Practice Test

Question 1

RESPA

Answer 1

The rules and regulations of the Real Estate Settlement Procedures Act(RESPA) apply to conventional loans; FHA, VA, and other government-sponsored loans; purchase loans; reverse mortgages; assumptions; refinances; property improvement loans; and equity lines of credit. The following types of transactions are not covered: All-cash sale; sale where the individual home seller takes back the mortgage; business purpose loans; assumptions not requiring lender approval; loan conversions; temporary construction loans as long as permanent financing of 1-4 family residential property is not anticipated; bridge loans; vacant or unimproved property unless a dwelling will be constructed or moved onto the property within two years; and bona fide transfers of a loan obligation in the secondary market.

Answer 2

QUESTION RATIONALE
Property taxes and insurance expenses must still be calculated as part of a borrower’s back-end ratios even on properties owned that are not subject to a mortgage loan.

Question 3

How many months does a FICO Score consider a credit inquiry in the calculation?

Answer 3

edit inquiries remain a component of a FICO credit score for 12 mo

Question 4

A loan program that has a single ratio of 45% would allow a borrower with $65,000 in annual income and $490 in monthly consumer debt payments to qualify for what principal and interest payment on a home with escrow requirements of $360 monthly?

Answer 4

First determine the gross monthly income ($65,000 / 12 = $5,416). Now, determine the maximum debt ratio allowed ($5,416 x 45% = $2,437). Subtract the current debt to determine what monthly payment for which the borrower would qualify: $2,437 - $490 - $360 = $1,587.

DTI = (Housing Expenses / Monthly Gross Income)
45% =(Housing Expense/5417)
Housing expense= 5417 * 45%
= 5417 * .45
Housing expense=2437
PI = 2437-490-360

Question 5

A borrower is buying a house with a sales price of $200,000 and an LTV of 75%. If he paid $3,000 in points, how many points does that represent?

Question 6

In a month with 30 days and a purchase closing on the 15th day of the month, how many days of interest would the title agent be required to collect?

Answer 6

Interest must be collected for the number of days left in the month including the day the loan was funded.

Question 7

oe has a property that appraises for $189,000. His first mortgage rate is 4.75% and his second mortgage rate is 15%. He has decided that he wants to leave his $53,000 first mortgage alone and only refinance the second. He qualifies for an 85% CLTV. His second mortgage is for $25,000 but he wants cash to finish his basement. How much cash is available if his closing costs are $1,500?

Answer 7

QUESTION RATIONALE
$189,000 x 85% = $160,650 - $53,000 - $1,500 - $25,000 = $81,150. Even though Joe wants to leave his first mortgage alone, it must be subtracted. If it isn’t, you are giving the customer too much cash: $134,150 added to the first mortgage leaves an L

Question 8

In an explanation of mortgages and lien position, which statement is FALSE?

Answer 8

A second mortgage is a junior mortgage to a first mortgage, but a second mortgage is a senior mortgage to a third mortgage. A HELOC is a type of second mortgage thus it is usually in a lower position to a mortgage in a higher lien position.

Question 9

When points are paid to a lender to reduce the interest rate and loan payments for the entire life of the loan, it is called a(n)

Answer 9

A permanent buydown is when points are paid to a lender to reduce the interest rate and loan payments for the entire life of the loan.

Question 10

For the purposes of a VA-guaranteed loan, what is not subtracted to determine residual income?

Answer 10

Residual income is the amount of income remaining after subtracting taxes, housing expenses, and all recurring debts and obligations from W-2 income

Question 11

A buydown paid to reduce the borrower’s payments early in the loan is called a(n)

Answer 11

A buydown paid to reduce the borrower’s payments early in the loan is called a temporary buydown.

Question 12

A borrower is buying a house for $150,000 at 6.5%. He provides a down payment of $15,000. How much would he have to pay for three discount points?

Answer 12

A point is 1% of the loan amount, so $135,000 x .01 = $1,350 per point. Three points is $1,350 x 3 = $4,050.

Question 13

What is the form number of the Uniform Residential Loan Application?

Answer 13

The Uniform Residential Loan Application is the Fannie Mae Form 1003. Form 4506 is used to request a copy of tax transcripts; Form 1008 is the Uniform Underwriting and Transmittal Summary; Form 1099 is an IRS tax form used to report payments to independent contractors, rental property income, income from interest and dividends, sales proceeds, and other miscellaneous income.

Question 14

In order to complete an appraisal for a construction loan, what specific information does the appraiser need from the builder?

Answer 14

The appraiser completes a “subject to” appraisal based on the building plans and specs provided.

Question 15

Section 5a in the Declaration section of the URLA is where the borrower answers questions about the subject property and finances for the loan. What information is NOT to be included in Section 5a?

Answer 15

QUESTION RATIONALE
Loan information such as the loan amount, purpose, and address is to be recorded in Section 4 of the URLA. The other information listed as an answer choice is to be recorded in Section 5a

Question 16

Which mortgage industry insider is least likely to be involved in a fraud scheme using inflated property values?

Answer 16

A title company officer is generally responsible simply for preparing documents for closing. An inflated appraisal scheme would be more likely to involve someone who wants to hit a specific property value, such as an appraiser, a mortgage broker, or a real estate agent.

Question 17

A licensed MLO who terminates his affiliation with an employing mortgage broker but wishes to resume working as a mortgage loan originator in the near future may NOT

Answer 17

An MLO who has become unaffiliated with an employing entity may not originate loans. After termination of employment with one broker, the licensee may request the transfer of his license to another mortgage broker by submitting a change of sponsorship application. If the MLO does not have an immediate job prospect, he may request to hold his license in inactive status. An MLO will need to complete his annual CE requirements to reinstate his license when he resumes working as a loan originator.

Question 18

Which mortgage broker’s act is a violation?

Answer 18

A mortgage broker is prohibited from directly collecting a rate lock-in fee, except where it is required by a governmental agency to be collected directly by the mortgage broker, issue a mortgage rate lock-in, or otherwise represent to a first mortgage loan applicant, or the applicant’s representative, that the loan will be made at a specified rate if the loan is closed by the expiration of a specified period of time. A mortgage broker may provide a mortgage lender’s mortgage rate lock-in to a mortgage loan applicant, or the applicant’s representative, on behalf of such mortgage lender and collect a rate lock-in fee on the mortgage lender’s behalf, payable to the mortgage lender.

Question 19

Mortgage broker Dave knew that his customer worked at a factory that was two weeks away from closing, but in his eagerness to close the deal, he decided to ignore that fact. This might be considered an example of

Answer 19

Actual fraud is the intentional misrepresentation or concealment of a material fact. If Dave made the decision to ignore a critical fact that he had prior knowledge of, he could be accused of actual fraud because he knew.