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.
Which of the following would be considered a mortgage loan originator?
Jane is requesting a verification of employment from a borrowers employer
Henry is determining whether a borrower can repay the proposed loan
Alexia is discussing a rate lock with a borrower
Jackson is discussing with a borrower the need for additional documentation for their loan
Alexia is discussing a rate lock with a borrower
Alexia is discussing rates and terms with the borrower; she would need to be a licensed MLO to do so. The remaining individuals are only doing clerical or support duties.
Which of the following would NOT be considered a non-traditional mortgage product?
A Conventional 5/1 ARM
A Conventional 30-year mortgage
A VA 25-year mortgage
An FHA 15-year mortgage
A traditional mortgage is a 30-year mortgage, anything that’s not a 30 year mortgage is a non-traditional mortgage.
All of the following applies to the right of rescission except:
The borrower has 4 days from choosing to rescind the loan
If the borrower does not receive the 2 copies of the notice of right to rescind the borrower has 3 years to rescind the loan
The lender is required to provide 2 copies of the notice of right to rescind at closing
It’s only available on owner occupied refinance transactions
The borrower has 4 days from choosing to rescind the loan
The right of rescission allows the borrower 3 days to rescind the loan.
Michael does not have enough money to put 20% down on his conventional loan to avoid PMI but really can’t afford the payment with the additional cost. Instead of looking for the additional money to put down in cash, Michael contacts a second lender who lends him the additional money he needs to put the 20% down. That second lender and the loan Michael receives is never disclosed to the 1st lender. What would that second loan be considered?
A home equity line of credit
A second lien loan
A silent second
A payday loan
A silent second
This is a silent second because Michael does not disclose that he has a second mortgage or is using a second mortgage.
What type of mortgage requires upfront mortgage insurance and monthly mortgage insurance?
Conventional
USDA
VA
FHA
fha
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.
Which federal law was put into place to improve consumer’s access to credit information?
Red Flags Rule
Gramm-Leach-Bliley
FCRA
FACTA
FACTA, an amendment of FACTA, was put into place to improve the consumer’s access to credit information. FCRA deals specifically with the use of credit reports and accuracy of the credit report. The Red Flags rule deals with identifying identity theft. It is a part of FACTA. GLBA deals with the disclosure of non-public personal information.
An agreement to indemnify against loss arising from a defect in title to real property, usually issued to a buyer of the property by the title company that conduct the search is:
Homeowners insurance
Title search
Title insurance
Hazard insurance
Title Insurance
Title insurance protects against the possibility of future loss should the borrower’s legal rights to their property be challenged.
FHA allows seller concessions. What is the maximum amount of seller concessions allowed on an FHA loan?
10%
4%
8%
6%
6%
The maximum seller concessions on an FHA loan is 6%. Conventional loans only allow 3% seller concessions.
Which federal law prohibits someone from inquiring about childbearing?
Fair Housing Act
HMDA
RESPA
ECOA
ECOA
The Equal Credit Opportunity Act (ECOA, Regulation B) prohibits discrimination based on sex, part of that includes the ability to bear children. ECOA states that it is discriminatory to ask about a persons childbearing plans or ability.
Trevor just received a promotion at work that is going to require him to move across the country. What type of loan might Trevor use to help him between selling his previous home and buying his new home?
A graduated payment mortgage
An adjustable rate mortgage
A reverse mortgage
A bridge mortgage
A bridge mortgage
A bridge loan is a short-term loan secured by the borrower’s current home (which is usually for sale) that allows the borrower to use their equity for building or down payment on a purchase of a new home before the current home sells.
Which of the following would not be a prohibited under the Loan Originator Compensation Rule?
A mortgage loan originator receives a $5,000 bonus for loans over $250,000 that they close
A mortgage loan originator receives $1,000 for selling a loan with an interest rate of over 4%
A mortgage loan originator receives 10% additional for each ARM that they close
A mortgage loan originator receives a flat fee for each loan that they close
A mortgage loan originator receives a flat fee for each loan that they close
The LO Comp Rules prohibits compensation based on terms of the loan. They can be charged a flat fee for each loan closed or for the volume of loans they close in the month.
Which law prohibits discrimination based upon disability?
RESPA
ECOA
Reg. C
Fair Housing Act
Fair housing act
The Fair Housing Act adds disability as a protected class. ECOA does not include disability as a protected class. That’s a good way to differentiate between the two laws.
Which of the following is not true about the Dodd-Frank Act:
It created the CFPB
It prohibits unfair lending practices
It created the NMLS
It expanded consumer protection on high-cost mortgages
It created the NMLS
The Conference of State Bank Supervisors (CSBS) and American Association of Residential Mortgage Regulators (AARMR) created the NMLS.
Section X or the Demographic Information Addendum on the 1003 is where information regarding what federal law goes?
ATR
ECOA
QM
HMDA
HMDA
HMDA requires that financial institutions collect and report specific data. The data is collected and analyzed to prevent and detect discriminatory lending practices and to determine whether a financial institution is lending fairly in all areas they serve. This information is collected on Section X or the Demographic Information Addendum of the 1003.
All of the following are true about the FTC Red Flags Rule except:
Require the implementations of a written plan to detect and prevent industry theft
It requires lenders to create specific disposal policies to ensure a borrower’s information is properly disposed of
The penalty for noncompliance is $3,500
Protect sensitive personal data
It requires lenders to create specific disposal policies to ensure a borrower’s information is properly disposed of
The Red Flags Rule is specifically about protecting sensitive personal data from being exploited and involved in identity theft. The Disposal Rule is a separate rule that requires lenders to create specific disposal policies to ensure that a borrower’s information is properly disposed of.
As part of a mortgage loan originator applicants pre-licensing education, how many hours must be focused on federal law?
10 hours
3 hours
4 hours
2 hours
3 hours
Pre-Licensing Education must be a total of 20 hours and at least 3 of those hours must be focused on federal law.
Arnold is a licensed mortgage loan originator and is looking to renew his license. By what date does Arnold have to renew his license before it would expire?
December 25
January 1
November 1
December 31
12/31
All licensees expire December 31st.
Which federal law prohibits mortgage relief service providers from requiring an advance fee before the provider has obtained and the borrower has accepted a written offer from the borrower’s lender or servicer?
Reg. Z
Reg. N
Reg. X
Reg. O
reg o
The MARs Rule is also known as Regulation O. The Mortgage Assistance Relief Services Rule or the MARs Rule made it illegal to charge upfront fees and requires specific disclosures in ads for mortgage assistance relief providers. These rules protect distressed borrowers from foreclosure rescue schemes.
Which law promotes informed shopping by requiring the disclosure of settlement services to the borrower?
TILA
RESPA
Reg. C
Reg. B
respa
The Real Estate Settlement Procedures Act (RESPA, Regulation X) deals specifically with settlement services. A good way to remember its purpose is by thinking about the law’s name, it includes the word settlement.
What type of loan requires that you have MMI?
Freddie Mae
Non-conforming loan
Fannie Mae
FHA loans
FHA
FHA loans require Monthly Mortgage Insurance Premiums. Conventional loans can require Private Mortgage Insurance (PMI) on loans with LTVs over 80%.
What is used to buy down a person’s interest rate and costs 1% of the loan amount?
Par rate
A discount point
An origination point
Prime rate
Discount
Discount points are the cost to lower the borrower’s interest rate in exchange for an upfront fee.
Travis is a mortgage loan originator, and he primarily does refinances for borrowers. He has a borrower, Steve, who calls him once a year to refinance and every time Travis refinances his property even though Steve does not need to refinance. Travis does this to make sure that he receives the fees for the refinance. What would this be considered?
Redlining
Chunking
Churning
Steering
Churning
Churning or repeated refinancing is excessive selling/lending activity to generating fees and commissions. In some cases, the lender steps the rate down through multiple refinances.
A lender has a policy that only individuals between the age of 25-45 can receive home loans of over $200,000. What would this be considered:
Disparate Treatment
Discrimination
Disparate Impact
Blockbusting
Disparate Treatment
Disparate Treatment is either overt discrimination, or there is comparative evidence of discrimination.
Which of the following would describe a non-conforming loan?
Non-conforming loans do not follow FHA guidelines
Non-conforming loans do not follow Fannie Mae and Freddie Mac guidelines
Non-conforming loans follow Fannie Mae and Freddie Mac guidelines
Non-conforming loans are subprime loans
Non-conforming loans do not follow Fannie Mae and Freddie Mac guidelines
A conforming mortgage is a mortgage that conforms with Fannie Mae and Freddie Mac guidelines. A non-conforming loan is any loan that does not conform to Fannie Mae and Freddie Mac guidelines.
Which law promotes informed use of credit by requiring the disclosure of the APR to the borrower?
Reg. B
Reg. C
TILA
RESPA
tila
The Truth in Lending Act (TILA, Regulation Z), deals specifically with the proper disclosure of APR’s on initial disclosures and on advertising.
Which of the following is not one of the new disclosures required under TRID?
The Closing Disclosure
The Loan Estimate
The Adverse Action Notice
The Home Loan Toolkit
The adverse action notice
The LE, CD and Home Loan Toolkit were new disclosures required under TRID. The Adverse Action Notice is required under ECOA.
Which of the following is not considered a protected class under Reg. B?
National Origin
Disability
Sex
Age
Disability
ECOA does not include disability as a protected class. Disability is a protected class under the Fair Housing Act.
Lola is working on a loan for her sister, Joan. She knows Joan is currently receiving child support, and Joan has authorized Lola to use that income to qualify her. Lola also knows that her nephew is 17 years old, and once he turns 18, Joan’s child support payment will drop dramatically. Lola decides to indicate on the 1003 that Joan’s oldest child is 14 instead of 17 to help Joan qualify for the loan. This would be considered:
Negligence
Misrepresentation
Actual Fraud
A good deed
Actual Fraud
This would be straight up fraud for housing. Fraud for housing 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.
What type of fraud scheme usually includes a “get rich quick” real estate seminar?
Illegal Property Flipping
Churning
Redlining
Chunking
Chunking
Chunking is the sale of properties at artificially inflated prices, pitched as investment opportunities to naïve real estate investors who are promised improbably high returns and loan risks.
According to the Qualified Mortgage Rule, what is the maximum percentage limit on the total obligation debt to income ratio for a general qualified mortgage?
41%
43%
36%
28%
43%
To be considered a general QM, the back-end DTI cannot exceed 43%.
When must the Home Loan Toolkit be provided to the borrower on a purchase transaction?
7 days after application
3 days before closing
3 days after application
At the time of application
3 days after
The Home Loan Toolkit is another disclosure required by TRID. The lender must provide this document to the borrower within three (3) business days of application for all purchases.
Andrew has been paying interest-only payments on his mortgage of $500 a month for the past 10 years, the interest rate on the loan was 4%. At year 15, he will be required to pay a balloon payment (assuming that the balloon payment is what remains of the balance). The principal balance at the time the loan closed was $172,000. What will be the balloon payment?
$103,200
$170,000
$68,800
$172,000
$172,000 would be the correct answer because Andrew hasn’t paid anything but interest on the loan since he started. If the balloon payment is the remaining balance and the balance hasn’t changed – it’s $172,000.
Gregory’s loan is $125,000. For it to be considered a qualified mortgage, the points and fees cannot exceed what amount?
$10,000
$3,750
$6,250
$5,000
3750
QM limits the points and fees on a QM loan to 3%. So to discover the correct answer, you need to know 3% of $125,000 which is $3,750.
Which best describes the housing ratio?
The total cost of all debt divided by the borrower’s gross monthly income
The total cost of all the housing expenses divided by the borrower net monthly income
The total cost of all housing expenses divided by the borrowers gross monthly income
The total cost of all debt divided by the borrower’s net monthly income
The total cost of all debt divided by the borrower’s gross monthly income
This ratio simply takes the amount that the borrower will be paying for their mortgage and divides it by their gross monthly income.
When an individual is collecting documents for the purpose of completing the loan file, what are they considered to be doing to the loan?
Underwriting
Originating
Closing
Processing
Processing
The Processor is required to collect information for the loan file and make sure that all information is in the loan file for the underwriter to underwrite the loan file. They do what are called “clerical or support duties.”
What law requires the collection of race, ethnicity and sex for the purpose of preventing and detecting discriminatory practices?
RESPA
HMDA
ECOA
Fair Housing Act
HMDA
The Home Mortgage Disclosure Act (HMDA, Regulation C) was implemented to collect demographic information to ensure that lenders were not participating in discriminatory lending practices. The demographic information is collected as part of the 1003.
Under what federal legislation, is a lender required to allow a borrower to opt-out of having their nonpublic personal information disclosed to a third party?
FCRA
The USA Patriot Act
FACTA
Gramm-Leach-Bliley
Gramm-Leach-Bliley
The Gramm-Leach-Bliley Act (GLBA) is a law that influences a variety of different areas in the financial industry, but for this course, we are concerned most with the privacy section of GLBA. The privacy sections restrict the disclosure of non-public personal information (NPI). GLBA includes the Opt-Out Rule.
How many years of employment is required to be disclosed on the 1003?
3 years
2 years
10 years
7 years
2 years
The 1003 requires 2 years of experience be filled in. Most programs require 2 years of employment to qualify.
John intentionally tells the mortgage loan originator that he is working for that he only pays $1500 in child support when he pays $2000 in child support. This would be considered:
Material misstatement
Inflation
Omission
Collusion
Material Misstatement
John is purposefully misstating what he pays in child support – this is material misstatement.
A lender services a large metropolitan area but refuses to lend in one specific area because the people in that area are low-income. This would be considered:
Redlining
Steering
Reverse redlinig
Blockbusting
Redlining
Redlining is an unethical practice where a financial institution makes it extremely difficult or impossible for residents of a particular neighborhood to borrow money, gain approval for a mortgage, take out insurance or gain access to other financial services because of a history of high default rates. Redlining typically occurs in poor inner-city neighborhoods. In the case of redlining, an individual’s qualifications and creditworthiness are not considered.
According to FACTA, how often is a consumer entitled to a free copy of their credit score?
Twice a year
Annually
Never
Once every two years
NEVER
FACTA allows for the consumer to receive one credit report annually – this does not include their credit scores.
What entity was created by CSBS and AARMR for the purpose of licensing and registering mortgage loan originators?
The FTC
The NMLS
The CSBS/AARMR Database
The CFPB
NMLS
The NMLS is a registration system that was developed and maintained by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR). The NMLS stores the information of each licensee.
Which of the following is not a HOEPA trigger test?
APR Test
Rescission Test
Prepayment penalty Test
Points and Fees Test
Recission Test
There are three tests when determining whether a loan is high-cost or not, those three tests are the APR test, the points and fees test and the prepayment penalty test.
Andrew’s borrower wants to refinance his home and Andrew has put together some great options. Of those options, Andrew wants his borrower to chose the ARM option because his company is giving bonuses to everyone who sells an ARM. Andrew pressures his borrower into choosing that options. Andrew is guilty of what?
Chunking
Flipping
Churning
Steering
Steering
Steering in the sense of actions that mortgage loan originators take that is like steering a car. The MLO, who has the upper hand and knowledge of the industry, is going to steer that borrower into the loan they think is best. Steering becomes a problem when an MLO steers a borrower into a loan that could potentially harm them for the sole purpose of obtaining a higher commission.
Which of the following must have an MLO license?
Lola, who is working as an independent contractor underwriter and is underwriting loans
William, who extends credit solely on timeshare plans
June, who is working as an attorney and negotiating terms on a loan for her client as part of her job as an attorney
Jackson who is negotiating the terms of a loan on his primary residence
Lola, who is working as an independent contractor underwriter and is underwriting loans
Loan Processors and underwriters generally do not have to be licensed. The exception is when they are independent contractors and not supervised by a licensed entity. The other individuals in this question are exempt from licensure under the SAFE Act.
For an interest-only loan of $210,000 with an interest rate of 3%, what would the monthly interest payment be?
$630
$360
$525
$750
525
To determine monthly income you first need to find out the amount of interest required yearly, so 3% of $210,000 is $6,300 a year. To find the monthly interest, divide $6,300 by 12. The answer is $525 in interest a month.
Joanna is looking to purchase a property for $750,000. What type of loan would Joanna need to receive?
A jumbo loan
A line of credit
A bridge loan
A Reverse Mortgage
Jumbo Loan
A jumbo loan is a single-family loan that exceeds Fannie Mae and Freddie Mac’s loan limits (remember the loan limits change yearly). Jumbo loans are conventional, but non-conforming loans.
Liza is purchasing a new home. The purchase price of the home is $200,000. She has put down $2,000 in earnest money. If she is receiving FHA financing and only putting the minimum down, how much more will she need for her down payment?
$18,000
$4,000
$7,000
$5,000
5000
The minimum down payment on an FHA loan is 3.5%. 3.5% of $200,000 is $7,000. She has already put $2,000 down so she would owe another $5,000.
Hugo is looking to refinance his current property. He currently pays $1200 a month on his home. He also pays $500 a month in child support, $200 for his cell phone, $300 for his student loans, $150 for his credit cards and $200 for his car insurance. Hugo makes $4000 a month gross. What is Hugo’s total debt ratio?
50%
53%
43%
51%
53
Adding up Hugo’s debts, he owes $2,150 in debt. (We wouldn’t count the cell phone or insurance as those are utilities). Divide that by his gross monthly income of $4,000, his back-end DTI would be 53%.
Allie is looking to purchase a new property. She currently makes $3,200 a month gross. What would be the maximum payment she could have on her new property assuming a conventional mortgage?
$2,208
$1,376
$2,308
$896
896
The maximum front end DTI on a conventional loan is 28%. 28% of $3,200 is $896.
A lender is required to keep a copy of the Closing Disclosure on every transaction for:
2 years
3 years
7 years
5 years
5
The Closing Disclosure must be kept for 5 years. This differs from proving compliance with TILA which is 2 years.
For a loan to be considered a General QM loan, it must meet certain requirements. Which of the following is not one of those requirements?
The loan cannot have a term longer than 30 years
The borrowers back-end debt-to-income cannot exceed 32%
The loan cannot have any negative amortization
The loan cannot have an interest only payment
The borrowers back-end debt-to-income cannot exceed 32%
The QM Rule states that the back-end DTI for a borrower cannot exceed 43% to be considered QM.
The document that conveys ownership of real property from one person to another is known as the:
Promissory Note
Deed
Mortgage
Title
Deed
A deed is an instrument that conveys a grantor’s interest, if any, in real property. The deed is a document that is used by the owner of a real property to transfer all or part of his interest in the property to another. The deed serves as evidence of title.
Carlisle currently has an ARM and his ARM is going to adjust for the first time. The margin on his ARM is 2.25 and his ARM is tied to the LIBOR, and it’s currently sitting at 1.25. What would be his interest rate if it adjusted today?
- 50%
- 25%
- 50%
- 25%
3.5%
Index plus Margin. 2.25 plus 1.25 = 3.50%.
Which types of loan are governed by HOEPA?
High cost loan
Subprime loans
Qualified mortgages
Higher priced loan
High- cost
The Homeownership and Equity Protection Act (HOEPA, Section 32 of TILA) outlines specific requirements for high-cost home loans.
Which of the following is not one of the three rules outlined within the Gramm-Leach-Bliley Act?
Ability to Repay Rule
Pretexting Rule
Opt-Out Rule
Safeguards Rule
Ability to Repay Rule
The three arms of GLBA are the Safeguards Rule, Opt-Out Rule and Pretexting Rule.
Which of the following would not be a prohibited practice regarding an appraisal?
Threatening non-payment to manipulate the appraiser into raising the value of the property
Requesting that the appraiser reviews additional comparables
Bribing the appraiser for a higher appraised value
Refusing to use an appraiser again if they do not change the value on an appraisal
Requesting that the appraiser reviews additional comparables
MLOs are allowed to ask for an appraiser to review their appraisal again or fix mistakes or look at additional information like additional comparables. An MLO cannot interact with an appraiser in a negative way or try to sway their judgment. This is illegal.
Genevieve wants to buy a home, but her credit score took a tank after her divorce. Her brother, Donald has a great credit profile, though, and she asks him to apply for a loan for her. Genevieve promises Donald that she will pay the mortgage. What would Donald be considered?
A mortgage relief service provider
A good brother
A straw buyer
An investor
Straw Buyer
Straw buyers are individuals used by fraudsters to obtain mortgages. The straw buyer’s personal information is used to obtain a mortgage loan fraudulently. The fraudster compensates the straw buyer for the use of their information.
All of the following would be considered a trigger term except:
3% interest rate
$1,000 down
$500 a month mortgage payments
Low down payment for qualified borrowers
Low down payment for qualified borrowers
Trigger terms always include a specific number. In this situation, low down payment for qualified borrowers do not include a specific number so it would not be considered a trigger term.
Kay is behind on her mortgage payments and is concerned that she will soon be going into the foreclosure process. Kay receives a phone call from a company stating that they can help her avoid foreclosure if she pays them $3,000 upfront to discuss options with her servicer. What type of scheme is likely occurring in this situation?
Illegal Property Flipping
Loan Flipping
Equity Skimming
Foreclosure Rescue Scheme
Foreclosure rescue schemes take advantage of borrowers who are in the process of foreclosure or about to go into foreclosure. The fraudster promises to help the borrower avoid foreclosure, and the borrower often pays for the services that he or she never receives and ultimately loses their home.
What type of appraisal uses compares multiple similar recently sold properties to a borrower’s property to determine the value?
Income Approach
Sales Comparison Approach
Investment Approach
Cost Approach
Sales Comparison approach
The sales comparison approach is the most common type of appraisal and will be the one an MLO will see most frequently. The appraiser will determine the value in a sales comparison approach by comparing the subject property (the borrower’s house) to similar properties (known as comparable sales, comps, or comparables).
When considering a VA loan, what additional type of income must be considered?
Child Support Income
Social Security Income
Residual Income
Investment Income
Residual Income
VA requires a residual income calculation. Maximum residual income is 41%.
What Rule prohibits loan originators from being paid based on terms of a loan?
Loan Originator Compensation
Qualified Mortgage
Regulation X
Ability to Repay
Loan Originator Compensation
The Loan Originator Compensation Rule was created to limit how an MLO can be paid. This includes being paid based on the terms of the loan.
Which federal law allows borrowers to request PMI cancellation when their LTV reaches 80%?
Home Ownership and Equity Protection Act
Reg. Z
Homeowners Protection Act
RESPA
Homeowners Protection Act
The Homeowners Protection Act (HPA) deals specifically with the cancellation of PMI on conventional home loans.
There is a lender working in a large metropolitan area, but currently, they are targeting a low-income neighborhood and charging more for their loans because the individuals in the area are mostly African American. This would be considered:
Chunking
Redlining
Churning
Reverse Redlining
Reverse Redlining is the opposite of redlining; it is where a financial institution lends specifically in poor inner-city neighborhoods to charge them more than a comparable white consumer.
Which disclosure that is required to be sent three days after application, indicates to the borrower whether or not the servicing of their loan may be sold or transferred?
The Mortgage Servicing Disclosure
The Service Providers List
The Affiliated Business Arrangement Disclosure
The Home Loan Toolkit
Mortgage Servicing Disclosure
RESPA requires that a mortgage lender that anticipates that they may sell the servicing rights of a loan is required to let the borrower know. The lender must notify the borrower that that may occur within three (3) days after the receipt of the application. The disclosure statement must advise that the servicing of the loan may be assigned, sold, or transferred to any other person at any time.
What two pieces of information is needed to determine what an adjusted interest rate will be on an adjustable rate mortgage?
The margin and the index
The margin, the index, and the current interest rate
The margin and the current interest rate
The index and the current interest rate
The margin and the index
An interest rate on an ARM has two parts: the index and the margin (fully indexed rate). The index is a measure of market interest rates and the margin is the profit the lender adds. The index fluctuates with the market. The margin is assigned at the loan origination and always stays the same.
Which of the following is not required as part of the application process for a mortgage loan originator?
Fingerprints
Background Check
Credit Check
Interview of Professional References
Interview of Professional References
Fingerprints, Background Check and Credit Check are required parts of the application process.
A HECM is what type of loan:
Line of credit
Graduated payment mortgage
Reverse mortgage
Bridge loan
A Reverse Mortgage
A Home Equity Conversion Mortgage is FHA’s version of a reverse mortgage. They are the most popular type of reverse mortgage on the market but some lenders have their own proprietary reverse mortgages as well.
How many hours of continuing education are required for mortgage loan originators?
20 hours
10 hours
8 hours
12 hours
8 hours
The SAFE act requires a minimum of 8 hours of continuing education yearly. Some states might require more hours of CE than what is required under the SAFE Act.
What law requires that a cash transaction of more than $5,000 be reported?
FTC Red Flags
BSA/AML
Dodd-Frank
RESPA
BSA/AML
The Bank Secrecy Act/Anti-Money Laundering requires the reporting of transactions over certain amounts in order to combat money laundering.
What would be the minimum down payment on a VA loan of $150,000?
$4,500
$7,500
$5,250
$0
0
VA loans do not require a down payment, so the minimum down payment is $0.
Which of the following is not a type of appraisal?
Income Approach
Cost Approach
Sales Comparison Approach
Investment Approach
Investment
Income approach, sales comparison approach and cost approach are the three types of appraisals.
Which best describes the total debt ratio?
The total cost of all housing expenses divided by the borrower’s gross monthly income
The total cost of all debt divided by the borrower’s gross monthly income
The total cost of all debt divided by the borrower’s net monthly income
The total cost of all debt divided by the borrowers net monthly income
The total cost of all debt divided by the borrower’s gross monthly income
This ratio takes all of the borrower’s monthly liabilities and divides it by their gross monthly income.
The Red Flags Rule is part of what law?
FACTA
FCRA
Gramm-Leach-Bliley Act
The MAP Rule
FACTA
The Red Flags Rule is a part of FACTA. FACTA amended FCRA.
