Quiz Q & A

Question 1

Which of the following is NOT true about an Affiliated Business Arrangement Disclosure Statement?
A: It must be provided to the prospective borrower at or before the time a third-party service provider referral is made
B: It must specify the nature of any relationship between a settlement service provider and the referring licensee
C: The disclosure may be provided instead of the list of third-party service providers from which the borrower can shop for services
D: A person that has a 2% interest in a settlement service provider to which the person is referring a borrower has an affiliated business arrangement with the referred-to entity

Answer 1

C: The disclosure may be provided instead of the list of third-party service providers from which the borrower can shop for services

Question 2

Which of the following best describes a lender’s obligation under the Equal Credit Opportunity Act?

A: The lender must deny the loan after 90 days if it has not been approved
B: The lender must notify the borrower within three days of declining a loan application
C: The lender must notify the borrower within 60 days of receipt of an application on the status of the file
D: The lender must take some form of action within 30 days of receipt of a completed application

Answer 2

D: The lender must take some form of action within 30 days of receipt of a completed application

Question 3

According to ECOA, discrimination based upon age is:

A: Allowed if the borrower does not have legal capacity
B: Allowed only if disclosed to the borrower
C: Never allowed
D: Allowed if the individual is the co-borrower rather than the borrower

Answer 3

C: Never allowed

Question 4

Which of the following is true under ECOA?

A: Lenders can use racial redlining as a business practice
B: Lenders cannot request information about race unless the information is used for government monitoring purposes
C: Covered lenders must report all loan activity on an annual basis
D: Lenders must give borrowers a free copy of their credit report if requested

Answer 4

B: Lenders cannot request information about race unless the information is used for government monitoring purposes

Question 5

A HECM is repaid:

A.Monthly, with interest-only payments
B.Monthly, with fully-amortizing payments
C.Monthly, with negatively-amortizing payments and a balloon payment
D.Upon the borrower’s death or sale of the property

Answer 5

D.Upon the borrower’s death or sale of the property

HECM: home equity conversion mortgage; reverse mortgage

Question 6

A ten-year adjustable-rate mortgage has rate caps of 3/2/10 with an initial interest rate of 6% (2% margin + 4% index). Which of the following is true?

A.The lifetime cap of the loan is 5%
B.The interest rate cannot increase by more than 3% in any one adjustment period
C.At the first rate adjustment, the interest rate will increase to 7.5%
D.Over the term of the loan, the interest rate may not rise higher than 16%

Answer 6

D.Over the term of the loan, the interest rate may not rise higher than 16%

The interest rate on a ten-year ARM with rate caps of 3/2/10 and an initial rate of 6% has a lifetime rate cap of 10%, meaning that the highest rate the loan can reach over its term is 16%. In this example, the initial cap is 3%; in other words, the rate may not increase at its first adjustment by more than 3% over the initial 6%. Subsequent to the first adjustment, the rate may not increase by more than 2% in any one adjustment period.

Question 7

An adjustable-rate mortgage has an initial rate of 5%; the margin is 2.5%. It has a periodic rate cap of 2% and a lifetime cap of 8%. At the first rate adjustment, the index is 3.25%. What is the new interest rate at adjustment?

A.7.5%
B.5.75%
C.8.25%
D.7.0%

Answer 7

B.5.75%

Question 8

At the same time that he obtains his first mortgage loan, a homebuyer obtains a second closed-end mortgage loan in order to cover part of his down payment. This second loan is:

A.A primary mortgage loan
B.A subprime loan
C.A simultaneous loan
D.A home equity line of credit

Answer 8

C.A simultaneous loan

A second loan obtained to cover some or all of a loan applicant’s down payment is a simultaneous loan. Under the Ability to Repay Rule, a lender must make a good faith determination that the applicant will be able to repay both the first and second mortgage loans according to their terms.

Question 9

Which of the following approaches to appraisal would be appropriate for a duplex being used as an investment property?

A.Cost approach
B.Comparable approach
C.Income approach
D.Market approach

Answer 9

C.Income approach

The answer is income approach. In appraising a duplex to be used as an investment property, the income approach would be used. The income approach bases the value of the property on the net income the owner will receive and a rate of return (i.e., capitalization rate) the owner should find acceptable.

Question 10

A loan funds on January 28 (January has 31 days). With a loan amount of $450,000 and an interest rate of 5.5% on a 15-year fixed-rate loan, what would be the prepaid interest charged at closing?

A.$67.81
B.$271.24
C.$406.85
D.$339.00

Answer 10

B.$271.24

The answer is $271.24. The prorated interest is calculated by finding the annual interest, dividing it by the number of days in the year (365), then multiplying that number by the number of days from closing up to the day of the first periodic payment. In this case: $450,000 [loan amount] x 5.5% [annual interest] = $24,750 [total annual interest]; $24,750 ÷ 365 [days in the year] = $67.81 [daily interest]; $67.81 x 4 [days from closing to the next month] = $271.24 [prepaid interest due]. Some lenders use a 365-day calendar, while others use a 30-day month/360-day calendar. Be aware of the policy used by the lender funding the loan.

Question 11

If a borrower wishes to borrow 90% of the $250,000 purchase price, which of the following equals one discount point?

A.$3,000
B.$2,500
C.$2,250
D.$2,000

Answer 11

C.$2,250

The answer is $2,250. A discount point is 1% of the loan amount. In this case: $250,000 − $25,000 (10% down payment) = $225,000 (loan amount); $225,000 × 1% = $2,250.

Question 12

Which of the following would not be an acceptable source of down payment for a conventional loan?

A.The borrower’s checking account
B.A loan on another piece of property
C.A loan which is unsecured
D.Funds from a loan against the borrower’s 401(k)

Answer 12

C.A loan which is unsecured

The answer is a loan which is unsecured. The down payment for a conventional mortgage loan may come from the borrower’s checking or savings account, a gift from relatives, the sale of another piece of property, a contribution by the seller, the cash value of a life insurance policy, or subordinate financing secured by real or personal property. Funds resulting from an unsecured loan would not be an acceptable source for a down payment.

Question 13

Which of the following best describes factors which determine the minimum hazard insurance requirements as required by the lender on a residential property?

A.The loan amount and insurable value
B.Replacement cost of the property and the appraised value
C.Appraised value and LTV
D.Mortgage insurance and replacement cost

Answer 13

A.The loan amount and insurable value

The answer is the loan amount and insurable value. A lender may require a borrower of a first lien mortgage to maintain minimum hazard insurance coverage in an amount that is the lesser of 100% of the insurable value of the improvements, as established by the property insurer, or the unpaid principal balance of the mortgage.

Question 14

If required, the amount of flood insurance must be the lower of:

A.80% of the replacement cost or the unpaid principal balance of the loan
B.The insurable value or the unpaid balance of the loan
C.The insurable value or the appraised value
D.100% of the replacement cost or the unpaid balance of the loan

Answer 14

D.100% of the replacement cost or the unpaid balance of the loan

The answer is 100% of the replacement cost or the unpaid balance of the loan. A lender may not make, increase, extend, or renew a loan that is secured by improved real estate or a mobile home located in an area designated by the government as a Special Flood Hazard Area (SFHA), unless the building or mobile home and any personal property securing the loan are covered by flood insurance for the entire loan term with a limit of the lesser of the outstanding principal loan balance or 100% of the replacement cost of the property, less the value of the land.

Question 15

If a borrower has a fixed-rate mortgage and her taxes and insurance are included in her monthly payments, which of the following does not change over the life of the loan?

A. Principal amount combined with interest amount in payment
B. Interest amount in payment
C. Tax amount in payment
D. Principal amount in payment

Answer 15

A. Principal amount combined with interest amount in payment

The answer is principal amount combined with interest amount in payment. The payment amount related to principal and interest on a fixed-rate mortgage loan will not change. However, if the borrower is paying property taxes and/or insurance through an escrow account established by the lender, if either of those mortgage-related expenses increase or decrease, the monthly payment amount will change accordingly.

Question 16

A buyer is purchasing a property for $200,000 and is approved for an FHA loan amount of $190,000. What is the maximum amount the seller will be allowed to contribute towards closing costs?

A. 6% of the purchase price
B. 3% of the purchase price
C. 3% of the loan amount
D. 6% of the loan amount

Answer 16

A. 6% of the purchase price

The answer is 6% of the purchase price. The FHA will allow the seller to contribute up to 6% of the purchase price toward the buyer’s actual closing costs, prepaid taxes and insurance, discount points, buydown fees, and/or mortgage insurance premiums.

Question 17

Insurance which protects the lender in the event that previously-undetected encumbrances on a property are discovered can best be described as:

A. A lender’s policy of title insurance
B. Endorsement coverage on a title insurance policy
C. An owner’s policy of title insurance
D. Private mortgage insurance

Answer 17

The answer is a lender’s policy of title insurance. Insurance which protects the lender in the event that previously-undetected encumbrances on a property are discovered is a lender’s policy of title insurance.

Question 18

Which of the following would not be considered a prepaid finance charge?

A. Title insurance premium
B. Flood certification fee
C. Discount points
D. Upfront mortgage insurance premium

Answer 18

The answer is title insurance premium. A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at consummation of the loan or withheld from the proceeds. They include loan origination, discount, and commitment fees, any prepaid private mortgage insurance premium, upfront mortgage insurance premium, VA funding fee, or USDA guaranty fee, underwriting, processing, and courier fees, if paid to the creditor, buydown funds, and prepaid interest. The cost of a title insurance premium is NOT a prepaid finance charge.

Question 19

A borrower owes $200,000 on a first mortgage and $50,000 on a line of credit with a maximum amount of $100,000. If the property appraises for $500,000, what is the LTV?

A. 60%
B. 70%
C. 40%
D. 50%

Answer 19

The answer is 40%. The loan-to-value ratio of a $200,000 loan to a property appraising at $500,000 is 40%. The combined loan-to-value ratio, which would take into account the amount drawn on the line of credit, is 50%.

Question 20

Which of the following lists contains terms which are all included in APR calculations?

A.Origination fee, appraisal fee, flood certification fee, and processing fee
B.Origination fee, per-diem interest, tax service fee, and discount points
C.Buydown fee, credit report fee, UFMIP, and closing fee
D.Title insurance fee, processing fee, warehouse fee, and lender courier fee

Answer 20

B.Origination fee, per-diem interest, tax service fee, and discount points

The answer is origination fee, per-diem interest, tax service fee, and discount points. Each of the following is included in the calculation of the annual percentage rate: the origination fee, per-diem interest, tax service fee, and discount points. Other items which may be included in the calculation of the APR include mortgage broker fees, credit insurance premiums (in certain cases), and fees charged by a third-party settlement service provider if the lender requires the particular services or keeps a portion of the charge.

Question 21

A borrower obtains a loan for $250,000 at 5% interest. If they make their required monthly payment of $1,342.05 for the first two months, what is the principal balance of the loan after the second payment?

A.$249,397.98
B.$250,000.00
C.$249,699.62
D.$248,355.24

Answer 21

A.$249,397.98

The answer is $249,397.98. The licensee would calculate the annual interest on the outstanding balance to figure out the amount of principal applied at each payment. Month #1: $250,000 × 5% = $12,500. $12,500 ÷ 12 = $1,041.66 (monthly interest); $1,342.05 (monthly payment) − $1,041.66 = $300.39 (principal); $250,000 − $300.39 = $249,699.61. Month #2: $249,699.61 (principal) × 5% = $12,484.98 ÷ 12 = $1,040.42 (monthly interest); $1,342.05 − $1,040.42 = $301.63 (principal); $249,699.61 − $301.63 = $249,397.98 (principal owing).

Question 22

A borrower owes $200,000 on a first mortgage and $50,000 on a line of credit with a maximum amount of $100,000. If the property appraises for $500,000, what is the HLTV?

A.50%
B.60%
C.70%
D.40%

Answer 22

B.60%
The answer is 60%. The HLTV of a loan is the loan balance plus the total line limit of any credit line on the property, divided by the appraised value of the property. In this case: $200,000 (first lien) + $100,000 (credit line) = $300,000; $300,000 ÷ $500,000 (appraised value) = 60%.

Question 23

Each of the following is a responsibility of a loan servicer, except:

A.Handling escrow account funds
B.Collecting late payment penalties
C.Recording the note and trust deed with the county recorder
D.Collecting periodic payments on behalf of a lender

Answer 23

C.Recording the note and trust deed with the county recorder

The answer is recording the note and trust deed with the county recorder. Loan servicing includes all activities performed to ensure the loan is repaid in a timely manner and to preserve the lender’s legal claim to repayment. Such activities include sending statements to and collecting payments from borrowers, attempting to collect late payments, foreclosing, if necessary, and handling escrow account funds.

Question 24

If a borrower has an $80,000 first mortgage, a $20,000 second HELOC on which they have $5,000 in remaining credit, and the property appraises for $100,000, what is the CLTV?

A.80%
B.95%
C.100%
D.75%

Answer 24

B.95%

The answer is 95%. The loan-to-value ratio is the loan amount divided by the property value or sales price, whichever is less. Since there are two loans on the property in this example, however, the calculation is for the combined loan-to-value ratio (CLTV). The formula for this is as follows: (balance on first lien + balance on second lien)/appraised value. The balance on this HELOC is $15,000 ($20,000 limit - $5,000 remaining available credit). Therefore, the solution is ($80,000 + $15,000)/$100,000 = .95 (95% CLTV).

Question 25

If a borrower makes $60,000 per year, what is the most a housing payment could be for the borrower under conventional manual underwriting guidelines?

A.$1,800
B.$1,200
C.$1,500
D.$1,400

Answer 25

D.$1,400

The answer is $1,400. Without considering any compensating factors, a borrower’s housing ratio should not exceed 28%. In this example: $60,000 ÷ 12 = $5,000/month; $5,000 × 28% = $1,400

Question 26

Which of the following would not be an acceptable source for a down payment?

A.Undocumented cash on hand
B.Gift from borrower’s uncle
C.Loan from borrower’s 401K
D.Gift from domestic partner

Answer 26

A.Undocumented cash on hand

The answer is undocumented cash on hand. Acceptable sources for a down payment include funds from a checking or savings account, gifts from relatives, the cash value from a life insurance policy, the sale of another property, or a seller contribution. Undocumented cash on hand is not an acceptance source.

Question 27

Which of the following terms would be associated with the income approach to appraisals?

A.Comparable sales
B.Capitalization rate
C.Neighborhood analysis
D.Construction costs

Answer 27

B.Capitalization rate

The answer is capitalization rate. The income approach is used to appraise properties that produce rental income. It bases the value of the property on the net income the owner will receive and a rate of return (i.e., the capitalization rate) the owner should find acceptable.

Question 28

A transaction or open-end home equity line of credit that will be secured by the same dwelling that secures the first mortgage loan on the dwelling, made to the same borrower at the same time, is:

A.Prohibited under the Truth in Lending Act
B.A simultaneous loan
C.A subprime loan
D.A home equity conversion mortgage

Answer 28

B.A simultaneous loan

The answer is a simultaneous loan. A simultaneous loan is an additional covered transaction or an open-end home equity line of credit that will be secured by the same dwelling and is made to the same consumer at the same time or before the closing on the covered transaction or, if made after the closing, made to cover the closing costs of the first transaction.

Question 29

Which of the following best describes the process of releasing a lien from the title of a property after a loan has been paid off?

A.Deed transfer
B.Deed release
C.Reconveyance
D.Conveyance

Answer 29

C.Reconveyance

The answer is reconveyance. To provide public notice that a mortgage loan has been repaid and to clear it from the public record, a satisfaction or release is recorded to clear a mortgage lien, or a deed of reconveyance is recorded to clear a trust deed lien.

Question 30

Which of the following forms would allow a lender to receive a copy of a borrower’s tax returns from the IRS?

A.4506
B.1040
C.2392
D.2106

Answer 30

A.4506

The answer is 4506. IRS Form 4506, Request for Copy of Tax Return, authorizes the IRS to deliver a copy of a borrower’s tax return to the mortgage licensee, for a fee.

Question 31

A licensee is in compliance with the Ability to Repay Rule. Which of the following is not true?

A.The prospective borrower’s ability to repay the loan according to its terms has been determined
B.The licensee is making a stated-income loan
C.The licensee requires two years’ worth of tax returns for a self-employed loan applicant
The licensee is making a subprime loan

Answer 31

B.The licensee is making a stated-income loan

The answer is The licensee is making a stated-income loan. The Ability to Repay Rule requires a creditor make a good faith determination that the borrower is able to repay the loan according to its terms. It must make that determination based upon a monthly payment amount calculated to fully amortize the loan at the fully-indexed rate. It also requires third-party verification of the borrower’s ability to repay in the form of documentation of income, assets, and liabilities. With a stated-income loan, both assets and employment are verified, but income is not.

Question 32

If a loan file contains fraudulent documentation, which of the following is LEAST likely to happen?

A.The mortgage loan originator could be required to repurchase the loan
B.The borrower’s interest rate could be increased
C.The mortgage loan originator could be fined up to $1,000,000, imprisoned for up to 30 years, or both
D.The mortgage loan originator could be responsible for any financial loss resulting on the loan

Answer 32

B.The borrower’s interest rate could be increased

The answer is The borrower’s interest rate could be increased. It is mortgage fraud to participate in the submission of a fraudulent mortgage loan application. A licensee that participates in such fraud could be subject to 30 years in jail and/or up to $1 million in fines. If set forth in any contract between the lender and the loan originator, the loan originator could also be required to reimburse the lender for any loss it incurs or repurchase the loan. A buyback or repurchase agreement provides that the investor may return the loan to the originating lender if the borrowers default within a specified period of time (e.g., within the first three or six months), there is evidence of loan fraud, or the loan does not comply with regulatory requirements.

Question 33

The interest rate that is calculated using the loan’s index or formula that will apply after the loan is recast and the maximum margin that may apply at any time during the term of the loan is the:

A.Nominal rate
B.Annual percentage rate
C.Qualified interest rate
D.Fully-indexed rate

Answer 33

D.Fully-indexed rate

The answer is fully-indexed rate. The fully-indexed rate is the interest rate that is calculated using the subject loan’s index or formula that will apply after recast and the maximum margin that may apply at any time during the term of the loan. A loan product’s low introductory rate may not be included in the calculation of the fully-indexed rate.

Question 34

Which of the following would not be considered a valid changed circumstance for the issuance of a revised Loan Estimate?

A.Inaccurate information
B.Technical error on the disclosure
C.Natural disaster
D.New information

Answer 34

The answer is technical error on the disclosure. A revised Loan Estimate may be issued if a valid “changed circumstance” occurs or information previously provided and upon which the loan originator offered the original Loan Estimate changes or was inaccurate and causes a change in a settlement charge. Changed circumstances that may affect settlement costs and provide an acceptable reason to issue a revised Loan Estimate include a natural disaster, the title insurer whose fees for title insurance are disclosed goes out of business, or new information arises that reveals a pending property boundary dispute.

Question 35

Each of the following would be considered a form of mortgage fraud for property, except:

A.The borrower overstating assets necessary for a down payment or collateral for the loan
B.Submission of a fraudulent gift letter
C.Appraisal fraud
D.Including sporadic bonuses in with regular income

Answer 35

C.Appraisal fraud

The answer is appraisal fraud. Fraud for property involves a borrower lying about income or assets in order to qualify for a loan to buy a home in which he or she plans to live, but which he or she might resell at a profit if income does not increase to enable continued repayment. Overstating assets, providing fraudulent income information, or submitting a fraudulent gift letter would be forms of fraud for property. Appraisal fraud would be a form of fraud for profit (NOT property), which involves mortgage and real estate professionals and others who conspire to inflate property values and, therefore, loan amounts.

Question 36

In an adjustable-rate mortgage loan, recast:

A.Is the time in the loan term where periodic payments must be of sufficient amount to fully amortize the loan within the remaining term
B.Occurs when the terms of a mortgage loan are modified
C.Is the time during which interest-only payments may be made on a loan
D.Is a provision allowing the borrower to change the amount of principal owing each month

Answer 36

A.Is the time in the loan term where periodic payments must be of sufficient amount to fully amortize the loan within the remaining term

The answer is is the time in the loan term where periodic payments must be of sufficient amount to fully amortize the loan within the remaining term. Recast is the time within a loan’s term at which payments that will fully amortize the loan over its remaining term are required. In other words, recast occurs at the end of the period during which payments on an adjustable-rate mortgage are based on a low introductory rate. Interest-only payments may be made on an interest-only loan, or negatively-amortizing payments may be made on a negative amortization loan.

Question 37

A married couple applying for a loan knowingly fail to disclose an unsecured loan with an outstanding balance of $14,000 and a student loan in one spouse’s name. This is:

A.Permitted, as long as the applicants have a loan-to-value ratio of less than 80%
B.Fraud for assets
C.Fraud for housing
D.Broker-facilitated fraud

Answer 37

C.Fraud for housing

The answer is fraud for housing. Fraud for housing involves a borrower lying about income or assets. Among the most common activities involving fraud for housing are altering the applicant’s credit history, concealment of liabilities (i.e., the loan applicant fails to fully disclose debts), and use of a straw buyer.

Question 38

What is the maximum punishment for committing loan fraud?

A.$10,000 fine, one year in prison, or both per occurrence
B.$1,000,000 fine, 30 years in prison, or both per occurrence
C.$1,000 per occurrence
D.$5,000 per occurrence unless intentional

Answer 38

B.$1,000,000 fine, 30 years in prison, or both per occurrence

The answer is $1,000,000 fine, 30 years in prison, or both per occurrence. Title 18 of the United States Code specifies jail terms and fines for crimes associated with mortgage loan fraud. For fraud/false statements, a person is subject to up to five years in jail and/or a $100,000 fine. For a false mortgage loan application, conspiracy to commit fraud, fraud/swindles, or bank fraud, a person would be subject to up to 30 years in jail and/or a $1 million fine.

Question 39

Which of the following would not be covered by the GLB Act?

A.Processor
B.Loan broker
C.Title company
D.Appraiser

Answer 39

D.Appraiser

The answer is Appraiser. The Gramm-Leach-Bliley Act requires financial institutions to give privacy notices to consumers, explaining their information-sharing policies. The GLB Act applies to financial institutions that offer financial products and services to individuals. Persons covered would include loan processors and loan brokers. Since title companies also handle consumers’ personal information, such entities would be covered as well. Appraisers are not covered under the GLB Act.

Question 40

A property flipping scheme may involve any of the following, except:

A.A buyer purchasing a property with the intent to reside there for only two years
B.A seller who is not the owner of record of the property
C.A notable increase in the value of the property with no known improvements made
D.The use of unusual comparable properties

Answer 40

A.A buyer purchasing a property with the intent to reside there for only two years

The answer is a buyer purchasing a property with the intent to reside there for only two years. A property flipping scheme may involve an inflated sale price, the result of a fraudulent appraisal based on unusual comparables, or a higher sale price without any accompanying improvements to the property. The borrower may not be the owner of record. Property flipping schemes involve the quick turnover of a property, with each sale at a higher price. A borrower planning to live in the property for two years would not be a flag for a property flipping scheme. The Higher-Priced Mortgage Loan Rule provides protection against flipping schemes, requiring two written appraisals before a property can be resold within 90 to 180 days at a price 10% to 20% higher than the purchase price.

Question 41

Which of the following most likely indicates a fraudulent transaction?

A.Large down payment
B.Down payment is a gift from relatives
C.Failure to fully disclose all debts and liabilities
D.Large earnest money deposit

Answer 41

C.Failure to fully disclose all debts and liabilities

The answer is Failure to fully disclose all debts and liabilities. The failure to disclose all debts and liabilities could be a red flag for mortgage fraud. Others could be altered bank account statements, fraudulent gift letters, and an inappropriate salary for the loan amount sought.

Question 42

A mortgage loan originator decides to give their neighbor a discount. This would be:

A.A violation of ECOA
B.A violation of RESPA
C.Acceptable
D.A violation of the Fair Housing Act

Answer 42

C.Acceptable

The answer is acceptable. Under Section 8 of the Real Estate Settlement Procedures Act, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, verbal or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. So long as the discount was not given with the expectation that the neighbor would refer business to the loan originator, it is not prohibited.

Question 43

ach of the following may be associated with contract kiting, or double-contract fraud, except:

A.A silent second
B.An inflated purchase price
C.A cash-back transaction
D.An under-secured loan

Answer 43

A.A silent second

The answer is a silent second. Contract kiting (also known as double contract or dual contract) occurs when a seller agrees to create a second, falsified sales agreement with an inflated purchase price so the buyer can obtain a larger loan from a lender. This would result in the buyer obtaining all the funds necessary to pay off the seller’s lower actual selling price from the loan proceeds, possibly getting cash back, and the lender being under-secured and subject to greater loss in the event of default.

Question 44

A buyer wishes to purchase a property but is unable to qualify. He pays his sister to apply for the loan and state that she will occupy the property. This is an example of the use of:

A.Flipping
B.Appraisal inflation
C.Equity skimming
D.A straw buyer

Answer 44

D.A straw buyer

The answer is a straw buyer. A straw buyer is a person who allows the use of their personal information by another individual to apply for or obtain a loan. This often occurs when the actual borrower is unable to qualify for the loan based on his or her own credit history. Use of a straw buyer is mortgage fraud, and the straw buyer is often paid for the use of his or her personally-identifying information.

Question 45

Flipping is:

A.Always illegal
B.Illegal depending on the amount of profit realized
C.The process of buying a property and then quickly selling it
D.Not allowed under conventional underwriting guidelines

Answer 45

C.The process of buying a property and then quickly selling it

The answer is the process of buying a property and then quickly selling it. Flipping is the process of buying a property and then quickly selling it. It can be a form of predatory lending if the primary objective of the mortgage broker and/or lender is to generate additional loan points, loan fees, prepayment penalties, and fees from financing the sale of credit-related products. To prevent mortgage fraud arising from flipping, the FHA has a property flipping prohibition that provides that, in general, only an owner of record may sell a property that will be financed using FHA-insured mortgages and a property resold within 90 days from the last sale is not eligible for FHA financing.

Question 46

When may a mortgage loan originator give preferential treatment to a borrower?

A.Any time
B.Never
C.Never, unless the borrower is a member of a minority race
D.At any time, as long as it is not based on a class covered by the Equal Credit Opportunity Act

Answer 46

D.At any time, as long as it is not based on a class covered by the Equal Credit Opportunity Act

Question 47

A mortgage loan originator discovers that her borrowers created, edited, and printed their own W-2s on their home computer in order to show enough income to qualify for the requested loan. If the mortgage loan originator does not disclose this information to the lender, what could happen to the mortgage loan originator?

A.The mortgage loan originator could be fined up to $10,000, serve up to one year in prison, or both
B.Either the mortgage loan originator could be fined up to $10,000 or serve up to one year in prison, but not both
C.The mortgage loan originator could be fined up to $1,000,000, serve up to 30 years in prison, or both
D.Nothing; the responsibility of accurate income disclosure lies on the person giving the information - the borrower could be in trouble, but the mortgage loan originator should be fine

Answer 47

C.The mortgage loan originator could be fined up to $1,000,000, serve up to 30 years in prison, or both

The answer is The mortgage loan originator could be fined up to $1,000,000, serve up to 30 years in prison, or both. If a loan originator knows that his or her prospective borrower has submitted false information on the loan application, he or she is guilty of mortgage fraud. If a loan originator is found to have made or participated in the making of a false mortgage loan application and/or engaged in a conspiracy to commit fraud, fraud/swindles, or bank fraud, he or she is subject to 30 years in jail and/or the imposition of $1 million in fines.

Question 48

S.A.F.E. Act requirements apply to loans to purchase:

A.Dwellings as rental properties
B.Apartment buildings
C.Dwellings if secured by mortgages, but not if secured by trust deeds
D.Mobile homes to be used as residences, even if they are not attached to the land

Answer 48

D.Mobile homes to be used as residences, even if they are not attached to the land

The answer is mobile homes to be used as residences, even if they are not attached to the land. The S.A.F.E. Act applies to residential mortgage loans. Residential mortgage loans include those loans secured for the purpose of purchasing a dwelling as defined in the Truth-in-Lending Act. A dwelling is a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.