PRACTICE QUESTIONS Flashcards
An Alt-A or Alt Doc loan would be considered a type of:
Jumbo loan mortgage
Subprime mortgage
Adjustable rate mortgage
Nontraditional mortgage
Subprime mortgage
Subprime mortgages are also known as Alt-A or Alt-Doc loans.
George has a loan that is amortizing over 30 years, but he will be required to pay the remaining principal in 15 years. What is this called?
An adjustable rate mortgage
A reverse mortgage
A balloon payment mortgage
An interest-only mortgage
A balloon payment mortgage
A balloon mortgage is a mortgage that requires a larger than usual one-time payment at the end of the term.
Lucy has taken the National Test Component with the Uniform State Test two consecutive times and failed, how long must she wait before she can take it again?
60 days
90 days
6 months
30 days
30 days
The SAFE Act allows an applicant to take the test three consecutive times 30 days a part. After a third failure, the applicant has to wait 6 months to challenge the exam again.
For the purpose of complying with HMDA rules, a mortgage loan originator must ask all of the following questions except?
The borrower’s race
The borrower’s marital status
The borrower’s sex
The borrower’s ethnicity
The borrower’s marital status
Marital status is not a question that has to be asked for the HMDA demographic information.
The application for a mortgage loan originator would be denied for all of the following reasons except:
The applicant was convicted of a felony 5 years ago
The applicant had a mortgage loan originator license revoked
The applicant has had seriously delinquent accounts in the past 3 years
The applicant has a foreclosure on their credit report from 4 years ago
The applicant has a foreclosure on their credit report from 4 years ago
Under the SAFE Act, MLOs must be financially responsible at application and at renewal. They also have to have clean criminal backgrounds. A foreclosure would disqualify an applicant if it was in the past 3 years.
Which of the following borrowers would be a good fit for a reverse mortgage?
Janet, who is 50 years old and owns her house, outright
Margaret who is 63 years old and owes only $10,000 on her current mortgage
Saul who is 62 years old and owes $100,000 on his home
Howard who is 66 years old and just purchased his home 3 years ago
Margaret who is 63 years old and owes only $10,000 on her current mortgage
Margaret is over 62 years of age and owes very little on her home, she would be the perfect candidate for a reverse mortgage. Janet is not old enough to qualify for a reverse mortgage and Howard and Saul likely have too little equity in their homes for a reverse mortgage to be a viable option for them.
Renee is a real estate broker working for a property developer. She has been going door-to-door discussing with homeowners in a certain area the possibility of them selling. She often tells these homeowners that there has been an increase of Latinos moving into the area and that they really should move now before their property values drop because of this influx of lower income individuals. This would be considered:
Churning
Reverse Redlining
Blockbusting
Redlining
Blockbusting
Blockbusting occurs when real estate agents and building developers attempt to convince white property owners to sell their houses at low prices by promoting fears in those homeowners that racial minorities would soon be moving into the neighborhood.
Which of the following is true about an adjustable rate mortgage?
Adjustable rate mortgage always includes interest-only periods
Adjustable rate mortgages interest rates are fixed
Adjustable rate mortgages interest rates are not fixed
Adjustable rate mortgages payments never change
Adjustable rate mortgages interest rates are not fixed
An adjustable-rate mortgage or ARM, also sometimes referred to as a variable rate mortgage, is a mortgage loan where the interest rate periodically adjusts. The index, margin, and adjustment caps on the ARM determine the amount of each adjustment.
What type of mortgage requires a funding fee?
USDA
FHA
VA
Conventional
va
FHA requires UFMIP and MMI on their loans. Conventional loans only require PMI on loans with LTV’s over 80%. USDA requires a guarantee fee and VA requires a funding fee.
What type of appraisal takes the cost of rebuilding the property, plus the cost of the land the property is on and subtracts any depreciation to determine a value of the property?
Investment Approach
Sales Comparison Approach
Cost Approach
Income Approach
Cost Approach
When using the cost approach, the appraiser determines the value of the property by adding the estimated value of the land to the current cost of constructing a reproduction or replacement and then subtracting any amount of depreciation.
Hannah is choosing to escrow her taxes and insurance on her new home. She paid some towards her escrow account at closing. She is wondering when she will get information from her servicer on her escrow account. RESPA requires that servicers provide an initial escrow account statement within:
30 calendar days of closing
90 calendar days of closing
60 calendar days of closing
45 calendar days of closing
45 days
According to RESPA, a servicer is required to disclose an initial escrow account statement within forty-five (45) calendar days of settlement for escrow accounts that are established as a condition of the loan.
The legal link between a person who owns property and the property itself is the:
Promissory Note
Title
Deed
Mortgage
Title
Title is a collective term for all a borrower’s legal rights to own, use, and dispose of land. Title includes all previous ownership, uses, and transfers.
Jordan has a Chapter 7 bankruptcy on her credit report. How long can that bankruptcy continue to stay on her credit report?
2 years
10 years
7 years
5 years
10 years
Bankruptcies show on the credit report for seven (7) years for Chapter 11 or 13 and ten (10) years for a Chapter 7
Who insures FHA loans?
HUD
Loan Underwriter
Fannie Mae
Freddie Mac
hud
The Department of Housing and Urban Development (HUD) is responsible for insuring FHA loans.
Travis is disclosing an origination fee of $1200 on the initial Loan Estimate. What is the maximum that origination fee can change between the Loan Estimate and the Closing Disclosure?
10% cumulatively
It can go up $100 only
There is zero tolerance, and it cannot change at all
It can go up as much as Travis wants
There is zero tolerance, and it cannot change at all
This fee cannot go up at all. An origination charge falls into the zero-tolerance bucket.
Which of the following is a government sponsored entity?
The USDA
Fannie Mae
Ginnie Mae
FHA
Fannie Mae
A government-sponsored enterprise is a type of financial services corporation created by the United States Congress. Both Fannie Mae and Freddie Mac are GSEs.
The Uniform Residential Loan Application is also known as the:
1003
1002
4506T
MU-4
1003
The Uniform Residential Loan Application or URLA is also known as the 1003.
What federal law details the licensing requirements for mortgage loan originators?
Loan Originator Compensation
SAFE Act
TILA
Dodd-Frank
SAFE ACT
The SAFE Act created the requirements for MLO licensing.
An IRRRL is what type of loan?
A VA cash-out loan
An FHA streamline loan
A VA streamline loan
A USDA purchase loan
VA streamlined Loan
The VA IRRRL or VA Interest Rate Reduction Refinance Loan is similar to the FHA streamline but is offered as a VA to VA no-cash out refinance loan. IRRRL’s do require an additional funding fee, and the veteran cannot receive any additional funds out of their property.
Which federal law restricts the use of credit reports and requires accuracy on credit report?
Gramm-Leach-Bliley
FACTA
Red Flags Rule
FCRA
FCRA
The Fair Credit Reporting Act (FCRA, Regulation V) deals with the accuracy of credit reports and the use of credit reports. FACTA, an amendment of FACTA, was put into place to improve the consumer’s access to credit information. The Red Flags rule deals with identifying identity theft as is a part of the FACTA. GLBA deals with the disclosure of non-public personal information
Under ECOA, the lender is required to provide the borrower a reason for denial. How long does the lender have to provide that reason?
60 days
120 days
90 days
30 days
30 DAYS
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.
Alexandra is a licensed mortgage loan originator, and she works for a licensed mortgage lender. Alexandra also works part time as a mortgage loan originator at her friend’s brokerage. Is Alexandra doing anything wrong?
No, Alexandra is properly licensed
Yes, Alexandra is working simultaneously for two companies, which is prohibited
Yes, Alexandra is not properly licensed
No, Alexandra can work for more than 1 company at a time
Yes, Alexandra is working simultaneously for two companies, which is prohibited
An MLO cannot work for more than one company at a time, this is a prohibited practice.
A reverse mortgage has which of the following features?
Two closings
Graduated payments
Negative amortization
A prepayment penalty
Negative amortization
Negative amortization occurs when a person’s monthly payments do not cover the amount of interest accrued during that month. The amount of interest not covered is added onto the principal balance of the loan. This is the case on reverse mortgages as no payments of principal and interest are required.
A licensed mortgage lender may not do which of the following in their advertising?
Publish an advertisement that does not include the lenders unique identifier on their advertisement
Publish an advertisement with their exact name as it appears on their license
Publish an advertisement that shows the lenders exact address as it appears on their license
Publish an advertisement that shows an insignia designating membership in a particular state association
Publish an advertisement that does not include the lenders unique identifier on their advertisement
The SAFE Act requires all unique identifiers be on all advertisements and applications.
What event occurs when the 3-day right of rescission has passed?
Underwriting
Closing
Funding
Post-Closing
Funding
Funding is the process at closing by which the funds are dispersed to their proper owners. In the situation of a purchase transaction, funds are transferred to the seller from the buyer, and the buyer also transfers funds to the lender. Funding happens after the right of rescission expires on owner-occupied refinance transactions.
A lender has a policy that they never lend less than $70,000 because they can’t make any money off of loans lower than $70,000. What would this be considered:
Disparate Impact
Blockbusting
Disparate Treatment
Discrimination
Disparate Impact
Disparate Impact occurs when a facially neutral policy or practice is applied equally to all applicants, but the policy or practice disproportionately excludes or burdens certain groups of people on a prohibited basis.
A Section 203K loan is a:
A VA program
A reverse mortgage
FHA program
A Fannie Mae program
FHA PROGRAM
A 203K loan is a rehabilitation loan offered by FHA.
Agatha wants to purchase two discount points, and there are two origination points on her loan. The sales price of the property is $150,000, and she is putting 10% down on the property. How much are the discount points and origination points going to cost her?
$6,000
$1,350
$5,400
$1,500
$5,400
First we need to determine the loan amount, 10% of $150,000 is $15,000. $150,000 - $15,000 is $135,000. Our loan amount is $135,000. Both origination points and discount points are 1% of the loan amount. 1% of $135,000 is $1350. $1350 x 4 is $5400.
Reginald works a full-time job as a schoolteacher and makes $43,000 a year. He also has been working a part-time job for the last two years working 10 hours a week at $10.50 an hour. His wife, Julia, works as a medical assistant and makes $22.50 an hour and works 45 hours a week. What is their gross monthly income?
$3,762
$8,426
$7,207
$4,631
$8,426
The first step is determining Reginald’s income; his full-time job is $43,000 divided by 12 which is $3,583.33. We can use his second job because he has 2 years of verifiable work. 10 x 10.50 =$105 a week x 52 weeks in a year = $5,460 divided by 12 = $455 a month. $455 plus $3,583.33 = $4,038.33. Now for Julia’s income, she works 45 hours a week at $22.50 (it does not say she gets overtime for those 5 hours), so $22,50 x 45 = $1,012.50 a week x 52 weeks in a year $52,650 a year/12 = $4387.50. $4387.50 plus $4038.33 = $8425.83 (rounded up to $8,426).
Which of the following transactions is not governed by the new TRID Rules?
A refinance transaction
A purchase money transaction
A closed-end second mortgage
A reverse mortgage
A reverse mortgage
HELOCs and Reverse Mortgages are not required to follow TRID requirements, they continue to use the Good Faith Estimate and TIL Disclosures.
Luke is a mortgage loan originator, and he is working with a new borrower. Luke needs to determine how much the home is worth versus the loan amount that the new borrower is requesting. What is Luke attempting to determine?
The borrower’s loan to value ratio
The borrower’s debt-to-income ratio
The borrower’s appraised value
The borrower’s loan amount
The borrower’s loan to value ratio
Loan to Value is a calculation made to determine whether a borrower qualifies for a property or not. Programs require that borrowers put a specific amount down or have a specific amount of equity in their property to obtain a loan. To determine a borrower’s loan to value, the MLO or underwriter is going to take a loan amount and divide it by the borrower’s purchase price or the properties appraised value (whichever is lower).
Jamie is looking to refinance his property. He currently owes $55,000 on a first mortgage and pays a 4% interest rate on it. He also owes $5,000 on a HELOC paying 6% interest on it. He wants to obtain some cash-out and is expecting to get at least $30,000. The appraisal came in at $200,000. He also has a tax lien of $1,200 on the property and $4,000 in credit card debt he’d also like to eliminate. He qualifies for an 80% LTV and the closing costs are going to be $3,000 on the new loan. How much cash will Jamie have available?
$95,800
$91,800
$93,000
$97,000
91,800
So, in debt, Jamie has $65,200 that he needs to pay off (including the HELOC, first mortgage, tax lien and credit card debt). He qualifies for 80% LTV and his house is worth $200,000, 80% of $200,000 is $160,000. $160,000 minus $65,200 is $94,800. His closing costs are $3,000, so he would still have $91,800 available in cash.
Which of the following would NOT be considered a change of circumstance and allow the lender to re-disclose the Loan Estimate?
The borrower’s appraisal comes in low and to continue with the loan they need to change from a conventional to an FHA loan
An Act of God changes the condition of the property
The initial Loan Estimate indicates that the interest rate will be locked, and the mortgage loan originator forgets to lock the loan, and the interest rate goes up the next day, so the mortgage loan originator re-discloses the Loan Estimate with the new rate
The borrower decides to change from an ARM to a fixed rate product
The initial Loan Estimate indicates that the interest rate will be locked, and the mortgage loan originator forgets to lock the loan, and the interest rate goes up the next day, so the mortgage loan originator re-discloses the Loan Estimate with the new rate
There are only three things that can cause a change of circumstance the first is an Act of God (like a hurricane or tornado), a change made by the borrower or a change made by an extenuating circumstance (like a low appraisal that changes the LTV). An MLO making a mistake or forgetting to do something is not an acceptable change of circumstance.
What law requires identification be provided on a mortgage transaction?
Gramm-Leach-Bliley
Red Flags Rule
BSA/AML
USA Patriot Act
USA Patriot Act
The US Patriot Act was created after the attacks on September 11th to combat terrorism. The Act requires that lenders create a consumer identification program and get two forms of identification on all transactions.
What type of scheme is usually occurring when there is a nonexistent property?
Air Loan
Illegal Property Flipping
Chunking
Churning
Air Loan
An air loan is a loan that has a straw or non-existent buyer, or a non-existent property. Air loans are loans that are based on something entirely made up or “pulled out of thin air.”
When an individual is reviewing a loan file to determine that risk involved for the lender and to determine whether the borrower meets the requirements for the loan they are considered to be doing what to the loan?
Closing
Underwriting
Originating
Processing
Underwriting
The Underwriter is in charge of approving or denying a loan application; they do this by assessing the risk that the borrower poses and comparing the borrower’s qualifications with the potential loan program.
Daniel is looking to qualify his borrower for a conventional loan. He is attempting to determine the borrower’s back-end debt-to-income ratio. What is the maximum back-end DTI ratio that Daniel can use on a conventional loan?
28%
32%
36%
41%
36%
The conventional loan qualifying ratios are 28/36%
Section 35 of TILA governs what type of loan?
Higher priced
Subprime loans
Open-ended loans
High Cost
Higher Priced
Section 35 of TILA deals with higher-priced home loans, not be confused with Section 32 which is HOEPA and deals with high-cost home loans.
What federal law created the idea of a qualified mortgage?
ECOA
Dodd-Frank
TILA
RESPA
Dodd-Frank
The Dodd-Frank Wall Street Reform Act mandated specific rules be created including QM, ATR and LO Comp. All three of which are now housed under TILA.
Rebecca just recently passed the bar exam and became a licensed attorney. She is looking to purchase a new home, and her mortgage loan originator suggested that they look into a loan that has lower payments at the beginning and the payments then increase during the life of the loan. What type of loan is this?
A bridge mortgage
A graduated payment mortgage
A reverse mortgage
An adjustable rate mortgage
A graduated payment mortgage
A graduated-payment mortgage (GPM) is a mortgage that has a low initial monthly payment that gradually increases over a specified time frame designated at the time of origination. A GPM uses negative amortization to allow the borrower to have an initially discounted monthly payment.
Under what law does the Ability to Repay Rule fall under?
TILA
Dodd-Frank
RESPA
ECOA
tila
TILA houses a lot of different rules, including ATR, QM, and LO Comp.
Javier is looking to purchase a home, but he does not make enough money to obtain the loan that he wants. Javier, instead of looking for a less expensive property, changes his W-2 to reflect that he is making an additional $1,000 a month. What type of fraud is this?
Negligent fraud
Fraud for property
Fraud for criminal enterprise
Fraud for profit
Fraud of Property
Fraud for housing/property is committed when a borrower materially misrepresents information on a mortgage loan application such as employment, income, or assets to obtain a mortgage. The borrower is motivated to acquire ownership of a house.
According to MDIA, what is the waiting period once initial disclosures are provided to the borrower before the loan can close?
7 business days
5 business days
3 business days
10 business days
7
MDIA implanted the 3/7/3 Rule. The 3/7/3 Rule requires a seven-business day waiting period once the initial disclosures are provided before a loan closes.
What law allows for e-signatures as long as the borrower gives permission?
The Dodd-Frank Act
Gramm-Leach-Bliley
Homeowners Protection Act
The Electronic Signatures in Global and National Commerce Act
The Electronic Signatures in Global and National Commerce Act
The E-Sign Act allows for e-signatures as long as you get permission from the borrower first!
Which of the following situations would be considered a prohibited act or practice?
Tyler discusses with a borrower particular rates and terms that they qualify for
Eileen, a mortgage loan originator, provides an additional appraiser comparables with the hopes that the appraiser might change the value on her borrower’s appraisal
Laurie, an independent contract processor, renews her mortgage loan originator license
Riley, working as a processor for a mortgage lender, discusses specific options for locking a borrowers loan
Riley, working as a processor for a mortgage lender, discusses specific options for locking a borrowers loan
Since Riley is a processor, she is not likely a licensed MLO. Discussing specific options to lock a loan is discussing rates and terms, this would require having an MLO license.
Logan wants to buy an investment property but knows that he will get better terms on the loan if he tells the lender that this is his primary residence. What type of fraud would Logan be committing?
Occupancy Fraud
Income Fraud
Asset Fraud
Identity Theft
Occupancy Fraud
Occupancy fraud occurs when someone misrepresents their intention to live in a property. This happens a lot on second home or investment properties because loans on those types of properties are less advantageous than on primary residences.
What would be the minimum down payment on a FHA loan of $200,00?
$6,000
$40,000
$20,000
$7,000
$7,000
The minimum down payment on an FHA loan is 3.5%. 3.5% of $200,000 is $7,000.
Anna is looking to purchase a new home. She lives in a small town of under 20,000 people. What loan program would be a good option for her?
An FHA loan
A conventional loan
A VA loan
A USDA loan
usda loan
The USDA loan or U.S. Department of Agriculture loan is a type of mortgage that is available in rural areas of less than 35,000 people. USDA loans offer many benefits to borrowers, including no down payment, one hundred percent (100%) financing, lower-than-market interest rates, and a lower PMI rate than any other loan program.
Hank just received an appraisal fee from his borrower. What type of account should Hank put this appraisal fee until it is paid to the appraiser?
In an interest bearing savings account
In an escrow account
In an investment account
In the lenders general operating account
Escrow
All fees collected from a borrower before closing are either paid directly to the third party rendering the service or are kept in an escrow account until closing.
Which of the following is not a penalty that the state regulatory authority can levy against a licensee?
Restitution
License Suspension
License Revocation
Imprisonment
Imprisonment
State regulatory authorities can do something to a license or levy civil penalties. They can also recommend to the local Attorney General that criminal behavior is occurring but they themselves cannot prosecute a licensee for a crime or impose prison time.
