 288

If the start rate is 3.5%, the 5/2/5 caps would prevent the rate from ever increasing beyond 8.5%. If the new index is 3.5% at the loan’s first change point, the customer’s interest rate will increase from 3.5% to 7.5% because the margin is 4% and index + margin = FIAR (3.5 + 4 = 7.5).

Answer 289

Asset renting is fraudulently representing ownership of funds to enhance one’s ability to qualify for financing.

Answer 290

The sum total of the monthly housing expense is $1,387.66 (1,101 + 183.33 + 48.33 + 55). The sum total of the other monthly debt is $845 (110 + 325 + 410). The monthly equivalency of his annual income is $6,833.33 (82,000 / 12). The housing expense of $1,387.66 divided by his monthly income of $6,833.33 renders a housing expense ratio of 20%. The total expense of $2,232.66 (1387.66 + 845) divided by his monthly income of $6,833.33 renders a total expense ratio of 32%.

Answer 291

The administrator of the test must be an approved test provider and, as such, may administer pre-licensing examinations in either an approved testing center or a company’s office.

Answer 292

The FBI Mortgage Fraud Warning Notice makes it clear that illegally influencing or attempting to illegally influence a lending institution is a crime that is subject to severe punishment. This notice appears on the URLA.

Answer 293

RESPA only requires an ABAD to be issued when a referral is made between entities sharing an ownership interest of 1% or greater.

Answer 294

Although tradeline verifications may be used to correct errors and issues on a credit report, each tradeline verification only addresses one particular issue. Multiple issues are best addressed through a full factual. A full factual (also referred to as an investigative consumer report) is a real-time verification and accurate report reflecting a consumer’s complete credit profile ascertained through interviews with the consumer and his or her creditors.

Answer 295

FCRA requires furnishers to notify CRAs when previously-reported information warrants correction, when a customer disputes the accuracy or completeness of previously-provided information, when customers become delinquent, and with the results of the investigation it must conduct along with whatever corrective action it is taking, if applicable, within 30 days of receipt of notification from a CRA informing it of a customer dispute. It is the user’s responsibility to certify permissible purpose to the CRA from which it ascertains consumer credit information.

Answer 296

Since the TLTV is 88% and the first mortgage’s LTV is 65%, the HELOC’s line amount must be at a 23% LTV. If the property value is $410,000, 23% of that amounts to $94,300.

Answer 297

If both mortgages together constitute 60% of the property value with the second mortgage constituting 12%, the first mortgage must constitute 48%. When the $395,000 value is multiplied by 48%, the result is $189,600.

Answer 298

Fees are defined individually by each state.

Answer 299

Applicants were often tricked into working with unscrupulous loan originators who purposely underquoted estimated closing costs to make it appear as if their costs were lower than those of their competition.

Answer 300

The FCRA requires anyone accessing another individual’s credit to have both permission as well as a permissible purpose. Although both individuals technically had permission, accessing the credit report did not satisfy a permissible purpose since the subject of the credit report was not in pursuit of that originator’s mortgage financing.

Answer 301

The Loan Application Register (LAR) is the form on which financial institutions report their HMDA data to the federal government.

Answer 302

If the TLTV is 90% and the first mortgage’s LTV is 70%, the HELOC’s LTV is 20%. If the property value is $412,000, 20% of that is $82,400. If $32,500 is already outstanding against the $82,400 line amount, the remaining available credit amounts to $49,900.

Answer 303

Since each state issues its own license and since Mary must be licensed in each state in which she desires to originate loans, the NMLS advises her of their process which includes applying through their portal to any and all states in which she ultimately seeks to become licensed.

Answer 304

A straw buyer falsely represents their intention for buying a home in return for a fee.

Answer 305

The owner’s title insurance policy that she purchased protects her property interests in the event of a title default. The owner’s policy will either pay her for her interest in the property or satisfy the tax lien. Had she had only purchased the lender’s title insurance policy, the policy would have paid off the lesser of the tax lien or the mortgage balance.

Answer 306

The underwriter is trained to apply investor guidelines and product parameters to determine an applicant’s creditworthiness. The underwriter ultimately renders the decision as to whether or not to lend.

Answer 307

RESPA prohibits any type of funds mismanagement such as co-mingling business funds with escrow accounts.

Answer 308

TRID requires no less than seven precise business days to elapse from the date that the Loan Estimate is issued before the loan may close. This is to afford the applicant ample time for further consideration during which they may review the costs and details of the loan for which they have applied.

Answer 309

Mortgage backed securities and participation certificates are the vehicles through which Fannie Mae and Freddie Mac, respectively, package loan files for sale to investors through the secondary market.

Answer 310

Once properly signed and executed, the deed defines the ownership of a property.

Answer 311

If the borrower is “upside down” with minimal assets, he may not be able to sell the home unless his lender approves a short sale. A short sale could also result in a deficiency judgment being placed against him for the difference between the loan balance and the amount for which the lender released the lien. A deed in lieu of foreclosure would significantly damage his credit. Ignoring the problem would not alleviate it. A modification to more manageable terms would likely be the best solution.

Answer 312

The note is the obligatory instrument describing the terms of the loan and which, by signing, the borrower obligates himself to the debt.

Answer 313

Modifying a loan involves changing the terms of an existing loan, often to make the loan more affordable. A loan modification is a common way to avoid foreclosure but is completely at the discretion of the mortgage servicer and investor.

Answer 314

HERA’s enactment led to significant changes within the mortgage industry. The primary overseers of this change and the entities that were ultimately responsible for creating the NMLS and the CFPB were the Conference of State Bank Supervisors, the Department of Housing and Urban Development, and the American Association of Residential Mortgage Regulators.

Answer 315

A consumer may not be penalized for having exercised his or her rights under the Consumer Credit Protection Act.

Answer 316

FCRA requires anyone accessing an individual’s credit to have permission as well as a permissible purpose. The loan originator had neither. The GLBA also protects individual’s non-public, personal information from being accessed without a legitimate reason.

Answer 317

The Homeowner’s Protection Act allows for borrowers paying PMI on conventional loans to petition their mortgage servicer for PMI removal at 80% LTV. Upon receipt of that petition, servicers are required to remove PMI once their borrowers demonstrate a 20% or greater equity position, a good payment history, that there are no subordinate liens attached to the property’s title, and that their loan is current. At 78% LTV, PMI must be automatically removed on a standard conventional loan as long as the loan is current. At amortization midpoint, PMI must be automatically removed on a standard conventional loan containing PMI.

Answer 318

When a right to rescind is exercised, the new loan does not fund, the loan which it may have originally intended to refinance does not pay in full, and any money that the applicants paid into the transaction must be fully refunded to them within 20 calendar days.

Answer 319

When a power of sale clause exists in a mortgage, the lender can take ownership of the property after default. If the mortgage does not include a power of sale clause, the lender has to file a lawsuit and a judicial foreclosure must ensue.

Answer 320

The public dissemination of disciplinary and enforcement action is one of the main deterrents to loan originator wrongdoing.

Answer 321

The Model State Legislation is the basic foundation constituting the SAFE Act’s implementation. States may individually layer on top of this basic model.

Answer 322

Non-traditional credit is credit that would not typically appear on a credit report. An underwriter may be able to utilize a non-traditional credit report to underwrite certain types of loans when the applicant has little-to-no established credit. A non-traditional credit report must contain a minimum of four tradelines with one being residential. All tradelines used must also contain a minimum 12-month history.

Answer 323

Together, the two mortgages consume 45% of the property’s value. If the second mortgage consumes 6% of that, the first mortgage must consume 39% (45-6). If the value is $415,000, 39% equates to $161,850.

Answer 324

Securitization was born in 1938 with the advent of Fannie Mae and the secondary market. Securitization provides a venue for investors to funnel money into the housing market by investing in the securities packaged by Fannie Mae, Freddie Mac, Ginnie Mae, and private investors.

Answer 325

Once the Closing Disclosure is issued, a revised Closing Disclosure must be issued when: the loan’s final APR exceeds the APR disclosed on the initial Closing Disclosure by more than 0.125%, the loan’s final finance charge exceeds the finance charge disclosed on the initial Closing Disclosure by more than $100, the loan product changes, or a pre-payment penalty is incorporated into the loan.

Answer 326

A lender may elect to waive the right to rescind on an otherwise rescindable loan in the presence of a bona fide financial emergency. All parties to the transaction must request the waiver in writing and the lender renders the final decision.

Answer 327

Interest rate caps are not something with which state regulatory authorities become involved.

Answer 328

The “Four C’s” of underwriting consist of Credit (the likelihood of repaying the loan), Capacity (the ability to repay the loan), Capital (the amount of savings representing responsible funds management), and Collateral (the lender’s security in the event that the loan is not repaid).

Answer 329

When permitted by state law, a lender will often pursue a deficiency judgment from the seller to recover the balance that was “forgiven” through a short sale.

Answer 330

The APR represents the cost of originating a loan expressed as an interest rate. Settlement fees that are excluded when calculating the APR consist of fees that would be paid in a comparable cash transaction, fees that all applicants pay regardless of whether or not they close on a loan (such as the application fee), fees charged by third-party settlement providers when use of the particular settlement service provider is required by the lender, the portion of settlement service provider fees that are in excess of the cost of the settlement services provided and that are retained by the lender, and any fee paid by someone other than the borrower.

Answer 331

The 4506-C is used to secure a copy of an individual’s federal tax return transcript from the IRS. There is currently no charge for utilizing this service. The 4506 requests the entire return. Form 1098 reports mortgage interest paid during the last calendar year, and the W-9 certifies an individual’s social security number for employment or income-earning purposes.

Answer 332

If Dennis’ hourly rate is $42.50 plus a 10% shift differential, his hourly rate becomes $46.75 (42.50 x 110%). Through a standard 40-hour work week, he earns $1,870 (46.75 x 40). In a year, he earns $97,240 (1,870 x 52). His monthly income, therefore, amounts to $8,103.33 (97,240 / 12).

Answer 333

To the mortgage industry, the term “person” means more than just a human being.

Answer 334

People should always trust their gut instincts. If an individual is feeling as if something is not right, s/he should, at the very least, consult with their manager.

Answer 335

The right or rescission is only extended to primary residential, non-purchase transactions. The settlement agent should never have provided a right to rescind document to a borrower refinancing an investment property.

Answer 336

PITI stands for principal, interest, taxes, and insurance.

Answer 337

When the interest-only period ends, assuming that the borrower has only remitted interest-only payments, the original balance would become fully amortizing and at a shorter term. This could significantly increase the payment.

Answer 338

When using overtime, bonus, or commission income to qualify for mortgage financing, standard investor criteria requires applicants to present their most recent two years’ federal tax returns whenever this monthly income equates to or exceeds 25% of their gross monthly base income. This is to demonstrate consistent receipt of this type of income as well as the likelihood of its continuance.

Answer 339

A straw seller falsely represents their authority to sell a home, which they often do not own, in return for a fee.

Answer 340

TRID requires that a Loan Estimate be issued to an applicant within three general business days from the date of application. A general business day is defined as any day of the week, aside from Sundays and federal holidays, on which the entity fully operates and conducts business.

Answer 341

The minimum down payment allowed through FHA is 3.5%. Consequently, the maximum LTV achieved through using the minimum down payment is 96.5%.

Answer 342

The longer the loan funds are reserved but not earning the investor interest because the loan has not yet closed, the higher the cost to the lender. Consequently, the longer the lock-in period, the higher the cost passed on to the applicant.

Answer 343

Ideal comparables are homes that are similar to and located within one-to-three miles of the subject property and that sold within the previous six months.

Answer 344

There are two types of construction loans: standard construction and construction-to-permanent. A standard construction loan requires that the loan be satisfied once the construction is complete. A construction-to-permanent loan turns the construction debt into an “end loan” at the completion of the construction.

Answer 345

If an applicant pays for any settlement fee or other costs prior to closing, the cost is listed on the Loan Estimate as POC’d (paid outside of closing).

Answer 346

Marvin would be best served by securing a bridge loan, also referred to as temporary financing. The bridge loan would create a lien against his current property which would be satisfied when the home sells. A home equity product would not be a viable option because few to no lenders would lend on a property that has recently appeared on MLS listings.

Answer 347

The HOEPA disclosure must inform the borrower that, just because they received disclosures and completed an application, they are not obligated to consummate the transaction. Furthermore, the disclosure must state, “If you obtain the loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligation under the loan.”

Answer 348

Option loans typically afford their borrowers four monthly payment options from which they may choose: minimum payment which could lead to negative amortization and payment shock, interest only which could lead to payment shock, a 15-year payment equivalency, and a 30-year payment equivalency.

Answer 349

By offering the incentive, the Realtor violated RESPA. Unless the loan originator accepts the offer, he does not commit a violation.

Answer 350

Construction loans finance the construction of a property and are satisfied immediately upon completion of the construction. Construction-to-permanent loans morph into “end loans” once the construction is complete. A rehab loan is typically a type of loan used to finance the rehabilitation and renovation of an already-existing dwelling, and a bridge loan is a form of temporary financing.

Answer 351

State licensing authorities may investigate any licensed loan originator or any individual required to possess a loan originator license.

Answer 352

A valid change of circumstance is defined as: an extraordinary event beyond anyone’s control, when information upon which the lender originally relied is ultimately deemed to be inaccurate or changes post disclosure, when new and relevant information surfaces post-disclosure, the occurrence of a natural disaster or act of God, and when the title insurance company intended for use terminates operations during the transaction.

Answer 353

Customers seeking to close on a loan that exceeds one or more of the established HOEPA thresholds must complete homeownership counseling from a HUD-approved counseling agency. Within three business days of receiving an application for a HOEPA loan, lenders must provide the applicant with a list of 10 homeownership counseling agencies that are closest to the zip code of the applicant’s current address.

Answer 354

RESPA prohibits the exchange of anything of value between actual or potential referral sources. As long as the Realtor does not partake of the bagels, the potential homebuyers may enjoy them and no regulatory violation would be committed.

Answer 355

Providing the proceeds to “fund” the loan is known as funding.

Answer 356

Condo dues, when owed, are paid to the condominium association directly by the homeowner.

Answer 357

Committing fraud on a federally-guaranteed or insured loan is neither smart nor cheap!

Answer 358

Prepaids refer to the funds that are needed when initially establishing an escrow account to account for the money that won’t be collected through the remittance of periodic payments. If the annual taxes, for example, are due to be paid through escrow within four months post-closing, there will not be enough money collected through those four payments to pay an annual tax bill. Eight months’ worth of “prepaid” tax payments would need to be collected at the closing table.

Answer 359

If a state regulator deems that an investigation warrants the interview of existing and previous customers, the licensed loan originator must accommodate that.

Answer 360

The FTC’s Red Flags Rule, among other things, requires that all financial institutions and some creditors implement and administer an identity theft prevention program that identifies the red flags of identity theft, designs a method of detecting the red flags identified, spells out the appropriate actions that anyone detecting a red flag must take, and details how the institution will keep its identity theft prevention program current to react to new threats.

Answer 361

FHA allows cash-out refinancing to a maximum LTV of 80%.

Answer 362

Part of the background check required for mortgage licensing is a review of the license applicant’s credit profile to determine financial responsibility. Wiretaps, personal interviews, and requiring security clearances are not a part of the mortgage licensing process.

Answer 363

Residential mortgage loans that do not require a right of rescission consist of: purchase transactions, refinances of non-primary residential properties, original mortgages refinanced through their original lenders, and refinances through state agencies.

Answer 364

State licensing agencies may not require a monetary sum to be placed into an escrow account pending an investigation’s resolution. They may, among other things, administer oaths and affirmations, require the production of relevant documents, and subpoena witnesses.

Answer 365

Processors and underwriters do not fall under the definition of Mortgage Loan Originator.

Answer 366

Without a centralized system, different states issued different requirements often making it quite cumbersome and complicated to conduct business throughout several states.

Answer 367

TILA establishes the right of rescission. TILA operates under Regulation Z.

Answer 368

Although a self-employed individual must typically be self-employed for a minimum of two years, if an applicant has been self-employed for at least one year and can demonstrate previous experience in the same field for at least the previous year, an exception may be made to allow for the consideration of the self-employed income. The applicant should be able to show an increasing level of experience and responsibility in the field in which he is now self-employed, and the field itself should be stable or growing.

Answer 369

A reverse mortgage will allow Sally to secure the financing that she needs as long as she can demonstrate that she can pay her taxes, homeowner’s insurance, and any other mandatory cost associated with owning the property. Additionally, Sally would not be required to make any payments during the life of the loan.

Answer 370

A standard ARM carries an initial interest rate that is stable for the first year and adjusts annually thereafter. A 1/1 is an example of a standard ARM. A hybrid ARM has an initial start rate that is stable for longer than just the first year.

Answer 371

A balloon loan typically offers a much lower start rate than a traditional 30-year mortgage.

Answer 372

$56,500 annually translates to $1,086.54 weekly (56,500 / 52). This weekly rate translates to an hourly rate of $28.97 based on a 37.5-hour work week (1,086.54 / 37.5).

Answer 373

When a revised Loan Estimate is issued, the closing may not occur for at least four precise business days after the consumer receives it. If the revised Loan Estimate is issued electronically or mailed via standard U.S. mail, the four precise-business-day waiting period is increased to seven to allow for mailing (unless the applicant confirms receipt prior at which time the day of acknowledged receipt begins the four precise-business-day waiting period).

Answer 374

Upon issuing the Closing Discloser, the closing may not occur for three precise business days in order to allow the customer time to reflect on into what they are entering. If the Closing Disclosure has been mailed or sent electronically, the three precise-business-day waiting period is increased to six to allow time for delivery. If the applicant acknowledges receipt of the Closing Disclosure prior to six precise business days, the three precise-waiting-day period begins on the date of the applicant’s acknowledgement of receipt.

Answer 375

HOEPA requires that anyone closing on a loan exceeding the conditions that define the loan as a HOEPA loan must receive a special HOEPA disclosure no later than three business days prior to closing that: informs them that the loan will not be effective until consummation or until the account is opened, explains the consequences of default, discloses the loan terms such as APR, amount borrowed, and the monthly payment, and, if the loan is an ARM, explains the maximum monthly payment that may be required.

Answer 376

RESPA mandates that any compensation be legitimately earned at a legitimate rate. No one may take an application unless they are licensed to do so in the state in which the property is located (unless they are an originator with a depository institution regulated by a federal banking regulator).

Answer 377

The reconveyance clause forces the conveyance of full property rights to the homeowner upon satisfaction of the debt.

Answer 378

All fees must be disclosed in good faith. In the event that a fee is ultimately higher than what was initially quoted, the lender may not charge an amount above what was originally disclosed unless the fee change was caused by a valid change of circumstance or, at the very least, a valid reason. In the absence of a valid change of circumstance, but in the presence of a valid reason, fee increase limit caps must be honored.

Answer 379

To avoid PMI on a $260,000 purchase price, the first mortgage could be no higher than $208,000 (80% LTV). If the borrower has 15% to put down ($39,000), an additional $13,000 would be needed to bridge the gap.

Answer 380

Since a reverse mortgage is an FHA loan, anyone on the title of the home must be on the mortgage. The only reverse mortgage exception is if the individual under the age of 62 is the borrower’s spouse. Since his girlfriend is younger than 62 and not his spouse, she may not apply for the reverse mortgage. Since she is also on the title, she would have to relinquish her ownership interest in the home in order for him to apply in his own name. If she was his wife, however, she could remain on the title while he applies for and settles on the reverse mortgage in his own name. Nothing like this should be actualized, however, without first seeking the guidance and advice of a competent legal and/or income tax professional.

Answer 381

In the presence of a valid change of circumstance, a revised Loan Estimate must be issued no later than three general business days from the date of the change of circumstance.

Answer 382

Any location where a license is needed to originate residential mortgages is referred to as a state. Any actual state or United States territory fits this definition.

Answer 383

The Dodd-Frank Act was signed into law by former president Barack Obama in 2010.

Answer 384

The 203(k) loan is the FHA rehabilitation mortgage. Construction and construction-to-permanent loans are generally used to build a home from scratch. An IRRRL is the VA streamline refinance.

Answer 385

The single purpose reverse is a loan to fund a particular purpose such as home improvement or the payment of overdue taxes. A proprietary reverse mortgage is a private reverse loan. The home equity conversion mortgage (HECM) is the standard reverse mortgage.

Answer 386

Individual states are responsible for issuing mortgage originator licenses. The NMLS is the oversight system through which the states operate.

Answer 387

If an ARM start rate is within three percent below FIAR, it is referred to as a discount rate.

Answer 388

FNMA form 1025 is used to appraise multi-family properties intended for use, in whole or in part, as investment properties. Had the property been a single-family dwelling to be used for investment purposes, the appraiser would have used form 1007. Form 1004 is synonymous to the URAR (Uniform Residential Appraisal Report), the standard appraisal form used to appraise single-family, primary residences.

Answer 389

Fraud alerts are alerts that consumers may add to their credit profile warning prospective creditors that they must take extra steps to confirm the applicant’s identity.

Answer 390

With a 2/6 cap structure and a start rate of 3.375%, the highest to which the rate can adjust at the next adjustment point is 5.375%. Even though the rate should technically be 5.875% (2.875 + 3), the 2% cap restricts it from increasing higher than 5.375%.

Answer 391

If the $275,000 loan amount equals 78% of the purchase price/appraised value, dividing the loan amount by 78% will calculate the purchase price/appraised value.

Answer 392

When a revised Closing Disclosure is issued, three additional precise business days must elapse before the customer may consummate the transaction in order to provide the customer with ample time to consider the changes and into what they’re entering.

Answer 393

The Gramm-Leach-Bliley Act, among other things, requires all financial institutions to implement a program to protect the sanctity of customers’ and consumers’ non-public, personal information. This program must be assigned an individual overseer, must be periodically updated, and must be regularly tested.

Answer 394

Active duty alerts afford extra protection to actively-deployed military personnel who are unable to regularly monitor their credit profiles.

Answer 395

Once the Closing Disclosure is issued, the lender may not issue a revised Loan Estimate. If a valid change of circumstance occurs between the fourth and third days prior to closing but before the issuance of the Closing Disclosure, the lender may reflect the changes on the Closing Disclosure.

Answer 396

The cost approach considers the cost of labor and material. It is commonly used when appraising homes for construction or rehabilitation. The income approach utilizes an Operating Income Statement (OIS) to compare rental potential when financing a property intended for investment purposes. The sales comparison approach compares three similar and recently-sold properties in close proximity to the subject property in order to determine the subject property’s market value by comparative analysis.

Answer 397

Length of time with an employer connotes stability. The employment of someone who has recently began working for a particular employer is seen as less stable than that of someone who has been working for an employer for a considerable length of time.

Answer 398

The schedule A of a title insurance binder describes who is listed as the owner or owners of record on a property and also provides the property’s legal description.

Answer 399

The lock-in agreement guarantees the customer a particular interest rate for a particular timeframe. The loan must close and fund within this timeframe in order for the lock-in agreement to be honored.

Answer 400

Under 12 USC § 5111; 12 CFR §1008.3; MSL.150, information provided to the NMLS “(m)ay be shared with other state and federal officials involved with mortgage industry oversight without the loss of privilege and confidentiality protections provided by law.”

Answer 401

Equity-based lending involves concluding a minimal risk to lend because of a low LTV. In the event that the borrower defaults, a lender lending at a low LTV is almost guaranteed to recover its investment. The borrower’s qualifications are not heavily weighted.

Answer 402

A short sale occurs when the lender accepts the sales price at current market value as the payoff and releases the lien for less than the amount owed. A possible downside is that the lender may still demand the difference between the mortgage balance and the amount for which they agreed to release the lien and may ultimately pursue a deficiency judgement against the former homeowner.

Answer 403

The FTC’s Disposal Rule mandates that any non-public, personal information be disposed of only through shredding, burning, or pulverizing. Although recycling paper is always a good idea, the paper on which the information appears must first go through one of those three processes.

Answer 404

The LTV consists of the loan amount divided by the lesser of the purchase price or appraised value.

Answer 405

A lender may never consider an individual’s reproductive intentions or abilities when considering their loan application.

Answer 406

The accountant’s annual salary of $78,500 carries a monthly equivalency of $6,541.67 (78,500 / 12). His $778 bi-weekly P&I carries an annual equivalency of $20,228.00 (778 x 26). To this the annual homeowner’s insurance premium and real estate taxes are added to total $21,938 (20,228 + 1,100 + 610). The sum total is then translated to a monthly housing expense equivalency of $1,828.17 (21,938 / 12). When the monthly housing expense is divided by the monthly income, the result becomes 28% (1828.17 / 6541.67).

Answer 407

If the carpenter earns $1,700 weekly, that translates to $88,400 annually (1,700 x 52). His annual income of $88,400 translates to a monthly equivalency of $7,366.67. Since his monthly social security income of $1,025.00 is untaxed, this can be increased by 25% to $1,281.25 which, when added to his monthly salary of $7,366.67, results in a monthly income of $8,647.92 (for underwriting purposes).

Answer 408

Appraisals should always be dated after the sales contract.

Answer 409

Respondeat Superior is translated from Latin to mean “Let the Master Answer.” This is a legal doctrine holding an employer, along with the employee, culpable for that employee’s actions.

Answer 410

Instead of securing evidence of pay, W-2 employers may complete a written verification of employment (VOE) describing the employee’s income, position, and likelihood of continuation. A VOD is a verification of deposit.

Answer 411

The reconveyance clause forces the conveyance of full property rights to the homeowner upon satisfaction of the debt.

Answer 412

A residential mortgage loan is “any loan primarily intended for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling.”

Answer 413

Avoiding demographic areas due to a perceived inability to qualify constitutes a major ethical offense known as redlining.

Answer 414

Based on geographic location and family size, if an applicant earns a specific amount of residual income or more, an underwriter may be inclined to approve a VA loan application with a back-end DTI ratio of greater than 41%.

Answer 415

Mail fraud does not require a person to actually mail anything. A person can be convicted of mail fraud if their scheme to defraud involves even the potential use of the U.S. mail or another commercial delivery service.

Answer 416

FACTA requires a Notice of Victim’s Rights to be issued by the CRA to any individual reporting identity theft. It describes protections afforded to anyone who becomes a victim of identity theft as well as guides them as to what they can do to attempt to resolve the issue.

Answer 417

In accordance with the FTC’s Red Flags Rule, a covered account includes any account that is offered or maintained by a financial institution or creditor, is intended for personal, family, or household purposes, and is designed to permit multiple payments or transactions.

Answer 418

FHA loans are generally assumable. A fully-qualifying assumption occurs when a buyer is added to the title of a home as well as to the note while the seller is removed from both. The buyer simply takes over the seller’s loan along with the property ownership rights while the seller is relinquished of both. The buyer must compensate the seller for any difference between the loan amount assumed and the home’s market value.

Answer 419

Under FACTA’s Red Flags Rule, all companies must have a formal policy in place to prevent identity theft. Since the picture on the ID did not resemble the person standing in front of you, you must comply with your company’s Identity Theft Prevention Program.

Answer 420

ECOA specifically prohibits any creditor from holding an individual’s exercising their rights under the Consumer Credit Protection Act against them.

Answer 421

FACTA requires CRAs to share fraud alert requests received with the other CRAs in addition to placing the alert on the consumer’s credit profile. If, for example, a consumer submits a fraud alert to Trans Union, in addition to Trans Union immediately adding the alert to the consumer’s credit profile, it must forward that fraud alert to Equifax and Experian. If a creditor sees a fraud alert on a credit profile, it must verify the identity of the applicant by contacting them at a telephone number listed as a part of the alert or by other vigilant means.

Answer 422

Option loans afford borrowers with four monthly payment options from which they may freely choose. By remitting the minimum payment option, the borrower would most likely experience negative amortization. Option loans generally contain a balance cap which, when reached, triggers the servicer to adjust the payment amount to accommodate the existing balance, remaining term, and current interest rate. Since reaching the balance cap is never guaranteed, options loans also include a re-cast point that, when reached, would also cause the servicer to adjust the payment amount in the same manner as if the balance cap was reached.

Answer 423

FHA does not offer a no-down payment loan. It’s minimum down payment of 3.5%, however, is significantly less than the minimum 5% down payment of its conventional counterpart.

Answer 424

TILA requires the issuance of both the CHARM Booklet and an Early ARM Disclosure within three business day of an application for a closed-ended ARM. The CHARM Booklet discusses how ARMs perform while the Early ARM Disclosure describes the terms specific to the ARM for which the applicant applied.

Answer 425

Energy efficient mortgages refinance existing mortgages or may be used on newly-constructed properties to finance the installation of equipment used to render the property as more energy efficient.

Answer 426

Conventional mortgages typically require a minimum down payment of 5%. This money may come from the borrower’s own funds, gift funds, subordinate financing, or a combination thereof.

Answer 427

A property located in a title theory state requires the borrower to issue legal title to the mortgagee. The mortgagee technically owns the property until the debt is paid at which time the deed is transferred to the homeowner. In a lien theory state, the borrower retains equitable title. A property located in a lien theory state requires the lender to place a lien against the property’s title that necessitates the initiation of a judicial foreclosure proceeding in the event of default.

Answer 428

The FHA 251 refers to the FHA’s adjustable rate mortgage offered in 1/1, 3/1, 5/1, 7/1, and 10/1 formats. The 203(k) is the FHA rehabilitation loan and the 203(b) is the standard 30-year FHA fixed-rate loan.

Answer 429

The list of financial institutions subject to the Patriot Act is long. Some of the types of businesses subject to this regulation consist of: federally-regulated banks, foreign banks located throughout the United States, credit unions, non-federally-regulated private banks, persons involved in real estate closings and settlements, casinos, pawnbrokers, and automobile dealerships.

Answer 430

Not qualifying due to the amount of income earned or for the inability to demonstrate appropriate income continuance is a legitimate reason for declining a mortgage application. Declining an application solely due to the applicant earning income from public assistance, however, directly violates the ECOA. Shady Deals erred by stating that the reason for declining the application was the receipt of public assistance. Instead, it should have said that the reason for declination was the inability to substantiate adequate income continuance.

Answer 431

TRID requires the re-disclosure of the Closing Disclosure along with a three-day delay in closing any time when the final APR is higher than the APR disclosed on the original Closing Disclosure by more than 0.125% or when the final finance charge is higher than the finance charge disclosed on the original Closing Disclosure by more than $100.

Answer 432

There are five specific settlement service providers that a lender may dictate the use of: flood certification provider, tax search provider, appraiser, credit repository, and lender legal representation when it is customary for the lender to retain its own legal representation. Otherwise, RESPA affords all applicants the right to choose their own settlement service providers.

Answer 433

18 USC Section 1014 states that, “…it is a crime to knowingly make false statements or to overvalue land or property in order to influence the decision of a lending institution.”

Answer 434

Testing is the process through which federal examiners “test” mortgage professionals to determine whether or not they act compliantly. In this case, had Penny returned the call from the $350,000 loan customer first, even though the caller inquiring about the $35,000 loan called first, Penny could have been accused of committing “disparate treatment.” This is because the caller inquiring about the lower loan amount may not have been able to afford a more expensive home and she could have been seen as giving the more profitable caller preferential treatment. Testing that catches violations are sanctioned far more severely than are violations that are self-identified and self-reported.

Answer 435

Any time a first mortgage is refinanced and a secondary lien retained, the servicer of the secondary lien will be asked to sign a subordination agreement through which it agrees to remain in a subordinate lien position. With the exception of servicers servicing liens of less than $50,000 on properties located in the Commonwealth of Virginia, servicers are not required to sign subordination agreements. They may require compliance with specific requirements to do so, and, when they agree to subordinate, they often charge fees.

Answer 436

Closing costs must always be paid out of pocket. Any veteran may secure a VA mortgage as long as s/he qualifies and can present a valid certificate of eligibility. The minimum down payment is 0% on VA mortgages, and the maximum origination fee permitted by the VA is 1%.

Answer 437

An individual possessing an ownership interest in a property to which s/he is not obligated to the debt is referred to as a non-obligated owner. An obligated owner has both an ownership interest in the property as well as an obligation to the debt. An obligated non-owner is an individual who has no property rights but is fully obligated to the debt.

Answer 438

Transacting funds secured through illegal activity in order to distance them from their illegal source constitutes money laundering. It is important to source any funds not readily identified. If a credit on an asset statement does not correspond to the applicant’s pay schedule, the underwriter may require an explanation of the money to ensure that it is not borrowed or that the applicant is not laundering funds.

Answer 439

Requiring permission to obtain an individual’s credit report is a CRA obligation under FCRA not FACTA.

Answer 440

ARMs such as Option ARMs and ARMs containing an interest-only component were the likely causes of many home foreclosures. Typically, homebuyers who chose these products understood neither how they functioned nor their associated risks. All ARMs are underwritten to 30-year terms.

Answer 441

Subprime mortgages were created to assist those in need of “outside the box” financing along with those who had damaged credit because they did not meet the qualificational requirements of standard mortgage financing.

Answer 442

Once the Closing Disclosure has been issued, TRID mandates that a revised Closing Disclosure be issued when the loan’s final APR exceeds the APR disclosed on the Closing Disclosure by more than 0.125%, the loan’s final finance charge exceeds the finance charge disclosed on the Closing Disclosure by more than $100, the loan product changes, or a prepayment penalty is added to the loan.

Answer 443

Self-testing is the process through which loan originators are “tested” by their companies to ensure that they are acting compliantly. Companies that self-report their violations and wrongdoing are less likely to attract a federal audit than companies that do not. Furthermore, companies that self-report their violations are generally sanctioned less severely than those whose violations are discovered through audit.

Answer 444

Penalties are steep. Violate a federal statute and you could face up to 30 years in federal prison and/or a fine of up to one million dollars.

Answer 445

The Initial Escrow Statement, also referred to as the Escrow Accrual Sheet, defines the status of the escrow account as of the closing date and further defines who is responsible for issuing any escrow-related disbursement due within 60 days of closing.

Answer 446

In October, 2010, the minimum FHA down payment was increased from 3.5% to 10% for anyone whose credit score falls below 580.

Answer 447

Negative amortization occurs when a mortgage balance increases after the acceptable periodic payment is credited. Negative equity is the state in which a home’s value is lower than the outstanding debt securing it. Both are mutually exclusive of each other.

Answer 448

FACTA requires lenders to inform applicants of their representative credit score through a separate disclosure issued at the time of application. The notice of right to rescind is a requirement of TILA and the authorization to release information is signed by the borrower at the time of application in order to authorize third parties to release documentation necessary for the lender to complete its underwriting analysis. There is no disclosure known as the identity theft disclosure notice.

Answer 449

Red flags do not automatically evidence wrongdoing. Red flags do require additional scrutiny and, usually, an explanation. Although an applicant changing jobs during a mortgage application may cause additional work, the need for further explanation, and could possibly render them un-creditworthy, that, in and of itself, would not be a red flag.

Answer 450

Although removing Steven from the title of the property is always an option, it may not be the easiest or most favorable solution. Because he has an ownership interest, Steven must consent to whatever liens are placed against the title of the property. To remain a non-obligated owner, Steven will either have to attend the closing and sign the Security Instrument (but not the Note) or he will need to sign a Power of Attorney, specific to this transaction and approved by the lender, that affords Sally (or a different third party) the right to sign the Security Instrument on his behalf.

Answer 451

In the presence of non-traditional income, a lender must ensure that the recipient is legally entitled to receive the income, has been consistently receiving it for the previous year (six months for obligated child support), and is expected to receive it for at least three more years.

Answer 452

All reverse mortgages require the applicant to produce a certificate evidencing their completion of independent, third-party, homeownership counseling.

Answer 453

Although all parties to the transaction must receive two copies of the right to rescind document at the closing of a rescindable loan, any one party may exercise it at his or her sole discretion.

Answer 454

Anyone who has an ownership interest in a property being financed is considered a “party to the transaction.” All “parties to the transaction” must sign the Mortgage or Trust Deed acknowledging and consenting to the lien being attached to the property in which they maintain an ownership interest.

Answer 455

The Truth-in-Lending Act requires that each party to the rescindable transaction receives two copies of the right to rescind whenever a loan containing a right to rescind is settled. Since this refinance was of a three-family, primary residence, it included the right to rescind. The settlement agent should have issued each party to the transaction two copies of the right to rescind.

Answer 456

Unless the loan is for an “income sensitive” product such as USDA, a community lending, or a state bond program, the applicant is never required to disclose the earnings of alimony, child support, or separate maintenance. In fact, all applicants, aside from those applying for USDA, community lending, or state bond loans, must be made aware that the disclosure of this income is voluntary. If an applicant is required or opts to disclose it, however, the income must be court ordered, a history of its receipt established, and its duration of continuance demonstrated.

Answer 457

If the purchase price is $165,000 and the customer puts down 10%, the loan amount equates to $148,500 (165,000 – 16,500). Once the LTV reaches 78% of the original LTV, the PMI will be automatically removed assuming that the loan is current. The 78% LTV will be achieved once the balance reaches $128,700 (165,000 x 78%). If the loan amount starts at $148,500, an additional $19,800 will have to be paid against principal balance to reach the $128,700 balance equating to a 78% LTV.

Answer 458

TRID defines a change of circumstances to be: an extraordinary event beyond anyone’s control, when information that the lender initially relied upon is ultimately deemed to be inaccurate or changes post-disclosure, when new and relevant information surfaces post-disclosure, the occurrence of a natural disaster or act of God, or when the title insurance company intended for use terminates operations during the transaction.

Answer 459

The FCRA requires CRAs to protect consumers’ privacy along with the sanctity of their information in credit transactions. It is for these reasons why permission to access credit, along with a permissible purpose, is always required from anyone seeking to access someone’s credit data.

Answer 460

An interest credit is issued when the first payment due date is established as the first day of the month directly following the month in which the loan closed. Since the entire month’s worth of interest will be collected through the receipt of the first payment, the interest credit refunds the applicant the per diem interest amount for the days of the month prior to closing when they did not yet owe the money.

Answer 461

It is the loan originator’s responsibility to positively identify all customers in all face-to-face transactions. Failure to do so could render the loan originator personally liable for any crime committed through the theft of another individual’s identity.

Answer 462

Per diem interest refers to the daily interest amount owed. The formula for calculating the per diem interest amount is the outstanding balance multiplied by the interest rate divided by 365.

Answer 463

The only answer option contained within this question that represents engagement in the act of residential loan origination is the taking of a mortgage loan application.

Answer 464

Freddie Mac’s (FHLMC’s) Automated Underwriting System (AUS) is referred to as Loan Product Advisor or LPA.

Answer 465

A note receivable is an income stream earned from the repayment of a debt someone owes to the note holder. If the note is produced along with an on-time, 12 consecutive or greater monthly payment history as well as evidence of a minimum three-year continuance, the note receivable may be utilized as qualifying income.

Answer 466

The GNND program offers significant benefits to certain professionals such as firefighters, police officers, and EMTs in exchange for moving into the neighborhood and heightening the professionalism and safety of the people living within the community.

Answer 467

Of the eight hours required by the NMLS for annual continuing education, two hours must address ethics.

Answer 468

The LTV is calculated as 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 LTV is calculated by dividing the loan amount by the lower purchase price. 69%

Answer 469

The ten sections of the original form 1003 consist of: 1.) Mortgage and Terms of Loan, 2.) Property Information and Purpose of Loan, 3.) Borrower Information, 4.) Employment Information, 5.) Monthly Income and Combined Housing Expense Information, 6.) Assets and Liabilities, 7.) Details of Transaction, 8.) Declarations, 9.) Acknowledgement and Agreement, and 10.) Information for Government Monitoring Purposes.

Answer 470

A signed IRS form 4506-C authorizes the provider to receive a copy of the federal tax return transcript of the individual who signed it. There is no fee for this request.

Answer 471

The Closing Disclosure is a cost disclosure since it reflects the final accounting of the mortgage transaction.

Answer 472

If the construction worker’s monthly income is $3,800, his annual income is $45,600 (3,800 x 12). If his annual income is $45,600, his weekly income is $876.92 (45,600 / 52).

Answer 473

Conventional financing refers to mortgage loans that are not funded, purchased, or securitized by purely-governmental entities. Conforming describes any loan that “conforms” to Fannie Mae or Freddie Mac underwriting criteria as well as FHFA-established annual loan limits. Conforming and portfolio loans (portfolio meaning loans which are underwritten to an individual lender’s individual parameters) are always conventional. Government loans adhere to government underwriting criteria and defined loan limits.

Answer 474

If an individual originates mortgages for an institution regulated by the Farm Credit Administration, s/he does not require a license but must possess an NMLS unique identifier by becoming a registered loan originator.

Answer 475

Although the Do Not Call Rule previously limited the timeframe that a telephone number remained on the Do Not Call registry to five years, that was eventually extended to until the individual requests its removal.

Answer 476

Because the telemarketer called at 6:45 p.m. P.S.T., his call was received by the New York consumer at 9:45 p.m. E.S.T. The Telemarketing Sales Rule prohibits placing calls to consumers outside of the hours of 8:00 a.m. – 9:00 p.m. call recipient time.

Answer 477

The Consumer Financial Protection Bureau took its authority through the Dodd Frank Act effective July 21, 2011.

Answer 478

Charging higher interest rates to someone with a lower credit score, known as risk-based pricing, offsets risk and is therefore acceptable as long as the higher rate doesn’t violate other regulatory considerations and the borrower is still able to afford the payments.

Answer 479

The Gramm-Leach-Bliley Act was enacted as a result of a former U.S. Senator receiving solicitations from a company with which he did not normally conduct business at a private address only provided to a financial institution at which he recently opened an account.

Answer 480

FACTA’s FTC Disposal Rule requires all non-public, personal information to be disposed of only in one of three ways: shredding, burning, or pulverizing. By simply disposing of the paystub copies in a standard trash receptacle, the processor fell out of compliance.

Answer 481

A chain is only as strong as its weakest link. Since lenders base their underwrite on the applicant’s middle credit score, when multiple applicants apply for a loan, the lender uses the lowest of all applicants’ middle credit scores.

Answer 482

Once assigned, the unique identifier becomes permanent.

Answer 483

Flood zone prefixes A, V, and VE require the homeowner to maintain flood insurance when a mortgage securitizes the property.

Answer 484

A comp photo taken in July in Dallas, TX. containing snow on the ground would be a definite red flag.

Answer 485

TRID requires that all parties to the transaction be issued a Closing Disclosure on a rescindable loan. Since a purchase transaction is not rescindable, Fumbling Finance did not fumble this one.

Answer 486

A triggering term (or trigger term) refers to any term used in an advertisement that triggers the need for clear and conspicuous disclosure of the fine print.

Answer 487

Active military personnel may not be able to adequately monitor their credit. As such, active duty alerts may be placed on their credit profiles alerting potential creditors that their subject is actively serving in the military. A potential creditor must strongly scrutinize any applicant’s identification in the presence of an active duty alert.

Answer 488

Yield spread premium (YSP) described the “monetary change” resulting from securing an interest rate higher than par. Up until 04/01/2011, loan originators and lenders were allowed to retain YSP as income.

Answer 489

Financial institutions must provide an individual claiming to have been victimized by identity theft with a copy of anything and everything in its records pertaining to the alleged claim. The financial institution may not charge the requester for the documentation. Disclosing the Loan Estimate within three days of application is a RESPA requirement, and offering customers the option of opting out of information sharing falls under the GLBA.

Answer 490

Typically, the first payment due date is the first day of the month following the month after the month in which the loan closed.

Answer 491

Wet settlements issue the funds immediately after settlement or, when the transaction is rescindable, immediately after the rescission period expires. Dry settlements record the documents into public record before issuing the funds. Typically, east coast settlements are wet and west coast settlements are dry.

Answer 492

Interim interest is the term used for interest owed from the date of a loan’s funding through the end of the month in which the loan funds. Since the first payment due date is usually the first of the month after the month following closing, that payment only covers interest owed for the month which it directly follows. Since interest is owed from the day of funding, and since the first payment does not cover the interest owed from that date through the last day of the month in which the loan funds, the applicant is required to bring this amount to the closing table. This amount is referred to as “interim interest.” For example, a purchase loan closes and funds on May 15th. The first payment due date is July 1st. The July 1st payment only covers interest owed from June 1st through June 30th. The borrower needs to bring interim interest to the closing table to pay for the interest owed from the day of funding through the last day of May.

Answer 493

Non-traditional credit consists of utilities or any monthly obligation that would not typically appear on a traditional credit report. Non-traditional credit is often used when an applicant does not have sufficient credit to warrant an appropriate credit review. A non-traditional credit report requires at least one tradeline to be housing related.

Answer 494

As long as the NMLS-approved course satisfies the requirements covering federal law, non-traditional mortgages, and ethics, it will be accepted for credit in any state.

Answer 495

Since the dinner is a “thing of value” and the mortgage bank and home inspection company are potential referral sources, both violated RESPA by their actions.

Answer 496

If additional information is discovered by a licensing authority after issuing a license that would normally have caused the authority to originally deny the licensee’s application, the authority may order the licensee to refrain from further activity until such time that a permanent decision is rendered.

Answer 497

Fraud for housing occurs when an individual falsely represents their qualification credentials in pursuit of home financing. Additionally, falsely representing one’s income constitutes making a false statement to a financial institution. Both are federal crimes.

Answer 498

The GLBA mandates that all customers receive a privacy policy and opt out information at the time that any financial account is opened.

Answer 499

The application should be postponed because the loan applicant cannot guarantee that she is who she claims to be. She should be instructed to return with a valid ID and, since her actions were suspicious, the loan originator should complete and file a suspicious activity report.

Answer 500

If the balance owed on the first of the month is $155,000 and the loan pays off five days later, five additional days of interest are due. Since $19.55 x 5 = $97.75, $155,000 + $97.75 = $155,097.75.

Answer 501

Any statement intended to entice, coerce, or pressure an appraiser into providing a different value is unethical. Asking an appraiser if s/he would be willing to consider different comparables would be acceptable since s/he is free to agree to or refuse the request.

Answer 502

The lender will generally review up to three months’ worth of asset statements. All deposits and credits may be subject to verification. Cash deposits that are unable to be “sourced” may be eliminated from consideration. Furthermore, the underwriter may opt to decline an application in the presence of funds unable to be sourced even if those funds are not needed. Cash savings cannot usually be sourced.

Answer 503

The cash value is the amount that would be secured through the current surrender of the life insurance policy. The face value is the ultimate value that the policy will achieve upon maturation.

Answer 504

A loan originator may only access an individual’s credit profile with a permissible purpose and permission. Permission may be rendered verbally, in writing, or automatically through the completion of a Uniform Residential Loan Application (FNMA form 1003).

Answer 505

Co-mingling funds involves mixing funds intended for a particular purpose, such as the payment of customers’ taxes and insurance premiums, with funds intended for other business purposes such as business administration. Co-mingling funds constitutes a RESPA violation.

Answer 506

With the index at 1.5% and the margin at 3.5%, the FIAR is 5.0%. The 2% periodic rate cap would prevent the rate from increasing by more than 2%. Since 5.0% is less than 2% above the current rate of 3.75%, the rate adjusts from 3.75% to 5.0%.

Answer 507

Once a license expires, the loan originator may not conduct any activities for which a license is required until the license is renewed.

Answer 508

As long as she is not licensed in a particular state, a loan originator may not take any information other than general screening information. Only a state-licensed loan originator may work with a client in need of financing on a property within that particular state.

Answer 509

As long as the total available balance was available for liquidation, the value of the account would be considered at the available balance minus the outstanding loan.

Answer 510

Piggyback financing involves an applicant applying for a first mortgage at 80% LTV as well as a secondary loan to account for the difference between the 80% first mortgage and their lower-than-20% down payment. By limiting the first mortgage to 80%, the lender will not require PMI. A common example is an 80/10/10 which involves an 80% first mortgage, a 10% second mortgage, and a 10% down payment.

Answer 511

A state licensed loan originator enjoys the privilege of originating mortgages for any licensed entity on properties located in any state in which s/he is currently licensed.

Answer 512

The Truth-in-Lending Act governs advertising and requires the clear and conspicuous disclosure of relevant information in response to the use of trigger terms in advertisements. TILA operates under Reg Z.

Answer 513

If the firefighter earns $56.00 per hour plus a 7% shift differential, multiplying her standard hourly rate of $56.00 by 107% establishes her true hourly rate to be $59.92.

Answer 514

Even though something of value was exchanged between actual or potential referral sources, since the meeting involved an educational component and no personal agendas were promoted, compliance was maintained by all parties.

Answer 515

Even after a license is initially secured, it must be renewed annually for the originator to continue originating. Furthermore, once the licensing candidate passes the NMLS exam, no other exam will be required as long as the loan originator maintains his or her license. There is no minimum production requirement for maintaining one’s license.

Answer 516

Any time a borrower chooses an ARM, the loan originator should make certain that the borrower is aware of, accepting of, and qualified for worst-case scenario. Even if it’s unlikely to occur, the borrower should be prepared for worst-case scenario or s/he may be wise to consider a different option.

Answer 517

If an individual is compensated by a licensed entity for mortgage origination activities, that individual must also be licensed as a loan originator.

Answer 518

State income tax returns are not used to determine an applicant’s income for mortgage underwriting purposes. Bank statements reflecting pay deposits, pay stubs, W-2 forms, 1099 forms, and federal income tax returns are some of the documents used to substantiate a mortgage applicant’s income.

Answer 519

Loan suitability refers to the borrower’s ability to repay the loan. In considering whether or not a particular loan is suitable for a particular borrower, the lender must be confident that the borrower will be able to comfortably manage the payments.

Answer 520

A markup involves charging a customer a price higher than the actual cost of a third-party settlement fee whereby the charging entity retains the difference. Markups are prohibited under RESPA as they are considered unearned income.

Answer 521

If an individual enters into a mortgage contract with a family member, s/he is exempt from possessing a unique identifier or mortgage license.

Answer 522

A cursory inspection involves a rushed or “harried” inspection, often with the intent of hiding something.

Answer 523

Since the loan originator arranged for one loan and ultimately produced another, his actions constituted unfair and deceptive trade practices. This example may also be referred to as “bait & switch.”

Answer 524

Earnings amounting to $575 bi-weekly translate to $14,950 annually (575 x 26).

Answer 525

A lock-in period is the period during which the lender guarantees the applicant a particular interest rate. The shorter the timeframe from interest rate lock to loan funding, the lower the cost because the lender is reserving the money for a shorter period of time.

Answer 526

As long as the property is acquired and sold for true market value, it makes no difference as to when it is sold in relation to when it was purchased.

Answer 527

Since the financial institution electronically transferred the funds into his checking account, charges of wire fraud could also be levied against him.

Answer 528

Since nothing of value was exchanged between actual or potential referral sources for free, no violation was committed.

Answer 529

An individual may fail the test twice and retake it by waiting 30 days between tests. If the individual fails it a third time, s/he must wait six months before being eligible to retake it.

Answer 530

The Fair Housing Act prohibits any sort of discrimination pertaining to the procurement of housing. Should a mortgage originator treat a customer differently because of his ethnicity, the originator would violate ECOA. FHA pertains to housing whereas ECOA pertains to lending.

Answer 531

If the loan amount is $250,000 the loan would have to be at an original LTV of 80% to avoid PMI. An 80% LTV on a loan amount of $250,000 equates to a purchase price/appraised value of $312,500 (250,000 / 80%). A 20% down payment on a purchase price/appraised value of $312,500 amounts to $62,500 (312,500 x 20%).

Answer 532

Although anything out of the ordinary should be justified, a large number of recent credit inquiries could signal that there are debts owed that do not yet appear on the credit report or that the applicant may be a victim of identity theft

Answer 533

If the social security disability income is untaxed, you may increase the amount earned by 25%. 1250

Answer 534

$1,750 monthly amounts to $21,000 annually (1,750 x 12). $21,000 annually translates to $807.69 bi-weekly (21,000 / 26).

Answer 535

Fannie Mae’s (FNMA’s) Automated Underwriting System (AUS) is referred to as Desktop Underwriter or DU.

Answer 536

The USDA does not oversee banking or lending although it does support USDA Section 502 rural housing financing.

Answer 537

A veteran who sustains a service-related disability deemed by the Dept. of Veterans Affairs to be 10% or greater along with his or her spouse and/or surviving spouses of veterans who died while in service are exempt from having to pay a VA funding fee when pursuing VA financing.

New Questions Flashcards

(561 cards)