Retrainer Flashcards
The basic idea of the new TRID requirements is which of the following:
A. To impose specific penalties on MLOs who are in violation of the new requirements.
B. To provide more information to the consumer so they can make better decisions.
C. To allow consumers to escape liability for loan obligations.
D. To raise the level of competition among MLOs.
The correct answer is B. These requirements are for the benefit of the consumer.
Which of the following best defines appraisal:
A. Same as price
B. An estimate of value
C. Same as cost
D. An estimate of market value
The correct answer is D. There is nothing wrong with “B” as an answer, but in the context of residential mortgages, “D” is the best answer and will contribute to your point total.
With an ARM, what is the difference between a hard prepayment penalty and a soft prepayment penalty:
A. A hard prepayment penalty is a penalty to be paid for prepaying the loan for any reason
B. A soft prepayment penalty is a penalty to be paid only if the borrower refinances the loan
C. A soft prepayment penalty would not require a fee if the property is sold
D. All of these are true
Answer: D. This is correct. Prepayment penalties on ARMS may exist for the first 3-5 years of the loan, and may require fees even if only a partial prepayment is made.
According to Regulation Z, all of the following terms would not trigger additional disclosures in an ad, except: A. Terms to fit your budget. B. 7% APR loan available here. C. 30-year financing available. D. Easy monthly payments.
The correct answer is C. Yes, this would trigger full disclosure.
If the settlement agent takes responsibility for delivery of the Closing Disclosure, he may do which of the following:
A. Deliver a copy of the borrower’s disclosure to the seller.
B. Provide a copy of the Closing Disclosure to the seller even if the disclosure contains only charges and costs of the borrower.
C. Provide a copy of the borrower’s Closing Disclosure to the seller only if it also contains the seller’s charges and costs.
D. If the seller signs a separate Closing Disclosure, the settlement agent need not deliver a copy to the creditor.
The correct answer is C. This is a statement of fact.
15) Which of the following does the Closing Disclosure reveal about negative amortization:
A. If the borrower is scheduled to make payments that do not pay all interest due in a given month.
B. If the borrower may have monthly payments that do not pay all interest due in a given month.
C. If the borrower does not have a negative amortization feature in the mortgage.
D. All of the above.
The correct answer is D. One of the boxes on the form will be checked, indicating one of these answers.
In which of the following ways might a government worker be involved in a fraud scheme:
A. Falsifying deeds or other records
B. Inflating property values
C. Preparing false sales contracts
D. Providing phony accounting documents
The correct answer is A. This is correct.
^^^The final rule, propagated by the Federal Reserve Board in anticipation of the Dodd-Frank amendments to TILA, took effect on what date:
A. July, 2010
B. January, 2010
C. April, 2011
D. January, 2012
C
^^When a loan application has been properly completed, what further information does a lender seek:
A. Insurance
B. Borrower analysis
C. Property analysis
D. All of the above
Answer: D. Yes, all of this information needs to be fleshed out to see the full picture of acceptable risk.
According to RESPA, what is a loan application:
A. A form that presents the borrower’s financial information
B. The submission of a borrower’s financial information in anticipation of a credit decision
C. Primarily information about the property in question
D. It is primarily a statement of the net worth of the
Answer: B. Yes, this is the best definition of a loan application among these answer choices.
The HOEPA notice contains which of the following statements:
A. You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.
B. If you obtain this loan, the lender will have a mortgage on your home.
C. You could lose your home, and any money you have put into it, if you do not meet your obligations under this loan.
D. All of the above.
The correct answer is D. Yes, all of these statements and more are included in the HOEPA notice.
Which of the following best describes obligatory advances regarding construction loans:
A. It is funds paid to the builder as various phases of the construction project are completed.
B. It is the way funds used to be distributed to the builder; however, now all funds are released upfront.
C. Obligatory advances occur when the builder makes payments on the construction loan.
D. Obligatory advances refer to a builder paying subcontractors at the appropriate time.
The correct answer is A. Lenders have learned that projects are more likely to be completed if builders do not receive all of the funds from a construction loan upfront.
Under the Integrated Disclosures, When providing a revised Loan Estimate due to changed circumstances, which of the following is an acceptable definition of business day:
A. Any day the creditor’s offices are open to the public to transact substantially all of the creditor’s business.
B. All calendar days except Sundays and legal public holidays as defined by Reg. Z.
C. Same as calendar days.
D. Any day except Sunday.
Answer B
When providing the initial Loan Estimate, definition A applies. When providing a revised Loan Estimate due to changed circumstances, definition B applies.
According to TILA, the finance charge includes fees and amounts charged by a third party under which of the following circumstances:
A. If the creditor requires the use of the third party as a condition of the extension of credit.
B. If the creditor retains a portion of the third-party charge.
C. So long as the creditor retains none of the third-party charge.
D. A & B.
The correct answer is D.
All of the following statements are true about APR, except:
A. With an ARM, the loan still has one APR.
B. TILA requires that the APR be disclosed to a consumer when they call for an interest rate quote.
C. TILA does not require that the APR be disclosed on an Internet inquiry for a rate.
D. The APR will be a bit more than the interest rate on the note.
The correct answer is C. TILA does require that the APR be disclosed on an Internet inquiry for a rate.
According to the SAFE Act, which of the following do not need to have a unique identifier number to work as an MLO:
A. An employee of an insured depository institution
B. An MLO working under the authority of the DRE
C. An MLO working under the authority of the DBO
D. None of the above
The correct answer is D. All MLO’s need a unique identifyer number. The employee of an insured depository institution, however, is registered with the NMLS, not licensed.
Which of the following is the equivalent of discharge papers for a VA loan:
A. COE
B. DD-214
C. UFMIP
D. AMI
Answer: B. The DD-214 is either Discharge Papers or the Report of Separation issued by the Department of Defense.
Which of the following topics comprise 25% of the MLO exam?
A. Federal mortgage-related laws
B. General mortgage knowledge
C. Mortgage loan origination activities
D. Ethics
The correct answer is C. This is a statement of fact.
According to the SAFE Act, administrative and clerical tasks that do not require an MLO designation include all of the following except:
A. The receipt and collection of information common for the processing or underwriting of a residential mortgage loan
B. Collecting information on behalf of the consumer with regard to a residential mortgage loan
C. The distribution of information common for the processing or underwriting of a residential mortgage loan
D. Communication with a consumer to obtain information necessary for the processing and underwriting of a residential mortgage loan
The correct answer is B. The correct answer involves obtaining information for the consumer from various industry sources. This is part of MLO activities and requires an MLO designation. The other answer choices involve receiving, collecting, distributing, and communicating with the consumer to obtain information from the consumer for the purpose of putting together the loan application package. This is clerical in nature.
If a borrower takes out a $200,000 loan at 6% fixed-rate for 30 years and wants to buy down the rate to 5.75%, what will be the effect on the loan and the borrower:
A. The borrower will lower his/her P&I payment by $41.67
B. The borrower will have to stay in the loan for eight years to realize the advantages of the buydown
C. If the borrower sells or refinances sooner than eight years, he/she will not recapture what they paid in the upfront discount points
D. All of the above are true
Answer: D. One discount point equals one percent of the loan amount. To lower the interest rate 1/8 of one percent on a 30-year loan requires one point, so to lower the interest rate ¼ of one percent as in this question, the borrower must pay 2 points, or $4,000 up front. $4,000 ÷ $41.67 = 96 months, or eight years to break even.
The estimate of the charges and terms for all settlement services must be available for which of the following periods of time:
A. At least 5 business days.
B. At least 10 days.
C. At least 10 business days.
D. At least 15 business days.
The correct answer is C. Keep in mind this does not apply to the interest rate or charges and terms dependent on the interest rate, like per diem interest, or adjusted origination charges, or the charge or credit for the interest rate chosen.
In qualifying a borrower, a lender looks at all of the following, except:
A. Income
B. Debt
C. Character
D. Assets
Answer: C. The level of a person’s character may be inferred from the credit report, but is not otherwise observable in this context. Also assets, liabilities, and qualifying ratios are under examination.
*** According to the FCRA, which of the following is true regarding a credit reporting agency limiting access to a consumer’s credit file:
A. A credit reporting agency would be overstepping its bounds to limit access to a consumer’s credit file.
B. A credit reporting agency may not give out a consumer’s credit file to anyone without the verbal consent of the consumer.
C. A credit reporting agency may not give out a consumer’s credit file to a prospective employer without the written consent of the consumer.
D. The FCRA does not specify which parties are considered to have a valid need to request a consumer’s credit file.
The correct answer is C
The FCRA does specify which parties are considered to have a valid need to request a consumer’s credit file.
Which of the following is information unique to the Loan Estimate form:
A. APR.
B. LTV.
C. TIP.
D. MIP.
The correct answer is C. TIP is the total interest percentage, the total amount of interest the borrower will pay over the loan term as a percentage of the loan amount.
Which of the following is the best definition of an appraisal:
A. A written statement of the price of a property
B. An estimate of value
C. A statement of cost
D. An opinion of market value
The correct answer is D. While there would be nothing wrong with “B” as an answer, in this context, “D” is more applicable.
Which of the following is the best definition of a balloon payment:
A. A final lump sum payment of more than twice the regular payment.
B. A final lump sum payment of $5,000 or more.
C. A final lump sum payment of $10,000 or more.
D. A final lump sum payment of 10 times the smallest payment required during the term of the loan.
The correct answer is A. Many times the balloon payment that is required is much greater than this.
The Home Mortgage Disclosure Act of 1975 applies to which of the following institutions:
A. Institutional depository lenders with assets in excess of $39 million
B. For-profit non-depository lenders with assets in excess of $10 million
C. For-profit non-depository lenders who originate 100 or more loans per year
D. All of the above
The correct answer is D. Yes, this is correct
In which of the following situations could a borrower find him/herself surprised by payment shock:
A. Not calculating for the payment of taxes and insurance in their monthly payment
B. Going through periods of paying less than interest-only when payment options present themselves
C. Having payment caps that keep payments affordable but do not allow the borrower to keep up with interest increases to their loan
D. All of the above
Answer: D. Yes, any and all of these could cause PAYMENT SHOCK for a borrower when they finally have to pay the interest or other fees that have been accruing.
Section 9 of RESPA does essentially which of the following:
A. Prohibits discounts on settlement services
B. Prohibits a seller from requiring a buyer to use a particular title insurance company as a condition of the sale
C. Prohibits fee-splitting and receiving unearned fees
D. Prohibits giving or accepting a kickback
The correct answer is B. Most listing brokers, representing their sellers, will state, “Seller’s choice of services,” which refers to title insurance and escrow. Technically, however, this cannot be made a condition of the sale.
^^^According to the Code of Ethics of the National Association of Mortgage Brokers (NAMB), all of the following are true regarding confidentiality of customers’ information, except:
A. Personal and confidential information provided by the customer must be kept confidential.
B. Personal and confidential information provided by third parties carries a lower threshold of confidentially than that provided by the customer.
C. Personal and confidential information provided by the customer must be used only for the business purposes for which it was intended.
D. Personal and confidential information provided by the customer or other sources must be kept confidential and protected.
The correct answer is B. This is the correct answer because it is the untrue statement.
All of the following are true statements regarding VA loans,except:
A. VA loans are guaranteed by the federal government through the Veterans Benefits Administration, part of the Department of Veterans Affairs
B. VA-approved lenders submit loan applications to the VA for approval
C. The VA never makes loans directly to borrowers
D. VA-approved lenders may act as VA Automatic Endorsers
Answer: C. This is rarely done, but may be done in remote areas where financing is hard to find.
What does an ad that advertises a 3/27 ARM mean:
A. A lifetime cap of 3% that can adjust every 27 months
B. A 30-year loan at a fixed rate for 3 years, adjustable for the remaining 27 years
C. A 27-year loan fixed for the first 3 years
D. A loan with a starting rate of 3% with a period rate cap of 2.7%
Answer: B. This is correct. The first number tells us how many years the interest rate will be fixed. The second number tells us the number of years the rate will be adjustable. These numbers do not adjust how often the rate will adjust. This will be based on agreement, commonly every 6 months with this structure.
According to the new standards of TILA-RESPA, a complete loan application is defined as which of the following:
A. The initial six items of information that the MLO receives and nothing further.
B. The initial six items of information that the MLO receives plus the borrower’s credit report.
C. The initial six items of information that the MLO receives plus the credit report and income verification.
D. The initial six items of information that the MLO receives plus letters of referral for verification of credit and integrity.
The correct answer is A.
HOEPA covers principal dwellings with the following types of loans, except:
A. Purchase money loans.
B. USDA Section 502 loans.
C. HELOC.
D. Refinances.
The correct answer is B. The rest are covered, as well as junior mortgages.
With a loan that is above 80% LTV, which of the following are likely to be true except
A. Qualifying standards may be more stringent
B. The loan may carry a higher interest rate
C. The user is exempt from PMI
D. Loan origination fees may be higher
Answer: C This is correct.
All the others are correct
There may also be additional conditions and standards because the loan is viewed as less secure.
Professional conduct in the mortgage profession involves which of the following:
A. Reasonable care and skill when acting on behalf of the customer.
B. Never claim expertise where you have no special training or skills.
C. Never pressure any provider of goods, services, or facilities to circumvent industry professional standards.
D. All of the above.
The correct answer is D. Yes, all of these are important to professional conduct in the mortgage profession.
Under the Loan Estimate, the MLO may not obtain a credit/debit card number to pay for miscellaneous fees until which of the following occurs:
A. Required disclosures have been delivered to the borrower.
B. Borrowers acknowledge their intent to proceed with the mortgage loan.
C. Borrowers give their permission for the MLO to collect for the fees.
D. A & B.
The correct answer is D. Once the required disclosures have been delivered to the borrowers and they have indicated their intent to proceed with the loan, the MLO can collect for additional fees.
Subsidies for graduated payment buydowns can come from which of the following sources:
A. Extra money from a buyer’s upfront cash deposit in escrow.
B. A seller’s reduced proceeds from escrow.
C. A builder’s deposit of cash or reduced proceeds.
D. Any of these.
The correct answer is D. Yes, any of these can be the source of subsidies for prepaid interest.
Which of the following percentages represents FNMA’s ceiling for gross adjustments on comps:
A. 10%
B. 20%
C. 25%
D. 27.5%
Answer: C. This means you erase the plusses and minuses of each adjustment and add up the absolute value of the adjustments. So on a comparable property that sold for $100,000, gross adjustments should yield an adjusted value of no more than $125,000. Again, appraisers could exceed that, but would have to clearly support their procedures.
What kind of authority does the Consumer Financial Protection Bureau have:
A. None
B. Limited authority subject to the regulators of the Federal Reserve
C. Rule making and enforcement authority over many consumer financial laws
D. Unlimited power over all federally insured financial institutions
Answer: C. This is correct—a substantial amount of authority.
All of the following are true regarding the counselor who meets with a prospective borrower for a reverse mortgage, except:
A. The counselor explains the cost of the loan and the financial implications of obtaining it.
B. The counselor is paid only if the borrower goes through with the reverse mortgage.
C. At the end of the session, the counselor will provide a required certification of counseling.
D. The counselor will provide guidance and advice on selecting a lender for the reverse mortgage.
The correct answer is B. The counselor is unbiased and independent, and his/her compensation is not dependent on any decision the borrower makes.
Which of the following agencies enforce the National Do Not Call Registry:
A. FTC.
B. FCC.
C. State law enforcement officials.
D. All of the above.
The correct answer is D. Yes, all of these enforce the National Do Not Call Registry.
Under HOEPA, a lender may not call a loan before maturityexcept for which of the following reasons:
A. The borrower has jeopardized the value of the collateral by causing or allowing damage to the property
B. A pattern of late payments
C. Modifications to the property
D. Zoning change
Answer: A. Yes, this and reasons of fraud, material misrepresentation, or default would all be reasonable causes for default.
What is another name for a Wraparound Mortgage? A. ARM. B. AITD. C. Open-end. D. VBM.
The correct answer is B. An AITD is an All-Inclusive Trust Deed.
Which of the following would describe a traditional mortgage to buy a home:
A. It is considered a forward mortgage.
B. It embraces the falling debt, rising equity scenario.
C. After the final payment, home equity equals the value of the home.
D. All of the above.
The correct answer is D. Yes, all of these describe the traditional purchase money loan.
What is the maximum VA loan amount:
A. There is no maximum, but it cannot exceed the appraisal
B. $417,000
C. $585,000
D. $286,400
The correct answer is A. With no down payment, the maximum loan amount is four times the amount of the Veteran’s entitlement.
The comparison of APR to APOR is not made in which of the following types of loans:
A. A reverse mortgage transaction.
B. A HELOC.
C. Initial construction of a dwelling.
D. All of the above.
The correct answer is D. Also true for a bridge (swing) loan where the consumer plans to buy a new dwelling and sell the old one within a year. So these types of loans could not be classified as Higher Priced.
All of the following are true regarding a mortgagor applying for a HECM loan if they have a court-ordered judgment, except:
A. FHA requires the mortgagor to satisfy the judgment prior to closing on the loan.
B. The mortgagee may require the mortgagor to satisfy the judgment prior to closing on the loan.
C. FHA does not require the mortgagor to satisfy the judgment before closing on the loan.
D. Judgment liens must be removed or subordinated to the HECM loan.
The correct answer is A. Yes, surprisingly FHA does not require the mortgagor to satisfy the judgment lien prior to closing, but it must at least be subordinated so the HECM loan has priority.
The integrated Closing Disclosure breaks down fees paid by the borrower and seller according to which of the following:
A. At closing and after closing.
B. At closing and before closing.
C. Before closing and after closing.
D. Paid by personal check or certified funds.
The correct answer is B. Page 2 of the CD. For example, the borrower would pay the credit report fee right up front (before closing) and the seller might pay a home inspection fee to an engineering company before closing, but most fees are paid at closing.
According to the TILA final rule, which of the following best defines creditor in a transaction:
A. The lender
B. Any financial institution, whether or not they fund the loan
C. A financial institution that funds loans with their own capital or a bona-fide warehouse line of credit
D. The beneficiary
Answer: C. This is the most specific and best answer.
All of the following are true about interest rate buydowns, except:
A. A buydown is prepaid interest.
B. A buydown is the commission the MLO makes on the loan.
C. A buydown is only for a limited period of time.
D. A buydown could be for the full term of the loan.
The correct answer is B. The commission the MLO makes on the loan is part of the agreed upon fees made by the lender and broker, not discount points. A buydown for the full term of the loan (D) would be called a permanent buydown.
A lender would be interested in knowing the net worth of a borrower for all of the following reasons except:
A. To ensure that the payment of down payment and closing costs are not borrowed
B. To indicate that the borrower is in the top 50% of wage earners
C. To indicate that the borrower has adequate reserves to handle property-related emergencies
D. To show that the borrower has some ability to handle money
Answer: B. Yes, this is not a requirement.
All of the following laws are enforced by the CFPB, except:
A. Equal Credit Opportunity Act (ECOA).
B. National Do Not Call Registry.
C. Real Estate Settlement Procedures Act (RESPA).
D. Home Mortgage Disclosure Act (HMDA).
The correct answer is B. The National Do Not Call Registry is enforced by the Federal Trade Commission (FTC).
Which of the following could reduce the margin on a borrower’s ARM loan:
A. The lender is not interested in making a large profit
B. The lender is willing to look the other way on administrative expenses
C. The borrower has a better credit rating
D. The feds have reduced it based on the parameters of the loan
Answer: C. The lenders regard a borrower with better credit as less risk.
The flexibility of the HECM program is demonstrated in which of the following answer choices:
A. Modified tenure, which is a combination of line of credit with ongoing monthly payments subject to principal limit.
B. Modified term, which is a combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
C. The HECM program allows homeowners to restructure their payment options for a nominal fee if their circumstances change.
D. Any and all of the above.
The correct answer is D. Yes, all of these answer choices demonstrate the flexibility of the HECM program.
Where in the federal government does the Consumer Financial Protection Bureau exist:
A. As part of the FDIC
B. As an independent entity of the Federal Reserve
C. As a floating agency of the Dept of Housing and Urban Development (HUD)
D. As an agency of the Federal Trade Commission
Answer: B. This is correct.
Which of the following is true regarding a permanent construction loan:
A. There is no such thing as a permanent construction loan as this would mean the construction would be ongoing in perpetuity.
B. There is only one with one closing with no take-out loan.
C. The one loan that is used for construction at the beginning converts to a permanent first mortgage when the construction is finished.
D. Both B and C.
The correct answer is A. On the contrary, a construction loan is known as an interim loan (short term or temporary) and is replaced with a take-out loan.
Which of the following agencies enforce the National Do Not Call Registry:
A. FTC.
B. FCC.
C. State law enforcement officials.
D. All of the above.
The correct answer is D. Yes, all of these enforce the National Do Not Call Registry.
What is the difference between the cost to build a house new and its market value:
A. Plottage
B. Depreciation
C. Assemblage
D. Accession
Answer: B. This is correct.
The purpose of interest rate caps regarding ARMs is which of the following:
A. To eliminate large and frequent mortgage payment increases.
B. To prevent the loan from extending beyond the legal limit.
C. To hinder predatory lending.
D. The keep the loan under 8% over prime.
The correct answer is A. This is the basic idea, so borrowers can pay the loans and resolve the debt.
Under TILA, when creditors offer credit but before the transaction is consummated, which of the following is true:
A. Disclosures must be made clearly and conspicuously.
B. Disclosures must be made in writing.
C. Disclosures must be made in a form the consumer can keep and read prior to the loan closing.
D. All of the following.
The correct answer is D.
What is wrong with the buyer giving the seller a silent second?
A. The first lien holder thinks the new buyer has greater equity in the property
B. The second is not recorded
C. It is illegal to not record a lien against a property
D. Nothing, as long as the buyer intends to pay the second
The correct answer is A. This puts the seller at greater risk in case of default and the first lien holder is uninformed about it.
Under which of the following circumstances would the lender be able to demand early repayment of the loan Except
A. Default on payments.
B. Fraud in obtaining the loan.
C. Severe damages to the collateral property.
D. Forbearance
The correct answer is D. Under these circumstances, the lender is allowed to protect its position.
Which of the following would best define what a mortgage loan originator is:
A. An individual who, in expectation of compensation or gain, takes a mortgage loan application.
B. A company in the business of originating mortgage loans for compensation or gain.
C. An individual who, in expectation of compensation or gain, offers or negotiates terms of a residential mortgage loan.
D. A and C.
The correct answer is D.
After a complete loan application has been provided by the borrower, which of the following has the ultimate responsibility for correct and timely delivery of disclosures to the consumer:
A. The MLO.
B. The creditor.
C. The trustee.
D. The MLO and lender have equal responsibility.
The correct answer is B. Though the mortgage broker (MLO) often acts as an extension of the creditor, the law places the responsibility for correct and timely delivery of disclosures on the creditor.
Adjustable Rate Mortgage disclosures required to be signed at closing need to be provided to which of the following:
A. All borrowers on the loan.
B. All borrowers with the power to rescind.
C. Only to a borrower who expresses an interest in receiving a copy.
D. None of the borrowers are entitled to receive a copy of the ARM disclosure.
The correct answer is C. This is a statement of fact.
All of the following are generally true in a Conversion Option in an ARM, except:
A. The ARM often carries a higher interest rate.
B. There is a limited time to convert.
C. The conversion fee is expensive, usually several thousand dollars.
D. The initial rate and the converted rate are often higher.
The correct answer is C. The conversion fee is usually several hundred dollars, not several thousand.
The Home Valuation Code of Conduct (HVCC) applies to which of the following transactions:
A. All loans
B. All loans sold to Fannie or Freddie
C. All federally related loans
D. All purchase-money loans
The correct answer is B. This is correct.
According to the 2009 amendment to TILA, all of the following are true regarding the average prime offer rate, except:
A. An APR is derived from average interest rates, points, and other loan pricing terms currently offered to consumers.
B. They represent mortgage transactions that have low-risk pricing charactertistics.
C. The average prime offer rate for both fixed and adjustable rate loans is published in a table and updated at least weekly.
D. The average prime offer rate includes data used for a construction loan.
The correct answer is D. Yes, loans for the initial construction of a dwelling are not included in the average prime offer rate.
All of the following are true about finance charges in a loan transaction, except:
A. It is expressed as the cost of consumer credit as a dollar amount.
B. It is expressed as the cost of consumer credit as a rate.
C. It is as a condition of the extension of credit.
D. It is a charge paid directly or indirectly by the consumer.
The correct answer is B. A finance charge is expressed as a dollar amount, not a rate.
The Rate-Checker is which of the following:
A. Essentially a handbook of amortization tables showing monthly payments.
B. A booklet available from any lender or MLO showing the PITI monthly payment based on a specified interest rate.
C. A CFPB Owning a Home Tool that helps consumers explore interest rate options available to them.
D. A device which discriminates against borrowers who don’t have Internet access.
The correct answer is C. Again, the objective is to have more information to benefit the consumer in the decision-making process.
Which of the following could mitigate having a prepayment penalty on an ARM:
A. Lower origination fees
B. Lower interest rates
C. Lower upfront costs
D. Any of the above
Answer: D. This is correct. A borrower would have to analyze the prepayment penalty fees as they are offset by lower origination fees, interest rates, and other upfront costs. There could be a tradeoff, and the lender may be willing to reduce or eliminate a prepayment penalty based on the amount the borrower pays for these other costs.
Which of the following would be an indication of predatory lending:
A. Requiring the borrower to extract from savings enough cash to provide a 20% down payment
B. Pay a higher interest rate because of negative credit issues
C. Increasing interest rates for late payments
D. Refusing the borrower a negative amortization loan
Answer: C. This is a violation of the Home Ownership and Equity Protection Act (HOEPA). The other actions strengthen the loan and enhance the borrower’s chances of being successful in repayment of the loan.
Which of the following is true regarding an open-end mortgage:
A. It allows the borrower to request additional funds from the lender.
B. These loans are usually set up with a predefined limit.
C. The borrower can borrow money that has already been paid back.
D. All of the above.
The correct answer is D. Yes, all of these are true.
Loan origination fees on a reverse mortgage are best described as which of the following:
A. The standard charge is 1% of the loan amount.
B. The standard charge is 1% of the appraised value, since the loan balance may increase.
C. The charge varies with the value of the property, but is capped at $6,000.
D. The charge cannot exceed $4,000.
The correct answer is C. If the property appraises for less than $125,000, the origination fee is capped at $2,500. If the property is worth more than $125,000, the lender can charge 2% of the first $200,000 of the property’s value, plus 1% of the amount over $200,000, up to a cap of $6,000.
Using the same numbers as Question 45, which of the following is closest to the annual subsidy for the first year:
A. $3000
B. $4000
C. $5000
D. $6000
Answer: C. The subsidy is $417/mo x 12 = $5004.
Regarding the right to rescind under TILA, consumers may exercise the right to rescind under any of the following circumstances, except:
A. Until midnight of the third business day following loan consummation.
B. Until midnight of the third business day following delivery of the required rescission notice.
C. Until midnight of the third business day following delivery of all material disclosures.
D. Until midnight of the third business day following the final inspection of the property
The correct answer is D. Notice that choice A refers to the signing of the loan documents.
Which of the following can the lender do relative to hazard insurance:
A. Place hazard insurance on the property if the homeowner does not
B. Require buyers to pay 12 months worth of premiums prior to closing
C. Require homeowners to deposit money into an impound account for payment of hazard insurance
D. All of the above
Answer: D. This is correct.
The agencies that wrote “Guidance on Nontraditional Mortgage Product Risk,” include all of the following, except:
A. The Office of the Comptroller of the Currency (OCC).
B. The Department of Housing and Urban Development (HUD).
C. The Office of Thrift Supervision (OTS).
D. The National Credit Union Administration (NCUA).
The correct answer is B. Yes, the Dept. of HUD did not participate in preparing this document. The other participating agencies were The Board of Governors of the Federal Reserve System (Board), and The Federal Deposit Insurance Corporation (FDIC).
All of the following are true of the loan origination fee for a HECM loan, except:
A. The loan origination fee is paid as a fee for services rendered to the lender for making the loan.
B. The loan origination fee is based on the selling price of the home.
C. If the value of the home is less than $125,000, the HECM loan origination fee is capped at $2,500.
D. If the value of the home is more than $125,000, the lender can charge 2% of the first $200,000 of value plus 1% of the amount over $200,000 up to a cap of $6,000.
The correct answer is B.
You will pay an origination fee to compensate the lender for processing your HECM loan. A lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
^^^Which of the following is SRP:
A. Salvage recovery price
B. Separate record of purchase
C. Service release premium
D. Secondary recapture plan
Answer: C. This is paid to a creditor institution as a secondary transaction when a lender buys funded loans from another lender.
The Closing Disclosure is intended to be compared to which of the following:
A. The Initial Escrow Statement.
B. The Mortgage Servicing Disclosure Statement.
C. The Loan Estimate.
D. The Servicing Transfer Disclosure Statement.
The correct answer is C. The borrower compares the two forms. This will tell if the loan costs were provided in good faith.
The APR for an ARM that must be disclosed on the Loan Estimate and the Closing Disclosure must be based on which of the following:
A. The initial payment rate.
B. The lender’s margin.
C. The lender’s margin and the composite APR.
D. The APR is not required for an ARM because the interest rate is constantly changing.
The correct answer is C. The composite APR is based on the initial payment rate and the fully indexed rate that would exist for the remaining years on the loan term.
TILA defines an irregular transaction as any of the following, except:
A. One large advance equaling at least three (3) installment payments.
B. Multiple advances.
C. Irregular payment periods.
D. Irregular payment amounts.
The correct answer is A. This is not one of the characteristics of an irregular transaction.
After the death of a mortgagor, all of the following statements are true, except:
A. The mortgagee is not required to obtain approval from HUD to call the loan due and payable at the end of the deferral period.
B. The mortgagee may not require immediate payment in full until the end of the deferral period.
C. By the end of the deferral period, the mortgagor’s estate no longer has the authority to dispose of the property.
D. At the end of the deferral period, the HECM loan becomes due and payable, to include all principal, interest, and other charges owed to the lender.
The correct answer is C. The estate does have the authority to dispose of the property.
A local survey is ordered and the creditor discloses a charge of $400. The survey is waived by the borrower and never obtained. Since the charge falls into the category of 10% cumulative tolerance, how should this be handled?
A. Remove the $400 charge, but charge the borrower a $100 penalty for the change.
B. Remove the charge from the aggregate calculation prior to analyzing the amount for a 10% variance.
C. Follow the complex formula to deduct the 10% cumulative tolerance charge after all totals have been included.
D. Charge $40 for the 10% tolerance factor.
The correct answer is B. Extract the survey charge prior to analyzing the aggregate calculation.
All of the following statements are true regarding negative amortization and the HOEPA loan, except:
A. Negative amortization loans are prohibited with HOEPA loans.
B. Negative amortization is permitted to occur with HOEPA loans only if due to interest rate changes or payment schedule caps.
C. Negative amortization loans would cause an increase in the borrower’s total principal debt.
D. Negative amortization loans do not fully pay off the debt by the end of the term.
The correct answer is B. An experienced MLO will try to avoid negative amortization even under these circumstances.
Federal Banking Agencies include all of the following except:
A. Comptroller of the Currency
B. Director of the Office of Thrift Supervision
C. Department of Housing and Urban Development
D. Federal Deposit Insurance Corporation
The correct answer is C. Other Federal Banking Agencies include the Board of Governors of the Federal Reserve system and the National Credit Union Administration. The Department of Housing and Urban Development (HUD) is not a federal banking agency.
The credit under TILA must be offered under which of the following circumstances:
A. Subject to a prepayment penalty.
B. Subject to a finance charge.
C. Payable by written agreement in more than four (4) installments.
D. B & C.
The correct answer is D.
Which of the following are potential consequences of a borrower not having an impound account Except
A. The borrower will have to pay property costs directly.
B. The borrower may fall behind in property taxes and have to pay penalties and fines.
C. The lender may add any costs it has had to pay on behalf of the borrower to the loan amount.
D. The lender will increase rate on the loan
The correct answer is D. Lender cannot increase interest on a loan if a borrower do not have impound account. In addition, the lender may buy property insurance for the borrower and force the borrower to pay for it.
The amendment to Regulation Z that addresses compensation issues must be followed by which of the following:
A. Mortgage bankers
B. Mortgage brokers and their employees
C. Loan officers employed by insured depository institutions
D. All of the above
D
Regarding a loan, the term “principal” means closest to which of the following:
A. The amount due and payable in a balloon payment, excluding interest.
B. The amount due and payable in a balloon payment, including interest.
C. The amount originally borrowed.
D. The amount owed on the loan at any given time, excluding interest.
The correct answer is C. This is the best way to think of principal.
According to the TILA final rule, which of the following areprohibited:
A. Basing compensation on terms of previous transactions
B. Basing compensation on fees and income
C. Penalizing an MLO for GFE violations or misquotes of fees
D. All of the above
Answer: D. Yes, all of these are prohibited.
Which of the following disclosures is provided at settlement, or within 45 days of closing:
A. Servicing Transfer Statement.
B. Mortgage Servicing Disclosure Statement.
C. Initial Escrow Statement.
D. Closing Disclosure.
The correct answer is C.
HOEPA does not cover any of the following loans, except:
A. Reverse mortgages.
B. Loans on second homes.
C. Home Equity Loans.
D. A new construction loan.
The correct answer is C.
Compensation for an MLO can be based on any of the following, except:
A. The quality of an MLO’s loan files, sometimes known as a “pull-through” rate
B. Whether the customer is a new or existing customer
C. Whether the loan is for a primary residence or vacation home
D. Long-term loan performance
Answer: C. Yes, no distinction between primary residence or vacation home can be made to establish compensation.
A lender’s employment documentation requirements may include all of the following except:
A. Self-employed borrowers will have to provide personal and corporate tax returns for a minimum of two years
B. Original pay stubs for a 60-day period
C. Verification of Employment form
D. Appropriate W-2 forms
Answer: B. Thirty days, not 60.
All of the following would be loan disclosures required only in specific circumstances, except:
A. Charm Booklet.
B. Notice of Right to Rescind.
C. Mortgage Servicing Disclosure Statement.
D. Balloon Disclosure.
The correct answer is C. Yes, the Mortgage Servicing Disclosure Statement is a standard form issued within three (3) business days of receiving the loan application.
Used properly, the Rate-Checker can accomplish for a borrower which of the following:
A. Approve or deny their loan.
B. Give personal advice as to whether the loan the consumer is getting is good for them.
C. Shows the rates borrowers like them are being offered.
D. It incorporates information from the lenders’ external rate sheets.
The correct answer is C. The Rate-Checker provides useful information for the consumer to incorporate into the decision making process.
According to TILA, acceptable tolerances for the disclosure of finance charges are which of the following:
A. ½ of one percent tolerance if the loan is with a new creditor and there is no new advance.
B. One percent tolerance if refinancing with a new creditor and there is no new advance and no consolidation of existing loans.
C. ½ of one percent tolerance if the disclosed finance charge is understated by no more than 0.5% of the face amount of the note or $100, whichever is greater.
D. Both B and C.
The correct answer is D.
If applicable, and if the settlement service provider is other than the lender, which of the following disclosures is required before settlement but is not required within 3 business days after receipt of a completed application:
A. Mortgage Servicing Disclosure Statement.
B. Affiliated Business Arrangement (AfBA) Disclosure.
C. Initial Escrow Statement.
D. Servicing Transfer Statement.
The correct answer is B. In this case, the AfBA must be given at the time of the referral, or before if the borrower requests it.
Which of the following is true for the duration of compensation agreements:
A. They are in effect for the duration of the employment of the individual
B. They must remain in effect for 30 days
C. They must remain in effect for 90 days
D. They can be adjusted periodically and the time period is not specifically defined
Answer: D. Correct. Quarterly or semi-annually is the expectation.
NMLS
The NMLS online system was built and is maintained by which of the following organizations:
A. ABA
B. FFIEC
C. FINRA
D. CFPB
The correct answer is C. Yes, this is the Financial Industry Regulatory Authority and they operate several similar systems in the securities industry.
CFPB and AARMR stayed the NMLS but the system used to maintain is FINRA
Which of the following is responsible for ensuring that the content, delivery, and timing requirements of the Closing Disclosure set by the CFPB are met: A. Settlement agent. B. MLO. C. Mortgage broker. D. Creditor.
The correct answer is D. While all of these may cooperate in the closing of the loan, the law holds the creditor ultimately responsible for the content, delivery, and timing of the Closing Disclosure.
Which of the following would have to be disclosed to a borrower on a reverse mortgage:
A. All costs, including the cost of an annuity if purchased by the borrower.
B. Additional creditor compensation, if any.
C. Limitations on consumer liability, if applicable.
D. All of the above.
The correct answer is D. You can figure that all material facts will have to be disclosed.
When loans meet Fannie Mae/Freddie Mac standards and can be sold on the secondary market, they are called which of the following: A. Conforming. B. Conventional. C. Traditional. D. Subprime.
The correct answer is A. Conforming is the term that should jump out when considering meeting secondary market standards.
All of the following are true about interest rate buydowns, except:
A. A buydown refers to discount points.
B. Buydowns must be paid by the seller.
C. A discount point is one percent of the loan amount.
D. A buydown lowers the payment for the borrower.
The correct answer is B. A buydown can be paid by the buyer or seller, or even the builder or developer.
According to TILA, the final APR is considered accurate if it does not vary above or below the APR initially disclosed on the Loan Estimate by which of the following:
A. 1/8 of 1% for an irregular transaction.
B. ¼ of 1% for a regular transaction.
C. ½ of 1% for a regular transaction.
D. ¼ of 1% for an irregular transaction.
The correct answer is D. For information about an irregular transaction, move to the next question.
A consumer may waive or modify the three (3) day business day waiting period under which of the following circumstances:
A. The extension of credit is needed for a bona fide personal financial emergency.
B. The consumer has already received the Closing Disclosure.
C. The consumer specifically describes the financial emergency.
D. All of the above.
The correct answer is D. These circumstances and actions enable an early closing.
On the issue of financial accountability, the MLO must be covered by which of the following:
A. A net worth commensurate with the dollar amount of loans produced annually by the MLO.
B. A surety bond commensurate with the dollar amount of loans produced annually by the MLO.
C. A state recovery fund.
D. Any of the above.
The correct answer is D. A mortgage broker would be covered by the state recovery fund, which protects all real estate licensees. A mortgage banker would be covered either by net worth or a surety bond.
Creditors shall furnish TILA-required disclosures for reverse mortgages in which of the following manners:
A. Three days before closing.
B. Three business days before closing a closed-end credit transaction.
C. Three business days before closing the first transaction of an open-end credit plan.
D. Either B or C.
The correct answer is D.
What will happen with an ARM loan with a fully-indexed rate of 6% with a periodic adjustment cap of 2% if the index rate has risen 3% prior to the first 1-year adjustment:
A. The second year payment will be capped at 8%
B. The second year payment will be at 9% because a floating index rate supersedes a periodic adjustment cap the first year
C. The second year payment will be the same as without a periodic adjustment cap
D. The margin will adjust, causing the payment to rise
Answer: A. Yes, the 2% periodic adjustment cap allows the interest to rise to only 6%.
All of the following statements are true regarding Rural Development Section 502 loan programs, except:
A. A Section 502 loan may be guaranteed
B. A Section 502 loan is available to rural areas with a population of no more than 30,000
C. A Section 502 loan can be made directly to a borrower if no local lender is available
D. A Section 502 loan applies to single-family homes only
Answer: B. The definition of “rural” is generally up to 20,000 in population.
What happens if a revised Closing Disclosure is delivered to the borrower?
A. The borrower is given a new three (3) business day waiting period prior to loan consummation.
B. At this point in the process, costs are locked in and are not subject to change.
C. The loan still must close on the scheduled date.
D. The borrower and lender must honor the original closing disclosure that was provided.
The correct answer is A. Valid changed costs must be changed on the new form.
In applying for a HECM loan, if one of the borrowers does not meet the minimum age requirement of 62, which of the following can be done to obtain the loan anyway:
A. The younger borrower relinquishes title.
B. A non-borrowing spouse can disclose their status to the mortgagee at the origination of the loan.
C. The younger borrower gets a waiver from the CFPB.
D. A & B.
The correct answer is D. The non-borrowing spouse must have been the spouse of the HECM mortgagor at the time of closing and have remained the spouse of the mortgagor for the duration of the HECM mortgagor’s lifetime and continue to occupy the property. This way they will be able to continue to remain in the property after the death of the qualifying mortgager.
^^ Which of the following would be considered violations of HOEPA:
A. Leading a borrower to believe that he/she must complete the credit transaction even though they could rescind
B. Include three advance payments from the loan proceeds
C. Increasing interest rates on the consumer if he/she falls behind on payments
D. All of the above
Answer: D. Yes, all of these are prohibitions of HOEPA. Consumer protection is the obvious reason.
TILA does which of the following:
A. Sets limits on interest rates.
B. Sets limits on certain finance charges.
C. Regulates the disclosure of interest rates and finance charges.
D. Establishes a three (3) business day right of rescission on all purchase money loans.
The correct answer is C. The three (3) day right of rescission is for refinancing your home.
A Growth Equity Mortgage (GEM) uses which type of interest rate? A. Fixed. B. Adjustable. C. Interest only. D. Negative amortization.
The correct answer is A. The payment level increases regularly, but the interest rate is fixed
An Equity Participation Mortgage allows a lender to share in which of the following: A. Earnings. B. Income. C. Profits. D. Any and all of the above.
The correct answer is D. Yes, any of these can be arranged based on agreement.
All of the following are true regarding the issue of race and ethnicity for the Loan Application Register, except:
A. MLOs must ask the applicant for this information.
B. If the applicant declines to provide this information on the phone or Internet, the information need not be provided.
C. If the applicant is in the presence of the MLO and declines to answer these questions, the MLO must provide information as to the race and ethnicity as well as can be determined.
D. If the applicant declines to provide this information, their lack of cooperation could be held against them in the application for the loan.
The correct answer is D. It is their right to decline to provide this information and will not be held against them in the loan process
Which of the following best describes how a borrower with payment caps on an ARM loan could get in trouble:
A. They can’t. They are basically protected and able to stay within their budget
B. If their loan has payment caps but not period adjustment rate caps
C. Negative amortization
D. Both “B” and “C”
Answer: D. Correct. Let’s say a borrower’s monthly payment is $1000 P&I with a payment cap of 7.5%. Let’s say the index rate on their loan goes up 3%, raising the payment by $300. Because of their payment cap, the borrowers don’t have to pay $1300 per month. They have to pay only $1075 per month. But the rate is the rate, and the $225 per month they are not paying is being added to the balance of their loan. $225 x 12 months = $2700 additional loan balance after just one year. This is called negative amortization. After fives years of this, the loan balance would be $13,500 more than the initial balance. At that point, the lender will recast (recalculate) the loan payment so that the loan will fully amortize during the last 25 years of the term. The payment can go up substantially, and the payment cap does not apply to this adjustment. This is one way to experience PAYMENT SHOCK
According to the definitions in the model state law, all of the following would meet the definition of a depository institution, except: A. Bank. B. Savings & Loan. C. Mortgage Broker. D. Credit union.
The correct answer is C. Consumers do not make deposits with a mortgage broker.
^^^ABC Mortgage is originating a loan of $250,000 with an origination fee of 1%, a floor of $1,000, and caps that ensure the loan complies with all high cost tests. What is the origination fee paid to ABC Mortgage:
A. $1000
B. $2000
C. $2500
D. $3000
Answer: C. 1% of $250,000 is $2500.
Which of the following statements best identifies with a conventional loan:
A. A loan insured or guaranteed by a government entity.
B. A loan purchased by a government-sponsored enterprise.
C. A loan not insured or guaranteed by a government entity.
D. A loan that meets Fannie Mae/Freddie Mac standards and can be sold on the secondary market.
The correct answer is C. B and D would be similar, but the fact that the loan meets Fannie and Freddie standards and is acceptable for purchase makes it a conforming loan, not conventional.
The disclosure required within 3 business days of application that leads to advice for the borrower about whether a particular set of mortgage loan terms is a good fit based on the borrower’s objectives and circumstances is which of the following:
A. Mortgage Servicing Disclosure Statement.
B. List of HUD-Approved Housing Counselors.
C. Home Loan Tool Kit.
D. Loan Estimate.
The correct answer is B. This feature places another set of eyes on the process and ensures the loan is a good fit.
With a temporary buydown, underwriters will qualify a borrower using what rate of interest? A. The starting rate. B. The note rate. C. COFI. D. LIBOR.
The correct answer is B. Underwriters must be conservative and they are usually not willing to qualify the borrower at the starting rate for an interest rate reduction that may last only two or three years. They must use the note rate.
All of the following are prohibited practices in the residential loan business, except:
A. Receiving a loan application without having a valid MLO license.
B. While licensed, receiving a loan application that is not on a proper 1003 form.
C. Engage in any unfair or deceptive practice toward any person.
D. Advertising an interest rate that is not available at the time of solicitation.
The correct answer is B. If the information received from the borrower contains the initial six items of information (name of borrower, social security number, gross monthly income, loan amount sought, address of subject property, and estimate of property value) and is a request for a response to a solicitation of an offer, it is considered an application, whether on a 1003 form or not.
According to TILA, fees charged by a third party that conducts the loan closing (like an escrow, title company, or attorney) are considered finance charges under which of the following circumstances:
A. If the creditor requires the particular services.
B. If the creditor requires the closing agent to impose the charge.
C. If the creditor retains a portion of the third party charge.
D. All of the above.
The correct answer is D. These are circumstances unique to working with a mortgage broker.
Under HOEPA, a lender must verify a borrower’s income in any of the following ways except:
A. By compiling written income verifications
B. FICO scores
C. Debt to income ratios
D. Cash flow analysis
Answer: B. FICO scores will not verify income, cash flow, or ability to repay the loan.
Which of the following best describes the margin with an ARM loan Except
A. The difference between the fully indexed rate and the index
B. Extra percentage points of interest added by the lender to ensure coverage of expenses and earning of profits
C. A padding of profit margin authorized by the feds and fluctuating throughout the term of the loan
D. The profit margin that stays the same
Answer C - the rest are descriptive of margin
The buyer has a 3/27 loan. After three years, it changes every year and includes principal and interest. By the end of the term, the buyer pays off the loan amount. This loan is best described as which of the following:
A. Fixed.
B. Adjustable.
C. Graduated payment.
D. Balloon payment.
The correct answer is B. This loan is not fixed nor balloon. A graduated payment loan is by definition a graduated payment starting with year one. This is an adjustable loan.
All of the following statements regarding compensation agreements are true, except:
A. Each employer can have only one compensation agreement with the employee they pay
B. Each employee or entity that receives compensation can have only one compensation agreement with the party that pays them
C. An employer of retail loan officers could have different agreements with each of their employees
D. An MLO or employee could have different agreements with a lender depending on the type or terms of different loans
Answer: D. Yes, this is not true. The agreement applies to all types of loans on all types of residential property.
Under TILA, creditors must inform consumers of their right to rescind by providing how many copies of the Notice of Right to Rescind to each consumer entitled to rescind?
A. One.
B. Two.
C. One in triplicate.
D. One in quadruplicate.
The correct answer is B. The law requires two copies that are separate from the sale or credit documents at loan consummation.
According to RESPA, a direct or beneficial ownership interest exists when a person owns at least what percentage in a settlement service provider?
A. 1%
B. 5%
C. 10%
D. 25%
The correct answer is A. Yes, a 1% beneficial interest in a settlement service provider results in an affiliated business arrangement.
According to TILA, for ARMs, the payment summary table must include all of the following, except:
A. The maximum interest rate possible in the first five years of the loan.
B. The maximum payment possible in the first five years of the loan.
C. The minimum and easiest the payment can be in the first five years of the loan.
D. The worst case example showing the maximum payment and rate over the life of the loan.
The correct answer is C. This information would not prepare the borrower for the challenge they may face.
If the mortgagee, during the Financial Assessment of a prospective borrower seeking to purchase a home with a HECM loan, discovers a Chapter 7 Bankruptcy, all of the following are true, except:
A. If two years have elapsed since the discharge date of the bankruptcy, the borrower may be able to get the HECM loan.
B. With a Chapter 7 Bankruptcy, even after two years, the borrower definitely will not be considered for the loan.
C. If during the two years since the discharge of the bankruptcy the borrower has been able to establish good credit, he/she may get the loan.
D. If during the two years since the discharge of the bankruptcy the borrower has chosen not to incur new credit obligations, he/she may get the loan.
The correct answer is B. Based on these conditions in the other answer choices, the borrower may be able to get the loan.
To waive or modify the three (3) business day waiting period, the CFPB provides guidelines regarding the bona fide personal financial crisis to include which of the following:
A. An imminent foreclosure will proceed unless loan proceeds are made available.
B. Borrowers must request the waiver in a hand-written statement.
C. The handwritten statement must be signed by all primary obligors on the loan.
D. All of the above.
The correct answer is D.
Under all of the following circumstances a revised Loan Estimate may not be provided to a borrower, except:
A. If it cannot be received by the borrower four days prior to consummation of the loan.
B. When there will be no changes to the original Loan Estimate.
C. When the Closing Disclosure has already been provided to the borrower.
D. When valid changed circumstances exist.
The correct answer is D. Of this list of answers, this is the only under which a revised Loan Estimate may be provided.
Until the Loan Estimate disclosure and other required disclosures are delivered to the borrower, an MLO may charge the borrower which of the following fees:
A. Appraisal fee.
B. Termite inspection fee.
C. Credit report fee.
D. Survey fee.
The correct answer is C. This is the only fee that can be collected prior to delivery of required disclosures at this stage of the loan origination process.
How often may a state regulatory agency examine, review, or investigate an MLO under the SAFE Act?
A. Annually.
B. Bi-annually.
C. Not more than three times per year.
D. As often as necessary to carry out the purposes of the SAFE Act.
The correct answer is D.
Which of the following is disclosed on the integrated Closing Disclosure for the borrower that previous forms did not contain:
A. APR.
B. Nominal interest rate.
C. Whether or not changes had occurred between the initial Loan Estimate and the Closing Disclosure.
D. Total closing costs due at closing.
The correct answer is C. This is on page 3 of the CD, Calculating Cash to Close.
With an ARM, the period of time between rate changes is called which of the following:
A. The margin
B. The carryover
C. The adjustment period
D. The interim
Answer: C. This is correct.
Better loan terms in a Refinance Mortgage would include any of the following, except:
A. Change a 30-year loan to a 15-year loan.
B. Change a fixed-rate loan to an adjustable.
C. Lower the interest rate.
D. Consolidate multiple mortgages into one.
The correct answer is B. Better loan terms mean the opposite—changing from an adjustable rate to a fixed-rate loan.
Which one of these classes of people is protected under the Fair Housing Act but not under the Equal Credit Opportunity Act:
A. Race
B. Sex
C. Disability
D. Religion
The correct answer is C. This is correct.
According to the TILA final rule, how are seller paid closing costs classified:
A. As seller funds
B. As a credit to the seller
C. As borrower funds
D. As funds to be used at the discretion of the broker
Answer: C. This is correct.
In a loan transaction not subject to rescission provisions, which of the following must receive a Closing Disclosure Except
A. Any consumer with primary liability for the mortgage loan.
B. All consumers on the loan.
C. Each and every borrower on the loan.
D. The non-signing spouse
The correct answer is D. This is a statement of fact.
How can income that is seasonal, sporadic, or occasional help a borrower qualify for a loan:
A. It can’t
B. It must be verified
C. It must be averaged
D. It must be verified and averaged
Answer: D. Yes, if it is verified to occur and is averaged throughout the year, it is real.
All of the following are true regarding APR on an ARM, except:
A. The APR is an important part of comparing the costs of getting a loan
B. The APR on an ARM can be compared directly to the APR on a fixed-rate loan
C. The APR on an ARM can be compared directly to the APR of a similar ARM
D. The APR on an ARM must be based on the lender’s margin and the composite annual percentage rate
Answer: B. The composite annual percentage rate is based on the initial payment rate and the fully indexed rate that would exist for the remaining years on the loan term. This is why the APR on an ARM cannot be compared directly to the APR on a fixed-rate loan.
A borrower wishes to have a graduated 2/1 buydown. To help pay for the buydown, the borrower will deposit cash into an interest-bearing escrow account. If the loan is for $200,000 at 6% for 30 years, and the borrower wants 2% below the interest rate the first year, and 1.5% the second year, which of the following is closest to the total subsidy to pay for the buydown:
A. $3,000
B. $5,000
C. $7,000
D. $7,500
Answer: C. At 6%, the payment on a $200,000 loan for 30 years is $1,000. At 4%, the payment is $667. The subsidy is $333/mo x 12 = $3996. At 4.5%, the payment is $750. The subsidy is $250/mo x 12 = $3000. $3000 + $3996 = $6996, or $7,000. At the end of the second year, the effective interest rate for the loan reverts to the agreed upon 6%.
On an owner-occupied refinance, the three (3) day right of rescission must be signed by which of the following:
A. Just one borrower.
B. All borrowers must be in agreement.
C. Escrow.
D. The mortgage broker.
The correct answer is A. The exercise of the right by one consumer is effective for all consumers who have the right to rescind on that loan.
Which of the following represents a beneficial ownership interest in a business that provides settlement services:
A. A 1% ownership interest.
B. More than 1% ownership interest.
C. An affiliate relationship with or a direct or beneficial interest of more than 1% ownership interest.
D. 25% ownership interest.
The correct answer is C. This is the most complete and best answer.
How does RESPA regard an affiliated business relationship in the transaction of a residential mortgage loan?
A. Affiliated business relationships are illegal within the context of RESPA
B. Affiliated business relationships are discouraged within the context of RESPA
C. Affiliated business relationships are legitimate but must be disclosed
D. If the affiliated business relationship brings profit to the MLO in the transaction, they are forbidden to take advantage of them
The correct answer is C. This is true.
To obtain a reverse mortgage, if one of the owners is 64 and the other is 60, how must they proceed to obtain the loan?
A. They would have to wait two years.
B. The younger borrower would have to be removed from title.
C. They would have to seek a waiver from HUD.
D. They would have to consent to a higher interest rate.
The correct answer is B.
How are additional payments of principal with the monthly payment regarded on an ARM:
A. Most of the time they are regarded as a partial prepayment and incur a penalty
B. Most of the time the lender allows such payments of principal and they do not incur a prepayment penalty
C. It is based on the agreement between borrower and lender
D. Both “B” and “C”
Answer: D. Correct. A borrower should understand the lender’s terms on this before entering into the loan.
According to the TILA final rule, all of the following would be considered payments made directly by the consumer, except:
A. The consumer writes a check to cover some of their closing costs
B. Payments from loan proceeds
C. Yield spread premiums
D. None of the above
Answer: C. Yes, yield spread premiums are not considered direct payments from the consumer.
All the following are true regarding the note rate with buydowns, except:
A. On a permanent buydown, the note rate will be the actual reduced interest rate
B. On a temporary buydown, the qualifying rate will generally be start rate, not the note rate
C. On a temporary buydown, the qualifying rate will generally be the note rate, not the start rate
D. The note rate refers to the nominal rate, the rate stated in the note
Answer: B. This is the correct answer because the note rate more accurately reflects the rate the borrower will have to pay for most of the term.
Stable monthly income that helps a borrower qualify for the loan includes all of the following except:
A. Regular income from a primary job
B. Any tax-free income
C. Occasional bonuses that cannot be verified
D. Pensions
Answer: C. Bonuses must be consistent and verifiable.
All of the following are activities in the residential loan business that require a license, except:
A. Advising on loan terms.
B. Collecting information on behalf of the consumer pertaining to a residential mortgage loan.
C. Extending credit related to timeshare plans.
D. Preparing loan packages.
The correct answer is C. Extending credit on timeshare plans is not an activity requiring an MLO license.
If a consumer exercises his right to rescind the loan, all of the following statements are true, except:
A. The right exercised by one consumer is effective for all consumers on the loan.
B. The borrowers have no liability for the loan including finance charges.
C. The creditor must return all monies it collected related to the loan within 30 calendar days.
D. The mortgage is void.
The correct answer is C. The creditor must return all monies collected with 20 calendar days.
In a reverse mortgage, TILA requires which of the following regarding disclosure in the area of payments to the consumer Except
A. Any advance to the consumer must be disclosed.
B. Any costs of an annuity and annuity payments must be disclosed.
C. Regular payments to the consumer must be disclosed.
D. The amount of services that customer can choose on their own
The correct answer is D. According to TILA, all of this must be disclosed.
An open-end mortgage is often set up in which of the following ways: A. As a direct line from the ATM. B. As a home equity line of credit. C. As a reduction option mortgage. D. As a wraparound mortgage.
The correct answer is B. This way the interest rate is adjustable.
^^^According to Regulation Z, if an ad is for credit secured by a dwelling, no other rate but APR can be stated in the ad, except: A. The yield. B. APR plus 1/8 of 1%. C. The simple annual rate. D. The truncated rate.
The correct answer is C. This is known as the nominal rate, or interest rate. It is the rate that is multiplied against the balance of the loan to determine how much interest is due from this month’s payment.
The expiration period for the availability of charges and terms is located where on the Loan Estimate?
A. Page 2 of the Loan Estimate in the Loan Costs section.
B. Page 1 of the Loan Estimate in the Loan Terms section.
C. Page 3 of the Loan Estimate in the Other Considerations section.
D. Page 1 of the Loan Estimate in the Rate Lock section.
The correct answer is D. For good test preparation, it is recommended that the student get very familiar with the new forms—what’s on the forms, where different items are located, what the various provisions mean and what their purpose is. Look for what benefit there is to the consumer.
An initial index value plus a lifetime cap equals which of the following: A. Current index rate. B. Current index value. C. Fully indexed rate. D. Maximum index rate.
The correct answer is D. For example, if the initial index rate is 5.75% and the lifetime cap is 6.25%, the maximum interest rate is 12.00%.
All of the following statements are true regarding a blanket mortgage, except:
A. A blanket mortgage is often used to finance subdivision developments.
B. A blanket mortgage covers more than one parcel of land or lot.
C. A blanket mortgage usually includes a full release clause.
D. A blanket mortgage allows some of the lots of a subdivision to be released and no longer be encumbered.
The correct answer is C. It is a partial release clause, thus allowing some of the lots to be released as the note is paid down.
Which of the following best describes a graduated payment buydown plan:
A. A buydown plan that reduces the interest throughout the term of the loan.
B. A buydown plan where payments in the early years are subsidized by prepaid interest.
C. A buydown plan where payments start low but increase each year until they’re sufficient to amortize the loan.
D. A buydown plan where the interest rate is reduced for at least three years of the loan.
The correct answer is C. Hence the term graduated payment buydown plan.
The “deed scam” fraud scheme involves which of the following:
A. Reinstate the suspension without a hearing
B. Reinstate the suspension after a hearing
C. Simply revoke the license for lack of cooperation
D. Forgive and reinstate the licensee to full standing
The correct answer is A. Yes, correct according to B&P Code 10175.2.
Which of the following statements is true regarding FNMA’s use of the housing expense ratio:
A. Their standards are identical to FHA, 31%/43%
B. They put most emphasis on the front end ratio because that is the housing expense ratio in relation to value
C. They put most emphasis on the back end ratio because it considers all of the borrower’s recurring debt obligations and the benchmark is 36%
D. FNMA operates by its own standards and does not use housing expense ratios
Answer: C. This is correct.
DTI Ratios FNMA/FHLMC: 28/36% FHA: 31/43% VA: 41% back end only or residual income RHS: 29/41%
Financial institutions must submit their report to their supervisory agencies regarding loans and applications how often and when:
A. Bi-monthly starting in January of each year.
B. Bi-annually starting in January of each year.
C. Once a year every March.
D. At the end of every year in December
The correct answer is C.
Which of the following statements are true regarding federally mandated waiting periods prior to closing a loan:
A. They are federal mandates and there are no exceptions.
B. There are exceptions for holidays when spending money is needed.
C. There are exceptions such as a bona fide personal financial emergency, like imminent foreclosure.
D. Only state guidelines permit exception.
The correct answer is C. This is a statement of fact.
None of the following would be defined as receiving a loan application, except:
A. A mortgage broker receives a loan application but does not verify the information on the application.
B. A mortgage broker receives a loan application through the mail and forwards it without review to loan approval personnel.
C. An individual explains the contents of an application to a borrower and where information is to be provided on the application.
D. Responding to an inquiry about a prequalified offer that a prospective borrower has received from a lender.
The correct answer is A. When an individual takes a loan application, they are not responsible for verifying the information on it. And physically handling a completed application form is not taking an application.
Which of the following represents the front and back end ratios for Conventional loans:
A. 28%-32%
B. 28%-36%
C. 31%-43%
D. 32%-45%
Answer B
DTI Ratios FNMA/FHLMC: 28/36% FHA: 31/43% VA: 41% back end only or residual income RHS: 29/41%
^^^According to the Code of Ethics of the National Association of Mortgage Brokers (NAMB), all of the following are true regarding the disclosure of financial interests, except:
A. MLOs must avoid all conflict of interest between your self interest and your professional duty.
B. MLOs must avoid even an apparent conflict of interest.
C. Any financial interest an MLO has in a property being offered as collateral should be disclosed.
D. Any financial interest an MLO has in a property that was received as part of an inheritance in the family estate does not have to be disclosed.
The correct answer is D. Yes, this is the incorrect statement.
The Home Loan Toolkit replaces which of the following:
A. The Loan Estimate
B. HUD Special Information Booklet
C. The “Know Before You Owe” Booklet
D. The Mortgage Servicing Disclosure Statement
The correct answer is B. The HUD Special Information Booklet still contains good information, but the Home Loan Toolkit offers a new format for interactivity.
How do Home Equity Conversion Mortgages (HECMs) differ from standard reverse mortgages regarding basic features?
A. With a HECM loan, the minimum age is 60.
B. With a HECM loan, the property must be unencumbered.
C. With a HECM loan, there are no income or credit requirements.
D. Regarding basic features, HECMs and standard reverse mortgages are about the same.
The correct answer is D. HECM loans, of course, are insured by FHA for the protection of the approved lender.
If the amount paid by the consumer at closing exceeds the amounts disclosed on the Loan Estimate beyond the acceptable tolerance threshold, the creditor must refund the excess to the consumer within what time frame?
A. Within 30 days of closing.
B. Within 60 days of consummation.
C. Within 75 days of funding.
D. Within 45 days of closing.
The correct answer is B. This is a new CFPB rule.
According to TILA, all of the following charges would be excluded from the finance charge, except:
A. Appraisal fee.
B. Fees for inspections for assess the condition of the property.
C. Appraisal review fees.
D. Credit report fees.
The correct answer is C. An appraisal review fee is a legitimate finance charge that would be added to the APR
All of the following are true according to Reg. Z regarding revised disclosures, except:
A. Revised disclosures may not be delivered on the same day as the Closing Disclosure.
B. If a changed circumstance occurs prior to loan consummation, a creditor must provide a revised Loan Estimate within four (4) business days of loan consummation.
C. If a changed circumstance occurs too close to loan closing, the valid changed circumstance and it’s applicable revision may be noted on the Closing Disclosure.
D. Upon redisclosure of a corrected Loan Estimate, the borrower receives a new three (3) business day period to review the disclosures prior to consummation.
The correct answer is B. Under these circumstances, a creditor may not provide a revised Loan Estimate within four (4) business days of loan consummation. Closing would have to be extended.
Business and commercial use under TILA would include all of the following, except:
A. Owner-occupied single family residence.
B. Non-owner occupied single family residence.
C. Tenant-occupied fourplex.
D. When credit is extended to purchase or rehabilitate a non-owner occupied house.
The correct answer is A. TILA does not apply to business and commercial use, but would apply to the owner-occupied single family residence.
When a reverse mortgage becomes due and payable, all of the following are true statements, except:
A. The lender can sell the house right away.
B. The heirs of the last surviving mortgagor can deed the property to the lender in lieu of selling it.
C. The borrower or borrower’s heirs cannot owe more than fair market value of the property.
D. The lender has no claims on other assets owned by the mortgagor or heirs to the estate.
The correct answer is A. The lender is not the owner of the house, and cannot sell it. The lender usually waits for payment for 12 months if the loan is terminated by death of the mortgagor, and could foreclose if that becomes necessary.
A fundamental question that the underwriter must answer in the underwriting process is which of the following:
A. In the event of default, does the borrower have sufficient cash to reinstate the loan?
B. If this loan is approved, will hypothecation play an important part in the process?
C. In the event of default, will the property pledged as collateral be of sufficient value to assure recovery of the loan amount for the lender?
D. Will the note be secured by a mortgage contract or deed of trust?
Answer: C. This is what is significant to the lender. If the borrower defaults, does the lender lose, or are they able to recover the amount loaned?
The cost approach is used on all of the following types of properties, except:
A. Income Producing Property
B. Non-income producing properties
B. Special properties
C. Houses
Answer A
According to the TILA final rule, which of the following best describes compensation received by an MLO employed by a broker or an insured depository institution:
A. The paycheck the MLO receives for originating the loan
B. All origination fees
C. Contract processing fees as well as loan origination fees
D. All up-front fees, but not the yield spread premium
Answer: A. That’s it! The broker or institution will separate the MLO’s compensation from other fees paid out to non-affiliated third parties.
Which of the following approaches to value would be used to appraise a five-unit apartment building:
A. Capitalization
B. Unit-in-place method
C. Gross rent multiplier
D. Sales comparison approach
Answer: A. Capitalization is used for properties of five units or more. Four units and less require comparison, or the gross rent multiplier approach.
Which of the following is handled differently on the new Loan Estimate form from previous disclosure forms:
A. Charge for homeowner’s insurance.
B. Estimated cash to close shows earnest money deposit deducted.
C. Daily interest charges.
D. Cost of services borrower can shop for.
The correct answer is B. Once again, this is to clarify for the borrower the amount of cash due at closing. This helps a first time buyer understand exactly what they need to provide at closing.
If a lender is in violation of HOEPA, what recourse does a consumer have?
A. Sue for recovery for statutory and actual damages.
B. Sue for court costs and attorney fees.
C. Rescind the loan for up to three (3) years.
D. All of the above.
The correct answer is D. Yes, the consumer can do all of these if the lender violates their rights.
In claiming a bona fide personal financial emergency, the consumer must do which of the following:
A. Give the creditor a dated, written statement that describes the emergency, like imminent foreclosure.
B. Specifically modify or waive the waiting period.
C. Include the signatures of all consumers who are primarily liable for the mortgage.
D. All of the above.
The correct answer is D. Yes, these are the steps that must be taken.
An applicant on a 1003 must not conceal which of the following:
A. If they are obligated to pay alimony or child support
B. If they intend to occupy the property as their primary residence
C. If they have any outstanding judgments, bankruptcies, or foreclosures
D. All of the above
Answer: D. Yes, all of these must be freely disclosed on a loan application.
None of the following is considered an MLO, except:
A. A loan agent at Bank of America.
B. A loan processor or underwriter.
C. A real estate broker engaged exclusively in listing and selling homes.
D. An individual solely involved in extending credit for timeshare plans.
The correct answer is A. Yes, this person is an MLO working for Bank of America and is registered as an MLO but not licensed.
How many pages does the new integrated Closing Disclosure form contain? A. 2. B. 3. C. 4. D. 5.
The correct answer is D. Five pages.
All of the following are true about the rate adjustment period with ARMS, except:
A. They are regulated by statute to be every six months.
B. They could be every few months up to seven years.
C. One of the common rate adjustment periods is every year.
D. The rate could adjust every six months, but not necessarily.
The correct answer is A. ARMs could have more flexibility than this.
A borrower can use the yield spread premium from the loan in which of the following ways:
A. Closing costs.
B. Down payment.
C. Points.
D. Kickback.
The correct answer is A. Closing costs are a way the borrower can use the yield spread premium from the loan. The YSP can no longer be paid to the MLO as compensation as a secondary source of income in the transaction.
Which of the following laws are enforced by the CFPB:
A. Gramm-Leach Bliley Act.
B. Home Ownership and Equity Protection Act. (HOEPA)
C. Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).
D. All of the above.
The correct answer is D.
To obtain a reverse mortgage, all of the following are required, except:
A. That there be sufficient equity in the home.
B. That the home be paid off free and clear.
C. That the home have no secondary financing on it.
D. That the home have no financing requiring a balloon payment.
The correct answer is B. Yes, it is not required that the home be paid off free and clear.
All of the following statements are true regarding the deferral period of the due and payable clause of a HECM loan, except:
A. A HECM loan is not assumable during the deferral period.
B. Because the spouse was identified in the loan documents during the origination of the loan, the surviving, non-borrowing spouse will be able to receive loan proceeds during the deferral period.
C. The surviving, non-borrowing spouse will not be able to receive loan proceeds during the deferral period.
D. Escrowed monies from a Set-Aside fund are allowed to be disbursed per terms and conditions of the loan.
The correct answer is B. Yes, because the HECM is not assumable during the deferral period (after the death of the qualified mortgagor), no loan proceeds can be paid to the surviving, non-borrowing spouse.
When required, the CHARM Booklet must be provided at which of the following times:
A. When the loan application is made.
B. Before the payment of any non-refundable fees.
C. Whichever occurs first between A and B.
D. Within 10 business days of receiving a completed loan application.
The correct answer is C. This is a statement of fact.
Under TILA, what is the test that separates owner-occupancy from a business or commercial loan?
A. If the owner will occupy the house for more than three (3) business days.
B. If the owner will occupy the house for 51% of the year.
C. If the owner will occupy the house for more than 14 days.
D. If the owner will occupy the house for a minimum of a year.
The correct answer is C. This makes the house an owner-occupied property, and exemptions from TILA regulations are not applicable.
Effective with case numbers assigned on or after April 27, 2015, A Life Expectancy Set-Aside on a HECM loan can be reserved for which of the following charges:
A. Property taxes and special assessments.
B. Hazard insurance premiums.
C. Flood insurance premiums, if applicable.
D. All of the above.
The correct answer is D. This, of course, to ensure that these property charges are paid in a timely manner.
According to the FCRA, what is the time limit a credit reporting agency may report a criminal conviction?
A. Five (5) years.
B. Seven (7) years.
C. Ten (10) years.
D. There is no time limit for a criminal conviction.
The correct answer is D. While a bankruptcy is a serious event, a criminal conviction has more serious consequences than a bankruptcy.
A creditor may issue a revised Loan Estimate in which of the following circumstances:
A. When a borrower receives a Loan Estimate from an MLO and does not provide an intent to proceed, and the borrower re-engages in the transaction after the expiration date of the Loan Estimate.
B. When the transaction involves the financing of new construction and the creditor reasonably expects that settlement will occur more than 60 calendar days after the original Loan Estimate has been provided.
C. Any time a valid changed circumstance has occurred that has altered the material facts of the transaction.
D. All of the above.
The correct answer is D. All of these are legitimate reasons to issue a revised Loan Estimate.
Consumers are entitled to a free copy of their credit report under all of the following circumstances, except:
A. When the consumer was a victim of identity theft and a fraud alert was placed in their credit file.
B. When the credit file contains inaccurate information as a result of fraud.
C. When the consumer is on public assistance or is unemployed.
D. When the information in the credit file resulted in a Notice of Incomplete Application.
The correct answer is D. A Statement of Adverse Action would trigger a free copy of their credit report, but not a Notice of Incomplete Application.
Which of the following contributes to the definition of a residential mortgage loan originator:
A. The person is engaged in the business of residential mortgage loan origination.
B. The business is conducted in a commercial environment.
C. The business is conducted with some degree of habitualness and repetition.
D. All of the above.
The correct answer is D. Also, the MLO is engaged in the business with the intent of financial gain.
Which of the following best describes the fully-indexed rate:
A. The rate currently indicated by one of the traditional well-recognized indexes such as LIBOR, COFI, or CMT
B. The current rate indicated by one of the well-recognized indexes plus the margin
C. The current rate indicated by one of the well-recognized indexes minus the margin
D. The fully-indexed rate equals the initial index value
Answer: B. This is correct.
The SAFE Act refers to a residential mortgage loan as any loan primarily for the following purpose except:
A. Personal use
B. Family use
C. 1-4 owner-occupied use
D. Household use
The correct answer is C. The SAFE Act does not mention owner occupied properties. The SAFE Act defers to TILA, Sec 103 (v), which defines a dwelling as a residential structure or mobile home which contains one-to-four family housing units, or individual units of condominiums or cooperatives.
A reverse mortgage is also known as which of the following: A. Reverse equity mortgage. B. Reverse annuity mortgage. C. Home Equity Conversion Mortgage. D. All of the above.
The correct answer is D. The HECM is an FHA insured loan and is the most popular reverse mortgage program
Which of the following does not require an MLO license:
A. An individual who indirectly takes a mortgage loan application.
B. An individual who offers or negotiates terms of a loan.
C. An attorney who originates mortgage loans as part of his law practice.
D. None of the above.
The correct answer is D. Yes, even a licensed attorney in good standing with the Bar Association needs an MLO license if they are originating loans.
All of the following are true for an interest-only (I-O) ARM, except:
A. The payment can never increase during the I-O period
B. An interest-only ARM is still fully amortized
C. The longer the I-O period, the higher the monthly payments will be after the I-O period ends
D. Payments can increase after the I-O period, even if interest rates go down
Answer: A. The payments can increase because for some I-O ARMS, the interest rate adjusts during the I-O period as well.
RESPA allows a lender to establish an escrow account cushion of which of the following:
A. 1/3
B. 1/6
C. 1/4
D. 1/8
The correct answer is B. Yes, the allowed cushion is 1/6 of the total disbursements for the year. This usually amounts to two months worth of disbursements.
When is the typical reverse mortgage due and payable Except
A. When the borrower dies.
B. When the borrower sells the house.
C. When the borrower ceases to live in the house for 12 consecutive months.
D. When the borrower ceases to live in the house for 6 consecutive months.
The correct answer is D. Yes, these are typically the occasions when the borrower must repay the loan.
All of the following are true about the rate adjustment period with ARMS, except:
A. They are regulated by statute to be every six months.
B. They could be every few months up to seven years.
C. One of the common rate adjustment periods is every year.
D. The rate could adjust every six months, but not necessarily.
The correct answer is A. ARMs could have more flexibility than this.
Clerical or support duties in mortgage loan origination include all of the following, except:
A. Receiving information needed for the processing of a residential mortgage loan.
B. Distributing information needed for the processing of a residential mortgage loan.
C. Negotiating loan rates or terms with the consumer.
D. Analysis of information needed for the processing of a residential mortgage loan.
The correct answer is C. Clerical and support duties are performed under the supervision of a licensed individual, and do not involve negotiating with the consumer.
According to the model state law, the term person refers to which of the following: A. A natural person. B. A corporation. C. A partnership. D. Any of the above.
The correct answer is D. Person could also refer to company, limited liability company, or association.
According to the SAFE Act, Mortgage Call Reports must be submitted through the NMLS how frequently? A. Monthly. B. Quarterly. C. Bi-annually. D. Annually.
B
If an individual verifies the information in the file, sends out employment verification forms, and works with the title company, which function does this represent:
A. Processing
B. Origination
C. Underwriting
D. Servicing
Answer: A. Yes, this is processing, a very necessary function.
The new Loan Estimate form does not apply to which of the following, according to federal regulation:
A. Mobile homes.
B. Time shares.
C. Reverse mortgages.
D. All of the above.
The correct answer is D. The Loan Estimate also does not apply to loans made by a person or entity that makes five or fewer loans per year, and a loan made to a business entity rather than a natural person.
All of the following statements are true about a Graduated Payment Mortgage (GPM), except:
A. The GPM carries a scheduled period of negative amortization.
B. The borrower makes larger payments at the beginning of the loan, with payments decreasing yearly in the later years.
C. Over the term, the payments fully amortize the loan.
D. The borrower makes increasingly higher payments until they are sufficient to amortize the loan.
The correct answer is B. This is the incorrect statement. The others are true
According to ECOA, borrowers have the right to request a copy of the appraisal report used in the decision-making process within what time frame?
A. 30 days.
B. 60 days.
C. 90 days.
D. 120 days.
The correct answer is C. This is so the creditor cannot use the appraisal report as the reason for the decision to decline.
All of the following would meet a lender’s continuous employment requirements except:
A. The borrower has been employed by the AG Disposal Company for fifteen years
B. The borrower has been employed by U.C. Irvine as a professor for six months after recently obtaining his Ph.D
C. The borrower has been a parole officer for 18 months—previous employment with a supermarket chain
D. The borrower has been a sales manager with Burlington Coat Factory for one year—previous employment as sales manager for Sears for four years
Answer: C. This does not meet the requirement for continuous employment because the employment has been in different fields. “B” is acceptable because of special education and training.
Which of the following are the housing expense ratios used on a VA loan:
A. Front end 28%/Back end 36%
B. Front end 31%/Back end 43%
C. Front end 32%/Back end 41%
D. VA does not use a front end ratio/back end 41%
D
DTI Ratios FNMA/FHLMC: 28/36% FHA: 31/43% VA: 41% back end only or residual income RHS: 29/41%
The Federal Financial Institutions Examination Council (FFIEC) publishes information about red flags of mortgage fraud. All of the following would be considered a red flag of mortgage fraud except:
A. Stated income
B. Multiple owners with the same last name
C. Sale subject to seller acquiring title
D. Steering buyers to a specific lender
D
According to the TILA final rule, which of the following best describes the originator:
A. Must be an individual who originates the loan
B. Refers only to an institution that originates a loan
C. Could be either an individual or a company, depending on the circumstances
D. Not enough information given to answer
Answer: C. According to the TILA final rule, the originator is either an individual loan originator at a “creditor” institution, or an entity not acting as a creditor, such as a company that uses the lender funds to close a loan.
Which of the following best expresses the difference between a home eqityloan and a home equity line of credit:
A. They each tap the equity in one’s house.
B. The HELOC requires approval every time the borrower wants more money.
C. The home equity loan is usually a one-time loan for a specific amount of money.
D. The HELOC is a closed-end loan.
The correct answer is C. This is the only statement that addresses the difference between a home equity loan and HELOC.
NMP Guidance states that the mortgage loan underwriting standards should address the effect of a substantial payment increase on the borrower’s capacity to repay a nontraditional mortgage loan when amortization begins. In the case of an interest only loan, this means which of the following:
A. The amount of cash the borrower has in the bank at the time of underwriting.
B. The amount of cash the borrower has in the bank at the time of the beginning of amortization of the loan.
C. The borrower’s ability to pay the debt by final maturity at the fully indexed rate (if an ARM) or note rate (if fixed).
D. The borrower’s ability to delay amortization as long as possible.
The correct answer is C. The borrower will have to be able to start making fully amortized payments and continue to make those payments until the debt is liquidated.
The mortgage payment adjustment period occurs most often for which of the following situations:
A. Interest only loans with a hybrid adjustment period.
B. Negative amortization loans.
C. Standard ARMs.
D. Growth Equity Mortgages (GEMs).
The correct answer is B. Here, the borrower’s actual principal and interest payments are recast usually for negative amortization loans.
If a change renders the APR inaccurate prior to closing, the Mortgage Disclosure Improvement Act (MDIA, 2009) requires which of the following:
A. That the borrower be given a corrected disclosure of the monthly payments.
B. That the borrower be given a corrected disclosure of the APR only.
C. That the borrower be given a corrected disclosure of all terms.
D. That the borrower be given a corrected disclosure of the total finance charge.
The correct answer is C. This in the interest of consumer protection and having all of the material facts in hand.
If an individual maintains a loan after it has closed, receives payments, and provides an accounting of the loan, which function does this represent:
A. Processing
B. Origination
C. Underwriting
D. Servicing
Answer: D. Yes, this process is called servicing.
Which of the following time frames must be observed by the lender to correct non-numerical clerical errors and refunds for tolerance violations: A. Three (3) business days. B. Ten (10) business days. C. Thirty (30) days. D. Sixty (60) days.
The correct answer is D. This according to TILA.
The final version of “Guidance on Nontraditional Mortgage Product Risk,” includes comment and input from which of the following:
A. Financial institutions.
B. Trade associations.
C. Consumer and community organizations.
D. All of the above.
The correct answer is D. Yes, and state and financial regulatory organizations, as well as other members of the public.
At or within three business days of receipt of the application, the lender is required to provide to the consumer all of the following disclosures, except:
A. Home Loan Toolkit
B. Loan Estimate
C. Initial Escrow Statement
D. Mortgage Servicing Disclosure Statement
The correct answer is C. The initial escrow statement is provided at settlement, or within 45 days of closing.
All of the following are required in the mortgagee’s Financial Assessment of a borrower for a HECM loan, except:
A. The HECM Financial Assessment must be conducted by a Direct Endorsement underwriter registered in FHA Connection by the mortgagee.
B. The HECM Financial Assessment must be conducted with the TOTAL Scorecard.
C. The HECM Financial Assessment must be performed in a non-discriminatory way.
D. Information on income, expenses, assets, and liabilities must be included in the original case binder.
The correct answer is B. TOTAL stands for Technology Open to Approved Lenders and is not permitted in a Financial Assessment for HECM loans. It is designed for forward loans only.
In the “Guidance on Nontraditional Mortgage Product Risk,” the agencies that jointly wrote this document are concerned with which of the following issues:
A. Payment shock.
B. Competitive pressures.
C. Ceding underwriting standards to third-party originations.
D. All of the above.
The correct answer is D. Yes, the agencies are concerned with all of these issues obstructing the borrower from being able to retire the debt.
The Rate-Checker Owning a Home Tool is available where?
A. CFPB Website.
B. NMLS Resource Center.
C. HUD Website.
D. U.S. Government Printing Office.
The correct answer is A.
Comparing the following types of loans, with minimum payments being made, which of the following loans will result in the highest payments after seven years:
A. 30-year fixed
B. 5/1 ARM
C. 5/1 I-O ARM
D. Payment-option mortgage
Answer: D. Deferment of interest due will ultimately cost the borrower more. He or she will be paying interest on interest. Based on a $200,000 loan at 30 years and 6% interest, minimum payments on the payment-option loan will be $1708.22 in the 7th year, whereas payments in the 7th year of the 30-year fixed rate loan will be $1199.10, same as the first year.
Which of the following disclosures are Not provided some time after settlement:
A. Servicing Transfer Statement.
B. Annual Escrow Statement.
C. Mortgage Servicing Disclosure Statement.
D. Survey
Answer C
If a borrower’s payment is late, under which time-frame will the lender charge a late fee? A. 45 days late. B. More than 60 days late. C. 15 days late. D. More than 15 days late.
The correct answer is D. This is a statement of fact.
60 days late is for service transfer
Which of the following accurately describes the income requirement to qualify for a HECM loan:
A. The borrower must have a minimum of $25,000 in fixed income on an ongoing basis.
B. There is no income requirement for a reverse mortgage.
C. The borrower must have a minimum of $30,000 in fixed or variable income on an ongoing basis.
D. The income requirement is waived if the borrower has the ability to raise money in emergencies.
The correct answer is B. Although there is no hard and fast dollar amount required as income, the mortgagee will want to see that the borrower has enough income to pay ongoing property charges like property taxes, hazard insurance, and maintenance of the property.
Under the TILA final rule, compensation can be based differently in which of the following situations:
A. FHA loan vs. conventional
B. Purchase loan vs. refinance
C. Primary residence vs. second home
D. None of the above
Answer: D. Yes, none of these situations allow for compensation to be based differently. .
According to the SAFE Act and TILA, a residential mortgage loan could be secured in all of the following situations, except:
A. As a home equity loan.
B. As a subordinate lien on a dwelling.
C. As a timeshare in a residential development.
D. On a mobile home.
The correct answer is C. According to TILA and the SAFE Act, in addition to A, B, and D, a residential mortgage loan could be a home purchase or refi, a first trust deed, a loan secured by a dwelling that is a principal residence, second home, or vacation home, a one-to-four unit residence, cooperative, or manufactured home. In answer A, home equity loan is not to be confused with home equity line of credit.
Which of the following would generally be characteristic of easy-qualifier loans: A. Shorter terms. B. Fixed rate. C. Higher interest rates and fees. D. Adjustable rates.
The correct answer is C. The borrower pays one way or the other.
All of the following are true about the HOEPA notice (Section 32 disclosures), except:
A. The disclosures are intended to protect consumers from pressure tactics that imply the consumer is already locked into the agreement.
B. The disclosures alert the consumer to the fact that they can still cancel and it is their right to do so.
C. The disclosures are intended to protect consumers from pressure tactics that imply that canceling at this point would be prohibitively complex or expensive.
D. The notice must be in a conspicuous font size but may be a summary of the language required by HOEPA.
The correct answer is D. The notice must be in the exact language mandated by HOEPA.
All of the following would be considered offering or negotiating terms of a loan, except:
A. Communicating indirectly with a borrower for the purpose of reaching a mutual understanding of loan terms.
B. Presenting loan terms to a borrower if the offer is conditional.
C. If the individual lacks the authority to complete the loan process.
D. None of the above.
The correct answer is D. All of these are considered offering or negotiating terms of a loan, so the individual must be licensed.
The new Closing Disclosure combines which of the following:
A. The Good Faith Estimate and the HUD-1 Settlement Statement.
B. The Good Faith Estimate and the Federal Truth in Lending Statement.
C. The HUD-1 Settlement Statement and the Final Truth in Lending Statement.
D. The Loan Estimate and the HUD-1 Settlement Statement.
The correct answer is C.
All of the following are true regarding actuarial life expectancy and reverse mortgages, except:
A. The actuarial life expectancy of the consumer should be calculated as of his/her latest birthday.
B. Two years is the assumed loan period.
C. In the case of multiple borrowers, the actuarial life expectancy is based on the life of the oldest borrower.
D. The actuarial life expectancy is to be multiplied by a factor of 1.4 rounded to the nearest full year.
The correct answer is C. Actually, actuarial life expectancy is based on the life of the youngest borrower.
Impound account items include all of the following, except: A. Recurring ownership costs. B. Property taxes. C. Mortgage interest. D. Homeowner’s insurance.
The correct answer is C. Mortgage interest, of course, is paid with the P&I mortgage payment.
Borrowers and lenders often agree to a rate lock for a predetermined period of time for which of the following reasons Except
A. Because the 10-business day provision does not lock the interest rate.
B. Because the 10-business day provision does not apply to the charge or credit for the interest rate chosen.
C. Because the 10-day provision does not apply to the adjusted origination charges and per diem interest.
D. Because the 10-day provision does apply to the adjusted origination charges and per diem interest.
The correct answer is D. Which is untrue of the 10-day provision
The rate lock will stabilize all of these charges.
According to the TILA final rule, on a lender paid origination transaction, if costs exceed the highest estimate by $300, and the lending institution has agreed to pay the broker $2500, which of the following is the only possible remedy:
A. The broker could reduce his fee and accept $2200
B. The creditor could reduce its fee and pass the loss on to the broker
C. The creditor could reduce its fee but cannot reduce the broker fees to be paid
D. The borrower would have to kick in an extra $300
Answer: C. It is prohibited for a loan originator (brokerage) to reduce its fees on an LPO transaction because it changes the amount of compensation received based on a factor other than the loan amount.
From the standpoint of the TILA final rule, which of the following is not considered consumer’s funds:
A. Seller-paid closing costs
B. Yield spread premium
C. Cash back from the equity in the home
D. Money the consumer has in their possession before they come to closing
Answer: B. HUD, under 2010 RESPA, classifies YSP as consumer’s funds, but the Federal Reserve under the new Rule does not
If a settlement is scheduled tomorrow, but the Closing Disclosure was just received yesterday, how can the lender legally close at the scheduled time?
A. If settlement is necessary to meet a bona fide financial emergency.
B. If the lender applies for and receives a Certificate of Early Closing (CEC) from the CFPB.
C. If the borrower signs a notarized statement waiving the three (3) day waiting period.
D. There is no way to close legally without extending the closing date.
The correct answer is A. This is the one circumstance that will allow a modification of the three (3) business day waiting period.
If a surviving non-borrowing spouse fails to comply with the provisions of the deferral of the due and payable clause, which of the following will occur:
A. They will enjoy a 90 days grace period to meet the requirements.
B. The HECM loan will become immediately due and payable.
C. They will be able to rent the property from the lender for a period of one year.
D. They can receive a waiver from HUD and apply for a new HECM loan.
The correct answer is B. Yes, this is the procedure.
All of the following statements are true about a partially amortized loan, except:
A. The periodic payments do not fully amortize the loan by the end of the term.
B. The final payment is a balloon payment.
C. A partially amortized loan is a self-liquidating loan.
D. Interest is being paid throughout the term.
The correct answer is C. Yes, all of these statements are true, except for C.
Which of the following is the Total Finance Charge Trigger of HOEPA on a loan of $20,000 or more:
A. If the borrower pays total points and fees that exceed 3.5% of the total transaction amount.
B. If the borrower pays total points and fees that exceed 4% of the total transaction amount.
C. If the borrower pays total points and fees that exceed 5% of the total transaction amount.
D. If the borrower pays total points and fees that exceed 6% of the total transaction amount.
The correct answer is C.
A Variable Balance Mortgage (VBM) is of most interest to which kind of borrower?
A. A borrower who can afford to make higher payments.
B. A borrower on a fixed income.
C. A borrower who wants to take advantage of a variable interest rate, but is worried about payment increases.
D. A borrower who is not afraid of fluctuating interest rates.
The correct answer is C. Even when interest rates change, payments do not.
The purpose of the Home Mortgage Disclosure Act (HMDA) is which of the following:
A. To prohibit discriminatory practices of institutional lenders.
B. To establish a quota of mortgage loans in particular metropolitan statistical areas (MSAs).
C. To discover discriminatory practices.
D. To regulate the percentages of mortgage loans made in a lender’s geographic area of influence.
The correct answer is C. HMDA does not regulate, prohibit, or establish quotas.
All of the following are practices designed to reduce illegal flipping, except:
A. On FHA loans for resales ranging from 91-180 days, there must be a second appraisal that matches a resale threshold percentage set by HUD
B. Appraisers must investigate the transfer history of a property for the past three years
C. A Multiple Listing Associate must offer a second opinion on the value of the subject property
D. The seller must be the owner of record
The correct answer is C. Yes, this is not a required practice to reduce illegal flipping.
The basic idea behind the advertising requirements of Regulation Z is which of the following:
A. Attract borrowers by advertising the best and most appealing parts of the financing.
B. The advertiser must clearly tell the whole story of the financing.
C. The ad must state credit terms that are generally available to borrowers.
D. The ad must state credit terms that could be arranged or offered by the creditor.
The correct answer is B. Advantages and disadvantages. The balance of these answers don’t measure up to this standard.
Which of the following types of loans would probably have been offered in the past to a person desirous of buying a house but who had less than perfect credit. A. Blanket mortgage. B. Bridge mortgage. C. Easy qualifier loan. D. Home equity loan.
The correct answer is C. These loans may have involved stated income, could not be considered a conforming loan, and would probably be classified as a subprime loan. Some lenders may consider making such a loan, but it’s not as easy to obtain one today.
Which of the following is the Total Finance Charge Trigger of HOEPA on a loan less than $20,000:
A. If the borrower pays at least $1500 in points and fees.
B. If the borrower pays at least $2000 in points and fees.
C. If the borrower pays the lesser of $1000 or 8% of the total transaction in points and fees.
D. If the borrower pays at least 10% in points and fees.
The correct answer is C
Which of the following is disclosed on the integrated disclosure forms that was not disclosed on previous forms: A. APR. B. TIP. C. PMI. D. MIP.
The correct answer is B. TIP is the total amount of interest the borrower will pay over the term of the loan as a percentage of the loan amount.
To earn safe harbor, an MLO must go through which of the following interest rate and fee disclosure processes:
A. Option with lowest interest rate and fees charged by each lender
B. Option where the interest rate and fees yield the lowest cost to the borrower
C. Option with lowest interest rate and no risky features
D. All of the above
Answer: D. All of these options need to be explored and matched with the particular borrower’s needs. The best option for one borrower may not be the best option for another. Lifestyle differences, employment, income, all of these factors and others play into the final decision and preference.
HOEPA prohibits refinancing a high-cost loan within a one-year period of time except for which of the following reasons:
A. Fees the borrower will have to pay are reasonable
B. The refinance is clearly in the borrower’s best interest
C. The transaction represents a particularly good opportunity for the broker
D. The borrower’s total fees are under $10,000
Answer: B. Yes, this would be the only reason to justify such a transaction.
Which of the following is a false statement regarding buydown plans:
A. A buydown shows as a charge to the borrower on the Loan Estimate and Closing Disclosure.
B. Buydown plans can be temporary or permanent.
C. When discount points enter the equation, qualifying standards are more stringent for the borrower.
D. Discount points are considered prepaid interest to the lender.
The correct answer is C. The correct answer is C. On the contrary, the lender may qualify the borrower on the basis of the smaller monthly payment.
On a $100,000 loan and $6,000 paid to the lender as a permanent ½% interest rate buydown by the seller, which of the following best describe the working of the transaction:
A. The buyer receives only $94,000 to finance the home
B. The buyer signs a note for the full $100,000
C. The buyer transfers the loan proceeds of $94,000 to the seller without making up the difference
D. All of the above
Answer: D. In effect, the seller paid $6,000 to the lender so the lender would make the loan at a lower interest rate to the buyer. The lender comes out the same.
Which of the following is additional information provided on the new Loan Estimate form and not on prior disclosure forms:
A. Comparison of payments made and principal reduction in the first five years of the loan.
B. Points for a specific interest rate chosen.
C. Origination charge.
D. Transfer taxes.
The correct answer is A. Provides good information for a first time buyer or one with little experience.
Steering, according to the TILA final rule, means which of the following:
A. Directing a real estate buyer into a non-integrated neighborhood
B. Directing a tenant into a non-integrated apartment building
C. Directing a consumer into a loan transaction not in the best interest of the consumer
D. Influencing an owner to sell his/her property quickly because the constitution of the neighborhood is changing
Answer: C. Yes, with greater compensation for the MLO in mind, rather than the best interest of the borrower.
Which of the following is true regarding the APR Trigger of HOEPA for a second lien loan:
A. HOEPA is triggered when the APR exceeds the APOR by 6.5%.
B. HOEPA is triggered when the APR exceeds the APOR by 7.6%.
C. HOEPA is triggered when the APR exceeds the APOR BY 8.5%.
D. HOEPA is triggered when the APR exceeds the APOR by 10%.
The correct answer is C.
HOEPA A.P.O.R. 6.5% or above 50K/8.5% below/8.5% junior
HOEPA Points Fees: 5% or more $21,980 or more/8% or less and 1099
HPML (pre-payment penalty 3 years) 1.5 Conforming/2.5 Jumbo/3.5 Subordinate
If material changes to income or assets occur after a borrower has signed and submitted the loan application, does the borrower have any obligations to the lender:
A. No, not if the borrower has signed and dated the 1003
B. No, not if all borrowers have signed
C. Yes, they are required to update material information if there are any changes after signing and prior to closing
D. Yes, but only if the material changes exceed a 10% margin on the negative side
Answer: C. This should be common sense.
How could a negative amortization cap more than double a borrower’s monthly payment:
A. It can’t. This would be unfair to the borrower
B. If the negative amortization cap was attained and the loan was recast
C. If the lifetime interest rate cap had been reached
D. Both “B” and “C”
Answer: D. Let’s say an ARM starts out at $400,000, 6% fully indexed rate, 6% lifetime interest rate cap, 30 year term. Calculations will be done on an interest only basis for the sake of illustration. The index rises and the borrower quickly falls into negative amortization. The negative amortization cap is 25% of the original loan amount. After 5 years, the loan is recast. Instead of the initial payments of $2,000 based on a $400,000 loan at 6%, the loan is recast with a balance of $500,000 (25% more than the starting balance) at the lifetime cap (12%) for the remaining term of 25 years. The new payment is $5,000 per month, and the payment cap does not apply.
All of the following are valid changed circumstances according to RESPA, except:
A. A creditor provides an estimate of title insurance costs but the title insurer goes out of business during the underwriting.
B. A borrower requests a cash out loan at a higher loan-to-value ratio because of a higher than expected appraised value.
C. Receipt of any items of information that are part of the complete application after the Loan Estimate has been provided.
D. The borrower does not initially lock an interest rate but does so after the Loan Estimate is delivered.
The correct answer is C. This is just adding information that should have already been received and is not regarded as a legitimate changed circumstance.
If the MLO is preparing the Loan Estimate form but does not know the wholesale lender’s name, how must this be handled?
A. Leave the space on the form blank.
B. Mark the space N/A.
C. Mark the space to be determined.
D. The MLO must hold onto the form and apply for an extension of the 3 business day disclosure requirement.
The correct answer is A. This is the way federal regulations require this situation to be handled.
All of the following would be acceptable means for one to receive compensation for a referral for settlement services, except:
A. Legitimate fees or wages for services actually performed.
B. Bona fide compensation from the ownership interest.
C. Dividends, equity distributions, advances, business loans and capital or equity contributions.
D. A referral fee of not more than 10% of the cost of services rendered.
The correct answer is D. The compensation cannot be a fee for the referral itself, or an unearned fee.
Under TRID, the Closing Disclosure combines which of the following two forms:
A. The GFE and the HUD-1 Settlement Statement.
B. The Initial Truth in Lending Statement and Mortgage Servicing Disclosure Statement.
C. The Final Truth in Lending Statement and the HUD-1 Settlement Statement.
D. The GFE and the Initial Escrow Statement.
The correct answer is C. This is a statement of fact.
Initial TILA Disclosure + GFE = LE 30 days
Final TILA Disclosure + HUD-1 = CD 60 days
Which of the following are income requirements to qualify for a reverse mortgage:
A. There is a complex formula related to age, income, and equity.
B. A borrower on a reverse mortgage must receive income of at least $25,000 per year.
C. There are no minimum income requirements to qualify for a reverse mortgage.
D. It is not about the amount, but whatever income there is must be a fixed retirement income such as social security or pension.
The correct answer is C. However, lenders must do a Financial Assessment of borrowers to be sure they can afford to pay ongoing housing expenses like taxes, insurance, and maintenance.
Which of the following statements is true regarding the way adjustments are made in the sales comparison approach:
A. It is quickest and most accurate to simply adjust the subject property
B. If a comp is missing an amenity the subject property has, subtract the value of that amenity from the sales price of the comp since the property is missing that feature
C. If a comp has an amenity the subject property does not have, add the value of that amenity to the sales price of the comp since the property has that feature
D. If the subject property has a pool, and comp #1 does not have a pool, add the value of the pool to the sales price of comp #1
Answer: D. We’re really asking, what would comp #1 have sold for if it had a pool, just like the subject property has a pool. An appraiser never adjusts the subject property.
The integrated Closing Disclosure reveals which of the following regarding the borrower making partial payments Except
A. The lender may accept partial payments and apply them to the loan.
B. The lender may hold partial payments in a separate account and apply them to the loan when the borrower makes the rest of the payment.
C. The lender does not accept partial payments.
D. The lender requires partial payments to be paid in full after the 1st month
The correct answer is D which is not one the closing disclosure
This information is available on page 4 of the Closing Disclosure under Additional Information About This Loan.
All of the following are true about a purchase money mortgage, except:
A. It is called a soft money mortgage because the buyer receives credit instead of cash.
B. It is always a senior lien.
C. It secures money that is borrowed to purchase property.
D. It is sometimes called a seller-held mortgage.
The correct answer is B. It could be a senior lien depending on the priority desired.
According to the TILA final rule, which of the following is considered a broker in a transaction:
A. It has to be a true mortgage broker company
B. Any bank or credit union that does not fund a specific transaction
C. Any financial institution that does not fund a specific transaction
D. Any of the above
Answer: D. This is correct.
Page 5 of the Closing Disclosure, under Other Disclosures states that if the borrower borrows more than the property is worth, which of the following is true:
A. The interest on the loan amount above this property’s fair market value is still deductible on federal income taxes.
B. The interest on the loan amount above this property’s fair market value is not deductible on federal income taxes.
C. The excess loan amount can be recovered through a deficiency judgment by the lender in a trustee’s sale.
D. The borrower will have to pay the remaining debt after foreclosure.
The correct answer is B. This is true, page 5 of the Closing Disclosure.
In a timeshare transaction, when must the lender deliver the Closing Disclosure to the consumer?
A. Three (3) business days before closing.
B. Three (3) business days before consummation.
C. One day before consummation.
D. On the day of consummation.
The correct answer is D. This is correct for time shares.
According to the model state law, the term individual means which of the following: A. A person. B. A natural person. C. A company. D. A partnership.
The correct answer is B. Not to be confused with the term person.
Regulation C of HMDA requires lending institutions to submit a report to their supervisory agencies. This report is called which of the following:
A. SARs report.
B. LAR.
C. MAR.
D. PAR.
The correct answer is B. LAR stands for Loan/Application Register.
^^^The interest rate changes on a Variable Balance Mortgage (VBM). What does not change? A. Loan balance. B. Payment amount. C. Index. D. Tax implications.
The correct answer is B. When the interest rate changes on a VBM, the payment does not change. Rather, the balance of the loan changes.
RESPA allows a lender to require what percentage of annual disbursements in the escrow (impound) account for the purpose of paying taxes, insurance, and other charges?
A. 1/4
B. 1/6
C. 1/10
D. 1/12
The correct answer is D. Yes, 1/12 or one month’s worth of disbursements for taxes and insurance are required for the escrow (impound) account.
Which of the following is the Mortgage Reform and Anti-Predatory Lending Act:
A. Title XIV of Dodd-Frank
B. Title X of Dodd-Frank
C. HOEPA
D. HERA of 2008
Answer: A. This is correct.
According to the TILA final rule, what does BPO stand for:
A. Broker Price Opinion
B. Borrower Paid Origination
C. Bank Property Official
D. Balloon Payment Offer
Answer: B. This is one option for the MLO’s source of compensation.
Which of the following statements is false regarding the TILA final rule:
A. Fees paid to non-affiliated third parties are not regulated under this rule
B. Fees paid to non-affiliated third parties are not considered loan originator compensation
C. The TILA final rule regulates all MLO compensation and any fees that can raise the cost of a consumer obtaining a loan
D. Affiliated third party fees are considered part of loan originator compensation and are therefore regulated under this rule
Answer:C , this is the false statement. Fees that are not part of MLO compensation are not regulated in any way under this rule.
A revised Closing Disclosure must be issued within which of the following time frames:
A. At closing.
B. At consummation.
C. Three (3) business days prior to consummation.
D. In five days.
The correct answer is C.
Which of the following is not considered a qualification for the MLO license:
A. 20 hours of pre-licensing education.
B. Financial responsibility, character, and general fitness.
C. Not to be a felon.
D. Provide personal history and experience.
The correct answer is C. An applicant could have a felony on their record if it was prior to the seven-year period preceding the date of the application for licensing. However, if the felony involved fraud, money laundering, dishonesty, or breach of trust, this will disqualify the applicant regardless of timing.
All of the following are true regarding points, except:
A. A point is one percent of the loan amount.
B. A point is always a fee paid for services rendered.
C. A point may be charged for any reason.
D. A point is often a discount point to buy down the interest rate.
The correct answer is B. It can be a fee for services rendered, as in a commission to a broker. But often it is a discount point to buy down the interest rate. So you can’t say “always” with B.
Which of the following conditions qualify as principal residence for a non-permanent resident under the FHA program:
A. The borrower must move in within 60 days of closing
B. The borrower must remain in possession for a minimum of 12 months
C. The borrower must not have a late mortgage payment for the first 12 months
D. Both “A” and “B”
Answer: D. This is correct.
Which of the following is true regarding the APR Trigger of HOEPA:
A. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by more than 8% on a first lien loan.
B. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by more than 6.5% on first lien loans of $50,000 or higher and more than 8.5% on first lien loans of less than $50,000.
C. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by 10% or more on a second lien loan.
D. HOEPA is triggered when the APR exceeds the Average Prime Offer Rate (APOR) by 8.5% on a first lien loan.
The correct answer is B. The rates are more stringent since the TRID disclosures went into effect.
HOEPA A.P.O.R. 6.5% or above 50K/8.5% below/8.5% junior
HOEPA Points Fees: 5% or more $21,980 or more/8% or less and 1099
HPML (pre-payment penalty 3 years) 1.5 Conforming/2.5 Jumbo/3.5 Subordinate
Which of the following information must be provided on the Closing Disclosure:
A. Actual terms and costs of the transaction.
B. Estimates of transaction costs.
C. Estimates of the loan terms.
D. A projected range of costs at settlement.
The correct answer is A. Estimates are acceptable when an actual cost is not available, but creditors must act in good faith have actual terms and costs by consummation.
Which of the following percentages represents FNMA’s ceiling for net adjustments on comps:
A. 5%
B. 10%
C. 15%
D. 20%
Answer: C. This means you allow the plusses and minuses to cancel each other out. So on a comparable property that sold for $100,000, net adjustments should yield an adjusted value of no more than $115,000. Appraisers can exceed that, but would have to clearly support their procedures.
According to Regulation Z, all of the following would be a triggering term that would require additional disclosures in an ad, except:
A. 10% down payment.
B. No down payment.
C. 1% finance charge.
D. Pay only $1200 per month principal and interest.
The correct answer is B. Yes, this item would not trigger additional disclosures.
The integrated Closing Disclosure reveals all of the following about assuming the loan, except:
A. The lender will allow the assumption of this loan without qualification.
B. The lender will allow the assumption of this loan on the original terms.
C. The lender will not all the loan to be taken over subject to.
D. The lender will allow the assumption of the loan under certain conditions
The correct answer is C. Page 4 of the Closing Disclosure does not mention subject to, which leaves the original borrower in a position of liability regarding the loan.
At the beginning of the loan process, the MLO must provide certain disclosures to the borrower upon the happening of which event?
A. Submission by the borrower of a Letter of Intent to the MLO.
B. Payment of application fee by the borrower.
C. When a consumer provides information sufficient to complete the loan application.
D. Receipt of the appraisal.
The correct answer is C. Receipt of this information begins the flow of information to the borrower within three business days of application.
Which of the following practices describe “equity skimming”:
A. A rescuing buyer takes out a mortgage for the homeowner, but evicts after the homeowner fails to make a payment
B. A buyer refinances the home after the purchase and takes out all of the equity
C. A buyer assists the homeowner facing foreclosure by buying their home and selling it back to them at rates and terms guaranteed to result in default
D. All of the above
The correct answer is D. Yes, all of these are variations of the scheme known as “equity skimming.”
At what point in time is a bridge mortgage paid off?
A. When the bridge is completed.
B. When the second loan is taken out.
C. When the first loan is terminated.
D. In the transition between two properties.
The correct answer is B. A bridge loan (or swing loan as we call it in California) is taken out when a property owner is selling one property and buying another. The first property has not yet sold, but money is needed to move forward with the purchase of the second one. The bridge loan is an interim loan to fill that purpose, and when the financing has been obtained for the purchase of the second house, the bridge loan can be paid off.
Which of the following best describes how payment caps on an ARM loan work:
A. They prevent monthly payments from rising faster than the agreeable cap
B. They prevent the borrower from unknowingly getting deeper into debt
C. They prevent interest rates from increasing on the loan faster than the borrower can afford to pay on a monthly basis
D. They protect the borrower all around from financial disaster
Answer: A. Yes, this is all payment caps do. They prevent monthly payments from rising faster than the agreeable cap. But look at the next question to discover other effects of the payment cap.
Which of the following statements are true regarding the index for an ARM loan, except:
A. The rate of the loan is tied to a widely recognized and published index.
B. The index is a statistical report that is generally a reliable indicator of the approximate cost of money at a given time.
C. The loan interest rate will rise and fall with the rates reported by that index.
D. All of the above.
The correct answer is D. Yes, all of these statements are true regarding the index for an ARM loan.
All of the following are SAFE Act objectives except:
A. Improve the flow of information to and between regulatory agencies
B. Regulate loan transactions involving 1-4 units of residential owner-occupied properties
C. Provide a comprehensive licensing database
D. Facilitate the collection and disbursement of consumer complaints
The correct answer is B. The SAFE Act never mentions 1 - 4 units of residential owner-occupied properties. It does mention any residential mortgage loan that is primarily for personal, family, or household use.
The Loan Estimate is required for use on all mortgage loans originated after which of the following dates:
A. April 1, 2011.
B. January 1, 2014.
C. July 1, 2010.
D. October 3, 2015.
The correct answer is D. This is a statement of fact.
What is the front end ratio for VA loans:
A. 28%
B. 31%
C. 36%
D. VA does not use a front end ratio
Answer D DTI Ratios FNMA/FHLMC: 28/36% FHA: 31/43% VA: 41% back end only or residual income RHS: 29/41%
Settlement charges that are regulated by the 10% cumulative tolerance rule include which of the following:
A. Third party charges and recording fees.
B. Charges the borrower can shop for.
C. Any charge paid directly to the creditor.
D. Transfer taxes.
The correct answer is A.
All of the following are reasons a homeowner might not have an impound account, except: A. The homeowner declined it. B. The lender does not offer it. C. The state does not allow it. D. None of the above
The correct answer is C. An impound account helps pay home ownership costs on a gradual basis and is not illegal in any state..
Regarding access to information, which of the following does a state regulatory agency have the authority to examine:
A. All business activity and information, but not personal.
B. They can interview the MLO, but not third parties like customers or independent contractors.
C. They can expect that an MLO will not hide or keep secret any requested information.
D. If the purpose is to enforce the SAFE Act, they can request pretty much whatever they want.
The correct answer is D. The state regulatory agencies have the right to access any information that pertains to an MLO’s compliance with the SAFE Act. For the purposes of initial licensing, they can look into personal history and experience, including independent credit reports. They can request any information or evidence the Commissioner deems relevant to the investigation.
Which of the following best describes the “tenure” HECM payment option:
A. Equal monthly payments for a fixed number of months.
B. Equal monthly payments for as long as at least one borrower lives and continues to occupy the home as a primary residence, subject to the principal limit.
C. Equal monthly payments with a loan advance option.
D. Shared appreciation with the lender.
The correct answer is B. Yes, this is a good description of the “tenure” HECM payment option.
Under the TILA final rule, which of the following is an acceptable means of compensation for a loan originator:
A. Bonus for higher APR
B. Premium for lower LTV
C. Percentage of loan amount
D. Compensation based on interest rate of loan
Answer: C. Yes, this is acceptable.
All of the following are true about the disclosure of the APR according to TILA, except:
A. The MLO must disclose the APR on a business website.
B. The MLO must disclose the APR in print advertising.
C. The MLO does not have to disclose the APR when receiving a phone call just checking for an interest rate quote.
D. The MLO must disclose the APR for an ARM loan.
The correct answer is C. Yes, the MLO must disclose the APR even on an Adjustable Rate Mortgage.
Which of the following agencies reviewed and approved the model state law written by CSBS and AARMR: A. HUD B. USDA C. Dept of Veterans Affairs D. OTS
The correct answer is A. Yes, the Department of Housing and Urban Development reviewed the legislation for definitions, education and testing requirements, financial responsibility and criminal background standards for MLOs and found it met the minimum requirements for the SAFE Act.
All of the following are true about converting an ARM to a fixed-rate mortgage, except:
A. A borrower may have an agreement that allows conversion at stipulated times during the term of the loan
B. Up-front fees will generally be less for a convertible ARM because the lender wants the borrower to convert
C. When a borrower converts, the new rate is generally set using a formula given in the loan documents
D. A convertible ARM may require a fee at the time of conversion
Answer: B. Interest and upfront fees may be higher for a convertible ARM.
Which of the following are disclosures required by triggering terms:
A. Amount or percentage of down payment.
B. Terms of repayment.
C. Whether or not the interest rate may increase (ARM).
D. All of the above.
The correct answer is D. Yes, as well as the annual percentage rate (APR).
Generally, lenders are not concerned with installment loan debt under which of the following circumstances:
A. If the payoff is $5,000 or less
B. If the payment is less than 2% of the borrower’s gross income
C. If the debt is secured by an appreciating asset
D. If the debt has less than ten payments remaining
Answer: D. This is correct.
Installment debts are student loans, mortgages or other fixed monthly payments. If a borrower has less than ten months left, it doesn’t need to be included as debt
Which of the following best identifies loan-to-value ratio:
A. The amount of money borrowed on a first mortgage compared to the value of the property
B. The amount of money borrowed on a first mortgage compared to the value of the property determined by appraisal
C. The amount of money borrowed on all of the mortgages secured against the property compared to the value of the property
D. The amount of money borrowed on a first and second mortgage only compared to the value of the property
Answer: A. The amount of money borrowed on multiple mortgages compared to the value of the property is known as Combined-Loan-to-Value Ratio (CLTV).
Which of the following statements is true regarding the Truth in Lending Act:
A. It requires disclosure of the nominal interest rate on a loan.
B. It sets limits on interest rates and other finance charges set by lenders.
C. It applies to all real estate loans for business or commercial purposes.
D. It was enacted to prevent abuses in consumer credit cost disclosures.
The correct answer is D. The law applies to residential loans to consumers.
All of the following are true statements about the Community Reinvestment Act (CRA) except:
A. It requires a periodic evaluation of an insured depository institution’s lending record
B. It encourages financial institutions to help meet the credit needs of the communities in which they are located
C. It requires lending institutions to meet a quota of nontraditional loans in the area where they conduct business
D. Its purpose is to reduce discrimination in lending in low-income areas
The correct answer is C. No such quota is required
A Hybrid ARM is a mixture of fixed rate combined with adjustable rate in order to successfully retire the debt. What does a 5/1 ARM mean:
A. It has a lifetime cap of 5% and can adjust every year
B. It is a short term five-year loan that can adjust once a year
C. It is fixed for 5 years and can adjust every year
D. It is an interest only loan, due and payable in 5 years
Answer: C. Yes, this is what it means. The first number tells us how long the fixed rate will be in effect, and the second number tells us how often the rate will adjust after the initial fixed-rate period.
When provisions of TILA refer to a creditor extending credit to a consumer, what does that mean?
A. People, not a company.
B. Businesses, if not more than a sole proprietorship.
C. Sole proprietorships and partnerships.
D. Corporations that were formed by consumers.
The correct answer is A. This is the interpretation of consumer.
When a loan is issued, an MLO must check the borrower’s assets according to which of the following:
A. Whatever the buyer shows on the 1003.
B. All assets.
C. Tax returns only.
D. Separate Schedule C.
The correct answer is B. The MLO will also check the credit report and title to see if the borrower owns any other assets.
Effective on which of the following dates did the CFPB receive rulemaking and enforcement authority over many consumer financial laws:
A. April 2011.
B. August 2010.
C. July 2011.
D. January 2012.
The correct answer is C.
According to TILA, a three (3) business-day right of rescission is available for consumers for all of the following situations, except:
A. A purchase-money loan on a personal residence.
B. A refinance on a personal residence.
C. Home improvement loans.
D. Home equity loans.
The correct answer is A. No right of rescission is available for a purchase-money loan on a personal residence, or for construction loans, commercial loans, or loans on vacation homes or second homes.
According to ECOA, protected classifications include all of the following, except:
A. Sex.
B. Age.
C. Disability.
D. Race.
The correct answer is C. Yes, disability is a protected classification of the Fair Housing Act, but not ECOA.
Which of the following licensees would be protected by a state recovery fund:
A. An MLO with a real estate sales license.
B. An MLO working for a mortgage banker.
C. An MLO working for Wells Fargo Bank.
D. The owner-operator of a mortgage banking firm.
The correct answer is A. All individuals who get a real estate license in California pay into the recovery fund, and this fund protects them even when they enter the mortgage business.
Which of the following represents the maximum guarantee amount of a VA loan:
A. $100,000
B. $113,275
C. $417,000
D. The VA guarantee is 100% of whatever the loan amount is
Answer: B. This is correct.
The maximum GUARANTEE authorized by the VA is 25 percent of the loan amount up to $113,275.
The maximum VA home loan is $453,100.
Which of the following would be a tactic employed by a lender or mortgage broker in a mortgage fraud scheme:
A. Conceal the true nature of a borrower’s down payment
B. Use inappropriate comps in an appraisal
C. Get bogus deeds recorded on the public records
D. Falsify profit and loss statements
The correct answer is A. Yes, this would be the act of a lender or mortgage broker.
Using the same numbers as Question 45, which of the following is closest to the monthly subsidy for the second year:
A. $175
B. $225
C. $325
D. $375
Answer: C. At 4% interest, the payment is $667/mo I.O. The payment at 6% is $1000. $1000 - $667 = $333/mo. subsidy.
Which of the following approaches to value is most rooted in market activity:
A. Cost approach
B. Sales comparison approach
C. Capitalization
D. Income approach
Answer: B. This is correct.
Market activity if the residential property
When the servicing of a mortgage loan is changed, the Servicing Transfer Disclosure Statement must include which of the following information:
A. Contact information for the covered person.
B. Identity of the mortgage loan sold.
C. The date of transfer.
D. All of the above.
The correct answer is D. Also included in the disclosure is contact information for an agent authorized to resolve issues regarding the consumer’s payments on the loan.
Which of the following is true regarding a HECM loan:
A. It is a federally insured private loan.
B. It is a federally insured public loan.
C. It is safe for the lender, not necessarily the borrower.
D. HUD introduced the HECM loan in November, 1995.
The correct answer is A.
Which of the following best describes what consummation means:
A. Loan closing.
B. The date when the borrower becomes contractually obligated to the lender.
C. Settlement of the transaction.
D. Funding of the loan.
The correct answer is B. In California, this means signing the loan documents.
With an ARM, which of the following best describes what function the index serves:
A. It indicates the approximate cost of money in the marketplace at a given time
B. It dictates how much the loan interest rate must fall if interest rates fall
C. It indicates how much money the lender will make over and above the stated interest rate
D. It limits the number of percentage points an interest rate can increase during each adjustment period
Answer: A. This is correct, according to the various well-recognized indexes: (1) The 1-year constant-maturity Treasury (CMT), (2) The Cost of Funds Index (COFI), and the (3) London Interbank Offered Rate (LIBOR).
Which of the following best describes the terms of a 5/25 interest only/fixed loan:
A. The loan is fully amortized, but five times during the term, a one-year period of interest only payments are made.
B. The loan is fully amortized, but five times during the term, at the borrower’s choosing, he/she may pay interest only for a year to relieve payment shock.
C. The loan is interest only for the first five years, and then fully amortized at a fixed rate for the duration of the loan.
D. The loan is interest only for the first five years, and then partially amortized at a fixed rate for the duration of the term.
The correct answer is C. The idea behind this type of payment plan is to allow the borrower to gain traction by having a lower payment at the beginning, build some equity, and stabilize with a fixed, fully amortized payment for the duration. Sometimes it works as planned, and sometimes not. Also, this type of loan is not always available.
In MLO education, which of the following is eligible for reciprocity: A. Pre-licensing education. B. Continuing education. C. Optional education. D. A & B.
The correct answer is D. Yes, pre-licensing education credits approved by the NMLS for any one state will be accepted as credit towards completion of pre-licensing education requirements in any other state. And continuing education courses approved by the NMLS for any one state will be accepted towards completion of continuing education requirements in any other state.
The “fee-splitting” forbidden in Section 8 of RESPA refers to which of the following:
A. Brokers splitting fees
B. Brokers and associate licensees splitting fees pursuant to an employment agreement
C. Receiving a percentage of any charge for services not actually performed
D. Payment of bona-fide compensation to a party for goods actually furnished or services actually performed
The correct answer is C. The key is that services were not actually performed, the referring party is not entitled to any part of the fee. Authorities believe that if such a fee-splitting were allowed, fees would be padded and this would ultimately harm the consumer.
Which of the following is true regarding amortization with HOEPA loans:
A. Payments must at least partially amortize the loan
B. Negative amortization is permitted for a term of no longer than five years
C. Negative amortization is prohibited at the outset of the loan, but would be permissible if an interest or payment adjustment caused negative amortization later in the term
D. Interest only payments are permissible under HOEPA
Answer: D. Yes, the preference is that payments reduce principal, but at the very least, must cover the interest due.
Which of the following is the best statement regarding a straight term mortgage:
A. Payments are made to interest only.
B. No principal payments are being made.
C. The last payment is interest for the last period plus the entire principal amount.
D. It is the same as a partially amortized loan.
The correct answer is B.
straight loan (also known as an interest only loan or straight term mortgage) is a loan in which the borrower is only required to pay interest payments until the maturity date of the loan, when the entire principal balance is due.
According to Regulation Z, if an ad states “100% VA financing available,” which of the following is true:
A. It’s like saying “no down payment,” so it triggers other disclosures.
B. It’s like saying the amount of the down payment (zero), so it triggers other disclosures.
C. It triggers other disclosures.
D. It’s like saying “no down payment,” so it does not trigger other disclosures.
The correct answer is D. “No down payment” is a non-triggering term. This is the way to think of it.
Within the scope of an affiliated business relationship, which of the following could fulfill the definition of a person
A. An individual.
B. A corporation.
C. A trust.
D. All of the above
The correct answer is D. A person could also be referred to by a partnership or association.
When may a revised Loan Estimate not be issued?
A. After the receipt of a completed Loan Application.
B. If the lending entity makes ten (10) or fewer loans per year.
C. After the creditor provides the Closing Disclosure.
D. If the loan is a construction loan.
The correct answer is C. Once the Closing Disclosure has been provided, it is too late to go back and revise the Loan Estimate. Revise the Closing Disclosure.
If a state regulatory agency imposed a penalty for violation of the SAFE Act or any regulation imposed by the agency, which of the following is the limit of such penalty:
A. $10,000.
B. $25,000 in gross for all violations.
C. $25,000 for each and every violation or omission.
D. The agency cannot impose a penalty with due process in court.
The correct answer is C. Each violation or failure to comply with any directive or order of the state regulatory authority is regarded as a separate and distinct violation.
A level payment buydown means which of the following:
A. The interest rate reduction remains constant throughout the term of the loan
B. The interest rate reduction remains constant throughout the buydown period
C. The interest rate reduction is not variable for any period of time
D. The interest rate reduction is constant and is always paid by the buyer
Answer: B. This is correct.
The Truth in Lending Act requires certain disclosures for a reverse mortgage. All of the following would be included in those disclosures, except:
A. A good-faith projection of total annual loan cost rates.
B. A Loan Estimate.
C. An itemization of pertinent information.
D. An explanation of the table of total annual loan cost rates.
The correct answer is B. A Loan Estimate is not required for a reverse mortgage.
When would a seller be most likely to sell a property using a Wraparound Mortgage?
A. When he doesn’t want to refinance an existing low-interest loan.
B. When he wants to retain favorable low-interest financing on the property.
C. In a tight money market when new financing is difficult to obtain.
D. Any and all of these situations
The correct answer is D.
All of the following are true of Section 10 of RESPA, except:
A. Section 10 requires lenders to impose an escrow account on all loans with an LTV over 80%.
B. According to Section 10, a mortgage loan that includes mortgage insurance must have an escrow account.
C. A higher priced loan must have an escrow account for at least five years
D. Section 10 of RESPA deals with escrow accounts, which in California usually refers to impound accounts.
The correct answer is A. All of these other statements are true.
n which of the following ways can a borrower find himself in a negative amortization situation with an ARM loan:
A. A borrower could choose to pay less than interest-only on a payment-option ARM
B. A borrower could have payment caps that kept his payment low when interest rates increased, but added to the balance of the loan
C. When a lender recasts the payment for the remaining term of the loan
D. Any of these will land the borrower in negative amortization
Answer: D. Correct. Not keeping up with current interest demands will cause the unpaid interest to be added to the balance of the loan. This is negative amortization.
VA loans are available for which of the following parties:
A. Anyone who has ever taken the military oath for service
B. Any veteran of the U.S. armed forces
C. Any veteran of the U.S. armed forces, depending on their length of continuous service
D. Any veteran of the U.S. armed forces, except the National Guard or Coast Guard
Answer: C. This is correct.
According to the SAFE Act, which of the following would not have to hold an MLO designation to operate legally:
A. A loan originator who does not have to be licensed
B. A real estate broker performing brokerage activity
C. A contract mortgage processor
D. A person who takes a loan application and negotiates terms on a residential loan
The correct answer is B. A broker performing Real Estate Brokerage activity does not have to have an MLO designation.
The general rule is that a creditor must deliver a revised Loan Estimate to the consumer in which of the following time frames:
A. Immediately upon receiving information of a changed circumstance.
B. No later than three (3) business days after receiving information of a changed circumstance.
C. No later than four (4) business days after receiving information of a changed circumstance.
D. No later than five (5) business days after receiving information of a changed circumstance.
The correct answer is B. This ensures that the revised LE is transmitted in a timely manner.
Additional prohibitions on HOEPA loans include all of the following, except:
A. Lenders may not grant loans based solely on the collateral value of the borrower’s property without regard to the borrower’s ability to repay the loan.
B. Under no circumstances may a lender refinance a HOEPA loan into another HOEPA loan with the first 12 months of origination.
C. Lenders may not disburse proceeds from home improvement loans to anyone other than the borrower, or jointly to the borrower and home improvement contractor, or escrow agent.
D. Under no circumstances may a lender wrongfully document a closed-end, high cost loan as an open-end loan.
The correct answer is B. This can be done only if the loan is in the borrower’s best interest.
The mortgage payment adjustment period occurs most often for which of the following situations:
A. Interest only loans with a hybrid adjustment period.
B. Negative amortization loans.
C. Standard ARMs.
D. Growth Equity Mortgages (GEMs).
The correct answer is B. Here, the borrower’s actual principal and interest payments are recast usually for negative amortization loans.
Which of the following is known as an open-end loan: A. A purchase money loan. B. A home equity line of credit. C. A package mortgage. D. A balloon loan.
The correct answer is B. This means the balance of the loan can increase without rewriting the loan documents and the line of credit can be used as needs arise.
According to TILA, which of the following violations could trigger the extended right of rescission Except
A. The creditor fails to properly notify consumers of the right to rescind.
B. The creditor fails t accurately disclose the APR.
C. The creditor fails to accurately disclose the finance charge and amount financed.
D. The creditor fails to accurately disclose the finance charge and amount financed for a home purchase
The correct answer is D.
Home purchase doesn’t require rescission
Yes, any and all of these violations could trigger the extended right of rescission.
Redisclosure of the APR triggers an additional waiting period of which of the following: A. Three (3) days. B. Three (3) business days. C. Seven (7) days. D. Seven (7) business days.
The correct answer is B. This is a statement of fact, according to Reg. Z of TILA.
TRID is an acronym which stands for which of the following:
A. Technical Reversal of Insurance Directive.
B. Tolerance-Restricted Insurance Decision.
C. TILA-RESPA Integrated Disclosure.
D. Tentative Retroactive Identification Development.
The correct answer is C, of course. With these revisions, the process of originating a mortgage loan has significantly changed.
Charges on the Closing Disclosure that must match exactly the charges on the Loan Estimate include all of the following, except:
A. Any charge paid to the MLO for the origination of a mortgage loan.
B. Any charge paid to a non-affiliate for a settlement service that the borrower is not permitted to shop for.
C. Homeowner’s insurance.
D. Transfer taxes.
The correct answer is C. Homeowner’s insurance is a charge that can change by any amount. In this question we are identifying charges that cannot change.
For loans with a planned period of negative amortization, which of the following is the best way to handle that to protect borrowers:
A. Repayment analysis should be based on the initial loan amount minus any balance increase that may accrue from the negative amortization provision.
B. Repayment analysis should be based on the initial loan amount plus any balance increase that may accrue from the negative amortization provision.
C. Repayment analysis should be based on the initial loan amount minus any balance decrease that may occur from the negative amortization provision.
D. Repayment analysis should be based on the initial loan amount plus any balance decrease that may occur from the negative amortization provision.
The correct answer is B. This is the correct way to do it.
A residential mortgage loan under Dodd-Frank refers to all of the following, except:
A. A purchase money loan on a dwelling that is secured in first position.
B. A home equity line of credit on a dwelling.
C. A loan secured on a dwelling, but in second position.
D. A loan secured on a dwelling that is a second home.
The correct answer is B. Dodd-Frank includes closed-end loans, not open-end loans. A closed-end loan means the amount borrowed has to be paid back at a certain time. An open-end loan means a borrower can add on to the loan balance without rewriting the loan documents. A HELOC is an open-end loan.
With an ARM, if interest rates are stable and do not rise, can payments rise and why:
A. No, because rise in payments is tied to an increase in interest rates
B. Yes, because an interest rate cap may have held the borrower’s rate and payment below what it would have been if the change in the index rate had been fully applied
C. No, because this is prevented by the periodic adjustment cap
D. Yes, because of the floating margin
Answer: B. The rate on an ARM can go up at any scheduled adjustment date when the lender’s standard ARM rate (index plus margin) is higher than the rate they are paying before the adjustment. The increase in interest that was not imposed because of the rate cap may carry over to future rate adjustments.
Which of the following time frames applies to a Closing Disclosure that has become inaccurate and results in a change to the amount paid by the consumer: A. Three (3) business days. B. Ten (10) business days. C. Thirty (30) days. D. Forty-five (45) days.
The correct answer is C. Yes, the lender must provide the corrected Closing Disclosure within 30 days, along with any funds that might be owed to the consumer.
A loan described as 360/180 is most likely which of the following:
A. Balloon payment.
B. ARM.
C. Fully amortized.
D. Negative amortization.
The correct answer is A. This amortized 360 months (30 years) but due in 180 months (15 years), requiring a balloon payment.
According to federal regulations, the new Loan Estimate form does not apply to which of the following:
A. FHA loans.
B. HELOCs.
C. VA loans.
D. Conventional purchase money loans.
The correct answer is B. Home equity lines of credit are exempt from the Loan Estimate form.
According to the SAFE Act, a mortgage loan originator must have the MLO designation to perform all of the following duties except:
A. Take a residential mortgage loan application
B. Perform work related to extensions of credit for timeshare plans
C. Negotiate terms of a residential mortgage loan
D. Advise a consumer on rates, fees, and other costs
The correct answer is B.
MLO designation = Unique Identifier
An individual would not need the MLO designation to perform work related to extensions of credit for timeshare plans.
How is the monthly payment on an interest only loan determined?
A. It is based on interest paid in advance.
B. It is based on interest paid in arrears.
C. It is based on multiplying the interest rate by the loan amount and dividing by 12.
D. It is based on negative amortization, times 12.
The correct answer is C. Simple and correct.
Which of the following statements is true regarding balloon payments and the HOEPA loan:
A. Balloon payments are always prohibited with a HOEPA loan.
B. Balloon payments are allowed on HOEPA loans if the term is less than five years.
C. Balloon payments are allowed on HOEPA loans if it involves a bridge loan of less than a year to buy or build a home.
D. Interest-only HOEPA loans are prohibited.
The correct answer is C. So it cannot be said that balloon payments with a HOEPA loan is always prohibited.
According to RESPA, a person with ownership interest in a service provider can receive compensation when a referral is provided in all of the following ways except:
A. Legitimate fees for services actually rendered
B. Hourly wages for hours worked
C. Fees for referral of settlement services or an unearned fee
D. Bona fide compensation from the ownership interest for ordinary business purposes
The correct answer is C. Yes, compensation cannot be legally received by an affiliate or an associate if it is strictly for the receipt of the referral or for a service not performed or earned.
Which of the following statements is most true regarding a state’s use of the unique identifier number:
A. Regarded as equally reliable is the individual’s social security number, and the states may use these in lieu of the unique identifier number
B. The social security number is the preferred identifying number and the states are encouraged to use it
C. States must use the unique identifier number in lieu of social security numbers to the greatest extent possible
D. States may use either the social security number or the unique identifier number as assigned by NMLS, whichever in the states’ estimation best accomplishes the purpose of the SAFE Act
The correct answer is C. This is the mandate of the SAFE Act.
Under the Integrated Disclosures, When providing the initial Loan Estimate, which of the following is an acceptable definition of business day:
A. Any day the creditor’s offices are open to the public to transact substantially all of the creditor’s business.
B. All calendar days except Sundays and legal public holidays as defined by Reg. Z.
C. Same as calendar days.
D. Any day except Sunday.
Answer A
When providing the initial Loan Estimate, definition A applies. When providing a revised Loan Estimate due to changed circumstances, definition B applies.
^^ Borrower analysis could include any of the following, except:
A. Income
B. Credit
C. Title report
D. Total debt to income ratio
Answer: C. This is about the property, not the borrower.
Which of the following would describe a reverse mortgage taken out by a senior homeowner:
A. The balance of the loan rises as interest incurs to the outstanding loan balance.
B. The homeowner makes no payments.
C. When the loan becomes due, the loan balance could be more than the home is worth.
D. All of the above.
The correct answer is D. Yes, all of these apply to a reverse mortgage.
If a seller requires a particular title insurance company in violation of Section 9 of RESPA, what is the buyer’s best remedy?
A. Rescind the contract
B. File a formal complaint with the BRE
C. Sue for damages, up to three times the charges made for title insurance
D. Sue the listing broker for breach of contract
The correct answer is C. Yes, to sue for damages, up to three times the charges made for title insurance is the answer according to Section 9 of RESPA. Yeah
All of the following types of homes are generally eligible for standard reverse mortgages, except: A. Single family detached homes. B. Condos. C. PUDs. D. Multi-family residential units.
The correct answer is D. Yes, multi-family residential units are not eligible for a reverse mortgage. Yeah
With a hybrid ARM of 2/28, how should a borrower analyze the expense to refinance with regard to a prepayment penalty:
A. The borrower would have to consider the length of time the prepayment penalty was in effect
B. The borrower would have to consider when the loan would adjust
C. The borrower would have to consider the amount of the prepayment penalty
D. All of the above
Answer: D. Correct. If the loan has a rate and payment adjustment after the 2nd year, but the prepayment penalty is in effect for 5 years, it may be too costly to refinance when the first adjustment is made.
To provide disclosures in a timely manner, the lender must put a revised Loan Estimate in the mail in which of the following time frames:
A. Three (3) business days before consummation.
B. Four (4) business days before consummation.
C. Five (5) business days before consummation.
D. Seven (7) business days before consummation.
The correct answer is D. The lender must allow 3 business days for delivery, and the revised Loan Estimate must be received 4 business days prior to the consummation of the loan.
Updated regulations to the HECM Reverse Mortgage Program deal with maximum disbursements at loan closing to include which of the following:
A. 60% of the principal limit.
B. The sum of the mandatory obligations, including closing costs, mortgage insurance, taxes, and hazard insurance, plus 10% of the principal limit to the borrower.
C. The borrower can receive a lump sum of 100% of the principal limit at closing.
D. A and B.
The correct answer is D. Either of these options are available to the borrower.
Which of the following is true regarding the extended right to rescind Except
A. It expires three years after the occurrence giving rise to the right to rescind.
B. It expires upon transfer of all of the consumer’s interest in the property.
C. It expires upon the sale of the property.
D. It does not expire
The correct answer is D. Yes, all of the above, and whichever occurs first.
ARMs provide for regularly scheduled, periodic re-amortization of the loan under which of the following conditions:
A. Instead of rate caps.
B. In addition to negative amortization caps.
C. Instead of or in addition to rate caps and payment caps.
D. Any of the above.
The correct answer is D. Yes, regularly scheduled periodic re-amortization of the loan can be instead of, or in addition to, any negative amortization caps, payment caps, or rate caps.
The three (3) business day waiting period applies to a corrected Closing Disclosure dealing with which of the following changes:
A. Changes to the APR.
B. Changes to the loan product itself.
C. The addition of a prepayment penalty.
D. All of the above
Answer is D
Which of the following best expresses the front end ratio:
A. Section VI declarations on the 1003
B. Total monthly housing expense divided by gross monthly income
C. Total monthly housing expense and total monthly debt obligations divided by gross monthly income
D. Total short and long-term monthly debt obligations divided by gross monthly income
Answer: B. Yes, front end ratio is the housing expense divided by gross monthly income.
All of the following are true regarding a construction mortgage, except:
A. The construction mortgage is an interim loan.
B. The construction mortgage is referred to as a take-out loan.
C. The construction mortgage involves obligatory advances.
D. The construction mortgage usually involves extended rate locks.
The correct answer is B. The take-out loan replaces the construction loan, and is the long-term financing, often 30 years.
Which of the following best describes how a seller-paid buydown works:
A. The seller pays the upfront discount points out-of-pocket for the buyer
B. The buyer signs the note for the smaller amount reflecting the buydown
C. The buyer signs the note for the full amount but the seller agrees to receive less
D. A seller-paid buydown is always a permanent buydown
Answer: C. Yes, the seller does not pay the discount points out-of-pocket, but just receives less, enabling the lender to receive the same as if the rate was not discounted.
In a reverse mortgage, under which of the following circumstances is not a reason the lender require immediate payment
A. A government entity claims eminent domain over the property.
B. The homeowner fails to pay the property taxes on the home.
C. The homeowner fails to keep the property insured with hazard insurance.
D. When the owner dies.
The correct answer is D. Yes, any of these situations would allow the lender to demand immediate payment.
Which of the following is considered a valid changed circumstance:
A. The borrower does not initially lock an interest rate but does so after the Loan Estimate is initially delivered.
B. Market price fluctuations by themselves.
C. Any basic information for the loan application that is provided after the initial Loa Estimate is provided.
D. Any information contained in a credit report obtained by the MLO prior to issuing the Loan Estimate.
The correct answer is A. Under CFPB guidelines, the lender has three (3) business days to issue a new Loan Estimate under these circumstances.
If a revised Loan Estimate is mailed or delivered electronically, it is deemed to have been received by the consumer in which of the following time frames:
A. Within three (3) business days.
B. Within four (4) business days.
C. Within five (5) business days.
D. Immediately.
The correct answer is A. But if the creditor can prove that the consumer received the disclosures sent electronically or by mail earlier then three business days, then the disclosures are deemed to be received on that date.
How will a buydown show on the Loan Estimate? A. As a charge to the borrower. B. As a credit to the borrower. C. As a charge to the seller. D. As a credit to the seller.
The correct answer is A. This is true if the borrower pays the discount points to buy the loan down.
Which of the following best describes the practice known as “extreme lending”:
A. Excessive prepayment penalties that discourage a borrower from paying off a loan
B. Junk fees greater than 4.5% of the loan amount
C. Targeting borrowers with extremely high debt ratios
D. Frequent refinancing
The correct answer is C. This puts the borrower at greater risk and almost ensures that they will not be able to repay their new mortgage loan.
Which of the following is the true statement about a Reduction Option Mortgage:
A. There is no fee for the interest rate reduction.
B. It is a Fannie Mae approved program with an option to reduce the interest rate one time between the 13th and 59th month of the 30-year loan.
C. Market interest rates must decline at least 2% before the borrower can reduce the rate.
D. The appraisal fee is only $100.
The correct answer is C. Yes, this is the true statement. Regarding B, the program is Freddie Mac approved, not Fannie Mae.
Regarding the protection option of a minimum net worth, which of the following is true:
A. The minimum net worth must be reflected in the MLO’s personal financial statement.
B. The minimum net worth could be the net worth of a person employing the MLO and who is subject to the SAFE Act.
C. This requirement could be satisfied by the value of the employing company.
D. None of the above.
The correct answer is B. This gives an individual just getting started an opportunity to start earning and build his/her net worth.
When an appraiser has determined adjusted values of three comparables, what is the next step:
A. Average the adjusted values to determine the value of the subject property
B. Determine the coefficient of the threshold
C. Calculate the median of the range
D. Reconcile the three adjusted values
Answer: D. This means to harmonize the analysis and give most weight to the comp that is most similar to the subject property. Adjusted values are never averaged.
Which of the following would most likely have an open-end mortgage: A. Builders and farmers. B. Congressmen. C. Gamblers. D. Teachers.
The correct answer is A. These entrepreneurs need a steady cash flow to fund their ongoing business needs. And ok, maybe gamblers, but A is much more likely to get you a point.
When was the Dodd-Frank Wall Street Reform and Consumer Protection Act passed:
A. August, 2008
B. July, 2010
C. April, 2011
D. Feb, 2009
Answer: B. This is correct.
With the HECM loan, mortgage insurance is charged by HUD based on which of the following:
A. The greater of appraised value or the maximum loan limit that can be insured by FHA.
B. The maximum claim amount.
C. The minimum claim amount.
D. The borrower’s ability to pay.
The correct answer is B. The maximum claim amount is the lesser of the home’s appraised value or the maximum loan limit that can be insured by FHA.
What further action may state regulatory agencies take in the enforcement of the SAFE Act?
A. Order restitution against persons subject to the SAFE Act for violation of the Act.
B. Impose fines on persons subject to the SAFE Act.
C. Issue a Cease and Desist Order against persons subject to the SAFE Act.
D. All of the above.
The correct answer is D. Yes, the state regulatory agencies can do all of this and more to effect the enforcement of the SAFE Act, including issuing orders affecting the individual’s license and ability to continue in business.
All of the following are true about a Wraparound Mortgage, except:
A. The buyer will have to write a check for each underlying note secured on the property.
B. The buyer writes one check payable to the seller of the property for all loans secured against the property.
C. The Wraparound Mortgage is also called an All Inclusive Trust Deed.
D. To structure a Wraparound Mortgage properly, the first mortgage should be assumable, and lender approval for the Wraparound should be obtained.
The correct answer is A.
How do Home Equity Conversion Mortgages (HECMs) differ from standard reverse mortgages regarding eligible properties?
A. Condos are eligible in standard reverse mortgages and HECMs; PUDs are eligible only with HECMs.
B. Single family one-unit dwellings are eligible in standard reverse mortgages and HECMs; 1-4 owner occupied residential properties are eligible with HECMs.
C. Mobile homes are not eligible in standard reverse mortgages; they are with HECMs if on a permanent foundation.
D. Both B and C.
The correct answer is D. Co-op apartments are not eligible for standard reverse mortgages or HECMs.
What types of insurance would be under consideration as the lender prepares to make a loan decision:
A. Hazard insurance
B. Flood insurance
C. Private mortgage insurance (PMI)
D. Any and all of the above
Answer: D. Hazard (fire) insurance would always be required. The property may not be in a flood zone, so flood insurance may not be required. And if the loan-to-value ratio is not over 80%, PMI would not be required.
All of the following are true regarding a seller-paid buydown, except:
A. The seller writes a check to the lender for the amount required for the buydown.
B. The lender subtracts the amount of the buydown from the seller’s proceeds.
C. The buyer signs a note for the full amount due the lender.
D. The lender deducts the right amount from the proceeds advanced to the borrower.
The correct answer is D. Yes, this does not happen.
RESPA addresses which of the following:
A. Creditors must disclose consumer credit costs in a uniform manner
B. Helps consumers shop for settlement services
C. Regulates all-cash land sales
D. Offers guidelines for residential rental property transactions
The correct answer is B. Much of RESPA deals with making certain that closing costs are for the services they say they are and not padded with unearned referral fees.
Under what circumstances must the Escrow Closing Notice be provided by the creditor?
A. When the borrower had an escrow (impound) account and has requested cancellation.
B. Upon borrower’s request for cancellation, the Escrow Closing Notice must be provided within thirty (30) days of cancelling.
C. If the escrow account is cancelled by the lender, the Escrow Closing Notice must be provided within three (3) business days before the account is closed.
D. The Escrow Closing Notice must be provided by the lender at the time of cancelling the escrow account.
The correct answer is A. Under these circumstances, the borrower must receive the Escrow Closing Notice within three (3) business days before the escrow account is closed.
According to the definitions in the model state law, all of the following would be included as a federal banking agency, except:
A. The Board of Governors of the Federal Reserve System.
B. The Federal National Mortgage Association.
C. The Comptroller of the Currency.
D. The Federal Deposit Insurance Corporation.
The correct answer is B. Fannie Mae is part of the secondary market, not a federal banking agency with supervisory duties. Others included on the list of federal banking agencies would be The Director of the Office of Thrift Supervision, and the National Credit Union Administration.
Model State Law Federal Banking Agency
The Board of Governors of the Federal Reserve System.
Director of the Office of Thrift Supervision,
National Credit Union Administration.
The Comptroller of the Currency.
The Federal Deposit Insurance Corporation.
Closing costs disclosures on the integrated Closing Disclosure include which of the following: A. Fees paid by the borrower. B. Fees paid by the seller. C. Fees paid by third parties. D. All of the above.
The correct answer is D. Page 2 of the CD.
ABC Mortgage is originating a loan of $75,000 with an origination fee of 1%, a floor of $1,000, and caps that ensure the loan complies with all high cost tests. What is the origination fee paid to ABC Mortgage:
A. $75
B. $750
C. $1,000
D. $7,500
Answer: C. The floor of $1,000 is to prevent originators from not wanting to work on a small loan. Regardless of the amount, they will make $1,000.
The original Loan Estimate is determined to have been made in good faith according to which of the following:
A. When the borrower is generally happy with the outcome.
B. If the actual costs are greater than the original Loan Estimate.
C. By looking at the difference between the initial cost estimate and the final costs charged at loan closing.
D. If there are no changed circumstances.
The correct answer is C. Obviously, if actual charges surpass the allowed tolerance thresholds, the assumption is the Loan Estimate was not made in good faith.
What is a buydown:
A. A buydown plan always lowers the monthly payment for the entire term of the loan
B. A buydown plan always requires the buyer to pay discount points upfront to lower the monthly payment
C. A buydown plan requires additional funds to be paid to the lender upfront as prepaid interest, and therefore lower the interest rate and monthly payments
D. The additional funds to be paid to the lender upfront are sometimes called bonus points
Answer: C. This is correct. These additional funds are often called discount points, and either buyer or seller can pay them. They may lower the payments for the entire term of the loan (called a permanent buydown) or for a limited time.
The nationwide maximum loan amount for a reverse mortgage is which of the following: A. $500,000. B. $625,500. C. $750,000. D. $1 million.
B
In 2009, Congress passed legislation that increased Reverse Mortgage loan limits to $625,500. The loan limit was increased to $636,150 on January 1, 2017. (Most recently, it was raised to $765,600, effective January 1, 2020.)Jan 24, 2020
A 3-2-1 buydown means which of the following:
A. Discount points subsidize the payments for 3 years, a 3% subsidy the first year, a 2% subsidy the second year, and a 1% subsidy the third year
B. Discount points subsidize the payments for 3 years, but the percentage of the subsidy is not stipulated in this description
C. Discount points subsidize the payments for 3 years, but the percentage of the subsidy is not stipulated in any documentation
D. Discount points paid by the seller subsidize the payments for three years at a rate to be agreed upon later
Answer: B. The subsidy could be paid by the buyer or seller, and the percentage is not described in the numbers 3-2-1, just the number of years.
When the protection option is a surety bond, all of the following are true, except:
A. The bond must be in an amount commensurate with the dollar amount of loans the MLO produces annually.
B. If the MLO is an employee or exclusive agent of a person subject to the SAFE Act, the surety bond could be that of such person.
C. When an action is commenced on a licensee’s bond, a surety bond will no longer be an option for the licensee in the future.
D. Upon recovery of any action on a bond, the licensee must file a new bond.
The correct answer is C. The licensee would just file for a new bond.
What measures could be taken to help a borrower obtain a HECM loan if the Financial Assessment came up lacking?
A. The mortgagee could mandate the use of some of the mortgage proceeds in settling debt.
B. The mortgagee could establish a life expectancy set-aside to fund property charge payments.
C. Regulation would prohibit the mortgagor from canceling a property charge set-aside.
D. All of the above.
The correct answer is D.
According to TILA, when must any notice of change in payment or interest rate be provided to a borrower?
A. At least 30 days before a new payment takes effect.
B. Not earlier than 125 days before a new payment takes effect.
C. Both A and B.
D. At least 25 days before and not earlier than 120 days before a new payment takes effect.
The correct answer is D. The lender must also provide the borrower with an example, based on a $10,000 loan, showing how the payments and loan balance will be affected by changes in the index used.
A registered MLO is an individual who works under the authority of any of the following except:
A. A mortgage brokerage company under the authority of the DRE
B. A depository institution
C. An institution regulated by the Farm Credit Administration
D. A subsidiary of a depository institution regulated by a Federal banking agency
The correct answer is A. MLOs operating under the authority of the DRE must be licensed.
The interest rate on an ARM is determined by which of the following:
A. By the current value of the selected index alone.
B. By the current value of the selected index minus the agreed to margin.
C. By the current value of the selected index plus the agreed to margin.
D. By the current value of the selected index plus the agreed to margin and points.
The correct answer is C. Points paid at the inception of the loan reflect on financing costs, but not current interest rates.
Which of the following fraudulent actions would attorneys most likely take to perpetrate fraud:
A. Act as a straw buyer
B. Inflate property values
C. Prepare and record bogus deeds
D. Ignore derogatory information on a consumer’s credit report
The correct answer is C. Yes, this would most likely be attributed to an unscrupulous attorney.
A loan processor or underwriter should never represent to the public which of the following:
A. Their professional training.
B. Their level of competence.
C. That they perform any activities of an MLO.
D. Their honesty.
The correct answer is C. Activities of an MLO require a license.
What is the basic idea behind risk-layering features in a nontraditional mortgage product?
A. These features should never be used in a loan.
B. They should be compensated for with risk-mitigating factors.
C. They should be replaced with increased documentation.
D. The effort should be supplemented with secondary financing.
The correct answer is B. If there are risk layering features such as no-doc loans or simultaneous second, they should be compensated for with features such as lower debt-to-income ratios or mortgage insurance.
Due on demand clauses are restricted with the HOEPA loan. Under which of the following circumstances could the lender call the loan:
A. In case of default.
B. In case of fraud.
C. In case of damage to the collateral property.
D. Any of the above.
ANSWER
The correct answer is D. All of these reasons represent actions taken by the consumer.
Which of the following items of contact information is provided to the borrower on the Closing Disclosure: A. Lender. B. Mortgage Broker. C. Settlement agent. D. All of the above.
The correct answer is D. Yes, all of this contact information as well as that of the Real Estate Broker (s) in the transaction.
Why does the lender require a Certificate of Eligibility for a borrower on a VA loan:
A. To know that their credit is acceptable
B. To establish the amount and status of the veteran’s eligibility
C. To ensure that the veteran meets the front-end LTV ratio
D. To have clearance to purchase the required insurance
Answer: B. This is correct.
When does the lender obtain a signed 4506-T from the borrower:
A. Upon completion of the application
B. At closing
C. When receiving the application and at closing
D. Just before loan approval
Answer: C. This is correct.
Which of the following statements is true about Adjustable Rate Mortgages (ARMs):
A. An ARM cannot be called a conventional mortgage because conventional mortgages are fixed rate loans.
B. Conventional mortgages can involve negative amortization in special circumstances.
C. Conventional mortgages can involve planned periods of interest only payments as long as there is a period of full amortization to pay off the loan.
D. Conventional mortgages can involve ARMs.
The correct answer is D. Adjustable rate conventional mortgages do exist.
All of the following are legitimate objectives of the SAFE Act, except:
A. Streamline the licensing process.
B. Privatize the employment history, public disciplinary and enforcement actions against MLOs.
C. Improve the flow of information to and between regulators.
D. Decrease the likelihood of fraud being committed against consumers.
The correct answer is C. This is a government function intended for transparency in the mortgage industry.
A permanent buydown means which of the following:
A. The interest rate is reduced throughout the term of the loan
B. The interest rate is a level-payment reduction
C. The discount points are always paid by the seller
D. The interest rate is reduced for at least four years
Answer: A. This is correct. To issue a permanent buydown, the lender determines what the buydown amount is and the borrower will have to comply with the lender’s underwriting standards.
With an Adjustable Rate Mortgage, fully indexed rate means which of the following:
A. The index value prevailing at the time of full amortization.
B. The index value prevailing at the time of underwriting.
C. The index value prevailing at the time of underwriting plus the applicable margin that will apply after the expiration of any introductory interest rate period.
D. The index value prevailing at the time of underwriting minus the applicable margin that will apply after the expiration of any introductory interest rate period.
The correct answer is C. Yes, this is the best answer available here.
A borrower with a payment-option ARM can choose among which of the following payment options each month:
A. A traditional payment of principal and interest
B. An interest-only payment
C. A minimum payment of less than the interest due
D. Any of the above
Answer: D. Yes, these are the traditional options for a payment-option ARM.
All of the following statements are true regarding a permanent buydown, except:
A. A permanent buydown reduces the interest rate for the entire life of the loan.
B. A permanent buydown reduces the payment for the entire life of the loan.
C. Even though it is a permanent buydown, the lender is unable to write the reduced interest rate into the note.
D. The nominal rate stated in the note will be the actual reduced interest rate.
The correct answer is C. The lender does write the reduced rate based on the buydown into the note.
The new regulation in expressed in the Loan Estimate applies to all of the following, except:
A. Vacant land.
B. Loans made to a business entity.
C. Construction loans.
D. Loans made to certain trusts for tax and estate planning purposes.
The correct answer is B. To be properly prepared for the test, you should be familiar with all situations where the Loan Estimate applies and does not apply.
Which of the following is true of a registered MLO:
A. They work for a depository institution.
B. They are employed by a subsidiary that is owned or controlled by a depository institution and regulated by a Federal Banking Agency.
C. They are employed by the Farm Credit Administration.
D. All of the above.
The correct answer is D. These MLOs are not required to pass the test and are therefore not licensed, but are registered with the NMLS-R and maintain a unique identifier number and a level of accountability for their work.
Lawful non-permanent residents can be approved for an FHA loan if all of the following conditions are met, except:
A. The property will be the borrower’s principal residence
B. The borrower’s front-end ratio is not greater than 28%
C. The borrower has a valid social security number
D. The borrower is eligible to work in the United States
Answer: B. This is not a requirement.
For the purpose of net worth, which of the following is the best definition of an asset:
A. Anything owned by the borrower
B. Any item of value owned by the borrower
C. Anything of value owned by the borrower where the borrower doesn’t owe more than 50% of the value of the item
D. For the purpose of net worth, an asset includes only real property
Answer: B. This is correct and best answer.
^^^What is the highest VA loan amount VA will allow without a down payment:
A. $250,000
B. $358,000
C. $417,000
D. $500,000
Answer: C. The down payment is zero if the loan guaranty is equal to at least 25% of the loan amount. The maximum guarantee amount is $104,250. $104,250 ÷ 25% = $417,000.
According to TILA, all of the following are included as a finance charge, except:
A. Points and loan fees.
B. Insurance against loss or damage to the property.
C. Seller’s points.
D. Premiums for insurance protecting the creditor.
The correct answer is C. Points paid by the seller are not part of a finance charge paid by the borrower.
Additional prohibitions on HOEPA loans include all of the following, except:
A. Lenders may not grant loans based solely on the collateral value of the borrower’s property without regard to the borrower’s ability to repay the loan.
B. Under no circumstances may a lender refinance a HOEPA loan into another HOEPA loan with the first 12 months of origination.
C. Lenders may not disburse proceeds from home improvement loans to anyone other than the borrower, or jointly to the borrower and home improvement contractor, or escrow agent.
D. Under no circumstances may a lender wrongfully document a closed-end, high cost loan as an open-end loan.
The correct answer is B. This can be done only if the loan is in the borrower’s best interest.
To accept secondary financing, a lender would probably require which of the following:
A. A subordination clause to ensure that the first mortgage always takes priority.
B. A minimum of 5% down payment.
C. Regularly scheduled payments.
D. All of the above.
The correct answer is D. Yes, all of these would probably be required for a lender to accept secondary financing in this market.
All of the following are true about the margin on an ARM, except:
A. The margin is the difference between the index value and the interest rate charged on an ARM.
B. The margin is sometimes called the spread.
C. The margin fluctuates like the index fluctuates with the cost of funds.
D. The margin is added by the lender to ensure sufficient income for administrative expenses and profit.
The correct answer is C. The margin usually remains fixed and is not impacted by the movement of interest rates or other factors in the financial markets.
The best comps are generally which of the following:
A. The newest and largest properties
B. The same age and same size
C. The most similar and most recent
D. They must be model matches and in the same subdivision
Answer: C. This is correct.
Which of the following is information made available to the borrower through the new Loan Estimate form that was not made available to the consumer through previous disclosure forms:
A. Delivery of the appraisal to the borrower.
B. The likelihood of future refinance transactions of the subject loan.
C. A place for borrowers to sign and confirm that they have received the Loan Estimate.
D. All of the above.
The correct answer is D. Again, more information for the first time buyer. It is believed that more information leads to better decisions on the part of the consumer.
When a broker attempts to comply with the anti-steering prohibition and safe harbor, which of the following are factors that constitute a borrower’s best interest:
A. Likelihood of loan closing
B. Timeframe
C. Lender fees and closing costs
D. Any and all of the above
Answer: D. Yes, lowest interest rate is not the only factor. The creditor with the lowest rate may have the highest administrative fees and closing costs, longest approval times, and strictest guidelines.
All of the following are true statements regarding FHA loans, except:
A. FHA loans are insured by the federal government
B. Lenders approved by FHA may submit borrowers’ applications to a regional HUD Homeownership Center for approval
C. The only borrowers that can be approved for an FHA loan U.S. citizens or lawful permanent residents
D. Some lenders can act as Direct Endorsers (DEs) and can underwrite their own FHA loan applications
Answer: C. FHA loans can also be made to lawful non-permanent residents under certain conditions.
Which of the following is the most important reason that lenders are required by law to deliver disclosures to consumers at each stage of the loan process:
A. So the consumer can back out
B. So the consumer can know how much money they will owe
C. So the consumer is better equipped to make informed decisions
D. So the lender will be following the law
The correct answer is C. The needs and wellbeing of the consumer are paramount in this process.
All of the following are true about graduated-payment loans except:
A. They are fixed-rate loans that start at one rate and change to another
B. Their payments change just as with adjustable rate mortgages
C. The borrower’s payments will rise according to the terms of the contract
D. Though not considered adjustable rate mortgages, they are still tied to one of the major indexes
Answer: D. Payments change based on the agreed upon terms in the contract, not by financial indexes.
HUD has implemented changes to the HECM loan program to protect the FHA Mutual Mortgage Insurance Fund (MMIF). These changes were necessitated by which of the following factors:
A. Shifting from a predominantly adjustable rate mortgage with borrowers electing to receive payments over time to a fixed rate mortgage where borrowers draw down all of the available funds at the time of closing.
B. Younger borrowers with higher amounts of property indebtedness.
C. Increasing property charge defaults.
D. All of the above.
The correct answer is D. These factors have bankrupted the MMIF.
A Higher Priced Loan is a closed-end home purchase loan where the APR is in what relationship to the Average Prime Offer Rate (APOR):
A) The APR exceeds the APOR by one (1) percentage point on first lien loans or three (3) percentage points on junior lien loans.
B. The APR exceeds the APOR by two (2) percentage points on first lien loans or 3.5 percentage points on junior lien loans.
C. The APR exceeds the APOR by 1.5 percentage points on first lien loans or 3.5 percentage points on junior lien loans.
D. If the APR exceeds the APOR even by a fraction of a percentage point, it is considered a Higher Priced Loan, according to Section 35 of Regulation Z.
The correct answer is C.
All of the following are not included in the definition of an MLO, except:
A. An individual performing only administrative tasks.
B. An individual performing only real estate brokerage activities.
C. An individual negotiating terms of a residential mortgage loan.
D. A loan processor or underwriter.
The correct answer is C. Yes, an MLO is an individual who negotiates terms of a residential mortgage.
All of the following statements about APR are true, except:
A. APR states the total cost of financing a loan in percentage terms.
B. APR states the relationship of the total finance charges to the total amount financed.
C. APR is equal to the nominal rate.
D. APR includes finance charges spread out over the life of the loan.
The correct answer is C. The nominal rate is the rate on the note, the rate that is used to determine the monthly payment, but does not include points, costs, and fees of getting the financing.
Which of the following practices is a lender likely to do to verify the legitimacy of a borrower’s down payment:
A. Will want to know the source of a borrower’s down payment for the first 10% of a conventional loan
B. Require three months of bank statements
C. Verification of Deposit form from borrower
D. Gift letter from donor stating the down payment can be paid back over time
Answer: C. Yes, this is the only correct answer.
When performing the Financial Assessment of a borrower on the HECM loan, the mortgagee must take which of the following into consideration:
A. The prospective borrower is seeking the HECM loan out of financial need.
B. The financial difficulties suffered by the borrower may be reflected in the credit report.
C. The mortgagee must determine whether, given the mortgagor’s circumstances, the HECM will contribute to the solution of their financial difficulties.
D. All of the above.
The correct answer is D.
All of the following would trigger a high-cost loan under HOEPA, except:
A. The APR on a first mortgage exceeds the rates in Treasury securities of comparable maturity by more than eight percentage points
B. The APR on a junior loan exceeds the prime offer rate by 3.5 percentage points
C. The APR on a second loan exceeds the rates in Treasury securities by more than ten percentage points
D. The total points and fees paid by the consumer exceed eight percent of the loan amount
Answer: B. This applies to the 2009 Amendment to the Truth in Lending Act and applies to what are called “higher-priced loans.”
Which of the following best describes a 2/6 cap on an adjustable rate mortgage:
A. The loan can adjust the interest rate a maximum of 2% six times during the loan.
B. The loan can adjust the interest rate a maximum of 2% at any adjustment with a lifetime cap of 6% above the initial rate.
C. The loan can adjust the interest rate a maximum of 2% during a six year period.
D. The loan can adjust by 6% two times during the term of the loan.
The correct answer is B. So if the initial rate is 6.25% and the cap is 6%, the maximum interest rate the loan could reach during the term is 12.25%. Again, the rate can adjust a maximum of 2% during any particular adjustment.
HMDA applies to all of the following covered properties, except:
A. Home purchase.
B. Home improvement loan.
C. Subordinate lien financing.
D. New construction.
The correct answer is D. Yes, HMDA applies to one-to-four family residential properties, but not for vacant land, new construction, or loans that are sold as part of a pool for servicing.
The Fair Credit Reporting Act (FCRA) is also known as which of the following:
A. Regulation B.
B. Regulation C
C. Regulation V
D. Regulation Z.
The correct answer is C. This is a statement of fact. Some remember it by substituting a V for the F. Vair Credit Reporting Act.
According to the TILA final rule, which of the following best describes compensation received by a broker:
A. Any money taken in
B. Any money taken in not paid out to a third party
C. All up-front fees paid by the borrower as well as the yield spread premium
D. Origination fees and contract processing fees
Answer: B. This is a good description of broker compensation. D cannot be correct because contract processing fees are a legitimate third party fee. C cannot be correct because brokers cannot make up-front fees paid by the borrower and back-end fees (yield spread premium). And A cannot be correct because out of money taken in, the broker will have to pay certain fees to third parties.
According to ECOA, which of the following is an MLO prohibited from doing:
A. Telling a loan applicant that he does not qualify for a loan.
B. Submitting a loan application to a lender when he/she doesn’t believe the applicant will be approved.
C. Discouraging a potential borrower from applying for a loan based on their membership in a protected class.
D. Sending out an Adverse Action notice after an applicant has been turned down.
The correct answer is C. Yes, to advise a potential borrower not to even apply based on age or any of the other protected classifications would be a violation of ECOA.
Which of the following is true regarding liabilities and debts:
A. Liabilities are recurring monetary obligations than cannot be cancelled
B. Debts are any financial obligations owed by the borrower
C. All debts are liabilities, but not all liabilities are debts
D. All liabilities are debts, but not all debts are liabilities
Answer: C. Liabilities are any amount of money owed, whereas debts refer specifically to recurring obligations, like monthly bills.
What type of interest is the borrower granting when they take out a loan to purchase the property? A. Equitable interest. B. Security interest. C. Dower interest. D. Trust interest.
The correct answer is B. Yes, the borrower has granted a security interest in the property to the lender.
^^ Property analysis could include any of the following, except:
A. Housing expense ratio
B. Appraisal
C. Title reports
D. Toxic waste report
Answer: A. This has to do with the borrower analysis.
Which of the following best describes the 3-7-3 rule:
A. Three on, seven off, three on.
B. Initial disclosure given three days after receipt of application, closing seven days after that, and an additional three day wait if corrected disclosures have to be issued.
C. Three day wait for application, seven day wait for approval, three day wait to close.
D. Initial disclosures given three business days after receipt of application, closing permitted seven business days after that,, and an additional three business day wait if corrected disclosures have to be issued.
The correct answer is D. This is accurate according to TILA.
Which of the following is the primary purpose of the Home Valuation Code of Conduct (HVCC) of 2009:
A. To ensure that appraisers are not coerced into giving false pre-determined values on properties
B. To allow appraisers to exercise their skills in areas they are not familiar with
C. To disrupt long-term relationships appraisers have established with lenders
D. To create job opportunities for middle management companies
The correct answer is A. Yes, this was the intended purpose of the HVCC.
Which of the following agencies files Suspicious Activity Reports (SARs):
A. Federally insured financial institutions
B. FBI
C. Federal Reserve Board
D. Federal Trade Commission
The correct answer is A. SARs reports are also filed out of HUD’s Office of the Inspector General and further complaints are filed with the FBI by the mortgage industry at large.
In a HECM loan, which of the following is required of the non-borrowing spouse after the death of the qualifying mortgagor in order to defer the due and payable clause:
A. Establish legal ownership of the secured property within 90 days of the death of the mortgagor.
B. Keep the property charges current and continue to satisfy all other conditions contained in the loan documents.
C. Ensure that the HECM loan does not become eligible to be called due and payable for any other reason.
D. All of the above.
The correct answer is D. Yes, all of these are requirements that the non-borrowing spouse must meet in order to continue to occupy the house.
All of the following are true about a package mortgage, except:
A. A package mortgage includes both real and personal property.
B. A package mortgage includes furniture and appliances.
C. A package mortgage does not utilize personal property as collateral because it is movable.
D. A package mortgage finances both real and personal property together in one contract.
The correct answer is C. A package mortgage does hold personal property as collateral.
Under TILA, the definition of credit includes all of the following, except:
A. For personal, household, or family purposes.
B. For any amount less than $1 million dollars.
C. For other than business or commercial purposes.
D. Not for agricultural purposes.
The correct answer is B. The definition of credit applies to all real estate loans made to consumers, regardless of the amount.
The Community Reinvestment Act (CRA) falls under the supervision of which of the following agencies:
A. Board of Governors of the Federal Reserve System (FRB)
B. Federal Deposit Insurance Corporation (FDIC)
C. Office of Thrift Supervision (OTS)
D. All of the above
The correct answer is D. True, as well as Office of the Comptroller of the Currency (OCC).
An intended purpose of TILA is which of the following:
A. Promote the informed use of consumer credit.
B. Assure meaningful disclosure of credit terms to allow consumers to compare more readily the various options available and avoid the uninformed use of credit.
C. To give consumers 100% assurance that they are doing the right thing.
D. A & B.
The correct answer is D. C is not realistic, but A and B fulfill the intended purpose of TILA, so that consumers are making informed decisions.
Which of the following statements refer to nonconforming loans:
A. Anything other than 30-year fixed.
B. These loans do not meet the standards to be sold to Fannie Mae or Freddie Mac.
C. ARMs.
D. Synonymous with subprime.
The correct answer is B. Regarding D, all subprime loans are nonconforming, but not all nonconforming loans are subprime. Regarding A, this answer refers to nontraditional, not nonconforming.
Which part of the Dodd-Frank Wall Street Reform and Consumer Protection Act created the Consumer Financial Protection Bureau:
A. Article 23
B. Title XIV
C. Title X
D. 15 U.S.C. //1691
Answer: C. Yes, Title X created the Consumer Financial Protection Bureau.
^^^According to the TILA final rule, compensation agreements must be established in which of the following circumstances:
A. When a creditor employs retail loan officers that it compensates
B. When a creditor is in a transaction with a broker or brokerage company whose compensation is paid by any party other than the borrower
C. When a broker has MLOs attached to their license
D. Any of the above
Answer: D. Yes, any and all of these circumstances require a written compensation agreement.
According to the TILA final rule, which of the following best describes the yield spread premium:
A. Commonly known as the “back-end” compensation to the MLO in addition to the borrower’s fees
B. Overage credited to consumer on transactions funded by creditor
C. Same as discount points
D. The difference between borrower up-front fees and discount points paid by borrower
Answer: B. When the borrower compensates the MLO up front, any YSP is credited to the consumer to help pay closing costs.
“In a Borrower Paid Originator, the leftover from the amount paid to the originator”
All of the following are true regarding a reverse mortgage, except:
A. A lender can force a borrower out of the home only if the borrower fails to make three consecutive payments.
B. A lender cannot sell a home subject to a reverse mortgage when the loan becomes due.
C. In the event of death, the lender usually allows 12 months for payment.
D. When payment is due, if the home is not sold or deeded to the lender, the lender can foreclose.
All of the following are true regarding a reverse mortgage, except:
A. A lender can force a borrower out of the home only if the borrower fails to make three consecutive payments.
B. A lender cannot sell a home subject to a reverse mortgage when the loan becomes due.
C. In the event of death, the lender usually allows 12 months for payment.
D. When payment is due, if the home is not sold or deeded to the lender, the lender can foreclose.
How may payment options be disbursed to a borrower with a reverse mortgage?
A. In fixed monthly payments for as long as the homeowner remains in the home.
B. In a lump sum payment up front.
C. In a line of credit, giving the borrower access to funds on an “as-needed” basis.
D. Any of the above.
The correct answer is D. The amount of any of these payments would be determined by the lender based on a Financial Assessment of the borrower, including age.
Page 5 of the Closing Disclosure, under Other Disclosures, reveals that refinancing the loan will depend on which of the following:
A. The value of the property.
B. The borrower’s future financial condition.
C. Market conditions.
D. All of the above.
The correct answer is D. Refinancing the loan depends on all of these important issues, so there can be no guarantee of refinancing the loan.
Equity Participation Mortgages are done primarily on which of the following kinds of projects: A. Residential. B. Residential income. C. Commercial real estate projects. D. Industrial.
The correct answer is C. Commercial investors are much more amenable to sharing equity when the project is sold in exchange for more favorable terms.
If a borrower has an ARM and doesn’t want to risk any increases in the interest rate or payment amount, what options does a borrower have Except
A. They could refinance the loan
B. They could sell the property, thereby getting out of the loan
C. They could convert to a fixed-rate loan
D. They could convert it to a hybrid loan
Answer D - the rest are possible ways to ensure no interest increase
The estimate of the charges and terms for all settlement services may remain available longer under which of the following circumstances:
A. If the lender authorizes an extension.
B. If the MLO extends the period of availability.
C. If the Fed hikes the interest rate.
D. If the borrower wants to close quickly.
The correct answer is B. This would be done based on the borrower’s circumstances and the MLO’s anticipation of a timely closing.
All of the following are true regarding the Closing Disclosure, except:
A. The creditor and the settlement agent can share responsibility for the Closing Disclosure.
B. The settlement agent can complete all or part of the Closing Disclosure for the creditor.
C. The creditor and the settlement agent must maintain close communication to ensure timely delivery of the Closing Disclosure.
D. If the settlement agent prepares the entire Closing Disclosure, the settlement agent becomes responsible for its accuracy and delivery.
The correct answer is D. Even if the settlement agent helps prepare the Closing Disclosure, the creditor always maintains full responsibility for the accuracy and timely delivery of the document.
If a revised Loan Estimate is required, when must it be provided?
A. The creditor must deliver or place it in the mail no later than 3 business days after receiving sufficient information to make a credit decision.
B. Anytime after the Closing Disclosure has been provided to the borrower.
C. So long as it’s within 3 days prior to consummation of the loan.
D. As soon as possible, so long as it’s delivered electronically.
The correct answer is A. All other answers are not true.
When a reverse mortgage becomes due, and the balance is greater than the worth of the home, which of the following scenarios plays out:
A. The house will have to be sold and any shortfall will become a deficiency judgment against the owners or their heirs.
B. The house may have to be sold to pay the debt, but any shortfall is forgiven and cannot become a deficiency judgment against the borrowers or their heirs.
C. The balance cannot become greater than the worth of the house because at that point, payments to the owner(s) will cease.
D. The bank will foreclose and the owners will have to move out.
The correct answer is B. Yes, the reverse mortgage is a nonrecourse loan, but today HUD has put in place some restrictions on loan limits to avoid borrower debt that cannot be recovered.
All of the following statements are true regarding a state regulatory agency’s investigation, except:
A. All books and records pertaining to an MLO’s operation must be made available upon request.
B. The agency may not investigate an individual who is not designated as an MLO.
C. The agency may interview officers, principals, and employees of a mortgage company.
D. For initial licensing, the agency may even examine non-conviction data, if permitted by the state criminal code.
The correct answer is B. The regulatory agency may investigate an individual who is performing activities requiring an MLO license, but does not have one.
The existing annual MIP rate for a HECM loan is which of the following: A. .50%. B. 1.0%. C. 1.25%. D. 2.50%.
The correct answer is C. This applies to amounts of 60% or less of the principal limit as well as amounts greater than 60% of the principal limit.
Which of the following is not true about a mortgage note?
A. The note is not recorded and APR is not listed on note
B. The note is recorded and The APR is on the note
C. All borrower and co-borrowers must sign the note
D. The note is legal evidence of the debt
Answer: B is not true
The annual percentage rate
(APR) is not on the note. The note is the legal evidence of the debt and is notrecorded.
According to Regulation Z, if an ad for credit secured by a dwelling states the simple annual rate, which of the following is true:
A. The simple annual rate must be no more conspicuous than the APR.
B. The simple annual rate must be in a smaller font than the APR.
C. The simple annual rate should be more conspicuous than the APR to emphasize the monthly payment.
D. The simple annual rate must not be stated if the APR is conspicuously stated.
The correct answer is A. The APR must not be disguised or minimized.
The document which combines the Truth in Lending Statement required by TILA and the Good Faith Estimate required by RESPA is which of the following:
A. The Home Loan Toolkit.
B. The Loan Estimate.
C. The Mortgage Servicing Disclosure Statement.
D. The Closing Disclosure.
The correct answer is B. This is a statement of fact.
Freddie Mac Form 1003 is also known as which of the following:
A. Notice of Default
B. IRS Form 4506-T
C. Freddie Mac Form 65
D. Section 21 Disclosure Form
Answer: C. Yes, this is the 1003, the Uniform Residential Loan Application.
Which one of these classes of people is protected under the Equal Credit Opportunity Act but not under the Fair Housing Act:
A. Age
B. Color
C. National origin
D. Religion
The correct answer is A. This is correct. Because ECOA deals with the granting of credit, some of the issues about protected classes are different than those guaranteed under the Fair Housing Act. ECOA also protects issues of martial status, whether or not the borrower is or has been the recipient of public assistance, and whether they have ever exercised their rights under the Consumer Credit Protection Act.
TILA-regulated tolerance limits on settlement service provider charges that can change by any amount include all of the following, except:
A. Services the borrower is allowed to shop for.
B. Prepaid interest.
C. Transfer taxes.
D. Flood insurance.
The correct answer is C. Transfer taxes are charges that are stipulated based on the selling price of the property and cannot change by any amount.
Which value does a lender use to determine loan-to-value ratio if the sales price of the property and the appraisal are not the same:
A. Sales price always
B. Appraised value always
C. The lesser of the sales price or appraised value
D. The average of the sales price and appraised value
Answer: C. This allows the lender to take the most conservative approach.
Which of the following parties in the residential mortgage industry would not have to have the MLO designation to perform their duties legally:
A. A loan processor performing clerical duties under the direction of a state licensed MLO.
B. A contract processor serving more than one MLO.
C. A mortgage loan originator working for Wells Fargo Bank.
D. A mortgage loan originator working for a credit union
The correct answer is A. This kind of processor, working for a single company and generally paid with a W-2 form, is doing clerical and support work and does not have to have an MLO designation.
Under TILA, how long must the loan broker (MLO) keep evidence of compliance with disclosure requirements?
A. Six months.
B. One year.
C. Two years.
D. Five years.
The correct answer is C. This is a statement of fact.
A revised Loan Estimate is considered received by the consumer in which of the following time frames:
A. Within five (5) business days.
B. Within ten (10) days.
C. Within four (4) business days.
D. On the day it is provided.
The correct answer is D.
^^^According to the TILA final rule, what does LPO stand for:
A. Liquidated Points Offering
B. Loan Principal Outtake
C. Lender Paid Origination
D. Listing Property Operation
Answer: C. Yes, this is a transaction where all originator/broker compensation is paid for by the lender.
Which of the following best expresses the back end ratio:
A. Section VI declarations on the 1003
B. Total monthly housing expense divided by gross monthly income
C. Total monthly housing expense and total long-term monthly debt obligations divided by gross monthly income
D. Total short and long-term monthly debt obligations divided by gross monthly income
Answer: C. Yes, this represents the back end ratio.
Which of the following statements is false regarding interest only loans:
A. The loan balance never decreases throughout the term.
B. Paying accrued interest means paying interest in advance.
C. Paying interest only decreases monthly payments significantly.
D. The balloon payment on an interest only loan is the original amount borrowed.
The correct answer is B. Paying accrued interest means paying interest in arrears.
Which of the following represents the biggest percentage of the MLO exam: A. Federal mortgage related law. B. General mortgage knowledge. C. MLO activities. D. Ethics.
The correct answer is C. Test content is as follows: A = 23%, B = 23%, C = 25%, D = 16%, and the Uniform State Test (UST) section is 13%. Percentages are approximate.
All of the following are on the original GFE, except:
A. List of charges that can change at settlement.
B. Initial deposit for escrow (impound) account.
C. Estimated closing costs minus lender’s credits.
D. Charge for title service and lender’s title services.
The correct answer is C. This to clarify the amount the buyer will have to provide to close.
State regulatory agencies may do which of the following:
A. Retain attorneys, accountants, and other professionals to act as investigators and examiners.
B. Employ public or privately available analytical systems, methods, or software.
C. Accept audit reports made by an independent CPA employed by the MLO under investigation.
D. All of the above.
The correct answer is D. The state regulatory authorities have carte blanche to effect the enforcement of the SAFE Act.
A Payment Option ARM would allow borrowers which of the following choices:
A. To choose a traditional payment of principal and interest.
B. To choose an interest only payment.
C. To choose a minimum payment that could be less than interest only.
D. Any of the above.
The correct answer is D. Yes, any of these options would be available on a Payment Option ARM.
In which of the following situations must a lender provide an impound account for the borrower:
A. For an FHA loan
B. For a mortgage loan that includes PMI
C. For a mortgage loan classified as “higher-priced”
D. Any of the above
The correct answer is D. Section 10 of RESPA does not mandate impound accounts, but where they are required as in the answer choices, it sets parameters.The higher-priced loans must have an impound for at least the first 12 months.
Which of the following is prohibited under the TILA final rule:
A. Compensation for a producing manager
B. Front-end compensation for an MLO as a percentage of the loan amount
C. Bonuses and prizes for an MLO based on production
D. Compensation received directly from the consumer and from any other source on the same loan
Answer: D. Yes, this is prohibited. No longer can an MLO make money at both ends.
Compensation, according to the TILA final rule, include which of the following:
A. Salary
B. Commissions
C. Bonuses
D. All of the above
Answer: D. Yes, all of these plus awards or prizes.
Which of the following would be a way for a borrower to get a conventional loan without making a 20% down payment:
A. Straw buyer.
B. Secondary financing.
C. Stated income.
D. Cash paid to seller outside of escrow.
The correct answer is B. This is where a borrower borrows money from a source other than the primary lender.
All of the following are valid changed circumstances according to RESPA, except:
A. A natural disaster occurs in the immediate area of the subject property affecting many of the costs of the transaction.
B. A creditor provides the required disclosures prior to receiving the property address from the consumer.
C. During underwriting, a neighbor of the seller, learning of the impending sale of the property, files a claim contesting the boundary lines of the property to be sold.
D. During underwriting, a co-borrower becomes unemployed.
The correct answer is B. The MLO cannot simply add the property address and call that a changed circumstance. The significance of having a legitimate changed circumstance is that it becomes a valid reason to issue a revised Loan Estimate to revise settlement costs or add charges.
Which of the following statements is true regarding balloon payments and the HOEPA loan:
A. Balloon payments are always prohibited with a HOEPA loan.
B. Balloon payments are allowed on HOEPA loans if the term is less than five years.
C. Balloon payments are allowed on HOEPA loans if it involves a bridge loan of less than a year to buy or build a home.
D. Interest-only HOEPA loans are prohibited.
The correct answer is C. So it cannot be said that balloon payments with a HOEPA loan is always prohibited.
Which of the following represents the fee for UFMIP on an FHA loan: A. UFMIP is 1% of loan amount. B. UFMIP is 1.5% of loan amount. C. UFMIP is 1.75% of loan amount. D. UFMIP is 2.25% of loan amount.
The correct answer is C. MIP varies according to amount of loan and the LTV. UFMIP is nonrefundable.
UFMIP on FHA = 1.75 of loan amount
All of the following are true regarding the Partial Payment Policy Disclosure, except:
A. Different lenders have different policies regarding the receipt of partial payments.
B. The mortgage broker cannot be expected to know of the policy of each lender he/she works with.
C. If the loan is sold, the policy could be different.
D. The policy is disclosed as a courtesy to the borrower in the case of hard times.
The correct answer is B. Actually, the mortgage broker (MLO) is expected to know the partial payment policy of each wholesaler he/she works with so the disclosure can be accurate.
Which of the following is additional information provided for the borrower on the new Loan Estimate form:
A. Escrow account information.
B. Total payment while mortgage insurance is in place compared to when it is no longer in place.
C. Estimate of settlement charges.
D. Total APR.
The correct answer is B. Again, more complete information for the consumer.
A borrower is obtaining a $200,000 loan at 6% for 30 years, and wants a 3-2-1 buydown. He wants to buy the loan down 2.5% the first year, 2% the second year, and 1.5% the third year. Which of the following is closest to the monthly subsidy for the first year:
A. $220
B. $320
C. $420
D. $480
Answer: C. At 3.5% interest, the payment is $583/mo I.O. The payment at 6% is $1000. $1000 - $583 = $417 subsidy.
An addition to information provided in the GFE and the Truth in Lending Statement, found in the new Loan Estimate form is which of the following:
A. The finance charge as a dollar amount is disclosed.
B. The APR is disclosed.
C. An interest rate lock is disclosed.
D. Whether or not the loan has a balloon payment.
The correct answer is C. This is found on the first page of the Loan Estimate.
HECM payment options include all of the following, except: A. Tenure. B. Term. C. Graduated Payment Plan (GPP). D. Line of credit.
The correct answer is C
A collateral-dependent loan is which of the following:
A. A loan that has to be secured on real property.
B. A loan that relies on property sale or refinancing once amortization begins.
C. A loan that the borrower can repay from sources other than the collateral.
D. A loan on a property with declining equity.
The correct answer is B. Yes, and this type of loan is unsafe and unsound.
Which of the following would prevent an individual from being granted an MLO designation:
A. Felony assault conviction eight years ago
B. Felony conviction for money laundering 15 years ago
C. Loss of broker’s license with right to restricted salesperson’s license
D. A pardoned felony conviction for fraud
The correct answer is B. Of this list, only “B” would positively prevent an individual from receiving the MLO designation.
Triniton, Inc. has two violations of The National Do Not Call Registry. What is the maximum total of their fines?
A. $8,000.
B. $16,000.
C. $32,000.
D. $100,000.
The correct answer is C. $16,000 x 2 = $32,000.
The final decision maker on a loan application is usually which of the following parties:
A. Processor
B. Underwriter
C. Mortgage loan originator
D. Bank executive
Answer: B. This is correct.
The 10-business day provision for the estimate of charges and terms apply to which of the following:
A. The interest rate.
B. Charges and terms dependent on the interest rate.
C. The charge or credit for the interest rate chosen, the adjusted origination charges, and per diem interest.
D. All Settlement Charges
The correct answer is D. Because the 10-business day provision applies to all settlement charges
does not lock the interest rate, many borrowers in cooperation with the MLOs like to lock the interest rate to avoid disappointment.
What is the most serious consequence of an inflated appraisal scheme:
A. The appraiser participating in such a scheme makes extra money to produce dishonest results
B. The lender funds a loan that shouldn’t have happened
C. Dishonest MLOs and investors get away with fraud
D. Even legitimate appraisers rely on inflated sale prices as comps
The correct answer is D. The result is that higher-than-market values appear justified. Without analyzing every appraisal, even honest appraisers cannot tell the difference.
All of the following are true statements about a Reduction Option Mortgage, except:
A. It is a fixed rate loan.
B. It is an ARM with an option to convert to a fixed rate.
C. The borrower does not have to pay appraisal fees or credit checks.
D. Refinancing costs can be avoided if the borrower operates within a certain window of time.
The correct answer is B. It is a fixed rate loan with an opportunity to reduce the interest rate within a certain window of time.
In the “Guidance on Nontraditional Mortgage Product Risk,” the agencies that jointly wrote this document define nontraditional mortgage products (NMPs) as:
A. Anything other than 30-year fixed.
B. Mortgage products that allow borrowers to defer principal and sometimes interest.
C. Mortgage products that will not be purchased by Fannie Mae or Freddie Mac.
D. Nonconforming loans.
The correct answer is B. Although the SAFE Act defines NMPs as anything other than 30-year fixed, for the purpose of this article, the concern is mortgage products that allow borrowers to defer principal and interest.
The cost of conducting an examination of an MLO shall be paid by which of the following:
A. The MLO.
B. The individual subject to the SAFE Act for whom the MLO is an employee or an exclusive agent.
C. The taxpayers.
D. The mortgage company for whom the MLO works.
The correct answer is A.
High Cost Loan Triggers of HOEPA include which of the following:
A. APR Trigger.
B. Total Finance Charge Trigger.
C. Total of Payments Trigger.
D. Both A & B.
The correct answer is D. The High Cost Loan is triggered by APR or Total Finance Charge.
During an investigation, a state regulatory agency may do which of the following:
A. Seize documents and regards essential to an investigation.
B. Place a third party in charge of documents and records.
C. Control the documents and records of the person under examination.
D. All of the above.
The correct answer is D. The owner of the documents and person under investigation shall have access to the documents unless the examiner has reason to believe in the likelihood of the documents being altered or destroyed.
^^^All of the following statements about Regulation Z-required disclosures are true, except:
A. Any ad that uses the APR does not have to disclosure other terms.
B. Required disclosures must be made clearly and conspicuously.
C. If an ad discloses only the APR, additional disclosures are not required.
D. None of the above.
The correct answer is A. The ad could include the APR and one or more triggering terms, thus requiring additional disclosures.
^^^Which law sets forth escrow requirements for higher priced mortgage loans? A. Regulation X B. Regulation Z C. Regulation C D. Regulation O
Answer B. Regulation Z (TILA) sets the guidelines for HIgh Cost and HPML. Regulation X only set the standard for Escrow
What is the problem if, at closing, funds are paid to undisclosed third parties:
A. There may be debt not revealed in the closing statement
B. As long as the buyer has enough money, there is no problem
C. It could be an indication of an inflated price to accommodate such payments
D. Both “A” and “C”
The correct answer is D. Yes, this is correct. A closing statement that is not precisely followed is a red flag to the borrower that all has not been disclosed.
^^^A buyer is purchasing a house and the seller has agreed in the contract to pay $4000 in closings costs for the borrower. Total loan and closing costs are $3000, excluding origination. The broker has a compensation agreement with the lender which has agreed to pay the broker a 2% origination fee. Can the additional $1000 in seller-paid closing costs be credited to pay toward the origination of the loan; Which is the best answer:
A. Yes, that’s what it’s for
B. No, because seller paid closing costs are considered borrower funds
C. Yes, because seller paid closing costs are like a gift, and gifts are allowed
D. No, because seller paid closing costs can never be used to compensate the broker
Answer: B. Borrower funds can never be used to pay the broker when the lender is already paying the broker. The broker cannot be paid by the lender and any other source. If the borrower was paying 1% origination out of pocket, and the 1% was paid out of the overage of seller concession funds (borrower funds), that would be acceptable.
Which of the following terms goes with a fully amortized loan:
A. Balloon payment.
B. Self-liquidating.
C. Interest only.
D. Partially amortized.
The correct answer is B. Yes, when the last payment has been made, the debt has been liquidated.
The interest rate on an Adjustable Rate Mortgage (ARM) is adjusted periodically for which of the following reasons:
A. To make the lender money.
B. To save the borrower money.
C. To reflect fluctuations in the cost of money.
D. To speculate on the cost of money in the marketplace at any given time.
The correct answer is C. This would be done through one of the selected indexes.
Which of the following requires the lender to obtain a completed and signed copy of the form that gives the lender the opportunity to request electronic transcripts of the borrower’s federal income tax returns:
A. Underwriters
B. The Board of Governors of the Federal Reserve Board
C. The Federal Deposit Insurance Corporation (FDIC)
D. Federal law
Answer: A. This is correct. Currently, the lender decides if and when to submit the form to the IRS.
When the Loan Estimate is hand-delivered to the borrower, when can the MLO collect other fees?
A. The next day.
B. Tuesday.
C. That day.
D. Within 3 business days.
The correct answer is C. This is true so long as the borrower has indicated intent to proceed.
All of the following would be considered unfair, abusive, and deceptive practices that can arise from mortgage loan originator compensation agreements, except:
A. Changes in compensation
B. Lender-required settlement services that exceed the stated amount on the GFE
C. Changes in fees from the original GFE
D. Any mortgage loan officer compensation changes as a result of the borrower being charged additional discount fees
Answer: B. Where the lender selects the service provider for settlement services, the settlement charges may exceed the amount stated on the original GFE, but not by more than 10%.
All of the following would be true in a Refinance Mortgage, except:
A. It is the same as a loan modification.
B. It could involve cash out to the borrower, or not.
C. An MLO should be able to show a net tangible benefit to the borrower.
D. The borrower should get better loan terms.
The correct answer is A. A loan modification involves changes to an existing mortgage, not getting a new mortgage.
Standard homeowner’s hazard insurance covers all of the following, except:
A. Reimburse the lender for the mortgage amount
B. Replace the house because of loss due to fire
C. Pay the homeowner for damage due to loss because a nearby river overflowed
D. The policy can be sufficient to cover a lawsuit against the homeowner if someone sues due to injury sustained on the property
Answer: C. This would require flood insurance.
What are the advantages to the buyer of a buydown:
A. It may help the buyer qualify for the loan
B. It lowers the buyers monthly payments
C. It is charged to the seller on the GFE
D. Both “A” and “B”
Answer: D. This is correct.
Buydowns helps lower payments
buydown is a mortgage-financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage, or possibly its entire life. The builder or seller of the property usually provides payments to the mortgage-lending institution, which, in turn, lowers the buyer’s monthly interest rate and therefore monthly payment. The home seller, however, will usually increase the purchase price of the home to compensate for the costs of the buydown agreement.
The Financial Assessment required by lenders when evaluating the risk for a HECM loan includes which of the following:
A. Evaluate mortgagors’ willingness and capacity to meet their financial obligations.
B. Evaluate mortgagors’ ability to comply with mortgage requirements.
C. Determine whether the mortgagor meets FHA eligibility criteria.
D. All of the above.
The correct answer is D. Borrowers who have met their credit obligations in the past in a cooperative and willing manner are deemed to be good prospects as mortgagors for a HECM loan.
Which of the following represents the front and back end ratios for FHA loans:
A. 28%-32%
B. 28%-36%
C. 31%-43%
D. 32%-45%
Answer C
DTI Ratios FNMA/FHLMC: 28/36% FHA: 31/43% VA: 41% back end only or residual income RHS: 29/41%
^^The minimum down payment for an FHA loan with a FICO score of 550 minimum is which of the following:
A. No down payment
B. 3.5%
C. 5
D. 10%
Answer D
FHA Credit 500-579 = 90%
FHA Credit 580+ = 96.5%
The NMLS is a comprehensive licensing and supervisory database. Which of the following is true regarding the information contained in that database:
A. State regulatory agencies must have a process to challenge information contained in the NMLS.
B. MLOs must be provided with a process whereby they may challenge information entered in the NMLS.
C. The state regulatory agencies may challenge information filed with the NMLS, but MLOs may not.
D. A & B.
The correct answer is D. Errors and false information could be found either by the state regulatory agencies or the MLOs. Either has a right to challenge incorrect information.
All of the following are true about finance charges in a loan transaction, except:
A. The finance charge is imposed directly or indirectly by the creditor as a condition of the extension of credit.
B. The finance charge can include fees charged by someone other than the creditor.
C. The finance charge could be a charge payable in a comparable cash transaction.
D. Fees charged by a mortgage broker are finance charges even if the creditor doesn’t retain any portion of the charge.
The correct answer is C. This is the one answer that could not be correct.
Upfront mortgage insurance premium (UFMIP) for amounts of 60% or less of the principal limit is which of the following: A. UFMIP is .50%. B. UFMIP is 1.00%. C. UFMIP is 1.25%. D. UFMIP is 2.00%.
The correct answer is A.
What is FHA’s definition of the maximum claim amount on a HECM reverse mortgage?
A. Greater of the appraised value or sales price of the property.
B. Lesser of the appraised value or sales price of the property.
C. National minimum loan limit established under Section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act for a one-family residence.
D. 80% of market value according to a HUD-approved appraiser.
The correct answer is B. Yes, mortgage insurance rates are charged based on the lesser of appraised value or sales price. With a HECM loan, there is initially no sale of the property.
How will be the MLO be notified if the subject property will need flood insurance?
A. Title report.
B. Appraisal.
C. Flood zone report.
D. Seller’s disclosures.
The correct answer is B. This is a statement of fact.
Regarding negative amortization caps with ARMs, which of the following is true:
A. Negative amortization caps stop a loan from accruing negative amortization.
B. Negative amortization caps keep the loan balance from growing from deferred interest beyond the legal limit.
C. Negative amortization caps require that loan payments be recast when the cap is reached.
D. Negative amortization caps keep the loan balance from growing beyond predatory rates.
The correct answer is C. This is to keep the loan balance from growing beyond reach. Its time to start paying down some principal.
Which of the following forms allows the lender to request copies of the borrower’s federal income tax return:
A. 1003
B. FNMA 5467
C. 4506-T
D. FHLMC 6807
Answer: C. This is correct.
With an ARM, what is the shortest period of time the interest rate or payment amount could remain in effect:
A. One month
B. Six months
C. One year
D. Five years
Answer: A. This is correct.
Under TILA, the standard way to inform consumers of the true cost of borrowing money is by disclosing which of the following:
A. TIP.
B. The nominal rate.
C. APR.
D. Finance charge.
The correct answer is C. The formula for Annual Percentage Rate includes the nominal rate, the points, costs, and fees of getting the financing. It is the all-inclusive cost of the loan over the life of the loan and as all lenders follow the formula, it allows consumers to compare apples and apples.
According to the TILA final rule, all of the following are considered non-affiliated third party fees, except:
A. Title
B. Escrow
C. Appraisal
D. In-house processing
Answer: D. In-house processing fees are part of the broker’s compensation.
The Financial Assessment required by lenders when evaluating the risk for a HECM loan includes all of the following, except:
A. Credit history analysis.
B. Cash flow/residual income analysis.
C. Qualifying ratios.
D. Documenting and verifying credit.
The correct answer is C. No rigid qualifying ratios are considered.
Regarding HECM loans, effective with case numbers assigned on or after April 27, 2015, a Life Expectancy Set-Aside can be required by a mortgagee for which of the following property charges:
A. Taxes and special assessments.
B. Hazard insurance premiums.
C. Applicable flood insurance premiums.
D. All of the above.
The correct answer is D. Yes, all of these can be provided for by the mortgagee’s mandate of set-asides.
A Life Expectancy Set Aside, or LESA, is a government-implemented guideline that requires some reverse mortgage borrowers to put aside a portion of their reverse mortgage proceeds to pay for their property taxes and homeowners insurance for a certain amount of time.
What is the required down payment for a VA loan:
A. Zero in all cases
B. 3.5% of the loan amount
C. 5% of the loan amount
D. Zero if the VA loan guarantee is equal to at least 25% of the loan amount
Answer: D. This is correct.
All of the following disclosures may be provided to a consumer after loan consummation, except:
A. Escrow Closing Notice.
B. Mortgage Servicing Disclosure Statement.
C. Partial Payment Policy Disclosure.
D. Servicing Transfer Disclosure Statement.
The correct answer is B. This disclosure is provided within three (3) business days of completed application.
Which of the following are true regarding a cash-out mortgage:
A. It could be a junior or senior loan.
B. It allows borrowers to tap into the equity buildup.
C. It could be a refi that provides the owner with cash.
D. Any of these can apply to a cash-out mortgage.
The correct answer is D. Yes, all of these are true of a cash-out mortgage.
According to the TILA final rule, which of the following is considered a loan originator:
A. A mortgage broker
B. A person who for compensation or gain arranges, negotiates, or otherwise obtains an extension of consumer credit for another person
C. A producing manager
D. All of the above
Answer: D. Yes, all of these are considered loan originators according to the final rule.
Which of the following laws was passed by Congress in 1977 to combat redlining:
A. Equal Credit Opportunity Act (ECOA)
B. Community Reinvestment Act (CRA)
C. Homeowner’s Protection Act (HPA)
D. Fair Credit Reporting Act (FCRA)
The correct answer is B. The specific purpose of this law was to reduce discriminatory credit practices against low-income neighborhoods.
In addition to interest rates, APR, and other costs, which of the following are types of information the Loan Estimate would also include:
A. Name and contact information of lender.
B. Subject property address.
C. Payment summary table indicating initial interest rate and corresponding monthly payments.
D. All of the above.
Answer D
Which of the following represents a unique feature of the HECM loan program:
A. Shared appreciation with the lender.
B. Equal monthly payments for a fixed period of time.
C. Cash growth opportunities of the line of credit.
D. Equal monthly payments for the term of the loan.
The correct answer is C. As the credit line grows over time, the amount of cash available increases by the same total rate being charged on the loan balance until the borrower withdraws up to the principal limit.
The minimum down payment for an FHA loan with a FICO score of 580 minimum is which of the following:
A. No down payment
B. 3%
C. 3.5%
D. 5%
Answer: C. This is correct.
FHA Credit 580+ = 96.5%
FHA Credit 500-579 = 90%
Regarding TILA, an extended right of rescission is closest to what period of time:
A. 60 days.
B. 90 days.
C. One year.
D. Three years.
The correct answer is D.
When must a Co-Borrower’s information be included on a Uniform Residential Loan Application:
A. Only when the income or assets of the Co-Borrower will be used as a basis for loan qualification
B. If the income or assets of the Co-Borrower will not be used as a basis for loan qualification, but their liabilities must be considered because the Co-Borrower has community property rights and the Borrower resides in a community property state
C. If the borrower is relying on other property located in a community property state as a basis for repayment of the loan
D. Both “B” and “C”
Answer: D. Yes, these reasons, as well as if the security property resides in a community property state, or when the income or assets of the Co-Borrower will be used as a basis for loan qualification.
When the Loan Estimate is mailed to the borrower, when can the MLO collect other fees?
A. Immediately, whether or not the borrower has indicated the intent to proceed.
B. Within 3 business days if the borrower has indicated the intent to proceed.
C. The next day.
D. The day after tomorrow.
The correct answer is B. If faxed or emailed, other fees could be collected the next day if proof of receipt is faxed or email back. For effective test preparation, know all situations pertaining to transmitting the LE.
Which of the following sets the dates for the setting or changing renewal or reporting dates in a particular state: A. The NMLS. B. The CFPB. C. The state regulatory agency. D. These are set by HUD.
The correct answer is C. Yes, this is a state issue and is controlled at that level.
The MLO does not have to provide the RESPA-required disclosures at the beginning of the loan process under which of the following circumstances:
A. If the borrower withdraws the application before the end of the 3 business day period.
B. If the lender turns down the loan before the end of the 3 business day period.
C. If the MLO sincerely feels that the borrower is not likely to successfully resolve the debt incurred with this loan.
D. A & B.
The correct answer is D. In these circumstances, the MLO does not have to issue the disclosures.
Which of the following laws would be considered an Anti-Predatory Lending Law:
A. ECOA
B. HOEPA
C. HMDA
D. FACTA
Answer: B. Yes, the Home Ownership and Equity Protection Act is designed to prevent lenders from heaping additional costs and penalties on top of an already high cost loan.
MLO Gretchen gave borrower Don an itemized closing cost statement for a proposed mortgage loan. What else must the MLO do?
A. The top of the first page must contain the statement, “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.”
B. Guarantee the return of all fees paid if the borrower changes his mind.
C. Initially collect only for credit, appraisal, and termite inspection fees.
D. The MLO must also provide a list of HUD approved Housing Counselors.
The correct answer is A. When the borrower has submitted a complete application, the MLO will issue all required disclosures within 3 business days.
When a loan falls into the category of a high-priced loan, all of the following are restrictions imposed by the 2009 amendment to TILA, except:
A. Lenders are required to verify the repayment ability of the borrower.
B. The repayment schedule must consolidate at least two periodic payments to be paid in advance.
C. Prepayment penalties are limited to two years.
D. Impound accounts must be established for payment of taxes and insurance.
The correct answer is B. This is not a restriction imposed by TILA.
Which of the following best describes a level payment buydown plan:
A. A buydown plan that reduces the interest rate throughout the term of the loan.
B. A buydown plan where the reduction remains constant throughout the buydown period.
C. A buydown plan where the interest rate is reduced for at least two years of the term.
D. A buydown plan where the interest changes only one time during the buydown period.
The correct answer is B. Yes, this describes a level payment buydown plan.
All of the following are true regarding the borrower and the appraisal for the property being financed, except:
A. Since the borrower is the appraiser’s client, and the client has paid for the appraisal, the borrower is entitled to a copy of the appraisal.
B. The lender is required to give to the borrower a copy of the appraisal at no additional cost.
C. The borrower is entitled to receive a copy of the appraisal at three (3) days before closing.
D. The appraiser can only give a copy of the appraisal to his/her client.
The correct answer is A. The borrower is not the appraiser’s client, so the appraiser cannot give the borrower a copy. The lender, however, is obligated to provide a copy to the borrower.
14) When must the disclosure form for an affiliated business relationship be given to a borrower
A. If the provider of the settlement service is an affiliate of the lender, the AfBA disclosure must be given within three (3) business days of receiving the completed application.
B. If the provider of the settlement service is an entity other than the lender, the AfBA disclosure must be provided at the time of the referral, or before, if the borrower so requests.
C. Four (4) business days before loan consummation.
D. A & B.
Answer C
An unusual characteristic of a Variable Balance Mortgage (VBM) is which of the following:
A. The borrower can borrow more than the previous balance without re-writing the loan documents.
B. The VBM covers both real and personal property.
C. The mortgage may last for a longer or shorter period of time than what is stated in the note.
D. It is a soft money mortgage.
The correct answer is C. This is because as the rate increases or decreases, the balance due on the mortgage changes. Hence, it may take a longer period of time or a shorter period of time to retire the debt.
A 3-2-1 buydown is best described as which of the following types of loans: A. Level payment buydown. B. Graduated payment buydown. C. Reverse mortgage. D. Fixed rate conventional.
The correct answer is B. The interest rate is reduced by 2.5% the first year, 2% the second year, and 1.5% the third year, gradually attaining the fully indexed rate.
If a subsidy paid by a builder to prepay interest buys the interest rate down 3% for three years, at which of the following rates will the borrower usually qualify:
A. At the current market interest rates at th
e time of closing.
B. At 1% below the current market interest rates.
C. At 2% below the current market interest rates.
D. At 3% below the current market interest rates.
The correct answer is C. Yes, this is usually the lowest qualifying rate a lender will allow under these circumstances.
Covered loans under RESPA include all of the following except:
A. Loans placed on one-to-four-family residential property
B. Most purchase-money loans, assumptions, and refinances
C. Seller financing on one-to-four-family residential property
D. Property improvement loans and equity lines of credit
The correct answer is C. RESPA does not cover transactions where the seller takes back the mortgage.
Two major pieces of information provided in the new integrated Closing Disclosure includes which of the following:
A. The final statement of closing costs.
B. The final Truth in Lending Statement, disclosing the APR
C. Estimated cash to close.
D. A & B.
The correct answer is D. The final Closing Disclosure form discloses cash to close down to the penny.
Which of the following statements best describes consumers’ rights based on FACTA:
A. FACTA allows consumers applying for credit to receive the Home Loan Applicant Credit Score Information Disclosure notice, which explains their rights.
B. FACTA requires that consumers applying for credit receive the Home Loan Applicant Credit Score Information Disclosure notice, which explains their rights.
C. FACTA allows consumers a three day right of rescission on all loans.
D. FACTA requires that consumers receive a three day right of rescission on all loans.
The correct answer is B.
The Consumer Handbook on Adjustable Rate Mortgages (CHARM Booklet) is prepared by which of the following agencies:
A. The Federal Agency on Adjustable Rate Mortgages (FAARM).
B. The Federal Reserve and Federal Home Loan Bank Board.
C. The Office of Thrift Supervision (OTS).
D. The Office of the Comptroller of the Currency (OCC).
The correct answer is B. This is a statement of fact.
All of the following statements are true regarding negative amortization and the HOEPA loan, except:
A. Negative amortization loans are prohibited with HOEPA loans.
B. Negative amortization is permitted to occur with HOEPA loans only if due to interest rate changes or payment schedule caps.
C. Negative amortization loans would cause an increase in the borrower’s total principal debt.
D. Negative amortization loans do not fully pay off the debt by the end of the term.
The correct answer is B. An experienced MLO will try to avoid negative amortization even under these circumstances.
All of the following would indicate constructive fraud, except:
A. Negligence
B. Active concealment
C. Misrepresentation
D. Carelessness
Answer: B. Yes, all of these represent constructive fraud except “B”, active concealment. Even though constructive fraud is not intentional, it is still serious because it places the client at a disadvantage.
If a loan is made with introductory interest rates, which of the following would be a serious concern for underwriters: A. Risk layering. B. Payment shock. C. Early recastings. D. Both B and C.
The correct answer is D. Yes, these two could make it difficult for a borrower to make the payments.
Which of the following best describes third party charges:
A. Fees paid to any party other than the creditor.
B. Fees paid to any party other than affiliates of the creditor.
C. Fees for services the borrower Is not allowed to choose.
D. All of the above.
The correct answer is D. Third party charges include the appraisal fee, credit report fee, flood certification, private mortgage insurance, termite inspection report, recording fees, surveys, and other fees.
All of the following are requirements that FACTA places on businesses to ensure effective security and disposal of sensitive personal consumer information, except:
A. Burn or shred papers.
B. Destroy or erase electronic files.
C. Ball it up and double bag it in a trash bag.
D. Place all pending loan documents in locked desks, cabinets, or storage rooms.
The correct answer is C. Disposal methods must preclude reconstruction of the information.
The stated purpose of the Dodd-Frank Wall Street Reform and Consumer Protection Act is which of the following Except
A. Improve accountability and transparency in America’s financial system
B. To protect the American taxpayer by ending bailouts
C. To protect consumers from abusive financial services practices
D. To ensure disclosure of APR
Answer D
Answer: D. Yes, all of these are stated reasons for this legislation, as well as to end “too big to fail” policies, and other reasons.
^^^Loans covered under the TILA final rule include all of the following, except:
A. All closed-end consumer loans secured by one-to-four-unit residential properties
B. All open-end consumer loans secured by one-to-four-unit residential properties
C. All closed end mortgages
D. All reverse mortgages
Answer: B. Open-end loans, where the borrower can add on to the loan balance without rewriting the loan documents (HELOC, for example), are not included in TILA’s final rule
Which of the following would have to be a state-licensed MLO:
A. An MLO working for Wells Fargo Bank.
B. An MLO working for Evergreen Mortgage Bankers.
C. An MLO working for the Los Angeles Federal Credit Union.
D. An MLO working for Western Farm Loans, regulated by the Farm Credit Administration.
The correct answer is B. The other sources of employment would have MLOs that were registered with the NMLS-R, but not licensed.
A consumer may receive a corrected Closing Disclosure after consummation for which of the following reasons:
A. It corrects a numerical error.
B. It may include proceeds for a lender tolerance cure.
C. It corrects a non-numerical clerical error.
D. All of the above.
The correct answer is D. It is presumed that these types of errors will not have a material impact on the loan transaction
Which of the following would be acceptable ways for a borrower to obtain secondary financing:
A. Seller carry back.
B. An additional junior lien from an outside source.
C. The seller could offer a conventional 80/20 loan.
D. All of the above.
The correct answer is D. Yes, all of these would be acceptable ways to obtain secondary financing. Regarding C, if the loans meet all standards and criteria, the first can still be sold to Fannie and Freddie.
Based on the TILA final rule, which of the following isprohibited regarding compensation to the MLO:
A. Dual compensation
B. “Pull-through” rate for compensation
C. Long-term loan performance
D. Loan volume
Answer: A. This means receiving compensation from the borrower and the lender in the same transaction.
Which of the following represent the two categories of fraud:
A. Voluntary and involuntary
B. Malicious and accidental
C. Actual and constructive
D. Intentional and unintentional
The correct answer is C. This is correct. Actual fraud is with the intent to deceive. Constructive fraud is negligence. Though the perpetrator did not intend to deceive, the client is still placed at a disadvantage.
Under which of the following circumstances is a prepayment penalty prohibited in a HOEPA loan:
A. Always.
B. If it goes beyond the first three years of the loan.
C. If the consumer’s total monthly debts, including the HOEPA loan, exceed 50% of the consumer’s gross monthly income.
D. If it goes beyond the first 48 months of the loan
The correct answer is A. A prepayment penalty is strictly prohibited on a HOEPA loan.
According to RESPA, a person who is in a position to refer settlement services refers to which of the following:
A. An individual
B. A corporation
C. A partnership
D. Any of the above
The correct answer is D. A person could also be an association or a trust.
According to the Code of Ethics of the National Association of Mortgage Brokers (NAMB), all of the following are true regarding the law, except:
A. Mortgage loan originators must abide by the law.
B. Mortgage loan originators must know the law.
C. Mortgage loan originators must understand and apply the law.
D. Mortgage loan originators cannot be expected to stay current with changes to the law as laws are changing constantly and this is beyond the scope of the job of the MLO.
The correct answer is D. Yes, this statement is incorrect. The MLO does annual Continuing Education and must keep abreast of changes to the law.
Under which of the following circumstances is a prepayment penalty prohibited in a HOEPA loan:
A. Always.
B. If it goes beyond the first three years of the loan.
C. If the consumer’s total monthly debts, including the HOEPA loan, exceed 50% of the consumer’s gross monthly income.
D. If it goes beyond the first 48 months of the loan
The correct answer is A. A prepayment penalty is strictly prohibited on a HOEPA loan.
To investigate compliance with the SAFE Act, which of the following do the CFPB enforcement authorities not have the power to do:
A. Examine any books, papers, records, or other data of any MLO at any time.
B. Summon any MLO to appear before the Bureau at a time and place named in the summons.
C. Order any MLO from any state to give testimony under oath.
D. None of the above.
The correct answer is D. The CFPB enforcement authorities have the authority to do all of this, and more.
Upfront mortgage insurance premium (UFMIP) for amounts greater than 60% of the principal limit is which of the following: A. UFMIP is .50%. B. UFMIP is 1.00%. C. UFMIP is 1.25%. D. UFMIP is 2.50%.
The correct answer is D.
According to the Code of Ethics of the National Association of Mortgage Brokers (NAMB), all of the following are true about honesty and integrity, except:
A. Mortgage professionals should conduct business in a manner reflecting honesty and integrity.
B. Mortgage professionals should be truthful in all advertisements and solicitations they make.
C. While you conduct business in a manner reflecting honesty and integrity, you have no control over those with whom you do business.
D. As a mortgage professional, reasonable care and skill should always be used when acting on behalf of a customer.
The correct answer is C. The Code of Ethics requires you to insist that those with whom you do business also act with honesty and integrity.
If a last-minute change does not involve changes to the APR, the loan product, or the addition of a prepayment penalty, the corrected Closing Disclosure must be provided when?
A. At or before consummation.
B. Three (3) business days before consummation.
C. Four business days prior to consummation.
D. Even after closing just so the change is documented.
The correct answer is A. Yes, if the changes do not involve APR, loan produce, or adding a prepayment penalty, the CD must be provided at or before consummation
The TILA-regulated 10% cumulative tolerance on settlement service provider charges is best described as which of the following:
A. The creditor may charge the consumer more than the amount disclosed on the Loan Estimate.
B. The total sum of the applicable charges added together cannot exceed the sum of those charges disclosed on the Loan Estimate by more than 10%.
C. The creditor may never charge the borrower more than the amount listed on the Loan Estimate.
D. A & B.
The correct answer is D.
The new Closing Disclosure form must be delivered to the borrower in which of the following time frames:
A. Three (3) business days prior to loan consummation.
B. Four (4) business days prior to closing.
C. At closing, as the name of the form suggests.
D. Three (3) days before closing.
The correct answer is A. This gives the borrower time to review the settlement charges.
Which of the following is a legitimate criteria for MLO compensation according to the TILA final rule:
A. Government insured or conventional
B. Primary residence or second home
C. Loan amount or overall loan volume
D. Purchase loan or refinance
Answer: C. Yes, compensation can vary with loan amount and/or overall loan volume.
Which of the following is true of an interest-only (I-O) ARM:
A. An interest-only ARM is not a fully amortized loan
B. On an interest-only ARM, the interest rate cannot adjust during the I-O period
C. Payments increase after the I-O period, even if interest rates stay the same
D. The shorter the I-O period, the higher the monthly payments will be after the I-O period ends
Answer: C. This is correct, because the borrower must start paying back the principal.
With an easy-qualifier loan, the lender typically modifies the terms of the loan based on which of the following: A. The economy. B. The cost of funds. C. Customer needs. D. Lack of down payment.
The correct answer is C. This creates the need for customized treatment.
Which of the following practices or circumstances could cause a borrower to owe more than his/her home is worth:
A. Home values are not rising quickly
B. The borrower makes minimum payments
C. The borrower falls into negative amortization
D. Any of the above
Answer: D. Any one of these factors or any combination may result in a borrower owing more than their home is worth. They may find it difficult to refinance to get a lower rate or monthly payment.
Which of the following would be considered violations of the Fair Housing Act if they are based on membership in a protected class:
A. Refusing to provide information regarding loans
B. Refusing to make a mortgage loan
C. Imposing different terms or conditions on a loan
D. All of the above
The correct answer is D. A lender certainly might decline to make a loan or offer less favorable terms and conditions if based on the borrower’s qualifications, but these distinctions could not be made based on membership in a protected class.
Which of the following best describes a reverse mortgage:
A. Debt increases while equity decreases.
B. Debt decreases while equity increases.
C. Recourse for the loan falls only upon heirs, not the owners.
D. Payments to the borrower stop if the loan balance will be more than the value of the collateral.
The correct answer is A. Yes, this is the reason heirs sometimes object to their senior parents taking out a reverse mortgage.
Availability of easy-qualifier loans would depend on which of the following: A. Interest rates. B. Current market conditions. C. One-year treasury index. D. NMP guidelines.
The correct answer is B. Current regulations would not allow such a loan to be sold on the secondary market.
What is the issue of Section 10 of RESPA?
A. Impound accounts
B. Title insurance
C. Kickbacks
D. Fee-splitting and unearned fees
The correct answer is A. Referred to as “escrow account” in the textbook, but as you read it, it’s apparent they are talking about an impound account. All information listed is fair game for the tests.
