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%
