Practice test qs and answers Flashcards
The SAFE Act:
Establishes minimum standards for licensing and registering of mortgage loan originators
-The SAFE Act established all the licensing requirements for MLOs.
Borrowers come to you for a mortgage loan. Which of the following would be appropriate to tell them about a fixed-rate mortgage?
The interest rate never changes
-A fixed-rate mortgage has an interest rate that never changes.
Through the life of a loan, the servicer is allowed to cushion a borrower’s escrow account. What is true about that cushion?
It can’t exceed 1/6 of the estimated total annual payment from the account
-Per RESPA, throughout the life of the escrow account, the servicer may charge the borrower a monthly sum equal to 1/12 of the total annual escrow payments for taxes and insurance that the servicer reasonably anticipates paying from the account. Also, the servicer can add an amount to maintain a cushion of no greater than 1/6 of the estimated total annual payment from the account
Which of the following is responsible for the accurate disbursements of all funds due to and from all parties in a mortgage transaction?
Closing attorney, settlement or escrow agent
-Closing Attorney’s, Settlement Agents or Escrow Agents are all terms for the person who is responsible for the closing of the loan. This includes the signing of all documents and the disbursing of all funds.
HMDA reports are due to the regulator by which of the following dates?
March 1st
Which of the following is not included in the debt-to-income qualifying ratio?
Rent on current housing
-Only housing payments, installment payments and monthly revolving payments are considered in debt-to-income ratios. The current rent would not be considered because it is being replaced with the new housing payment.
When the borrowers pay a fee to get a lower interest rate, but the interest rate will not remain at that level for the life of the loan, but over time will raise to the quoted fixed rate. What is this called?
A buy down
-The most common type of buydown is a temporary 2-1 buydown. A temporary 2-1 buydown means the first year of the loan; the borrower will be making payments based on an amortization schedule computed using a rate which is two percent (2%) less than the rate stated in the Note. In the second year of the loan, the borrower will be making payments based on an amortization schedule computed using a rate which is one percent (1%) less than the rate stated in the Note, then the third year the borrower makes the payments on the full Note Rate.
What are Fannie Mae and Freddie Mac also known as?
Gov’t sponsored enterprises
-Fannie Mae and Freddie Mac are both government sponsored entities or GSEs.
Assuming there has been no fraud or adverse action, a borrower is entitled to a free copy of his/her credit report:
Every year
-All consumers have the right to have one (1) free credit report each year (they can get more if they pay for it).
What federal legislation prohibits the exchange of information between consumer creditors unless certain disclosures are made to the consumer?
Gramm-leach-bliley act
-GLBA protects NPI and if a financial institution shares (or sells) NPI with a third party for uses other than the original intention, the financial institution is required to provide a detailed privacy policy disclosure to the application with the option to opt-out.
An MLO must be licensed if:
He/She counseled a borrower about loan terms and interest rates.
-All mortgage loan originators must be licensed (unless they are exempt). If a person is taking applications or talking about terms and rates then they are acting as an MLO and must be licensed.
Which of the following participants in a mortgage loan transaction would be most likely to overvalue a property?
Appraiser
-The appraiser is the one responsible for determining the value of the property on a real estate transaction
A lender refusing to report timely payments to the credit reporting agencies is an example of:
Predatory lending
-This is an example of predatory lending. Some creditors do not report timely payments to the credit reporting agencies. A borrower’s payment history will not reflect correctly in this situation. Predatory lenders will not report to try to maintain the borrower for them
The only loan considered a traditional loan in America today is:
30 year fixed rate
Which attribute is NOT considered illegal discrimination in granting credit under the Equal Credit Opportunity Act?
Income
-The protected classes under ECOA do not include income. They do include color, race and sex.
Trevor provided all six pieces of an application to his MLO on Monday, by what day does the MLO have to provide the LE?
Thursday
-Per TRID, the lender is required to provide the LE within three (3) business days following the receipt of the borrower’s loan application.
What is the loan-to-value ratio if the loan amount is $93,750, the appraised value is $125,000 and the sales price is $130,000?
75%
-Loan to Value is the Loan amount divided by the lessor of the appraised value or purchase price. In this case, $93,750 divided by $125,000.
When money is not paid out and withheld from the funding at a loan closing, these monies are usually held as:
An Escrow
-An escrow account is where all money is held until it is dispersed to the third-party service provider, the seller or the borrower.
With an ARM, what happens to a borrower’s payments if the index increases?
Payments go up
-To determine the borrower’s payments at adjustment, the lender adds the index and the margin. If the index goes up, then the interest rate will go up.
What is the funding fee for an IRRRL?
0.50% for everyone
What occurs when an QM loan is presumed to comply with ATR requirements?
A safe harbor
-A QM loan that is not higher-priced has a safe harbor. If the loan has a safe harbor, then they are conclusively presumed to comply with the ATR requirements. Under a safe harbor, if a court finds that a mortgage a lender originated was a QM, then that finding conclusively establishes that the lender complied with the ATR requirements when they originated the mortgage.
RESPA requires disclosure to the consumer of:
Any affiliated business arrangement (AfBA).
-The AfBA disclosure must be delivered to the borrower at the time of the referral. An example of an AfBA is a mortgage lender’s CEO has an ownership interest in a title insurance company, if the mortgage lender’s MLOs want to refer their borrowers to use that title insurance company then the relationship must be disclosed between the CEO of the mortgage lender and the title insurance company at the time the MLO refers them.
A lender has a minimum loan amount of $150,000. The lender serves a large area including a minority neighborhood. The minority neighborhood’s home value is usually $125,000 or less. This policy is an example of;
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.
Borrower(s) may decide to disclose income from child support or alimony. What federal law states that a lender cannot refuse to consider alimony or child support as income?
Equal credit opportunity act
-ECOA states that if the borrower discloses and wants to use child support or alimony as income than the lender cannot refuse to consider that income.
The best appraisal method to be used for a single-family residence would be:
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).
It is okay to advertise for specific interest rates, points, or terms if:
you currently offer the terms advertised.
-You can only advertise terms that you have available to most qualified borrowers.
The Equal Credit Opportunity Act is a law that requires the lender to provide the borrower a reason for denial within how many days of loan application?
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
The Homeowners Protection Act of 1998 does which of the following?
Gives borrowers the right to cancel or terminate PMI
-The Homeowners Protection Act or HPA regulates the cancellation of PMI depending on the borrower’s LTV.
What would the lender use to compute the adjustment on an ARM loan?
Margin, Index, and Lifetime Caps
-To determine an ARM’s adjustment we would need to know the margin and index at the time of the adjustment and the lifetime cap on the ARM.
What law was created to protect a borrower’s NPI?
The gramm-leach-bliley act
-GLBA restricts the disclosure of non-public personal information (NPI).
According to the SAFE Act a mortgage loan originator employed by a federally insured depository institution:
Must be registered
-The MLOs that work in bank branches or credit union branches are not currently required to obtain a license. They are required to be registered and are not required to take pre-licensing or continuing education, nor are they required to take the National Test Component with the Uniform State Test
Which of the following is not considered “prohibited conduct”?
Asking an appraiser to look at additional information
-Asking an appraiser to review additional information is not a prohibited act. An MLO can ask an appraiser to review additional information or fix errors in an appraisal report. It is prohibited to bribe or threaten an appraiser to attempt to sway their judgment.
Who of the following is in violation of the Section 8 provisions of RESPA?
An MLO who leases office space in a real estate office at an above market amount
-It is a violation of Section 8 of RESPA. The overpaying of rent could be considered a thing of value and could be construed as a kickback. Think about it this way —- if you are a real estate agent and you have an MLO renting office space for you at way above what it actually costs to do that are you more likely to refer your borrower’s to that MLO? Probably, yes. We do talk about this on Page 153-154 of the textbook under Section 8 of RESPA.
Which was the first major legislation to directly affect equal rights to ownership of real property?
Civil rights act of 1964
-The Civil Rights Act of 1964 was the nation’s premier civil rights legislation. The Act outlawed discrimination on the basis of race, color, religion, sex, or national origin, required equal access to public places and employment, and enforced desegregation of schools and the right to vote
Robbie wants to purchase as 4-unit dwelling and rent out 3 of the units. He knows he will need reserves to make the purchase, what would not be an acceptable form of reserves?
An unsecured loan that Robbie gets
-An unsecured loan cannot be used as a form of reserves. The remaining options are acceptable options for reserves.
Lender’s are required to file Suspicious Activity Reports under BSA/AML. How long after the date of initial detection are lenders required to file the SAR?
3o days
-Lenders are required to file SARs no later than thirty (30) calendar days after the date of the initial detection of the issue. Lenders must maintain a copy of any SAR filed and all supporting documentation for five (5) years from the date of the filing.
The UFMIP on a 30-year FHA loan is?
1.75%
When the interest rate floats, it means which of the following?
That the interest rate can continue to go up or down until it’s locked
-If an interest rate is floating it means that it is not locked. If an interest rate is not locked, then it can continue to go up and down until it is locked.
How many hours of annual continuing education are required by the SAFE Act for state-licensed mortgage loan originators?
8 hours
When determining if a loan is a HOEPA loan, there are three tests. The first test:
Determines if the APR exceeds the APOR
-The first test for a HOEPA loan is the APR Test. If the APR on the mortgage exceeds the Average Prime Offer Rate (APOR) for a comparable transaction by more than specific percentages then the loan is considered a high-cost home loan.
Under FHA loan rules, effective June 2013, loans beginning at 90% LTV or more will pay an annual mortgage insurance premium (MIP):
For the life of the loan
-FHA loans over 90% LTV requires MIP for the life of the loan.
Which of the following would be considered in the borrower’s back-end DTI?
Student loan payments and car payments
-Student loan payments and car payments are the only installment or revolving debt. They are the only ones that would be considered in DTI calculations.
A minority borrower is refused a loan because the neighborhood that they have chosen has a high number of foreclosures. This is an example of what illegal practice?
Redlining
-
Redlining is an unethical practice where a financial institution makes it extremely difficult or impossible for residents of a particular neighborhood to borrower 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.
In a typical mortgage loan, what are the mortgage note and the property called?
Security instrument/collateral
-The mortgage or deed of trust is the security instrument that the borrower gives to the lender that protects the lender’s interest in the property. When the borrower signs the mortgage or deed of trust, they are giving the lender the right to take the property by foreclosure if they fail to pay their mortgage properly. The property is considered collateral for that security instrument.
What is a feature of an ARM?
A loan that has an adjustable rate
-ARMs have adjustment rates.
What is an amortized loan that has a final payment due earlier than the term to fully pay off the loan called?
A balloon loan
-A balloon payment is more than two times the loan’s average monthly payment and can often be thousands to tens of thousands of dollars. Most balloon loans require one large payment that pays off your remaining balance at the end of the loan. Examples of how these mortgages look are 5/25 or 7/23
Which of the following is a purpose for the Mortgage Servicing Disclosure Statement?
To inform the borrower that the servicing of the mortgage may be or has been transferred
-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.
Annie is purchasing a new home and the seller is willing to do some concessions. Annie is getting an FHA loan; how much can the seller concede?
6%
Who receives the YSP(Yield Spread Premium)?
(It’s a form of compensation that a mortgage broker, acting as the intermediary, receives from the originating lender for selling an interest rate to a borrower that is above the lender’s par rate for which the borrower qualifies.)
The broker
-YSPs are paid to the broker for giving a borrower a higher interest rate on a loan in exchange for lower up-front costs generally paid in origination fees, broker fees or discount points
Under the Fair Housing Act, which of the following is NOT one of the protected classes:
Age
-The Fair Housing Act prohibits discrimination in housing because of race, color, national Origin, religion, sex, familial status & disability. ECOA prevents discrimination against age.
Which of the following best describes a lien?
A claim on the property
-A lien gives the right to keep possession of property belonging to another person until a debt owed by that person is discharged. A mortgage is a type of voluntary lien.
The Truth in Lending Act does which of the following?
Regulates advertising regarding interest rates
-TILA (Regulation Z) regulates advertising.
All of the following changes are because of The Dodd–Frank Wall Street Reform and Consumer Protection Act except?
The red flag rule (RFR)
-The Red Flags Rule is rule under FACTA and was not mandated by Dodd-Frank.
When filling out the Disciplinary Actions section of the MU4 Form, which of the following is not required, or does not need further explanation when answering “YES” to any of the questions?
Mandatory explanation of the disciplinary action written and provided by the MLO
-Any “yes” response to a disclosure question requires an explanation by the MLO.
The borrower applies for a loan and asks about the impact the loan could have on their taxes. Which of the following should be told to the borrower by the MLO?
Speak with a tax advisor for tax deductibility
-MLO’s are not tax professionals and cannot give tax advice. If a borrower asks a tax related question, then the MLO should refer them to a tax professional.
What is the conventional mortgage back end DTI ratio on a manually underwritten loan?
36%
Which of the following is not a requirement under HOEPA?
The APR must be disclosed on all advertisements
-HOEPA requires additional and specific disclosure requirements, restricts terms on transactions, restricts fees and practices, adds additional ability to repay requirements. HOEPA requires pre-loan counseling for all high-cost home loans, full appraisals and escrows for the first five (5) years.
When an MLO accepts any third-party fee from a borrower, the funds should be placed:
In an escrow account
-All third-party fees collected before closing should be put into an escrow account until they are disbursed.
Which of the following questions is not prohibited while taking a loan application?
Asking the borrower his/her marital status
-When an applicant applies for individual credit, an MLO cannot ask the applicant’s marital status, except when the credit transaction is to be secured. The lender can ask the applicant’s marital status and if the applicant either resides in a community property state.
Each loan originator is identified in the NMLS database by:
Unique identifier
-The NMLS assigns all licensees a unique identifier (NMLS ID#) this is the number that MLOs are identified by.
If a mortgage loan originator (MLO) originates a loan while his license is suspended or revoked, the loan is:
Valid but the MLO violated the law
-The MLO is committing unlicensed activity, the loan is still valid but the MLO broke the law
Sonya lives in a small rural community and is looking to purchase a new home. Her MLO has recommended a USDA loan. The purchase price of her new home is $167,000. How much does Sony have to put down to qualify for the USDA loan?
$0
-USDA loans allow for 100% financing, so Sony does not need to put down any money on this new loan
For license renewal, an MLO is required annually to complete a minimum of how many hours of continuing education on the topic of federal law?
3 hrs
-he SAFE Act requires a total of 8 hours of continuing education with 3 of those hours being devoted to federal law.
What is the best way to explain APR to borrowers?
The cost of the loan over the life of the loan expressed as a rate
-The Annual Percentage Rate (APR) is the cost of the loan over the life of the loan, expressed as a rate. It is not the interest rate! It is the cost of credit expressed as a rate. In this scenario, the costs of the loan make up 4.274 percent of what the borrower will pay over the loan term.
During the term of a fully amortized loan which of the following is true?
The monthly amount going to principal increases
-Through the course of amortization, the amount of a borrower’s payment that goes to principal increases while the amount that goes to interest decreases.
Some lenders and investors were willing to make subprime loans because:
Lenders could charge higher rates for the added risk
-Subprime loans generally had higher interest rates and fees and so the lender could make more money on them than on conforming mortgages. The lender took a higher risk for higher payment.
Reverse mortgage create:
Negative amortization
-The lack of principal and interest payments on reverse mortgages cause negative amortization on the loan
According to the Fair and Accurate Credit Transactions Act, when is a borrower entitled to get a copy of their credit score?
When the borrower has applied for a loan and his/her credit reviewed
-FACTA states that “any person who makes or arranges loans” and uses consumer credit scores must follow specific disclosure guidelines. FCRA applies to loan applications completed by a consumer for a closed-end or an open-end loan that is secured by a 1-4 family unit dwelling. This disclosure includes the borrower’s credit scores.
There are two exceptions when dealing with an adverse action notice, what happens if the lender provides a counteroffer and the applicant does not accept it?
The lender has 90 days to provide the adverse action notice
-There are two exceptions when dealing with an adverse action notice, what happens if the lender provides a counteroffer and the applicant does not accept it?
There are two exceptions when dealing with an adverse action notice, what happens if the lender provides a counteroffer and the applicant does not accept it?
The lender has 90 days to provide the adverse action notice
-The lender must notify an applicant of adverse action within ninety (90) days after making a counteroffer, unless the applicant accepts or uses the credit during that time. The lender may not have to notify the applicant of adverse action if the application was incomplete, and the lender sent the applicant notice that the application was incomplete.
Which of the following circumstances would disqualify the use of income generated from a basement apartment in qualifying for a Freddie/Fannie loan?
Property was appraised as a single-family dwelling
-For income to be considered from a basement apartment, the property would need to be appraised as a multi-unit dwelling.
Who reviews all the loan documents, verifications, and gives final approval or disapproval to a loan?
Underwriter
-The underwriter is the one who gives final approval or disapproval on a loan.
Which form is used most frequently for residential appraisals?
URAR
-URAR stands for Uniform Residential Appraisal Report (Form 1004).
The Federal National Mortgage Association is also known as which of the following?
Fannie Mae
-The Federal National Mortgage Association or FNMA is also known as Fannie Mae. The Federal Home Loan Mortgage Corporation is Freddie Mac or FHLMC while The Government National Mortgage Association is also known as GNMA or Ginnie Mae.
HMDA was created to help to eliminate what:
Redlining
-The government uses HMDA data to prevent redlining and blockbusting.
MLOs are prohibited from which of the following?
Telling an appraiser a minimum value needed to approve the loan
-Telling the appraiser the minimum value needed would be considered an attempt to influence the judgment of the appraiser and would be illegal.
MLOs are prohibited from which of the following?
Telling an appraiser a minimum value needed to approve the loan
-Telling the appraiser the minimum value needed would be considered an attempt to influence the judgment of the appraiser and would be illegal.
If a creditor denies a loan, what document must be sent to the client to inform him of the denial?
Adverse action notice
-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. FCRA requires an adverse action disclosure be provided to the borrower if their credit is the reasoning for all or part of the decision to deny the loan application, FCRA requires that the disclosure be given within 30 days of a credit decision.
Out of the following MLO Responsibilities, which of the following is a mortgage underwriter main responsibility?
Preparing reports on assessment findings. Making loan eligibility decisions and approving or rejecting applications
-An underwriter is responsible for making credit decisions and analyzing the borrower’s loan file.
For a property purchased for $225,000 with a first mortgage loan amount of $150,000, and a HELOC for 25,000 the LTV and CLTV are?
LTV 77% / CLTV 77%
-$150,000/$225,000 = 66% (LTV), $175,000/$225,000 = 77% (CLTV).
A mortgage loan that features lower payments in the beginning and increases during the life of the loan is also known as which of the following?
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. GPM’s typically require a larger than usual down payment. The purpose of a GPM is to allow a borrower with limited income that can document a likely future increase in income to buy a house sooner by starting with a smaller house payment that increases over time. The borrower would be qualified if they were making the full payment.
A borrower’s name is on the National Do Not Call list. At what point after the loan closes and is sold to another company must the MLO stop contacting the borrower to solicit new business?
18 months
-Under the Do Not Call Provision, an MLO can contact a previous client from an established business relationship for up to 18 months after the last transaction, even if the consumer is on the Do Not Call Registry.
Which of the following is not included in background checks for MLO candidates?
Questioning of friends, coworkers, or family members regarding personal character
-Fingerprints, credit reports and personal history and experience are all part of the licensing process for MLOs.
If a credit card company has a written policy that anyone who is between age 20-30 can only have a credit line of $1,000 but anyone over 30 gets an automatic line of $5,000, this is an example of:
Overt discrimination
-This is a policy that overtly discriminates against people of a certain age.
If an MLO or real estate agent suggests to a client that he move to a particular area to reside in a community that he will fit into, what would that mortgage loan originator or real estate agent be guilty of?
Steering
-Pressuring a borrower to do something is steering
Which of the following documents could not be used to verify a borrowers ATR(Average True Range)?
A letter of explanation from the borrower
-The rule requires that lenders consider at least these eight (8) factors. The eight (8) underwriting factors must also be verified using reasonably reliable third-party records. A letter of explanation from the borrower would not be coming from a reasonably reliable third party.
The borrower’s gross monthly income is $5,000. The new mortgage loan will reduce his monthly payment to only $1,000 per month. The borrower will still owe a car payment of $350 and a student loan payment of $250. The borrower also has a cell phone bill of $90 per month. What is the borrower’s new Housing Ratio?
20%
-The borrower’s housing ratio is $1,000 divided by $5,000 which is 20%. The car payment and student loan payment would be considered in the back-end DTI but not the front-end/housing ratio. The cell phone bill would never be counted in either.
A lender charges $500 for an appraisal but the actual appraisal only costs $395, this is an example of what predatory lending practice?
Inflated appraisal costs
-Charging above and beyond for an appraisal is considered inflated appraisal costs.
According to the Disposal Rule, which of these could be considered a failure to secure private information?
Disposing of documents into the trash bins for the janitorial service to empty nightly
-According to the Disposal Rule, any person who maintains or otherwise possesses consumer information for a business purpose must properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information. Throwing things in a trash bin for janitorial services to empty would not be protecting the borrower’s information and would allow unauthorized access by the janitorial staff to the borrower’s personal information.
What gross percentage of variance on an appraisal report is tolerable when evaluating comparables?
25
-Gross adjustments can’t exceed 25% on appraisal or 15% net of the comparable. The maximum line item adjustment is 10%
The state regulatory authority may refuse to renew a license for an MLO if there is a finding that the licensee:
Has been unethical in the transaction of mortgage lending
-Any unethical behavior on a transaction can be grounds for disciplinary action by the state regulatory authority including refusing to renew a license.
Caroline is purchasing an investment property; she already has a primary residence. What type of appraisal could a lender potentially order for this particular property?
Income approach
-An income approach appraisal is most often used with investment properties. This approach is going to use the earning potential of the property to determine the value of the property. The appraiser will determine the value of a property from the potential income that the property could bring the borrower over time.
TRID requires a borrower to:
Indicate their intent to proceed
-Lenders are not allowed to impose any fee to the borrower for a mortgage transaction until the borrower has received the LE, and they have indicated an intent to proceed with the transaction. The only exception to the rule is for a bona-fide and reasonable fee for obtaining a consumer’s credit report.
A discount point is calculated as being 1% of what?
Loan amount
-Discounts points are a fee equal to 1 percent of the loan amount that is prepaid interest on the mortgage loan. The more points, the lower the interest rate. Discount Points can only be used to reduce the interest rate. Borrowers can typically pay from 0-4 points.
Upon the recovery of any claim on the surety bond, the licensee is required to file a new bond:
Immediately
-All licensees are required to have a surety bond, if for some reason the surety bond is acted upon or not longer at the full amount the licensee must immediately file a new bond, or their license would be in danger.
The 3/7/3 Rule is associated with which law or regulation?
Regulation Z
-The 3/7/3 Rule is part of MDIA which is part of TILA (or Regulation Z).
According to the Fair Credit Reporting Act, a Chapter 7 bankruptcy could remain on a credit report for how long?
10 years
-Ch 7 bankruptcies remain on credit reports for 10 years. Ch 13 bankruptcies only remain on the credit report for 7 years
The borrower knows that he has derogatory credit. He convinces his brother who has better credit and income to apply. The brother of the borrower is considered a(n):
Straw buyer
-traw 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.
A lender has sold Martha’s loan to a new servicer. The lender is required to send Martha a Goodbye Letter, how long does the lender have?
15 days from the effective date of transfer
-When a mortgage loan is assigned, sold or transferred, the former servicer must provide a disclosure at least fifteen (15) days before the effective date of the transfer. This letter is referred to as the Goodbye Letter. A letter from the new servicer must also be sent within fifteen (15) days after the effective date of the transfer. This letter is generally known as the Hello Letter.
Which of these actions would indicate that a mortgage loan originator is not committed to privacy and safeguard compliance?
Putting files in unlocked file cabinets
-Putting files in unlocked file cabinets risks the borrower’s nonpublic personal information and could lead to the theft of a borrower’s identity.
When is the funding on a residential construction loan made?
Periodically, as the home is being built
-The money borrowed through a construction loan is provided in a series of advances as the construction progresses.
Which of the following is true about general QMs(Qualified Mortgages)?
They must be fully amortizing
-To be considered a general QM, the loan must be underwritten based on a fully-amortizing schedule. QM loans cannot include negative amortization or interest-only payments and cannot be longer than 30 years.
A loan greater than $100,000 is not considered a qualified mortgage (QM) if the points and fees paid by the consumer exceed what percent (%) of the total loan amount?
3%
QM(Qualified mortgages) restricts points and fees to 3%
FHA requires an UFMIP. A borrower’s loan amount is $175,000. What would the cost of that UFMIP be?
$3,062.50
-The current FHA UFMIP is 1.75% of the base loan amount. To find the correct answer, you’d need to know 1.75% of $175,000.
When the mortgage loan amount is at 78% LTV or less of the purchase price of the home, private mortgage insurance:
Will be cancelled automatically by the lender
-
The Homeowners Protection Act requires all lenders drop PMI on loans when their LTV drops below 78%.
The Truth in Lending Act requires that a borrower be given how many copies of the notice of his right to rescind?
2
-TILA requires that 2 copies of the right to rescind notice must be provided to the borrower along with 1 copy of the disclosure statement
A person was purchasing an income property which was scheduled to close and fund on June 25th. Rent of $1800 was paid for the month of June on the 1st. What was the buyer’s proration amount?
$360
-To determine prorated rent you take the amount of rent divide it by the number of days in the month and multiple by the days the rent is prorated. In this case, $1800 divided by 30 (June has 30 days) multiple by 6 days = $360.
What is the federal regulation that implements the Real Estate Settlement Procedures Act?
Regulation X
-RESPA is also known as Regulation X
Which of the following is not an index that is typically used for adjustable rate mortgages?
HELOC
COFI, SOFR, and the US Treasury Bond are the most common types of index
COFI- acronym for the 11th District Monthly Weighted Average Cost of Funds Index. The COFI is not an interest rate. It reflects the interest expenses reported for a given month by the COFI Reporting Members, as described below.
SOFR- Secured Overnight Financing Rate. A broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
US Treasury Bond- government debt securities issued by the U.S. Federal government that have maturities greater than 20 years. T-bonds earn periodic interest until maturity, at which point the owner is also paid a par amount equal to the principal.
When is it acceptable to discourage a borrower from making a formal loan application due to the fact that the borrower receives income from public assistance?
It is never correct to discourage a borrower from applying for a mortgage loan
-It is a violation of ECOA to discourage a borrower from applying for a mortgage loan, it is never acceptable.
Which of the following would be considered in determining gross living space?
A finished attic space
-All gross living space must be above grade and finished space. A basement will never be considered in square footage as it is below grade, a garage is an unfinished space so can’t be counted and a shed again is an unfinished space. The finished attic is both above grade and finished.
The Opt-Out Rule under GLBA requires privacy notice, which of the following is not one of those notices?
Quarterly
-The opt out ruler requires initial, opt out, annual and revised privacy notices
A borrower wants a Cash Out refinance for 80% LTV on a house that appraises for $250,000. The borrower has a first mortgage of $87,000 and a second for $25,000. Closing costs will equal $3,000. How much cash is available for the borrower to receive?
$85,000
-80% of $250,000 is $200,000. $200,000 minus the first, second and closing costs = $85,000. The borrower has $85,000 in cash available.
When would a subordination agreement be appropriate?
A first mortgage is being refinanced and doesn’t want to lose priority to an existing 2nd mortgage.
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If a borrower has a second mortgage and wishes to refinance their first mortgage without losing or combining their second mortgage, the second mortgage holder would have to agree to subordinate. This would mean that the second mortgage would stay in second lien position allowing the new first mortgage to be in first position.
When performing the sales comparison approach, what does “adjusting properties” involve?
Changing the comparable to make them more like the subject property
-No two homes are ever the same, if for no other reason than no two houses sit on the same lot. There will always be differences between comparable sales and the subject property. Appraisers adjust the sales price of the comparable to give them a better-indicated value of the subject property and make the property more similar to the one that they are appraising.
Which rule mandates disclosure to consumers that mortgage relief providers have no connection to any government program or agency?
MARS Rule
-The MARS Rule makes it illegal for a mortgage assistance relief provider to collect money from a consumer unless they deliver, and the customer agrees to a written offer of mortgage relief from the customer’s lender or servicer. It also requires them to disclose they are not associated with the government or the distressed borrower’s lender or servicer.
Which ratio is described as the loan amount divided by the property value?
Lo9an to value ratio
-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).
Under Equal Credit Opportunity Act (ECOA), when looking to qualify a borrower, a lender may not consider which of the following?
The borrower is a senior citizen
-Taking into consideration the borrower’s age would be discriminating against the borrower because of Age. Age is a protected class under ECOA. The only time age can be used as a consideration is if the borrower is under 18 years of age, if so, they cannot be legally obligated on a real estate transaction.
Jumbo loans are considered what type of loan:
Non Conforming
-Jumbo loans are non-conforming; they do not conform with Fannie and Freddie Mac Guidelines as they are over the conventional loan limit.
Which of the following requires the lender to disclose to borrowers the possibility that their loan will be sold, assigned or transferred to another?
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.
Omar is closing his purchase transaction, he was not provided the right to rescind information, how long does Omar now have to rescind his loan?
He does not have a right to rescind his loan as this is a purchase transaction
-The right of rescission under TILA only applies to owner-occupied refinance transactions. If on an owner-occupied refinance transaction the right of rescission notices and disclosures are not provided or not handled correctly the borrower has three years to rescind their loan.
There are two borrowers, one is White and the other is African American. They have very similar credit profiles. The White applicant is approved, and the African American is denied. These loans were approved and denied at the discretion of the lender and an automated underwriting system was not used. This is an example of
Comparative Evidence
-Comparative evidence of disparate treatment is often not intentional (though it could be) as this type of discrimination is typically a result of lender discretion in the underwriting process - meaning that discretion results in inconsistencies in the approval and denial process. These inconsistencies then result in a protected class applicant receiving less favorable terms than a control group applicant.
