Safe Practice Exam 1 A Flashcards
What is a provision in a mortgage enabling the lender to demand full repayment if the borrower sells the mortgaged property or partial interest in a mortgaged property?
An alienation clause requires the mortgagor to repay the entire balance of the loan if the property is sold, transferred, or otherwise abandoned.
According to ECOA, a borrower can request a copy of the appraisal report used in the decision process__days of a credit decision.
Borrowers have a right to request a copy of the appraisal report used for a decision within a 90 days of that credit decision.
A customer asks for his mortgage broker for the name of a good title company. The broker has a list of several companies with whom she has done business in the past. At what point, according to RESPA, must she give the customer an AfBA disclouse?
If the referring party does not have an ownership or other beneficial interest, an Afficilated Business Arrangement (AfBA) disclosure is not required by RESPA.
What would not be considered a RESPA violation?
A thing of minimal valued used in the course of sales such as pens, mementos, coffee cups hats, etc. is permissible, but the other three arrangements could be considered violations of RESPA. To violate RESPA, the thing of value does not have to be money.
The Real Estate Settlement Procedures Act (RESPA) is also known as
RESPA is also known as Regulation X.
What is the least acceptable factor in evaluation a mortgage loan application?
Creditors may not deny a loan based on the source of income; they may deny a loan based on the likeliness that the income will continue.
Which regulation encourages financial institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices?
The Community Reinvestment Act is intended to ensure that all neighborhoods are served by financial institutions.
According to ECOA, a borrower can request a copy of the appraisal report used in the decision process with __ days of a credit decision.
Borrowers have a right to request a copy of the appraisal report used for a decision within 90 days of that credit decision.
Conforming loans follow the underwriting guidelines of
Traditionally, a loan is considered to be conforming when it meets Fannie Mae/Freddie Mac standards and can be sold on the secondary market.
ECOA is a low that ensures
The Equal Credit Opportunity Act ensures all lenders must make credit available with fairness and without discrimination.
A 65 year old homeowner does not currently have a mortgage on his home but is inn need of funds to make some repairs. Which mortgage option would best address his needs?
A reverse mortgage allows qualified homeowners at least 62 years of age to convert equity in their home into a monthly income stream or line of credit.
The borrower knows that his credit is bad, but he really wants to buy a house. He convinces his cousin to apply for a loan, knowing she will be able to get better terms. He promises her that he will pay the full mortgage amount every month. She could be considered a
A buyer who has no intention of living in the property he or she fraudulently mortgages could be considered a straw buyer. While this situation may seem okay, since it’s just one relative helping out another, it’s still misrepresentation and, therefore, fraud.
An FHA borrower may
FHA loans are not just for low-income borrowers. They can be used to purchase a one- to four family residence. FHA loans do require a down payment but allow borrowers to use a give to cover that.
The value remaining in property after all liens and debt are considered is its
Equity is the difference between market value of a property and the sum of the mortgages and liens against it.
A borrower is refinancing his home and signs the loan papers. How much time does Reg Z give him to change his mind?
When refinancing, Regulation Z gives a borrower three business days to rescind after the contract is signed.
An 80/20 combo loan with the sales price of $175,000, a rate of 6 % for the 80% first mortgage, and a rate of 8.5% for the 20% second mortgage would have a first mortgage loan amount of what?
The first mortgage is 80% of the sale price: $175,000 x 80%= $140,000.
A convertible ARM allows a borrower to change
A convertible adjustable rate mortgage gives a borrower the right to change from an adjustable rate mortgage to a fix rate mortgage one time during the loan term, provided certain conditions are met.
The act of redlining may be defined as
Redlining is the refusal to make loans on property in certain neighborhoods for discriminatory reasons and is an illegal discriminatory act under federal, state, and local fair housing laws.
A borrower wants to get a loan to buy a house. When evaluating his credit obligations, which would not be considered as debit?
His cable service part of his debt for qualifying purpose since cable service can be cancelled.
HOEPA is an addendum to what law?
HOEPA is an addendum to the Truth and Lending Act. HOEPA limits the amount of points that can be charged on loans without additional disclosures.
The relationship between the cost of borrowing and the total amount financed, represented as a percentage, is known as
The APR-annual percentage rate-takes into consideration the cost of borrowing and the total amount financed. It is represented as percentage and is the true cost of lending.
While underwriting a loan file, you calculate this formula
A borrower’s housing expense ratio is the relationship of the borrower’s total monthly housing expense to income, expressed as a percentage.
An opinion of value is also known as
The definition is “an opinion of value.”
TILA requires creditors to maintain records that they complied with the disclosure requirements for how many years?
Tila law requires creditors to maintain records for two years after the disclosure were required to be made.
What is the maximum length of time that collection information can be reported on a credit report according to the Fair Credit Reporting Act?
Seven years is the maximum length of time such information can be reported on a credit report according to the Fair Credit Reporting Act, except for criminal convictions, which can be reported indefinitely.
A borrower has a stable monthly income of $4,000 and recurring debts of $600. If he’s getting an FHA loan, what’s the maximum monthly payment for which he would qualify?
Using the payment to income ratio of 31 %, we get $1,240. But using the total debt to income ratio, we find: $4,000 (income) multiplied by 0.42, which equals $1,720. From that, you subtract monthly debts of $600, leaving $1,120.
Which law allows a consumer who has had her credit card used by an identify thief to place a freeze on her credit report?
FACTA has provisions that allow consumers to freeze their credit under certain circumstances, such as when they have experienced identity theft.
You are pre-qualifying a borrower for a purchase loan. She has debt equaling $950 each month and gross monthly income totaling $5,200 each month. What is the maximum qualifying house payments, including principal, interest, taxes and insurance on a conventional loan.
Two calculations need to be done: $5,200 x 28%= $1,456, then $5,200.00 x 36% = $1,872 - $950 = $922. Take the lower of the two. If you did not complete both calculations, you might have allowed Sue to hve a payment of $1,456; by the time you added the debt and divided by the $5,200, you back ratio would be too high ($5,200 x 28% = $1,456 + $950 = $2,406 divided $5,200) = 46%.
Under the FCRA, consumers do NOT have the right to
All consumers have the right to review their credit reports for accuracies, challenge inaccurate information, and receive a free copy of their credit report annually. They do NOT have the right to have bankruptcies removed after five years. That timeline is seven to ten years.
Which situation is NOT a red flag that illegal flipping may be taking place?
Purchasing and remodeling a house then selling it for a quick profit is good side of flipping, which is perfectly legal. The illegal side of flipping is when colluding parties profit from the sale of property with an inflated appraisal that supports a loan. It may involve a series of sales and quick resales, with one property and a group of sellers and buyers changing ownership among them.
A borrower closes a loan with ABC Mortgage. His name is NOT on the National Do Not Call Registry NOR on ABC’s internal do not call list. ABC Mortgage can call the borrower to solicit new business.
A consumer who does not place his name on either the National Do Not Call Registry or a company’s internal do not call list has no protection from phone calls. ABC can call the borrower indefinitely.
You are refinancing a $200,000 mortgage with a prepayment penalty of six months of interest at 6.5%. How much prepayment penalty?
Simply multiply the original loan amount by the interest rate for the annual interest, then divide by 2 to get six months interest. In this case, $200,000 x 6.5% (0.065) = $13,000 divided by 2= $6,500.
A borrower reports income of $40,000 from rental properties. How much should be considered when applying for a mortgage loan?
Income from rental properties should be counted only at 75% allows for vacancy losses.
The document that created a lien against real property as security for promise to repay a loan is called a
A mortgage created a lien against real property as security for the payment of a note. The mortgage is a type of security instrument where the borrower (mortgagor) pledges property to the lender (mortgagee) as collateral for the debt.
What is the maximum LTV on a Rural Development loan?
Borrowers who meet the income in designated rural areas do not need a down payment to get Rural Development loan.
During the application process, an MLO asks if the borrower is widowed; he is violating which law?
ECOA states that an MLO can ask if the borrower is married, unmarried, or seperated. The MLO may not ask if the borrower is widowed or single.
Under Regulation Z, which advertisement would require full disclosure of credit terms?
Regulation Z requires that once you state any type of credit terms in advertising such as 8% interest, you must disclose all finance charges and total annual percentage rate (APR).
The privacy Rule of the Gramm-Leach-Bliley Act requires that financial instututions provide the consumer with a Consumer Privacy Policy.
According to the Gramm-Leach-Bililey Act, this policy is required to be provided before disclosing information to non-affiliated third parties.
A borrower is buying a house with a sales price of $200,000 and an LTV of 75%. If he pays two discount points, what is the total costs of the points?
With an LTV of 75%, the loan for this purchase is $150,000. On a $150,000 loan, a point costs $1,500 (150,000 x .01), so the borrower is paying $3,000.
RESPA’s section 8 prohibits all fees Except
RESPA’s Section 8 prohibits any kinds of kickback, unearned fee, or referral fee. Earned fees are certainly allowed.
What is NOT considered a protected class under the Fair Housing Act?
While other federal legislation prohibits discrimination due to age, the fair Housing Act does not address age.
HMDA
The Home Mortgage Disclosure Act is a disclosure law that determines whether financial institutions are serving the housing needs of their communities.
If an MLO or real estage agent engages in the practice of soliciting homeowners in a particular community to sell their properties because people of other races, religions, or social status have purchased in the area, they would be guilty of
Blockbusting is soliciting others to sell their properties due to changes in a neighborhood.
Which household does NOT qualigy as a protected class under the familial status clause of the Fair Housing Act?
Familial status refers to households that include individuals under the age of 18 who either live with parents or legals custodians. This protection also extends to pregnant women or any person in the process of obtaining legal custody of a child under the age of 18.
A homeowner house appraises for $125,000. He qualifies for an 85% LTV. He owes $63,000 on his first mortgage and $5,000 on his second mortgage. He would like to refinance his house into one mortgage loan and receive additional cash to pay off other debt. How much cash would be available if his closing costs are $4,200 and are financed in the loan?
First, determine the maximum loan amount Robby qualifies for $125,000 x 85% = $106,250 -$63,000 - $5,000 -$4,200 = $34,050 cash available.
A residential lender is EXEMPT from the policies of the federal Civil Rights Act
The Civil Rights Act of 1866 applies to anyone involved in any property transaction; there are no exceptions.
The down payment requirements for VA loan ca be as little as
Eligible veterans do not need a down payment to get a VA loan.
Which mortgage clause allows a lender to declare the entire unpaid balance due on a borrowers default?
The lender’s right of acceleration can mean that a buyer who misses one or two payments may have to pay off the entire debt to save the home.
Which two federal regulations have the most pertinent disclosure requirements related to loan terms?
RESPA and TILA require disclosure of loan terms. TILA requires the disclosure of the total finance charges and loan terms in the Truth in Lending Statement; RESPA requires lenders to provide a Good Faith Estimate of closing costs and a Closing Disclousre-1 Settlement Statement.
Ralph and Alice are thinking about getting an HECM reverse mortgage. If they chose the tenure payment option, they will recieve their money as
Tenure refers to the homeowners’ stay in the house.
What risk is PMI intended to cover?
Private mortgage insurance (PMI) is offered by private companies to insure a lender against default on a loan by a borrower.
A final payment at the end of a loan term to pay off the entire remaining principle and interest balance NOT covered by payments during the loan is
A balloon payment pays off any remaining balance at the end of a loan term.
The purpose of using PITI to structure payments in a mortgage is to
The lender (mortgagee) provides this service to a mortgagor by adding one-twelfth of the insurance premiums and taxes to the monthly mortgage payment amount.
Which scenario best describes a land contract?
A land contract is a real estate installment agreement where the buyer (vendee) makes payments to the seller (vendor) in exchange for the right to occupy, use, and enjoy the land, but no deed or title transfers until all, or a specified portion of, payment have been made.
What terminology is the only correct way to ask a client about his or her marital status?
Are you married, unmarried, or separated.” Be sure to include all three of these words in the questions.
With an ARM, the margin is added to the ____ to determine the _____.
A margin, which is also sometimes referred to as a spread, is added to the selected index to determine the interest rate charged on an ARM.
A lender learns that a real estate agent encouraged an appraiser to hit a specific value for a property. The lender
A lender cannot extend credit if the lender knows, at or before closing that improper coercion has occurred by anyone unless the lender can document that it has acted with reasonable diligence to determine that the appraisal does not materially misstate or misrepresent the dwelling’s value.
A lender is obligated to provide a borrower with what documents three business day prior to the loan closing?
The borrower has a right to view a Closing Disclosure three business day before closing.
The right of rescission is in effect for what type of loan closing?
The right of rescission is only in effect for refinances, no purchase. It applies to owner occupied refinances only, because a default on the loan results in the homeowner losing his or her house.
A borrower with less than perfect credit or other risk factors may qualify most easily for what type of loan?
Subprime loans fill a need for those with less than perfect credit who want to own a home. Some lenders and investors are will to make these riskier loans because they can get much higher interest rates and fees than they can with other real estate loans.
During the loan process, you find HMDA government monitoring information on
Under HMDA guidelines, Section X of the standard Residential Loan Application must be filled out even if the borrower does not wish to furnish the information. However, in the case of a face to face page 18 interview, the loan officer can still mark the “I do not wish to furnish this information box, but must fill in the application according to a visual observation or the borrower’s surname.
Borrowing A has a $100,000 30 year loan at 5%. Borrower B has a $100,000 15 year loan at 5.5%. At the end of their respective loan terms, who will have paid more principal?
The principal for the two loans is the same, $100,000 although Borrower B will potentially pay less interest, depending on how quickly he actually pays off the loan.
Funds for FHA loans are provided by
FHA insures loans made and funded by approved lenders.
With a fixed rate loan,
Fixed rate loans have interest rates that remain constant for the duration of the loan.
According to the Fair Credit Reporting Act, which of these would NOT have a valid need to information from a consumer credit reporting agency?
FCRA protects access to consumer credit files and allows a consumer reporting agency to provide information about a consumer only to people with a valid need. This man would have no permissible purpose to obtain his brother’s credit information.
Fannie Mae may require what to protect lenders against loan defaults by borrowers?
Both Fannie Mae and Freddie Mac require private mortgage insurance on home with less than 20% down.
Which law requires notification to a borrower before the servicing of a loan transferred to someone else?
RESPA requires a Servicing Transfer Statement to be sent to another service provider.
According to the FCRA, a credit agency must give a consumer a free copy of his credit report.
FCRA provisions entitles consumers to a free copy of their credit report if credit is denied based on what’s in the report.
A loan estimate must be provided to the applicant withing how many business days of a completed application?
The disclosure, as required by the Truth in Lending Act, must be provided to a borrower within three business days of a completed loan application.
When qualifying for a conventional mortgage loan, which would be LEAST LIKELY to count as allowable income?
Occasional overtime would probably not be considered durable income.
For which transaction must a lender follow the regulation of Truth in Lending Act?
TILA does not apply to business, commercial, or agricultural loans, loans payable with four or less installments and without a finace charge, or to loans made to corporation, partnerships, associations, and agencies. The lender does have to follow the rules of TILA when the loan is for a residential property.
A borrower who is paid $750 per week has a monthly income of?
To find monthly income, take weekly pay, muliply by 52 weeks, and then divide by 12 months ($750 x 52 = $39,000/12 = $3,250).
What is the most common appraisal approach used in appraising single-family housing?
The sales comparison approach is most common, since it compares the property to recent comparable property sales. There is no appraisal approach called the highest and best approach.
A higher Cost loan is defined by TILA as one that has
2009 amendments to the Truth in Lending Act define a higher-priced loan as one with an APR that exceeds the applicable average prime offer rate by at least 1.5% on first lien loans or 3.5% for junior lien loans.
The financial Modernization Act of 1999 is more commonly know as the
The Financial Modernization Act of 1999 is usually referenced by the names of the legislators who sponsored it: Phil Gramm, Jim Leach, and Thomas Bliliey.
Which question would NOT be considered a violation of the ECOA, even if asked very innocently during the loan interview process?
While you could make an argument that each of these questions might violate ECOA guidelines related to discrimination, the question about the applicant’s age may be necessary to prove that the applicant is old enough to legally enter into a contract.
Which law requires lenders to make full disclosure about the APR to borrowers in real estate financial transactions?
Lenders offering residential financing, including ARMs, must comply with federal guidelines under Regulation Z of the Truth in Lending Act requiring certain disclosures be made to borrowers, including the annual percentage rate.
Arianna has failed to pass the written test for her MLO license two consecutive times. She can retake the test after waiting
She can retake the test after waiting 30 days.
A loan balance that grows because of deferred due interest is know as
Negative amortization occurs when loan balances increase rather than decrease because the borrower is paying less than the minimum interest.
Which of these actions would indicate that a loan office is NOT committed to FACTA compliance?
FACTA address the problem of identity theft, and an office whose employee puts files in an unlocked drawer would not be in compliance. If someone does not personally secure his files, the confidential information could be accessed for identity theft after work hours by any unscrupulous office worker with keys or access codes to the building.
Who is most generally responsible for completing the accurate final Closing for the seller?
The title agent is responsible for tabulating all figures from the lender, broker, and government agencies, as well as any items being paid out to creditors.
A minimum of how many hours of approved licensing education are required by the SAFE Act for state-license loan originators?
The SAFE Act requires at least 20 hours of licensing education for state-licensed MLSs. Individual states may impose additional educational requirements.
Disclosing income such as child support and alimony is not required of the borrower. When this type of income is disclosed on the application, what federal regulation requires that it be considered in the approval process?
The Equal Credit Opportunity Act requires that, if the borrower wishes to disclose this information on the loan application, it must be used in the underwriting decision.
One purpose of the Truth in Lending Act is to
The Truth in Lending Act requires lenders to disclose consumer credit costs in a uniform manner to promote informed use of consumer credit, enabling them to compare credit costs and shop around for the best credit terms.
If a borrower pays $695.20 for principle and interest every month for 30 years on his $110,000 loan, how much interest will she pay over the life of the loan?
She will pay $140.272 in interest for that 30 year loan (695.20 x 12 months x 30 years = $250,272 total payment - $110,000 principal = $140,272 interest).
Which type of mortgage is funded by the United States Department of Agriculture?
USDA Loans (aka Section 502 loans) are funded by the USDA.
Which law regulates the activities of consumer reporting agencies and users of consumer credit reports?
The law that regulates credit bureau companies and users of credit reports is the Fair Credit Reporting Act.
Which closing document itemizes final closing costs and items paid in connection with the loan for the borrower?
The Closing Disclosure is a standard from that clearly shows all charges imposed on borrowers and sellers in connection with the settlement.
The SAFE Act is part of what larger law?
The Secure and Fair Enforcement for Mortgage Licensing Act, or SAFE Act, is a key component of the Housing and Economic Recovery Act of 2008.
A telemarketer can be fined how much per incident for calling someone registered on the National Do Not Call Registry?
The National Do Not Call Registry included provisions that a telemarketer can be charged $42,530 for each instance of calling a number that is on the list.
If a loan includes an escrow account, RESPA allows the lender to require a cushion of up to how many months.
Section 10 of RESPA sets limits on the amounts that a lender may reuire a borrower to put into an escrow account while allowing a cushion of up to two months.
ABC Mortgage makes a loan even though the borrower is unlikely to repay it, anticipating that they’ll eventually foreclose on the property and get the equity in the property. This is an example of
Extending credit to people with little or no income and who have little chance of repaying the loan so the lender can foreclose on the property and keep the excess equity to cover costs is considered predatory lending, according to the inter-agency Statement on Subprime Mortgage Lending.
Which form of documents the commission paid to a real estate broker?
The Closing Disclosure requires that all compensation be disclosed.
According to the SAFE Act, which would be considered a task that would require someone to be licensed MLO?
Someone who offers to negotiate the terms of a residential mortgage loan requires a license. These other tasks would be considered clerical or support duties that do not require licensure.
A mortgage broker with 20 years of experience is neither registered nor licensed as a mortgage loan originator. If he continues his loan origination activities, he would be in violation of what law?
The SAFE Act requires states requires states minimum standards for the licensing and registration of state-licensed mortgage loan originators.
All of the following loans are covered by RESPA except:
Loan assumption made without lender approval, RESPA covers loans secured by first or subordinate liens on residential property but does not extend to an assumable loan which can be assumed without lender approval.
