RESPA Brain Olympics Flashcards
What is the difference between the note rate and the APR? (check all that apply)
With respect to ARMs, the note rate is used to calculate interest payments for the first year. After that, annual payments are calculated using the APR.
Both rates are nearly identical for all loan types except that the note rate does not change throughout the loan while the APR will.
The note rate is the interest rate applied to the principal.
The note rate is the interest The APR takes into account all fees and charges associated with a loan
The note rate is the rate used to calculate the maximum DTI a borrower can have for a specific loan program, while the APR is the final rate approved by the underwriter
Note Rate is just the interest rate applied to the unpaid balance of the loan. APR is the acronym for Annual Percentage Rate. The APR is a rate that takes into account all fees and charges associated with a loan. Unlike the Note Rate which is just the interest rate applied to the unpaid balance of the loan, the APR, takes into account associated fees such as origination fees or commissions. For example, a mortgage may have a 9% interest/note rate but, if the borrower has to pay some fees upfront, then the APR would be higher than 9% because the total cost of the mortgage is higher than 9%. As you can imagine, unscrupulous mortgage loan originators might be tempted to offer and advertise a loan at a low Note Rate though the loan comes with all sorts of hidden extra charges. The disclosure of APR gives the consumer a full picture of the overall cost of the loan.
A borrower threatens to sue because the MLO understated the finance charge by $200. What is one possible outcome of this situation?
Legal damages are incurred of $200
It is determined that there is no violation because the understatement is less than $500
Legal damages are incurred of $400
The finance charge is recalculated and any remaining balance is funded by the lender
Mortgages secured by a dwelling (closed-end credit only): The disclosed finance charge is considered accurate if it is not understated versus the actual finance charge by more than $100 (see Regulation Z §§1026.18(d)(1)(i) . If inaccurate, the MLO must re-disclose at least 3 days before consummation of the transaction.
For borrowers who have a loan with a variable interest rate, the borrower must always be given which of the following?
Schedule of rate changes throughout the loan term
Cash flow scenarios based on life expectancy
Consumer Handbook on Adjustable Rate Mortgages
Disclosure with contact information for local ARM Counselors
The rate changes are unknown by definition of an ARM. Various disclosures are required for variable-rate loans. Disclosure requirements include the interest rate cap, the index used, the margin charged, the effect of a rate increase, the frequency of rate changes, and the conditions of a rate increase. An important disclosure is the “Consumer Handbook on Adjustable Rate Mortgages booklet (the “CHARM”), which is prepared by the Board of Governors of the Federal Reserve System and the Office of Thrift Supervision. Also, the borrower needs to be given examples on how changes of interest rates will affect an original loan amount of $10,000 (see 1026.19 (b) through (d) for more details about what disclosure is needed for variable-rate loans).
In calculating the Total Estimated Monthly Payments on the Loan Estimate, which Insurance Payment is not added to the Principal + Interest Payment?
The calculation of Total Estimated Monthly Payment is the sum of Principal+Interest, Estimated Taxes+Escrow Insurance, Private Mortgage Insurance and Mortgage Insurance.
Drag and drop the best response to each question.
One qualified mortgage requirement includes limiting a debt-to-income ration to a maximum of: Select the option to match:
3% of the total loan amount.
The lender or creditor wants to originate qualified mortgages. Generally, what are the maximum points and fees allowed to be paid by the creditor or borrower or loans greater than $60,000? Select the option to match:
43% generally, though temporarily it can be higher.
Drag and drop the best response to each question.
One qualified mortgage requirement includes limiting a debt-to-income ration to a maximum of: Select the option to match:43% generally, though temporarily it can be higher.
43% generally, though temporarily it can be higher.
The lender or creditor wants to originate qualified mortgages. Generally, what are the maximum points and fees allowed to be paid by the creditor or borrower or loans greater than $60,000? Select the option to match:3% of the total loan amount.
3% of the total loan amount.
Well done, you answered this question correctly! Score for this question: 100%
Qualified Mortgages may be prime loans or higher-priced loans and they must meet certain requirements which prohibit or limit the risky features of a loan. One feature is that DTI ratios are limited to 43% or less. For a temporary transitional period loans that do not have a 43% but meet government affordability or other standards such as they are eligible for purchase by the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (Freddie Mac) will be considered Qualified Mortgages.
Fees paid by the creditor or consumer may not exceed 3% of the total loan amount, although certain bona fide discount points are excluded for prime loans.
What is an industry-standard Late Charge terms for a conventional loan?
5% of the monthly payment
10 days late
10% of the monthly payment
3 business days late
5% of the monthly payment
15 days late
7 days late
10% of the monthly payment
Late Charge terms are written on the TILA disclosure. For example, if the borrower is 15 days late they will be charged 5% of the monthly payment. 15 days and 5% is a standard in the industry for a conventional loan only.
An acceleration clause permits the lender to:
Demand payment in full prior to the original maturity date
Sell the servicing rights to another lender
Require payment one month in advance
Receive additional fees for late payments
An acceleration clause is a Demand Feature. When a loan has a Demand Feature, it means there could be a situation in which the lender could demand that payment be made in full prior to the originally-intended mortgage maturity date. One trigger for a demand feature is an acceleration clause in the contract. In this case, if a borrower gets behind with his/her payments, the lender might have the right to call the loan immediately.
Which interest rate must appear on the Loan Estimate for an ARM?
Initial interest rate
Maximum 5 year interest rate
Expected long term interest rate
Maximum lifetime interest rate
According to MDIA the payment summary is to be disclosed in a tabular format. This summary must identify: (1) Introductory interest rate including period of time until first adjustment may occur and monthly payment labeled as the “introductory rate and monthly payment” (2) Maximum interest rate and monthly payment in the first five years and the earliest date that may occur even if that’s not the first adjustment (3) Maximum lifetime interest rate and monthly payment and the earliest date that may occur labeled as “monthly ever”
Any person who violates a cease and desist order can be fined a maximum of $
per violation per day.
The Federal Trade Commission can fine someone who violate a cease and desist order a maximum of $10,000 per violation per day.
An MLO shows a potential borrower a pamphlet with a table showing an ARM and a fixed rate mortgage, both of which are fixed for the first three years. The MLO uses the table to show the benefits of the initially fixed ARM versus the 30-year mortgage. What violation of advertising regulations has occurred?
The ARM is shown in an advertisement even though it is rarely offered and terms are likely not available
The MLO is showing an FHA vehicle next to a loan with embedded PMI
The two mortgages compared have different risk profiles were compared
The ARM is not described as a Variable or Adjustable instrument
In this example, we know the two mortgages are being compared while and ARM and a 30 year fixed rate mortgage have very different risks associated with them. We do not know if ARM is being correctly described as Variable or Adjustable, and we don’t know anything more about the specific terms in order to judge if disclosure is comprehensive enough. The question here is about comparing two vehicles correctly.
When does an advertiser need to include a disclaimer that an applicant should consult a tax expert?
If the offer includes discount points
In any advertisement for a mortgage loan
If there are tax payments related to the loan
If the average income of the target demographic is 10% above the national average
On any mortgage, if the payments disclosed do not include taxes and an insurance premium, the advertiser needs to disclose clearly that the actual payment obligation will be greater For example, on home equity loans, companies cannot advertise the tax benefits of a home equity loan without clarifying that the loan balance which is above the fair market value of the home is not tax deductible They must also add the disclaimer that a customer should seek advice from a professional tax consultant to ensure their eligibility for these benefits.
A consumer is applying for a loan to purchase a home. They wonder if their loan originator must follow the rules on loan originator compensation. Who is covered under these rules?
Only loan originators who work as a mortgage broker
Only loan originators employed by a large bank
All loan originators
Only loan originators originating less than 5 loans per year.
Section 1026.36(a)(1) states that the regulation applies to all persons who originate loans, including mortgage brokers and their employees, as well as mortgage loan officers employed by depository institutions and other lenders.
An application means the submission of a consumer’s financial information for purposes of obtaining an extension of credit. What information do we need to have an application according to the TRID Rule?
any information the lenders deems necessary
The consumer’s name
The consumer’s income
The consumer’s social security number to obtain a credit report
The property address
An estimate of the value of the property
The mortgage loan amount sought
Current Monthly Obligations
Satisfactory rental payment history
Evidence of at least 2 years employment
The consumer’s name; The consumer’s income; The consumer’s social security number to obtain a credit report; The property address; An estimate of the value of the property; and The mortgage loan amount sought.
Match each statement with the corresponding time associated with the question.
If a lender turns down the mortgage application 2 days after receiving it, when must the borrower receive the LE?
A loan servicer sells the servicing rights of a loan. The borrower may provide final payment to the old servicer within:
The initial escrow statement contains the charges the escrow account will likely collect in the first ———-
If the borrowers do not receive the required disclosures at the time of application, RESPA requires that the lender must mail them within 3 business days of receiving the loan application. However, if the lender turns down the loan within 3 days of application, RESPA does not require the lender to provide these disclosures to the borrower.
The borrower does not incur a penalty if a payment is made to the original servicer within 60 days following the transfer of servicing rights.
The initial escrow statement includes insurance premiums, estimated taxes, and other charges the account will likely collect during the first 12 months.
Which law was enacted to regulate only mortgage transactions rather than general consumer credit?
RESPA focuses specifically on residential mortgage loans transactions, whereas TILA covers most types of consumer credit including mortgage loans, auto loans, and credit card borrowing; FCRA covers collecting, disseminating, and using consumer information; and FACTA allows consumers to request and get a free annual credit report as well as covering other credit-related issues, such as identity theft.
