NMLS Flashcards
When ordering an appraisal, it is illegal to…
Request that the appraiser return a minimum or specific value. Mortgage professionals are permitted to communicate their own or the borrower’s opinion when ordering an appraisal; however, requesting a specific or minimum value is considered improper influence of an appraiser and is a serious ethical and legal violation.
Borrower credit is
An amount paid by the lender to a mortgage loan originator for locking a borrower’s interest rate at a rate higher than the par rate. The borrower credit is then used to help the borrower subsidize closing costs in exchange for taking the higher rate.
MAP Rule implementing regulations
Regulation N
Equity stripping is
The unethical practice of basing a loan approval on only the appraised value of the property. The practice does not consider repayment ability. Some states have passed regulations aimed at prohibiting the practice.
Three conditions that an affiliated business must meet to satisfy referral requirements…
Disclosure of the relationship
No required use of the referred entity
Limitations on the “things of value” resulting from the arrangement
Regulation Z prohibits advertising
An attractive interest rate or loan term that is not actually available. TILA and Regulation Z include a number of prohibitions and requirements against deceptive advertising practices.
The Safeguards Rule and Disposal Rule are concerned with
Preserving the confidentiality of personal financial information. The FTC’s Disposal Rule and the Gramm-Leach-Bliley Act Safeguards Rule outline the manner in which financial information must be protected while being maintained by an entity and during the process of record disposal.
Fiduciary duty” means
One person (agent) is acting in the best interests of another. It requires loyalty, good faith, and an obligation of the agent to consider the interests of the other person before their own.
An air loan is
A fraudulent transaction where a fictitious borrower obtains a mortgage and secures it with fictitious property. Air loans may also include fictitious employers, appraisers, and credit agencies in order to obtain verifications necessary to process the loan application.
Equity-based lending occurs when
A lending decision is based on the equity available in the borrower’s home rather than creditworthiness and ability to repay
Yield spread premiums are now known as
Borrower credits.
Alt-A loans are
Used for consumers who do not represent the credit risk of subprime borrowers but who do not meet the underwriting requirements for conforming prime rate loans.
Credit reports include
Information available in public records and data reported by creditors (including derogatory information, such as late payments).
Property flipping occurs when…
A property is bought and resold within a very short period of time. The resale usually involves the use of an inflated appraisal of the property’s value. The HPML Rule works to curb property flipping by creating second appraisal requirements for certain transaction
Service release premiums are
Fees lenders can earn when selling loans in the secondary market. They are often cited in the controversy over yield spread premiums earned by mortgage loan originators before the establishment of borrower credit requirements.
Mark-ups are the practice of
Unilaterally increasing the charges of another settlement service provider and retaining the difference. HUD considers mark-ups a form of illegal fee-splitting and a violation of RESPA
A straw buyer is
A person who accepts a fee for the use of his/her Social Security Number and other personal information on a mortgage application. Straw buyers are often unaware that they are liable for fraud and for making false statements to the government.
The Gramm-Leach-Bliley Act requires
Financial institutions to provide customers with a privacy notice as well as an opt-out notice. This is aimed at protecting their nonpublic personal information.
Adverse action occurs when
A creditor makes an unfavorable decision. An example would be a lender rejecting a loan application. ECOA requires notice of adverse action within 30 days of application
Legal and ethical ways of providing disclosures include…
In person, via U.S. mail, or via facsimile. Email and secure document handling are also becoming acceptable means. Providing the information verbally or via a public posting are not acceptable methods for most disclosures.
Legal and ethical ways of providing disclosures include
In person, via U.S. mail, or via facsimile. Email and secure document handling are also becoming acceptable means. Providing the information verbally or via a public posting are not acceptable methods for most disclosures.
With regard to fraud, loan originators are required to
Be on the lookout for and report anything that could indicate fraudulent behavior.
A straw seller is
An individual who accepts a fee to falsely claim ownership to a property. Straw sellers are sometimes used in conjunction with straw buyers in elaborate mortgage fraud schemes.
Did you get it right?No Kinda Yes
An advertisement saying “Refinance today and wipe debt clean!”…
Violates the Federal Reserve’s Staff Commentary on Regulation Z revisions. This example is considered a misleading claim of debt elimination.
Goals of the Fair Housing Act include
Providing fair housing throughout the United States
Prohibiting discrimination in the sale and renting of housing
Prohibiting discrimination in mortgage lending transactions
Goals of the Fair Housing Act include…
Providing fair housing throughout the United States
Prohibiting discrimination in the sale and renting of housing
Prohibiting discrimination in mortgage lending transactions
The most common type of fraud involving borrowers is
Falsified applications. Generally, they are trying to obtain a loan they do not qualify for, but for the most part do intend to repay the loan.
The LO Compensation Rule prohibits
Compensation based on transaction terms
Dual compensation
Steering
The MAP Rule prohibits…
Any material misrepresentation, express or implied, in any commercial communication regarding any term of a mortgage credit product.
HOEPA prepayment penalty threshold
If a loan features a prepayment penalty in force for more than 36 months or exceeding 2% of the amount prepaid, the loan is subject to HOEPA and the penalty is prohibited.
HOEPA applies to
Closed-end loans, open-end loans, and purchase money mortgages secured by the borrower’s principal dwelling.
Reverse redlining is
The practice of targeting neighborhoods that are primarily occupied by members of vulnerable and/or protected classes and offering expensive, risky loan products.
Ginnie Mae is
Government-owned, not stockholder-owned
Primarily intended to guarantee securities backed by FHA, VA, RHS loans (does not buy loans)
Not involved in guaranteeing or dealing with conventional mortgages
A mortgage broker serves as the…
Back of Flashcard
36 of 36
Agent for the borrower and owes them fiduciary duties, including loyalty, good faith, and an obligation to put the borrower’s interests ahead of the broker’s.
Transactions reported under HMDA…
Purchases
Refinances
Home improvement loans
Pre-qualifications must also be reported, along with their disposition
Acts of mortgage fraud can result in a _________ fine and ____ years in prison?
$1,000,000 fine and 30 years in prison
Notice of Right to Receive an Appraisal Report due within ___ business days of loan application…
3
Section 8 of RESPA prohibits _______________. .
prohibits referral fees and other forms of kickbacks/fee splitting
Section 8 of RESPA Penalties include fines of up to ______________ and up to ___ year in prison.
Section 8 of RESPA prohibits referral fees and other forms of kickbacks/fee splitting. Penalties include fines of up to $10,000 and up to one year in prison.
When can a borrower request cancellation of PMI..
When a borrower’s LTV reaches 80%
The Gramm-Leach-Bliley Act requires financial institutions (including mortgage brokers) to provide an
initial privacy notice “…not later than when you establish a customer relationship…” The initial privacy notice should also be accompanied by the opt-out notice.
An initial privacy notice is due…
At the time that a customer relationship is established.
Home Mortgage Disclosure Act
A law requiring all institutional mortgage lenders with assets of more than $10 million to make annual reports of all mortgage loans made in a given geographic area where they have at least one office. This law is designed to help the government detect patterns of redlining.
Equal Credit Opportunity Act
Federal law that prohibits discrimination in granting credit to people based on sex, age, marital status, race, color, religion, national origin, or receipt of public assistance.
Fair and Accurate Credit Transaction Act
Amendment to the federal Fair Credit Reporting Act intended primarily to help consumers fight the growing crime of identity theft; includes provisions for fraud alerts and credit freezes.
Federal Housing Administration
Government agency that insures mortgage loans.
Government-owned corporation that guarantees payment of principal and interest to investors who buy its mortgage backed securities on the secondary market.
Ginnie Mae
Housing and Economic Recovery Act of 2008
Revitalization of the U.S. housing market; includes provisions related to foreclosure prevention and consumer protections, as well as establishing minimum standards for licensing and registration of mortgage loan originators. See the Secure and Fair Enforcement for Mortgage Licensing Act.
Home Ownership Equity Protection Act is part of which regulation
Regulation Z Truth in Lending Act
Home Ownership Equity Protection Act
Establishing disclosure requirements and prohibiting equity stripping and other abusive practices associat
LIBOR
An index used by lenders when making ARM loans; the rate (in Euros) that international banks charge each other for loans.
Homeowners Protection Act
Federal law that requires lenders or servicers to provide certain disclosures and notifications concerning private mortgage insurance on residential loan transactions.
Real Estate Settlement Procedures Act
Federal law dealing with real estate closings that provides specific procedures and guidelines for the disclosure of settlement costs.
Secure and Fair Enforcement for Mortgage Licensing Act
A key element of the Housing and Economic Recovery Act of 2008 (HERA) designed to enhance consumer protection and reduce fraud by requiring states to establish minimum standards for the licensing and registration of mortgage loan originators.
An instrument that creates a voluntary lien on real property to secure repayment of a debt. The parties to a mortgage are the mortgagor (borrower) and mortgagee (lender).
Mortgage
Promissory Note
An instrument that’s evidence of a promise to pay a specific debt; a written, legally binding promise to repay a debt.
Assumable
Any loan for which an assumption may be exercised. Assumption is the conveyance of terms and balance of an existing mortgage to another individual, often requiring the at the assuming party is also qualified. All FHA and VA loans are assumable.
Nontraditional Mortgage Product
As defined by the SAFE Act, anything other than a 30-year fixed rate, closed-ended, fully-amortizing loan.
Federal Reserve Banks
Banks that provide services to financial institutions, which have one main office in each Federal Reserve district. All nationally chartered commercial banks must join the Federal Reserve and buy stock in its district reserve bank.
Call Provision
Clause that lets lenders demand full payment of a loan immediately. Also referred to as call a note.
Federal Fair Housing Act
Common name for Title VIII of the Civil Rights Act of 1968.
Regulation Z
Federal guidelines under the Truth in Lending Act that require full disclosure of all credit terms for consumer loans.
Affiliated Business Arrangement
A situation where a person in a position to refer settlement services-or an associate of that person-has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in a provider of settlement services and who then refers business to that provider or in some way influences the selection of that provider.
Mechanic’s Lien
A specific lien claimed by someone who performed work on the property (construction, repairs, or improvements) and has not been paid. This term is often used in a general sense, referring to materialman’s liens as well as actual mechanics’ liens.
Arm’s Length Transaction
A transaction occurring under typical market conditions with each party acting in his or her own best interests.
Gramm-Leach-Bliley Act
Also known as the Financial Modernization Act of 1999, includes provisions in Title V to protect and regulate the disclosure of consumers’ personal financial information.
Regulation X
Is the regulation that issues the rules for the Real Estate Settlement Procedures Act.
Who issues and enforces regulations for TILA
The CFPB
The PATRIOT Act requires
Financial institutions to verify the identity of a person applying for a loan, maintain a record of the information used for verification, and determine whether a potential borrower appears on known terrorist lists
He/she is permitted to request cancellation of PMI (private mortgage insurance) when
When a borrower reaches a 20% equity position
Or 80% LTV
Credit not covered by TILA
- Business or agricultural credit
- Credit in excess of $25,000, unless it is secured by a dwelling/real property
- Public utility credit
- Student loans
- Home fuel budget plan
Regulation B
Is the regulation that issues the rules for the Equal Credit Opportunity Act.
“Low monthly payments” is an example of…
An advertising trigger term under Regulation Z. TILA/Regulation Z requires additional information to be provided in an advertisement that contains trigger terms.
Most commonly, ____ must be provided if the advertisement includes the note rate.
APR
The TRID Rule does not apply to
- HELOCs
- Reverse mortgages
- Mortgages secured by a mobile home or dwelling not attached to real property
Use of trigger terms in advertisements requires disclosure of:
- Amount and percentage of the down payment
- Terms of repayment, such as inclusion of a balloon payment
- Annual percentage rate
Advertising trigger terms for closed-end loans under TILA include
- Amount or percentage of any down payment
- Number of payments or period of repayment
- Amount of any payment
- Amount of any finance charge
The purpose of the Homeowners Protection Act is to
acilitate the cancellation of private mortgage insurance (PMI)
Borrowers can request cancellation when their loan reaches _____ loan-to-value, but the law requires automatic termination of PMI at ____ LTV
- 80% loan-to-value (20% equity)
- 78% LTV (22% equity)
Although ECOA prohibits inquiries about protected personal characteristics, mortgage professionals are permitted to ask about:
- ____________________
- ____________________
- ____________________
- Race
- ethnicity
- Sex
For the purposes of compliance with government monitoring programs
Inquiries about protected characteristics may also be used to determine eligibility for special-purpose credit, such as assistance programs through non-profits.
True or False
True
The Closing Disclosure must be provided _____ business days prior to consummation
3
The Loan Estimate must be provided:
- No later than ____ business days after receiving a completed application
- No later than ____business days prior to consummation
- 3
- 7
The Gramm-Leach-Bliley Act does not protect
Publicly-available information
Publicly-available information Includes
This includes information that can be found in government real estate records, information available from the phonebook, and information included on a public, unrestricted website.
When is the Mortgage Servicing Disclosure provided withing _______business days following application.
3
If the loan application is completed in a face-to-face interview, the disclosure is due __________.
at the time of application.
Regulation Z…
Is the regulation that issues the rules for the Truth-in-Lending Act.
Borrower identity verification is required under…
USA PATRIOT Act
Requires financial institutions to verify the identity of persons involved in financial transactions, as a counter-terrorism measure.
The USA PATRIOT Act.
PMI
Private mortgage insurance
Private mortgage insurance
Required by conventional lenders when a borrower makes a down payment of less than 20% (or has less than 20% equity).
PMI Is governed by
Homeowners Protection Act
Prohibitions under ECOA include:
- Inquiries about protected characteristics
- Discouraging applicants from applying for a loan
- Refusing to consider public assistance, alimony/child support, or pension/retirement benefits as income
- Assumptions, inquiries, or credit decisions based on childbearing or child-rearing plans
TILA covers loans when
- The borrower’s dwelling secures the mortgage debt
- The homeowner uses the proceeds of the loan for personal, family, or household purposes
Loan Estimate is due Within ____business days of receiving information prompting the change and at least ____business days prior to consummation.
3 and 4
Required under Section 6 of RESPA
Servicing Transfer Statement
Servicing Transfer Statement
vises a borrower when their loan has been transferred to another servicer
If a loan has been transferred to another servicer; the borrower must be provided the information _______
prior to the transfer.
15
The new servicer must provide notice to borrower ____ days after the transfer.
15
The new servicer may not assess late fees for a period of _____ days following the transfer
60
Home Mortgage Disclosure Act
reporting law that helps the federal government identify discriminatory lending practices
Protected characteristics under ECOA include
- Race
- Color
- Religion
- National origin
- Sex
- Marital status
- Age
- Receipt of income from a public assistance program
Following initial disclosure of APR, when can the transaction proceed to closing?
The transaction can proceed to closing after seven business days have elapsed from issuance of the initial Loan Estimate.
Referral fees are considered
A violation of RESPA/Regulation X
ECOA’s
To promote the availability of credit to all creditworthy applicants, regardless of their race, color, religion, national origin, sex, marital status, or age. It also prohibits discrimination against credit applicants based on receipt of public assistance or participation in credit counseling programs (exercise of rights under the Consumer Credit Protection Act).
Changes in the Closing Disclosure that require a new three-day waiting period include
- A change in the APR
- A change in the loan product
- Addition of a prepayment penalty
LE is due _______ days prior to the Closing
7
FACTA
The Fair and Accurate Credit Transactions Act (FACTA) was passed as an amendment to the FCRA. It includes provisions to address identity theft, facilitate consumers’ access to the information retained by CRAs, and improve the accuracy of consumer re
After loan servicing is transferred the new servicer cannot assess late fees for a period of ___ days.
60
Responsibility for delivering the Closing Disclosure belongs to the
Creditor
Phone numbers remain on the Do-Not-Call Registry _______
Indefinitely
An Opt-Out Notice is due
when a customer relationship is established
The Gramm-Leach-Bliley Act requires financial institutions (including mortgage brokers) to provide an _______with a method for customers to opt out of the sharing of their personal information.
Opt out
The Fair Credit Reporting Act (FCRA) is aimed at ensuring the accuracy, fairness, and privacy of
consumers’ personal information that is assembled and used by consumer reporting agencies.
Red Flags Rule
Creditors to create a policy to identify and mitigate the risks of identity theft. The Red Flags Rule was created by the FTC pursuant to FACTA.
Affiliated Business Arrangement Disclosure is required by
RESPA
What disclosure is due at the time of making a referral
Afiliated Business Arrangement Disclosure
Who regulates RESPA
CFPB
This Act provides for penalties of up to $______
10,000
The Red Flags Rule was created by the _______________. The purpose is to address identity theft by focusing on methods of detecting a security breach
Federal Trade Commission under FACTA.
Accepting a referral fee can lead to
Fines of up to $10,000 and one year in prison. Accepting a fee in exchange for a referral is a violation of RESPA/Regulation X.
The lender must return any money or property paid by the borrower in connection with the loan within _____ Days of recission. This might include broker fees, application fees, and third-party settlement fees.
20
Borrowers who did not receive a notice of the right to rescind or accurate disclosures as required by law have ___ Years to exercise their right.
3
Reverse mortgages are only available to borrowers who meet a certain minimum age; generally ___ years of age or older.
62
subordinate lien is
Same as:
Second Mortgage
Jr Lien
A HECM is
The Home Equity Conversion Mortgage
HECM
Reverse mortgage program which enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both.
Balloon payment provision
Series of smaller periodic payments with a larger lump sum due at maturity
deed
A legal instrument that conveys title to real property.
Fannie Mae’s purpose
Provide sources of funds for lenders. This is accomplished in the secondary market through securitization.
The Federal Housing Administration
Insures loans. FHA loans are insured by the federal government against borrower default.
Option ARMs can result in
Negative amortization. This occurs when the borrower makes payments at an introductory rate which are not sufficient to pay the interest on the loan. The unpaid amount is added to the loan balance resulting in negative amortization.
Mortgage-backed securities are products of
he secondary market. Mortgage-backed securities are an investment vehicle used to generate revenue based on an underlying pool of loans. This revenue provides renewable access to funds for lenders.
Negative amortization occurs when…
A loan program permits a borrower to pay less than the required amount of interest on the loan. The unpaid interest is added to the loan balance and eventually results in a balance greater than the original loan amount.
A funding fee is required on…
VA and USDA loans. The VA and USDA programs require a funding fee for participation in the program. The amount is used to support the guaranty against borrower default.
Conventional loans are…
Made by Fannie Mae and Freddie Mac. Unlike FHA or VA loans, they are not insured or guaranteed by a government agency.
Qualified mortgages may not have terms exceeding
30 years
Seller concessions for conforming loans with an LTV under 90% are Limited to ____
6%
“Margin” is defined as
The amount above the index that an interest rate can adjust for an ARM. The margin is set by the lender and is the amount above the index that the interest rate can adjust. Index plus margin is the formula used to determine a new interest rate on an adjustable-rate mortgage.
Determine the interest rate change on an ARM.
Index and Margin
Index
The index is the basis for future rate changes
Margin
The margin is set by the lender and is the amount above the index that the interest rate can adjust at the time of the rate change.
___________ are used to adjust the price of a loan.
Discount points
One discount point is equal to ____ of the loan amount.
1%
The VA loan guaranty is based on a veteran’s
Entitlement. VA guarantees a loan amount four times greater than the eligibility listed on the veteran’s Certificate of Eligibility.
USDA loans are made for a term of
term of…
30 years, offered in a fixed rate only. They do not require a down payment, but lenders must use debt ratios to ensure the borrower can repay the loan.
Alt-A loans are
Used for consumers who do not represent the credit risk of subprime borrowers but who do not meet the underwriting requirements for conforming prime rate loans.
Subprime loans are
Loans with higher interest rates made to borrowers with blemished credit or other qualification issues. The loans do not conform with Fannie Mae and Freddie Mac underwriting requirements.
Nontraditional mortgage products are defined as…
Any mortgage product other than a 30-year fixed-rate mortgage loan.
An initial rate cap is…
A limit on the amount that the interest rate can increase during the first adjustment period for an ARM.
A periodic rate cap is…
A limit on the amount that an interest rate can change during any adjustment period for an ARM, with exception of the initial adjustment, assuming an initial cap is in place on that particular product.
A lifetime rate cap is…
The limit on the amount by which an interest rate can change over the life of an ARM. It is also known as a rate ceiling.
Discount points are paid to
To the lender at closing to reduce the note rate of the loan.
Securitization
Pool similar types of loans to create mortgage-backed securities for sale on the secondary mortgage market. These securities are used to create a renewable source of funds for lenders.
A home equity loan is an example of…
Closed-end credit. A cash-out refinance is an example of a home equity loan.
Borrowers owning more than 25% of a business must…
Provide up to two years of tax returns for income qualification.
A HELOC is an example of…
Open-end credit. In a HELOC, a borrower pays off the principal and can then continue to make withdrawals. This is similar to a credit card.
An 80-10-10 loan is an example of…
A piggyback loan. In a piggyback loan scenario, a borrower takes a simultaneous second mortgage. In an 80-10-10 loan, the first lien is 80% LTV, the second is 10% LTV and the borrower makes a 10% down payment.
Borrowers who obtain interest-only loans…
Pay only the monthly interest due on the loan, which keeps monthly payments low. However, at the end of the term, the borrower still owes the principal amount of the loan.
Conforming loans meet…
Loan limits and underwriting standards established by Fannie Mae and Freddie Mac.
A promissory note includes…
- Identification of the borrower and the lender
- The borrower’s promise to repay the loan
- Amount of the loan
- Interest rate charged on the unpaid principal
- Period of the term for repayment of the loan
- Reference to the real estate used to secure the loan
- Provisions for the imposition of late charges for overdue payments
- Signature(s) of borrower(s)
Social Security income can be…
Grossed up by as much as 25% for income qualification purposes. Other non-taxed income, such as disability and public assistance, may be grossed up as well.
Closing costs include…
- Origination fees
- Property taxes
- Title insurance
- Escrow costs
- Appraisal fees
- Taxes
- Fees owed to state and local government
Borrowers cannot secure an FHA loan without paying
UFMIP (upfront mortgage insurance premiums) and annual MIPs (annual mortgage insurance premiums)
Ability to Repay Rule requires ARM qualification based on…
The fully-indexed rate. This requirement applies to all ARM transactions except for open-end home equity loans.
Balloon payments are prohibited fo
Qualified mortgages, unless the loan is a balloon payment qualified mortgage from a small creditor. Balloon payments are also generally prohibited for loans covered by HOEPA.
Qualified Mortgage Rule creates…
Presumption of compliance with ability-to-repay standards and a safe harbor from liability for loan originators making qualified mortgages.
QM Rule creates a conclusive presumption of compliance for…
Prime mortgages, not subprime or higher-priced mortgage loans.
QM Rule creates a rebuttable presumption of compliance for…
Higher-priced mortgage loans.
Qualified mortgage prerequisites…
- No negative amortization
- No deferment of principal (e.g., no interest-only payments)
- No balloon payment feature (unless a small creditor balloon payment QM)
- Term does not exceed 30 years
- Points and fees do not exceed 3% total loan amount
- DTI does not exceed 43%
Balloon payment qualified mortgage requirements…
- No negative amortization
- Term of at least five years; does not exceed 30 years
- Compliance with 3% points and fees cap
- Verification of consumer’s income and assets
- Determination of consumer’s DTI (43% limit does not apply)
- Loan has a fixed rate
- Loan will be held by the creditor for at least three years
- Creditor is a small creditor in a rural/underserved area
A non-qualified mortgage may include…
- Interest-only payments
- Negative amortization
- A payment-option feature
- Balloon payments
FHA loans use a back-end ratio of…
43%. The back-end ratio (or total debt ratio) is a comparison of all monthly debts (including housing) to the applicant’s monthly income.
Conventional/conforming loans generally use a back-end ratio of…
36%. The back-end ratio (or total debt ratio) is a comparison of all monthly debts (including housing) to the applicant’s monthly income. While 36% is generally the standard used, GSE guidelines allow flexibility up to 45%.
Credit report red flags may include…
- Recently opened accounts
- Misspellings and errors
- Uncharacteristic use or sudden increase in use of credit
- Large number of recent inquiries
- Credit history that does not match what the originator knows about the applicant
The sales comparison approach is…
An appraisal method which compares the subject property to recently-sold comparable properties in close proximity. It is also called the “market approach.”
How is annual MIP determined?
Based on loan amount, loan term, and loan-to-value. The mortgage insurance premium required on all FHA loans is collected as an upfront premium (UFMIP) and on a monthly basis (annual MIP, divided into 12 equal parts).
Credit scoring was designed by…
The Fair Isaac Company. Credit scores are often known as FICO scores.
VA maximum guaranty amount…
Dollar amount equal to 25% of Freddie Mac conforming loan limit
FHA seller concessions is limited to
Limited to 6% of sales price
Uniform Residential Appraisal Report (URAR) is also known as
1004
Section I of the 1003 is called
“Type of Mortgage and Terms of Loan.” It is used to select the type of loan for which the applicant is applying.
The cost approach to appraisal…
Considers the replacement value of the property. It is often used for new properties and analyzes what it would cost to build a substitute residence, plus the value of the land.
Refinance transactions must have a…
Tangible net benefit.
Net adjustments to comparables ay be made up to ____
15%
Fannie Mae and Freddie Mac permit net adjustments of ___% and gross adjustments of ___% to comparables in the sales comparison approach to appraisal.
15% and 25%
Paystubs for the last ____ day period and W-2s for the last ___-year period.
30 days
2 years
An example of a voluntary lien is
A mortgage. A homeowner voluntarily allows the lien to be placed on the property in order to secure a loan from the lender.
Non-taxable income may be grossed up by as much as
25%. This type of income typically includes Social Security, public assistance, and disability. Loan applicants must still provide comprehensive documentation for these types of income.
FHA loans require a minimum borrower investment of ____
3.5%.
What percentage of rental income may be used for qualification?
75%. Investment properties generating rental income are just one type of special income that cannot be used at 100% for qualification purposes.
Income calculation for hourly pay…
- {base rate} x {hours} = {weekly income}
- {weekly income} × {weeks worked} = {annual income}
- {annual income} ÷ 12 = {monthly income}
Section II of the 1003 is called _____________
It is used to designate information concerning the property address and how the loan proceeds will be used.
Property Information and Purpose of Loan.”
Income calculation for bi-weekly pay…
- {bi-weekly salary} × 26 = {annual income}
- {annual income} ÷ 12 = {monthly income}
Self-employed and commissioned income is usually averaged over a ___-year period.
2 years
Self-employed income would come from the tax return; commissioned income may be taken from W-2s or tax returns.
Bankruptcies stay on a credit report for up to
Ten years
Standard credit account information stays on a credit report for ______ years
7
The “Big Three” CRAs are
- Equifax
- Experian
- TransUnion
Nontraditional credit includes…
Payments for items such as rent and utilities. First-time homebuyers or consumers with little credit history may sometimes use nontraditional credit to establish creditworthiness.
Real property is defined as…
Land and anything that is permanently affixed to it. Personal property includes items that can be moved.
Liens
Monetary claims that provide a creditor with the right to foreclose. A mortgage is an example of a lien.
Involuntary liens may include…
- Tax liens
- Mechanic’s liens
- Judgments
- Attachments
Private mortgage insurance is used to…
Provide security to the lender in the event of default. PMI also allows the borrower to make a smaller down payment.
Upfront MIP is collected on…
All FHA loans.
Fee simple is…
The desired form of holding ownership to property because it has the fewest restrictions. Almost all residential mortgage loan transactions involve an estate held in fee simple.
An estate held in fee simple means that…
The owner is entitled to the entire property and has “unconditional power of disposition” during his/her lifetime, and the property will descend to his/her heirs upon death.
Counseling is required for…
- Any borrower accepting a high-cost home loan
- First-time borrowers accepting a negative amortization loan
- Any borrower seeking a reverse mortgage loan from the FHA
- Counseling is encouraged for any borrowers choosing an ARM instead of a fixed-rate loan
The ATR Rule and QM Rule became effective…
In January 2014
The ATR Rule requires verification of income using…
Reasonably-reliable third-party documents, such as tax returns, W-2 forms, payroll statements, bank statements, etc.
Loans excluded from the ATR Rule…
- Open-end credit plans
- Timeshare plans
- Reverse mortgage loans
- Temporary/bridge loans with terms of 12 months or less
- Construction phase of 12 months or less in a construction-to-permanent loan
- Designated extensions of credit from certain entities/agencies
In title theory states…
The borrower gives legal title to the lender, but retains equitable title. The lender “owns” the property via a deed of trust. The lender has a right to possession of the property in the event of default. Legal title is returned to the borrower upon repayment and satisfaction of the debt.
In lien theory states…
The borrower retains legal and equitable title to the property. The mortgage is a lien against the property. In the event of default, the lender must institute a foreclosure proceeding to obtain legal title.
“Table funding” is…
A process in which a broker originates and closes a loan in his/her own name, then transfers the loan to a lender at closing. The lender provides funds for disbursement.
Dry settlement occurs when…
Parties meet to execute documents, but funds are not disbursed and property is not conveyed until certain specified conditions are met.
Wet settlement occurs when…
Parties meet to execute documents and funds are subsequently disbursed. Lenders involved in purchase transactions are required to ensure that the closing agent has adequate funds to close.
Loan applicants that make a false statement on the 1003 may face a ____-year jail term
Five year
Non-liquid assets include…
- Real estate
- Retirement accounts
- Net worth of businesses
- Automobiles
Liquid assets include…
- Deposit or “earnest money” held in escrow
- Cash
- Checking/savings accounts, with account numbers
- Stocks and bonds
- Cash value and face amount of life insurance policies
The LO Compensation Rule prohibits…
- Compensation based on transaction terms
- Dual compensation
- Steering
Any material misrepresentation, express or implied, in any commercial communication regarding any term of a mortgage credit product.
Identity theft is the practice of…
Using another person’s name, Social Security Number, and other personal information to secure credit or make purchases. It often figures into elaborate mortgage fraud schemes.
A sign of fraud on a sales contract is…
The purchase price being higher than the list price. This could be a sign that a legitimate buyer is not involved in the transaction.
The most common type of fraud involving borrowers is…
Falsified applications. Generally, they are trying to obtain a loan they do not qualify for, but for the most part do intend to repay the loan.
Goals of the Fair Housing Act include…
- Providing fair housing throughout the United States
- Prohibiting discrimination in the sale and renting of housing
- Prohibiting discrimination in mortgage lending transactions
An advertisement saying “Refinance today and wipe debt clean! violates the Federal Reserve’s Staff Commentary on _____________revisions. This example is considered a misleading claim of debt elimination.
Regulation Z
A straw seller is…
An individual who accepts a fee to falsely claim ownership to a property. Straw sellers are sometimes used in conjunction with straw buyers in elaborate mortgage fraud schemes.
The Gramm-Leach-Bliley Act requires…
Financial institutions to provide customers with a privacy notice as well as an opt-out notice. This is aimed at protecting their nonpublic personal information.
A straw buyer is…
A person who accepts a fee for the use of his/her Social Security Number and other personal information on a mortgage application. Straw buyers are often unaware that they are liable for fraud and for making false statements to the government.
Mark-ups are the practice of…
Unilaterally increasing the charges of another settlement service provider and retaining the difference. HUD considers mark-ups a form of illegal fee-splitting and a violation of RESPA.
Service release premiums are…
Fees lenders can earn when selling loans in the secondary market. They are often cited in the controversy over yield spread premiums earned by mortgage loan originators before the establishment of borrower credit requirements.
Notice of Right to Receive Appraisal Report is due no later than ___business days after receiving an application for credit secured by a first lien on a dwelling.
3 Days
Re-disclosure of APR is required at least ____ business days before closing,
3
Any time the APR varies by more than one eighth of ______ it must be redisclosed.
Any time the APR varies by more than one eighth of 1% (0.125%).
HOEPA prepayment penalty threshold if loan features a prepayment penalty in force for more than ___ months or exceeding ___%of the amount prepaid, the loan is subject to HOEPA and the penalty is prohibited.
36 months and 2%
HOEPA applies to…
Closed-end loans, open-end loans, and purchase money mortgages secured by the borrower’s principal dwelling.
Reverse redlining is…
The practice of targeting neighborhoods that are primarily occupied by members of vulnerable and/or protected classes and offering expensive, risky loan products.
Ginnie Mae is…
- Government-owned, not stockholder-owned
- Primarily intended to guarantee securities backed by FHA, VA, RHS loans (does not buy loans)
- Not involved in guaranteeing or dealing with conventional mortgages
Implementing regulations for the S.A.F.E. Act…
Regulations G and H
Purposes of the S.A.F.E. Act include…
- Increase uniformity
- Reduce regulatory burden
- Enhance consumer protection
- Reduce fraud
Effective supervision by a state regulator includes…
- Participating in the NMLS
- Writing rules and regulations or adopting procedures
- Conducting background checks
- Setting and accepting licensing fees
- Setting or resetting renewal or reporting dates
- Approving or denying loan originator applications and renewals
- Implementing laws for amending or surrendering licenses
- Bringing enforcement actions
Regulatory agencies have authority to examine…
- Any licensed loan originator
- Any individual required to have a loan originator license
Regulatory agencies may conduct examinations for…
- Initial licensing or license renewal
- License suspension, conditioning, revocation, or termination
- Determining compliance with the law
During period of control of records, no person may..
Remove the records without a court order or the regulatory agency’s consent
During period of control of records, owner of records may…
Access them in order to conduct regular business affairs
Regarding examinations, regulatory agencies may also…
- Retain attorneys, accountants, or other professionals to assist with examination
- Enter into agreements with other government officials to reduce regulatory burden
- Use, hire, contract, or employ analytical systems, methods, or software
- Accept or rely on reports from other government officials or audit reports by independent CPA
Shared with other state and federal officials involved with mortgage industry oversight without the loss of privilege and confidentiality protections provided by law
A “dwelling” is a residential structure that…
Contains one to four units, whether or not the structure is attached to real property
Definition of “residential mortgage loan” …
Any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling
NMLS stands for…
Nationwide Multistate Licensing System
Information not protected by confidentiality…
- Employment history
- Disciplinary and enforcement actions
Information provided to NMLS is not subject to…
- Disclosure under federal or state law allowing for disclosure to the public of information held by a government officer or agency
- Subpoena, discovery, or admission into evidence in civil action or administrative process
A “state-licensed loan originator” is any individual who is…
- A loan originator
- Not an employee of a depository institution, a subsidiary owned and controlled by a depository institution and regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration
- Licensed by a state or by the CFPB and maintains a unique identifier
A “unique identifier” is a number that…
- Permanently identifies a loan originator
- Is assigned by the NMLS to track and identify loan originators
Immediate family member” includes…
- Spouse
- Child
- Sibling
- Parent
- Grandparent and grandchild
- Stepparent, stepchild, and stepsibling
- Adoptive relationship
Minimum pre-licensing education requirement…
20 hours
20 hours of pre-licensing education must include…
- Three hours of federal law and regulation
- Three hours of ethics
- Two hours of nontraditional mortgage products
Written test measures knowledge of…
- Ethics
- Federal and state law and regulation relating to mortgage origination
- Fraud, consumer protection, nontraditional mortgages, and fair lending
If an applicant fails initial test attempt…
He/she may retake twice with at least 30 days between each attempt
After failing an exam three times, an individual must.
Wait at least six months before re-testing
Each loan originator must be covered by…
A surety bond
0
Regulation H establishes a procedure for…
The CFPB to follow if it determines that a state has not adopted laws satisfying the S.A.F.E. Act’s licensing requirements
Maximum civil penalty for each violation…
$25,000
To enforce the S.A.F.E. Act, regulatory agency may.
- Deny, suspend, revoke, condition, or decline to renew a license
- Order a restitution
- Impose fines
- Issue orders or directives
The S.A.F.E. Act addresses compliance by establishing…
- Requirements for individuals to obtain a license before engaging in loan origination activities
- Authority for the CFPB to determine whether a state licensing program for loan originators meets the standards established in the S.A.F.E. Act
Failure to satisfy renewal requirements will result in..
An expired license
License renewal requirements…
- Continue to meet minimum standards for initial licensure
- Satisfy annual continuing education requirement
- Pay required fees
Instructor may receive CE credit at the rate of…
Two hours for every one hour taught
Regarding continuing education, loan originator may…
- Only receive credit for a course in the year which the course was taken
- Not take the same approved course in the same or successive years
Eight hours of continuing education must include…
- Three hours of federal law and regulation
- Two hours of ethics
- Two hours of nontraditional mortgage products
Minimum continuing education requirement…
Eight hours
Minimum licensing requirements…
- No prior license revocation
- No felony conviction or guilty/nolo contendere plea during the seven-year period preceding application date, or at any time if the felony involved fraud, dishonesty, a breach of trust, or money laundering
- Completion of pre-licensing education
- Passage of the written test
- Satisfaction of the surety bond/net worth/state fund requirements
- Demonstration of financial responsibility, character, and general fitness
A state fund makes funds available for…
Claims resulting from violations of state or federal laws and regulations
Surety bond amount must reflect…
The dollar amount of loans originated
Finance charges do not include…
- Points paid by the seller
- Security interest charges, if itemized and disclosed
- Bona fide and reasonable fees
A prepaid finance charge is…
Any finance charge paid separately before or at consummation, or withheld from the proceeds of the loan at any time
Finance charges do not include…
- Points paid by the seller
- Security interest charges, if itemized and disclosed
- Bona fide and reasonable fees
The finance charge is the total of…
- Prepaid finances charges
- Charges paid over the term of the loan
Disclosed APR may not vary by more than…
One eighth of 1% in a regular transaction
One quarter of 1% in an irregular transaction
The APR represents the relationship of…
The total finance charge to the total amount financed, as a yearly rate
The Closing Disclosure must be provided…
No later than three business days prior to consummation
The Loan Estimate must be provided…
- No later than three business days after receiving a completed application
- No later than seven business days prior to consummation
Ad cannot use the word “fixed” to refer to…
- A variable-rate transaction
- A transaction in which the payment will increase
- A transaction including both a variable rate and a non-variable rate
Ad that states a payment amount must include…
- The amount of each applicable payment over the term of the loan
- The period of time during which each payment will apply
- The fact that the payments don’t include amounts for taxes and insurance premiums and that the actual payment will be greater (for credit secured by a first lien on a dwelling)
Trigger terms include…
- The amount or percentage of a down payment
- The number of payments or period of repayment
- The amount of any payment
- The amount of any finance charge
Advertisements must be in compliance with…
The Truth-in-Lending Act - Regulation Z
If requested by the CFPB, a state must submit…
- Evidence of compliance with the S.A.F.E. Act
- Citations to relevant state laws and regulations
- Information on the regulator’s supervisory processes
- Data on the regulator’s investigations and enforcement actions
Any time a state enacts legislation, it must…
Notify the CFPB
The amount financed is…
The actual amount of credit the borrower will receive from the creditor
For an ARM, the interest rate will change based on…
An index to which the rate is tied and the margin added to cover the creditor’s expenses and profit
Disclosures required for an ARM…
CHARM booklet
BSA
Bank Secrecy Act
CFR
Code of Federal Regulations
CHARM
Consumer Handbook on Adjustable Rate Mortgages
COFI
Cost of Funds Index
COSI
Cost of Savings Index
CRV
Certificates of Reasonable Value
CSBS
Conference of State Bank Supervisors
GSE
Government-Sponsored Enterprise
GNMA
Government National Mortgage Association
GPM
Graduated Payment Mortgage
FInCEN
Financial Crimes Enforcement Network
FACTA
Fair and Accurate Credit Transaction Act of 2003
QRM
Qualified Residential Mortgage
QM
Qualified Mortgage
NMLS
Nationwide Multistate Licensing System
MTA
Monthly Treasury Average
Balloon Payment
The final lump sum payment due at the end of a balloon mortgage.
Balloon Mortgage
A mortgage that provides for partial amortization over its term, resulting in a balance remaining due at maturity; at maturity, property may be sold or balance due refinanced.
Bridge Loan
Broker
A licensed individual or firm that charges a fee to serve as a “middle man” between two or more parties. A mortgage broker is an individual or person in the business of negotiating and arranging mortgage loans; a real estate broker assists a buyer or seller in the sale or purchase of a home.
Assumable Mortgage
A mortgage that may be transferred from the mortgagor to the new buyer. A credit check of the new borrower and assumption fee is generally required; may help to attract buyers.
A provision in the terms of a loan that allows a buyer to assume the seller’s mortgage.
Assessment
The method of placing value on an asset for taxation purposes.
Convertible ARM
An ARM that provides the borrower the ability to convert to a fixed-rate loan within a specified time.
Conversion Clause
Conventional Loan
A private sector loan not guaranteed or insured by the U.S. government.
Conforming loan
A loan that does not exceed Fannie Mae’s and Freddie Mac’s loan limits.
Comparative Market Analysis
An estimate of property value, usually performed by real estate licensees, based on a comparison of similar properties sold within the last year.
Eminent Domain
A process under which the government may take possession and ownership of private property for public use; owner receives payment for property’s fair market value.
Due-on-Sale Clause
A loan provision allowing the lender to demand full repayment of the loan if the property is sold.
Escape Clause
A provision in a purchase contract that allows either party to cancel some or all of the contract if the other does not respond to changes to the sale within a set period; most common use is when purchase offer is made contingent on the sale of another property.
Equal Credit Opportunity Act
A federal law prohibiting discrimination in lending based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Forbearance
The act of refraining from enforcing a debt or obligation if borrower is delinquent; may occur in connection with a mutual plan to bring overdue mortgage payments up to date.
Fannie Mae
Federal National Mortgage Association; federally-chartered enterprise owned by private stockholders. Purchases residential mortgages and converts them into securities for sale to investors; supplies funds that lenders may loan to potential homebuyers; also known as a government-sponsored enterprise (GSE).
Fair Housing Act
A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair Credit Reporting Act
Federal act regulating consumer reporting agencies (i.e., credit bureaus) and to ensure fair and accurate content in individual’s reports; amended in 2003 by the Fair and Accurate Credit Transactions Act.
Home Equity Loan
A loan backed by the borrower’s equity in his or her home.
Home Equity Line of Credit
Mortgage loan allowing a borrower to obtain cash against the equity of his or her home, up to a predetermined amount; usually a second mortgage; also known as a HELOC.
HELP
Homebuyer Education Learning Program; FHA educational program that provides homeownership counseling; covers topics like budgeting, finding a home, getting a loan, and home maintenance; completion may entitle the homebuyer to reduced FHA mortgage insurance premium (reduction from 2.25% to 1.75% of the home purchase price).
Guaranty Fee
Payment to Fannie Mae from a lender for providing guarantee of the payment of principal and interest on MBSs.
HECM
An FHA reverse mortgage in which a senior homeowner, age 62 and older, can convert the equity in his or her home into a monthly stream of income and/or a line of credit to be repaid when certain conditions occur.
Grantor
The person conveying an interest in real property.
Grantee
The person to whom an interest in real property is conveyed.
Graduated Payment Mortgage
A mortgage under which the monthly payments start low and slowly get larger over a period of years before finally reaching a fixed level for the remaining term of the loan.
Ginnie Mae
Government National Mortgage Association; a government-owned corporation overseen by the U.S. Department of Housing and Urban Development; pools FHA-insured and VA-guaranteed loans to back securities for private investment; provides funding for lenders to make loans to eligible borrowers.
Jumbo Loan
A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits; also known as a nonconforming loan.
Intermediate-Term Mortgage
A mortgage loan with a term of 20 years or less.
Index Rate
A measure of interest rates based on an index, which is a published rate or yield; rate on an ARM based on the index rate plus the margin.
Indemnification
The provision in an agreement requiring a party to the agreement to bear the monetary cost of any loss caused to the other party; the promise of one party to cover the loss to another, incurred as a result of the act(s) of the indemnifier.
Housing Counseling Agency
Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate; sometimes call the spread; the margin does not change during the term of the loan.
Loan Acceleration
A clause in a mortgage loan that gives the lender the right to demand payment of the entire outstanding balance if the borrower defaults.
Lifetime Rate Cap
A limit on the total amount by which the interest rate can increase or decrease over the life of an ARM.
Mortgage Qualifying Ratio
Used to calculate the maximum amount of a loan an individual may be granted; typical mortgage qualifying ratio is 28: 36.
Mortgage Modification
Loss mitigation option that allows a borrower to modify and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgage Insurance
A policy that protects lenders against loss when a borrower defaults on a mortgage loan; required primarily for borrowers with a down payment of less than 20% of the home’s purchase price; cost usually added to the monthly payment; under Homeowners Protection Act, insurance maintained until the outstanding loan balance is less than 80% of the value of the house at time of purchase, mortgage paid down to 78% of original amount or at midpoint of loan term.
Mortgage Broker
A firm or individual that originates and processes loans for a number of lenders.
Mortgage Banker
A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac; may also be known as a mortgage lender.
Mortgage-Backed Security
A security that represents an undivided interest in a group of mortgages; principal and interest payments from the individual mortgage loans are grouped and paid out to MBS holders.
Mortgage Acceleration Clause
The clause in a mortgage allowing a lender to demand repayment of a loan in a lump sum prior to the maturity date; may be triggered if the home is sold, title to the property is changed, the loan is refinanced, or the borrower defaults.
Mitigation
In terms of the mortgage industry, loss mitigation occurs when the lender works with a delinquent borrower to modify the terms of the mortgage loan.
Modification
An agreement between the lender and borrower to modify the terms of a mortgage; not a loan refinance.
Nonconforming Loan
Loan that exceeds Fannie Mae and Freddie Mac loan limits.
Negative Amortization
The result of a payment schedule under which the monthly payments do not cover all of the interest due; unpaid interest is added to principal outstanding; can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.
Private Mortgage Insurance
Used to offer protection to the lender in the case of default when a borrower has a down payment of less than 20% of the purchase price.
Payment Cap
Limit on how much an ARM’s payment may increase, regardless of how much the interest rate increases.
Predatory Lending
Abusive lending practices (e.g., granting a mortgage loan to someone without regard to ability to repay or based on the collateral’s foreclosure value, repeated refinancing of a loan, charging high interest and fees each time).
Prepayment
Any amount paid to reduce the principal balance of a loan before the due date; can occur with the sale of the property, paying down or paying off the loan ahead of schedule or with a foreclosure; full payment occurs before the loan has fully amortized.
Real Estate Settlement Procedures Act
Federal law protecting consumers from abuses during the real estate settlement process; helps consumers become better shoppers for settlement services; eliminates kickbacks and referral fees that can increase costs of settlement services to consumers; requires lenders to disclose all settlement costs, practices, and relationships.
Private Mortgage Insurance
Mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price; offered through private insurance carriers.
Prime Rate
The interest rate that banks charge to preferred customers; publicized in the business media; may be used as the basis for ARM rates or home equity lines of credit; also affects interest rates being offered on fixed mortgages but does not affect the interest on a fixed-rate mortgage already taken.
Prepayment Penalty
A fee charged to a borrower who pays off a loan before it is due; prohibited under the HOEPA and limited for higher-priced mortgage loans.
Secured Loan
A loan backed by collateral (e.g., real property, personal property).
Secondary Mortgage Market
Market where mortgage loans and servicing rights are bought and sold; investor purchase of residential mortgages originated by lenders provides lenders with capital for additional lending.
Risk-Based Pricing
Fee structure used by creditors based on risks of granting credit to a borrower with a poor credit history.
Risk Scoring
Automated way to analyze a credit report versus a manual review; takes into account late payments, outstanding debt, credit experience, and number of inquiries in an unbiased manner.
Right of First Refusal
A contract provision that requires the owner of a property to give one party an opportunity to purchase or lease a property before it is offered for sale or lease to others.
Reverse Mortgage
Mortgage transaction in which a senior homeowner, age 62 and older, can convert the equity in his or her home into a monthly stream of income and/or a line of credit to be repaid when certain conditions occur; (e.g., the borrower no longer occupy the home or passes away).
Rehabilitation Mortgage
A mortgage that covers the costs of rehabilitating (i.e., repairing or improving) a property (e.g., FHA 203(k)); some allow borrower to roll the costs of rehabilitation and home purchase into one loan.
Title Insurance
Insurance that protects the insured against any claims that arise from defects to a property’s title; available for both the lender and homebuyer; policy that protects buyer known as an owner’s policy or homeowner’s policy; policy that protects lender known as lender’s policy, loan policy, or mortgagee’s policy.
Title 1
An FHA-insured loan that allows a borrower to make renovations or repairs to their home; available for up to $25,000; not based on home equity; loans of less than $7,500 do not require a property lien.
Sweat Equity
The crediting of labor to build or improve a property as part of the down payment.
Subprime Loan
A loan made to a credit-impaired borrower; industry term used to describe loans with less stringent lending and underwriting terms; due to the higher risk, subprime loans have higher interest and higher fees.
Special Forbearance
Loss mitigation option under which lender agrees to a revised repayment plan that may include a temporary reduction or suspension of monthly loan payments.
Which of these federal regulations specifically prohibits discrimination in lending?
- FCRA
- HOEPA
- RESPA
- ECOA
ECOA
Who investigates mortgage fraud in the United States?
- Mortgage Bankers Association
- local officials
- FBI
- HUD
FBI
Which is least likely to be an example of illegal flipping?
- an inflated appraisal
- a series of sales and quick resales
- a group of sellers and buyers changing ownership of one property among them
- purchasing and remodeling a house and selling it for quick profit
purchasing and remodeling a house and selling it for quick profit
What type of mortgage allows the lender a share of the earnings, income, or profits generated by the mortgaged real estate?
- purchase money mortgage
- reverse equity mortgage
- like-kind exchange
- equity participation mortgage
equity participation mortgage
An HECM reverse mortgage and an adjustable rate mortgage are both examples of
- nonconforming loans.
- government agency loans.
- nontraditional loans.
- conventional loans.
- nontraditional loans.
Which can be found in a note?
- property’s legal description
- appraised property value
- terms and repayment provisions
- purchase details
- terms and repayment provisions
Which is NOT a type of mortgage?
- bi-weekly
- bi-monthly
- construction
- reverse
bi-monthly
With a $50,000 loan at 8% interest, which would NOT include a balloon payment due at the end of the term?
- with interest only payments, due in 10 years
- amortized over 20 years
- amortized over 30 years, due in 10 years
- (variable) plus CMT index, due in 10 years
- amortized over 20 years
Which type of mortgage is structured so that borrowers make smaller payments in the early years and larger payments later in the term?
- bridge mortgage
- refinance mortgage
- wraparound mortgage
- graduated payment mortgage
graduated payment mortgage
The portion of principal and interest due on a loan that is written off when deemed to be uncollectible is known as
- charge-off.
- setback.
- loss leader.
- deficit funds.
- charge-off.
Where do the funds for FHA loans come from?
- Federal Home Loan Mortgage Corporation
- Department of Housing and Urban Development
- approved lenders
- Federal Housing Administration
approved lenders
Why are documents recorded with the county government?
- to determine who holds the mortgage on a piece of property
- for development purposes
- for taxation purposes
- to provide notice of who holds an interest in a piece of property
to provide notice of who holds an interest in a piece of property
Which government agency backs VA loans?
- Federal Reserve Board
- Housing and Urban Development
- Department of Veterans Affairs (VA)
- Federal Housing Administration
- Department of Veterans Affairs (VA)
With what type of mortgage does the lender make regular monthly payments to the borrower based on the equity the homeowner has invested in the property?
- purchase money mortgage
- equity participation mortgage
- shared appreciation mortgage
- reverse mortgage
reverse mortgage
Which is TRUE about nonconforming loans?
- All states prohibit them for being predatory.
- They can be sold to FHLMC but not FNMA.
- They generally cost a homeowner more in fees.
- They meet Fannie Mae/Freddie Mac standards.
- They generally cost a homeowner more in fees.
Which is an example of a document that can be used to pledge real estate as collateral to secure a promise to repay a debt?
- mortgage
- constructive notice of title
- deed
- note
mortgage
Which element of an ARM is a statistical report that is a generally reliable indicator of the approximate change in the cost of money and may be used to adjust interest rates?
- prime rate
- index
- discount
- margin
index
Under Regulation Z, which advertisement would require full disclosure of credit terms?
- “Affordable rates available”
- “Assume loan at 8% interest”
- “Low down payment”
- “VA financing”
- “Assume loan at 8% interest”
What type of loans is involved in the air loan scheme?
- VA
- FHA
- conventional
- non-existent
non-existent
Which is an example of steering?
- Mortgage banker Brad refuses to make loans for a particular inner city neighborhood.
- Property manager Amy suggests Jake would be happier in a more diverse building.
- Agent Tom tells homeowners that their property values will drop when a Puerto Rican family moves in.
- Seller Oscar tells his listing agent to find only Caucasian buyer prospects.
- Property manager Amy suggests Jake would be happier in a more diverse building.
What information would be exempt from the privacy requirement of the Gramm-Leach-Bliley Act?
- a consumer’s credit score a loan originator gets from the credit bureau
- the loan amount that appears on a recorded mortgage
- a bank customer’s account balance
- income information a consumer includes in a credit application
- the loan amount that appears on a recorded mortgage
When an appraiser “gives a mortgage loan originator what’s needed” on the appraisalreport, the consumer usually ends up
- not being able to sell the property.
- paying more discount points at closing.
- borrowing too much on the property.
- refinancing the property.
- borrowing too much on the property.
What is not a protected class recognized by the Fair Housing Act?
- receipt of income from a public source
- national origin
- familial status
- disability
- receipt of income from a public source
What does Fannie Mae call the process of purchasing existing properties with the intention of immediately reselling the property for a profit?
- straw buying
- flipping
- refinancing
- assuming a mortgage
- flipping
What does not fall under the jurisdiction of Title VIII of the Civil Rights Act?
- rental housing
- new construction
- installment loan for a vehicle
- purchase of existing housing
- installment loan for a vehicle
What law prohibits discrimination in the sale and rental of a residential property on the basis of race, color, religion, handicap, sex, familial status or national origin?
- Home Owners Equity Protection Act
- Fair Housing Act
- Community Reinvestment Act
- Equal Credit Opportunity Act
- Fair Housing Act
The Privacy Rule requires that financial institutions provide the consumer with a Consumer Privacy Policy disclosure
- each time the servicing of the loan is transferred.
- at closing only.
- each time the Consumer Privacy Policy is revised.
- annually as long as the relationship continues or before sharing non-public personal inform
annually as long as the relationship continues or before sharing non-public personal inform
What federal legislation requires that all printed advertising include the Equal Housing Opportunity logo?
- Truth in Lending Act
- Fair Credit Reporting Act
- Equal Credit Opportunity Act
- Fair Housing Act
Fair Housing Act
What type of scam entails homeowners who are encouraged to refinance their property over and over until little or no equity remains?
- reverse equity
- property skimming
- loan flipping
- extreme lending
- loan flipping
What word best describes a group of participants working together to commit single acts of mortgage fraud?
- omission
- collusion
- representation
- discernment
- collusion
What is another name for blockbusting, an illegal activity, according to the Fair Housing Act?
- panic selling
- redlining
- steering
- discrimination
- panic selling
Real estate agent Ike tells mortgage broker Tina that he will send her all of his clients if she’ll give him $100 for each loan she closes. Although Tina turns him down, she does decide to send Ike tickets to a football game to thank him for referring his clients any way and he accepted them. According to Section 8 of RESPA,
- only Ike is in violation since he initiated a kickback scheme.
- neither are in violation.
- only Tina is in violation because she sent a gift.
- both are in violation since any gratuity could be considered a kickback.
both are in violation since any gratuity could be considered a kickback.
Which federal legislation prohibits kickbacks and referral fees?
- RESPA
- TILA
- ECOA
- FCRA
- RESPA
What federal legislation specifically addresses the sharing of non-public information between financial institutions?
- Truth in Lending Act
- Equal Credit Opportunity Act
- Gramm-Leach-Bliley Act
- Fair Credit Reporting Act
- Gramm-Leach-Bliley Act
A perpetrator sends an official-looking letter to a borrower saying that the borrower’s loan has been sold and the unsuspecting borrower then sends the mortgage payment to the address indicated on the letter and the thief makes off with the money. Which fraud scam is this?
- disappearing second
- air loan
- deed scam
- mail fraud
mail fraud
What federal legislation requires the term “equal housing lender” to be used in any advertisement that is broadcast over the airwaves?
- Fair Housing Act
- Truth in Lending Act
- Fair Credit Reporting Act
- Equal Credit Opportunity Act
- Fair Housing Act
To address the problem of property flipping, appraisers must analyze the transfer history of a property for the previous
- three years for the subject property; one year for the comparable properties.
- three months.
- one year.
- eighteen months.
- three years for the subject property; one year for the comparable properties.
The SAFE Act
- requires lenders to order appraisals through an appraisal management company.
- requires lenders to disclose the timing under which PMI can be cancelled.
- mandates the disclosures required at the time that a loan closes.
- requires state-licensed loan originators to have at least 20 hours of prelicensing education.
requires state-licensed loan originators to have at least 20 hours of prelicensing education.
Which statement about loan origination fees on a Loan Estimate is false?
- The fee includes services performed by or on behalf of the loan originator.
- Origination fees must be expressed as lump sum.
- The fee cannot change unless there is a changed circumstance.
- Lender and mortgage broker fees for the same transaction must be itemized.
Lender and mortgage broker fees for the same transaction must be itemized.
Which law ensures that some borrowers have the right of rescission for three business days after a loan contract is signed?
- Regulation Z
- Title VIII
- Equal Credit Opportunity Act
- Regulation X
- Regulation Z
Which law requires state-licensed mortgage loan originators to take approved prelicensing education?
- SAFE Act
- FACT Act
- Patriot Act
- CRA
- SAFE Act
Which fee can be collected prior to delivery of a Loan Estimate and Closing Disclosure?
- credit report fee
- Any legitimate fee can be collected prior to delivery of these disclosures.
- application fee
- No fees can be collected prior to delivery of these disclosures.
- credit report fee
Which rule prohibits mortgage relief companies from collecting any advance fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable?
- Safeguards Rule
- MARS Rule
- FHA Rule
- Loan Originator Compensation Rule
- MARS Rule
Which legislation does NOT allow a lender, when qualifying income, to consider the possibility of a borrower having additional children?
- ECOA
- TILA
- FCRA
- RESPA
- ECOA
Which law prohibits discrimination based on sex, race, age, national origin, marital status, and source of income?
- RESPA
- Fair Housing Act
- Truth in Lending
- Equal Credit Opportunity Act
Equal Credit Opportunity Act
Who does NOT share responsibility for enforcing the provisions of the National Do Not Call Registry?
- State law enforcement
- Federal Reserve Board
- Federal Communication Commission
- Federal Trade Commission
- Federal Reserve Board
Which rule allows consumers to opt out of having their private information shared?
- Financial Privacy Rule
- Federal Reserve Loan Originator Compensation Rule
- MARS Rule
- Red Flags Rule
- Financial Privacy Rule
The rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable is the
- 3/7/3 Rule.
- Safeguards Rule.
- MARS Rule.
- Loan Originator Compensation Rule.
- MARS Rule.
Mortgage Assistance Relief Services
Mortgage Assistance Relief Services
The Federal Trade Commission (FTC) published the Mortgage Assistance Relief Services (MARS) final rule on Dec. 1, 2010 directed at companies that offer loan modification services to consumers for a fee; it requires certain disclosures and prohibits upfront fees.
Which law ensures lenders use an annual percentage rate (APR) so that the borrowers have the information they need to make informed comparisons?
- Equal Credit Opportunity Act
- Regulation X
- Fair Housing Act
- Regulation Z
Regulation Z
A mortgage loan originator is not required to provide a Loan Estimate if the borrower
- withdraws the application before the end of the three business-day period.
- is unlikely to be approved for a loan.
- refuses to provide the government monitoring data required in the application.
- applies for loans from multiple lenders.
- withdraws the application before the end of the three business-day period.
Which act provides a specific definition of a nontraditional loan?
- Homeownership Equity Protection Act
- Truth in Lending Act
- Secure and Fair Enforcement Mortgage Licensing Act
- Mortgage Disclosure Improvement Act
- Secure and Fair Enforcement Mortgage Licensing Act
Which would be considered a toxic loan feature under the qualified mortgage (QM) rule?
negative amortization
partial amortization
full amortization
acceleration clause
negative amortization
While it is unlawful to consider race when underwriting a loan, what federal legislation requires that this information be included on the loan application?
- Home Mortgage Disclosure Act
- Fair Credit Reporting Act
- Equal Credit Opportunity Act
- Truth in Lending Act
- Home Mortgage Disclosure Act
The Dodd-Frank Act definition of a qualified mortgage includes all of these features except
- no excessive upfront points and fees.
- interest-only loan offerings.
- no terms beyond 30 years.
- limits on debt-to-income ratios.
- interest-only loan offerings.
Which item is NOT included in the calculation that determines the annual percentage rate?
- mortgage insurance premium
- broker’s origination fee
- lender’s discount points
- title insurance premium
title insurance premium
Which of the following best describes a loan with a principal balance exceeding Fannie Mae or Freddie Mac guidelines?
- Subprime
- Jumbo
- Illegal
- Balloon
Jumbo
____% of rental income may be used to qualify a borrower for a loan.
75
The S.A.F.E. Act’s definition of “residential mortgage loan” includes a loan secured by a consensual security interest on a dwelling and cross-references the definition of the term “dwelling” in the Truth-in-Lending Act (TILA). Regulation Z, which implements TILA, defines a dwelling as a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
Under the Electronic Signatures in Global and National Commerce Act (the E-SIGN Act), before obtaining a consumer’s consent, a financial institution must provide a clear and conspicuous statement to consumers, informing them of their right or option to have the record provided or made available on paper or in a non-electronic form. The statement must also explain the consumer’s right to withdraw consent, including applicable conditions, consequences, and fees. Consumers must also be provided with information about the hardware and software required to allow them to access and retain the electronic records.
According to the standard deed of trust, how soon must a borrower on an owner-occupied loan occupy the property?
- Within 30 days of closing
- Within 90 days of closing
- Within 60 days of closing
- Within 15 days of closing
- Within 60 days of closing
Which of the following deals most specifically with representations made in mortgage advertising?
Regulation X
HMDA
MAP Rule
E-SIGN Act
The answer is MAP Rule
A creditor must provide the Loan Estimate no later than ____business days after receipt of the consumer’s application AND at least ____business days prior to consummation.
3 and 7
What is the tolerance allowed for variances in the APR disclosure required by the Truth-in-Lending Act in a regular transaction?
1%
0.125%
.25%
$200
The answer is .125% (one eighth of one percent). The APR is considered accurate if it is not more than one eighth of one percentage point above or below the APR determined in accordance with legal requirements (i.e., in accordance with the actuarial method or the United States Rule method), or if it is not more than .25% (one quarter of one percentage point) above or below the APR for an irregular transaction.
Which of the following is not a required element of a company’s safeguard policy, as required by the GLB Act?
- Designate one or more employees to coordinate safeguards
- Evaluate and adjust procedures in light of relevant circumstances
- Select appropriate service providers and contract with them to implement safeguards
- Contract with a federally-insured company to destroy documents
The answer is contract with a federally-insured company to destroy documents.
Under the GLB Act, a financial institution must have a written information security program that is appropriate to its size and complexity, to the nature and scope of its activities, and to the sensitivity of the customer information it handles. As part of its program, the financial institution must assign one or more employees to oversee the program; conduct a risk assessment; put safeguards in place to control the risks identified in the assessment and regularly test and monitor them; require service providers, by written contract, to protect customers’ personal information; and periodically update its security program. There is no requirement to contract with any external company to handle information security issues of any kind.
A mortgage which is amortized for a longer period than the actual term of the loan can best be described as a:
- Balloon mortgage
- Hybrid ARM
- Graduated Payment Mortgage (GPM)
- Fixed period ARM
balloon
All of the following are considered immediate family members, and therefore a mortgage loan originator may negotiate a mortgage loan on their behalf without needing to be licensed, EXCEPT a(n):
- Stepparent
- Aunt
- Adopted sibling
- Grandparent
aunt
The purpose of the Truth-in-Lending Act is to do which of the following?
- Ensure meaningful disclosure of credit terms to consumers
- Prevent lenders from charging interest rates that are unfair to consumers
- Protect consumers from abusively high interest rates
- Require consumers be provided with a good faith estimate of closing costs at the time of loan application
The answer is ensure meaningful disclosure of credit terms to consumers. The purposes of TILA include assuring a meaningful disclosure of credit terms so that the consumer will be able to more readily compare the various credit terms available to him or her and avoid uninformed use of credit.
Which of the following terms would apply when calculating the maximum loan amount available to a VA borrower?
UFMIP
Insured amount
Entitlement
Guarantee fee
The answer is entitlement. The VA limits the amount that it can guarantee to repay a lender in the event of a default on the loan. The amount that the government will guarantee to a lender is known as a veteran’s entitlement.
