Test Q & A

Question 1

Which of the following is intended to ensure that consumers are provided with information on the nature and costs of the settlement process?

A.FCRA
B.HPA
C.HOEPA
D.RESPA

Answer 1

D.RESPA

The answer is RESPA. The purpose of RESPA and Regulation X is to help consumers become better shoppers for settlement (closing) services by providing them with information on the nature and costs of the settlement process. RESPA and Regulation X are also intended to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Question 2

A borrower receives $1,000 per month in rental income. How much of the income may be used to qualify the borrower for a loan?

A.$1,000
B.$800
C.$750
D.$1,250

Answer 2

C.$750

The answer is $750. Generally, 75% of rental income may be used to qualify a borrower for a loan. This formula is based on an industry standard that taxes, insurance, and maintenance costs will equal about 25% of the income that a property generates. In this case, 75% × $1,000 = $750.

Question 3

Assume a borrower completes an online loan application, including all six required elements, but never hits “submit.” Which of the following is true regarding the lender’s obligation to issue a Loan Estimate?

A.The lender must issue a Loan Estimate within three days of the borrower’s submission of the last required piece of information
B.The lender is not required to issue a Loan Estimate
C.The lender is required to issue a Loan Estimate once it realizes all six pieces of information have been submitted
D.The lender is required to contact the borrower

Answer 3

B.The lender is not required to issue a Loan Estimate

The answer is the lender is not required to issue a Loan Estimate. A lender must provide the Loan Estimate either in person or by placing it in the mail no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. If a loan application has not been submitted, a lender is not required to issue a Loan Estimate.

Question 4

What is Freddie Mac’s automated underwriting system called?

A.Desktop Originator
B.Underwriter Assistant
C.Loan Product Advisor
D.AUS

Answer 4

C.Loan Product Advisor

The answer is Loan Product Advisor. Freddie Mac’s automated underwriting system is called Loan Product Advisor (formerly known as Loan Prospector), while Fannie Mae’s is called Desktop Underwriter.

Question 5

A loan which allows the borrower to take a lump sum distribution without any monthly repayment requirements is a(n):

A.HECM
B.HELOC
C.Pay-option mortgage
D.Equity mortgage

Answer 5

A.HECM

The answer is HECM. The FHA’s home equity conversion mortgage (HECM) is a reverse mortgage that enables an individual aged 62 or older to convert some of the equity in his/her primary residence to cash to pay living expenses, or to purchase a primary residence if he/she has the cash for a down payment and closing costs. The HECM requires no repayment until either the property is sold or the owner dies, permanently moves, fails to live in the house for 12 consecutive months, or fails to pay property taxes, maintain hazard and/or flood insurance coverage, or maintain the property (i.e., perform necessary repairs).

Question 6

According to the standard deed of trust, how soon must a borrower on an owner-occupied loan occupy the property?

Within 30 days of closing
Within 90 days of closing
Within 60 days of closing
Within 15 days of closing

Answer 6

The answer is within 60 days of closing. Under most deeds of trust, including most FHA and VA loans, a borrower who intends to occupy the property as his/her residence must move in within 60 days after closing.

Question 7

In a mortgage transaction subject to RESPA that is secured by the consumer’s dwelling, a Loan Estimate must be delivered or mailed within three business days after receipt of a written application and no later than:

Three business days before the transaction is consummated
The fifth business day before the transaction is consummated
The seventh business day before the transaction is consummated
The date the transaction is consummated

Answer 7

The answer is the seventh business day before the transaction is consummated. A creditor must provide the Loan Estimate no later than three business days after receipt of the consumer’s application AND at least seven business days prior to consummation.

Question 8

What is the tolerance allowed for variances in the APR disclosure required by the Truth-in-Lending Act in a regular transaction?

1%
0.125%
.25%
$200

Answer 8

The answer is .125% (one eighth of one percent). The APR is considered accurate if it is not more than one eighth of one percentage point above or below the APR determined in accordance with legal requirements (i.e., in accordance with the actuarial method or the United States Rule method), or if it is not more than .25% (one quarter of one percentage point) above or below the APR for an irregular transaction.

Question 9

Which of the following would convey a property?

Deed rider
Warranty deed
Note
Deed of trust

Answer 9

The answer is warranty deed. A warranty deed conveys full ownership of land, and is commonly used in purchase and sales transactions of real estate. In addition to conveying property ownership, a warranty deed contains the promise of clear title, meaning the property is free of encumbrances.

Question 10

With respect to FHA loans, the FHA:

Guarantees the loans, thereby protecting the lender
Acts as the lender
Issues private mortgage insurance
Insures the loans, thereby protecting the lender

Answer 10

The answer is insures the loans, thereby protecting the lender. FHA loans are loans that meet FHA program criteria and are made by approved lenders. For these loans, the FHA insures the issuing lender against loss in the event of default. Under the FHA program, the lender can charge whatever points and interest a borrower is willing to pay, as the cost of the loan is negotiable. The advantage to the borrower is that the lender will make the loan with a very high loan-to-value ratio because it is insured.

Question 11

A mortgage broker and mortgage loan originator’s duties to the lender include all of the following, except:

Expediting processing so the loan can close within the period of any rate-lock
Processing applications based on the lender’s underwriting guidelines
Originating loans only for those applicants which promise most profit for the lender
Guarding against mortgage loan fraud and other practices that may harm the lender

Answer 11

The answer is originating loans only for those applicants which promise most profit for the lender. Mortgage brokers and mortgage loan originators must diligently perform the services expected by the lender, including processing applications based on the lender’s underwriting guidelines, following up to ensure conditions contained in commitment letters are satisfied in a timely manner, expediting processing so the loan can close within the period of any rate-lock, carrying out any cancellation procedures competently and professionally, and guarding against mortgage loan fraud and other practices that may harm the lender or investor purchasing the loan.

Question 12

A mortgage broker and mortgage loan originator’s duties to the lender include all of the following, except:

Expediting processing so the loan can close within the period of any rate-lock
Processing applications based on the lender’s underwriting guidelines
Originating loans only for those applicants which promise most profit for the lender
Guarding against mortgage loan fraud and other practices that may harm the lender

Answer 12

The answer is originating loans only for those applicants which promise most profit for the lender. Mortgage brokers and mortgage loan originators must diligently perform the services expected by the lender, including processing applications based on the lender’s underwriting guidelines, following up to ensure conditions contained in commitment letters are satisfied in a timely manner, expediting processing so the loan can close within the period of any rate-lock, carrying out any cancellation procedures competently and professionally, and guarding against mortgage loan fraud and other practices that may harm the lender or investor purchasing the loan.

Question 13

If a borrower’s reserve account for taxes and insurance is found to be short or deficient by an amount in excess of one month’s worth of deposits, which of the following is true?

The escrow account will be cancelled
The lender can require the borrower to make up the shortage over the next 12 months
The lender can require the borrower to make up the shortage over the next six months
The borrower must remit the shortage to the lender within 90 days of notice of the shortage

Answer 13

The answer is the lender can require the borrower to make up the shortage over the next 12 months. If the escrow account is short by more than 1 month, the lender can choose to do nothing or require repayment of the shortage over a minimum of 12 months.

If an escrow account analysis discloses a shortage of less than one month’s escrow account payment, the lender or servicer may allow the shortage to exist and do nothing to change it, require the borrower to repay the shortage amount within 30 days, or require the borrower to repay the shortage amount in 2 or more equal monthly payments.

Question 14

A lender originally discloses an APR of 6.08%. When the lender begins to prepare closing documents, they realize the actual APR is 6.135%. Which of the following is true?

The lender must re-disclose and wait three business days from mailing the disclosures before closing the transaction
The lender must re-disclose and wait three business days from the borrower’s receipt of the disclosures before closing the transaction
The lender must re-disclose and wait six calendar days from mailing the disclosures before closing the transaction
The lender has no obligation to re-disclose

Answer 14

The answer is the lender has no obligation to re-disclose. The APR is considered accurate if it is not more than one eighth of one percentage point (.125%) above or below the APR determined in accordance with legal requirements, or if it is not more than one quarter of one percentage point (.25%) above or below the APR for an irregular transaction. In this case, the difference between the disclosed APR and the actual APR is within the limits of this tolerance, and does not require re-disclosure.

Question 15

Ethics:

Is a branch of philosophy dealing with legal behavior
Provides a guideline for answering questions when a choice of actions is available
Defines how a person must act
Is set out in law

Answer 15

The answer is provides a guideline for answering questions when a choice of actions is available. Ethics goes beyond what is required under the law, so ethical rules extend beyond the minimum legal standards in providing guidance for one’s actions. Ethics goes into the realm of what should be done, providing guidelines for answering questions when a choice of actions is available. As a result, ethical rules are often not as clear-cut as the legal rules.

Question 16

Under the S.A.F.E. Act, a loan originator:

Can be an individual or a business entity
Is any person who takes loan applications secured by personal property
Is an individual who takes residential mortgage loan applications
Is any individual who takes loan applications secured by either real estate or personal property

Answer 16

The answer is is an individual who takes residential mortgage loan applications. The S.A.F.E. Act defines a mortgage loan originator as an individual who takes residential mortgage loan applications, or offers or negotiates terms of residential mortgage loans for compensation or gain.

Question 17

Under Regulation X, the term “loan originator” applies to a:

Loan processor
Mortgage broker only
Mortgage broker or lender
Mortgage lender only

Answer 17

The answer is mortgage broker or lender. Regulation X defines a loan originator to include a lender or mortgage broker.

Question 18

Insurance which guarantees a lender a certain lien position on the title to a property free from undisclosed encumbrances is called:

Guarantee against encumbrances
Lender’s title policy
Owner’s policy
Forced policy

Answer 18

The answer is lender’s title policy. A lender’s title insurance policy insures the lender or mortgagee against loss caused by a borrower’s invalid title or loss of priority of the mortgage or deed of trust, due to legal claims based on undisclosed encumbrances.

Question 19

When must a borrower receive notification of a servicing transfer?

15 days prior to the effective date of the transfer
Ten days prior to the effective date of the transfer
Within 30 days of the effective date of the transfer
With the borrower’s next payment coupon

Answer 19

The answer is 15 days prior to the effective date of the transfer. Under RESPA, when a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower must be sent a servicing transfer statement (showing the new servicer’s name, address, and toll-free telephone numbers and showing the date the new servicer will begin accepting payments) at least 15 days before the effective date of the servicing transfer.

Question 20

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

50%
60%
70%
40%

Answer 20

The answer is 50%. When secondary financing is a line of credit, the loan balance plus any draw amount is used to calculate the combined loan-to-value ratio (CLTV). In this case, the CLTV would be $200,000 + $50,000 / $500,000 = 50%.

Question 21

According to the Interagency Guidance on Nontraditional Mortgage Product Risks, relying on an individual’s capacity to repay the loan as structured from resources other than monthly income is:

Considered unsafe and unsound
A strong mitigating factor
Acceptable only with property securitization
Acceptable only with proper disclosure

Answer 21

The answer is considered unsafe and unsound. The Interagency Guidance on Nontraditional Mortgage Product Risks emphasizes the importance of establishing a borrower’s ability to repay a loan based on the borrower’s existing resources, primarily monthly income, rather than the value of the collateral pledged. Loans to borrowers who do not demonstrate the capacity to repay the loan from sources other than the collateral pledged are generally considered unsafe and unsound.

Question 22

Which of the following best describes the federal limitation on the shortest adjustment period allowed on an ARM?

No limit
One month
Three months
Six months

Answer 22

The answer is no limit. Federal law does not place general restrictions on the adjustment period allowed on an ARM.

Question 23

A mortgage broker originates and closes a mortgage loan, but it is funded by the lender who is purchasing the loan from the originating broker. This is an example of:

Warehouse lending
Mortgage brokering
Table funding
Wholesale lending

Answer 23

The answer is table funding. In table funding arrangements, a mortgage broker will originate, process, and close in its own name a loan underwritten and funded by a secondary lender, but will then assign the loan to the funding lender at the closing table.

Question 24

Which of the following borrowers would be considered self-employed for underwriting purposes?

A borrower who is a vice president for a company, of which she is a 20% owner
A borrower who receives only commission reported on a W-2
A borrower who files Form 2106 with her tax returns
A borrower who is a salesperson for a company, of which she is a 30% owner

Answer 24

The answer is borrower who is a salesperson for a company, of which she is a 30% owner. A self-employed borrower is one who owns 25% or more of a business.

Question 25

Which of the following is least likely to be considered nonpublic personal information?

Borrower’s home phone number
Employer’s phone number
Borrower’s job title
Borrower’s income

Answer 25

The answer is employer’s phone number. Nonpublic personal information (NPI) is any personally identifiable financial information that a financial institution collects about an individual in connection with providing a financial product or service. NPI does not include information where there is reasonable basis to believe it is lawfully made publicly available, such as an employer’s phone number.

Question 26

For an FHA loan, how much may the seller contribute toward the borrower’s closing costs?

Nothing
6% of the sales price
3% of the sales price
3% of the loan amount

Answer 26

The answer is 6% of the sales price. The FHA allows the seller to contribute up to 6% of the purchase price toward the buyer’s actual closing costs, prepaid taxes and insurance, discount points, buydown fees, mortgage insurance premiums, and other financing concessions, but nothing toward the down payment.

Question 27

Under HOEPA, a high-cost loan may have a balloon payment under all of the following circumstances, EXCEPT:

The loan satisfies the requirements of a balloon payment qualified mortgage
A nine-month bridge loan is obtained for the construction of the borrower’s primary dwelling
The borrower’s income is seasonal
The borrower signs a waiver consenting to the balloon payment

Answer 27

The answer is the borrower signs a waiver consenting to the balloon payment. A high-cost loan may not provide for a payment schedule with regular periodic payments that result in a balloon payment, unless the payment schedule is adjusted for the irregular or seasonal income of the borrower; the loan is a bridge loan with a term of 12 months or less, taken in connection with the acquisition or construction of a dwelling that will be the borrower’s principal residence; or the loan satisfies the requirements of a balloon payment qualified mortgage.

Question 28

The number one ethical problem cited in surveys of professionals and managers is:

False or misleading representation of products or services in marketing, advertising, or sales
Lack of sufficient disclosures
Inaccuracies and lack of documentation in handling client/customer funds
Deliberate attempts at fraud and misrepresentation in face-to-face meetings

Answer 28

The answer is false or misleading representation of products or services in marketing, advertising, or sales. The number one ethical problem cited in surveys of professionals and managers is false or misleading representation of products or services in marketing, advertising, or sales efforts, usually involving various aspects of loan terms. This includes use of false or misleading advertising, use of truthful advertising in a deceptive or misleading manner, and concealing the limitations of the programs or terms being promoted.

Question 29

Which of the following is least likely to be considered a proxy for a loan term or condition under the Loan Originator Compensation Rule?

The state in which the property is located
The amortization term of the loan
Whether or not the loan is an ARM or a fixed-rate loan
The loan program

Answer 29

The answer is the state in which the property is located. If a loan originator’s compensation is based in whole or in part on a factor that is not an actual loan term but acts as a proxy for a term of transaction (such as the term and/or rate of the loan determining whether it is held in the lender’s portfolio or sold), the originator’s compensation is based on a term of the transaction and is prohibited. A factor is a proxy if the loan originator has the ability to add, drop or change it when originating the loan. Since the loan originator cannot change the state in which the property is located, it is not likely to be considered a proxy for a loan term or condition.

Question 30

A borrower obtains a one-year ARM, which starts at 4.0% and has a margin of 3.0%. At the end of the first year, the index is 5.0%. What is the fully-indexed rate when the loan adjusts?

8%
7%
6%
9%

Answer 30

The answer is 8%. When the rate adjusts, the new fully-indexed rate is equal to the index plus margin. In this case: 5 + 3 = 8.

Question 31

Which of these replaces the HUD-1 Settlement Statement and the final TIL Disclosure?

The Loan Estimate
The Closing Disclosure
The Affiliated Business Arrangement Disclosure Statement
The Mortgage Servicing Disclosure Statement

Answer 31

The answer is The Closing Disclosure. The Closing Disclosure replaces the HUD-1 Settlement Statement and the final TIL Disclosure. It sets forth the actual costs of the subject mortgage lending transaction in a clear and understandable manner.

Question 32

Under which of the following circumstances could a borrower be charged a fee for the preparation of a settlement statement?

The borrower requests a copy of the settlement statement 24 hours prior to closing
A borrower may not be charged a fee for the preparation of a settlement statement
The borrower requests a copy of the settlement statement 48 hours prior to closing
The borrower requests the lender prepare the settlement statement rather than the escrow agent

Answer 32

The answer is a borrower may not be charged a fee for the preparation of a settlement statement. Section 12 of RESPA provides that no fee can be charged by a lender for the preparation and distribution of documents required in connection with the making of a federally-related mortgage loan.

Question 33

Once the Closing Disclosure is delivered, which of the following would require a new Closing Disclosure to be delivered to the borrower and a new waiting period before closing?

An increase of more than 1% in cash required to close
A change in the loan amount
An increase in the APR by more than .125%
The addition of any costs to the borrower

Answer 33

The answer is an increase in the APR by more than .125%. A new three-business-day waiting period applies to a corrected disclosure if there are changes or corrections that relate to the annual percentage rate, the loan product, or the addition of a prepayment penalty. For other types of changes, the corrected disclosure may be provided at or before consummation. The APR is generally considered to be accurate if it is not more than one eighth of one percentage point (0.125%) above or below the APR determined in accordance with legal requirements (i.e., in accordance with the actuarial method or the United States Rule method); or in an irregular transaction, if it is not more than one quarter of one percentage point above or below the annual percentage rate determined in accordance with legal requirements.

Question 34

Which of the following would not be considered an established business relationship under the Do-Not-Call rules?

A consumer purchases a service from a seller
A financial transaction between a consumer and a seller
A consumer inquiry into the purchase of an item six months ago
A consumer purchases an item from a seller

Answer 34

The answer is consumer inquiry into the purchase of an item six months ago. Under the Telemarketing Sales Rule, a company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an “established business relationship” exists. An established business relationship means a relationship between the company and a consumer based on the consumer’s purchase, rental, or lease of the seller’s goods or services, or a financial transaction between the consumer and seller, within the 18 months immediately preceding the date of a telemarketing call, or the consumer’s inquiry or application regarding an offered product or service within the three months immediately preceding the date of a telemarketing call. However, if such a consumer asks not to be contacted, the company must enter him or her on their own do-not-call list of such consumers.

Question 35

On an ARM loan, which of the following will not be found on the note?

Fully-indexed rate after one year
Margin
Adjustment parameters
Identification of index

Answer 35

The answer is fully-indexed rate after one year. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. For an ARM loan, it will typically identify the index, specify the margin, and list adjustment parameters, but will not specify the fully-indexed rate after one year.

Question 36

The NMLS was established by:

HUD
The Federal Reserve
Each state regulator
The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators

Answer 36

The answer is the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. The Nationwide Multistate Licensing System and Registry (NMLS) is a mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for licensing and registering loan originators.

Question 37

Which of the following statements most accurately describes the term “predominant value”?

The final value an appraiser reports on an appraisal
The most common sales price for the neighborhood
The highest sales price in the neighborhood
The average sales price for the neighborhood

Answer 37

The answer is the most common sales price for the neighborhood. In the context of an appraisal, the term “predominant value” refers to the price or price range appearing most frequently in the market area defined by the appraiser in the report, based on comparable sales.

Question 38

A mortgage which is amortized for a longer period than the actual term of the loan can best be described as what type of mortgage?

Balloon mortgage
Hybrid ARM
Graduated Payment Mortgage (GPM)
Fixed period ARM

Answer 38

The answer is balloon mortgage. A partially amortized or balloon mortgage provides for some, but not total, amortization during the mortgage term. It has payments that are equal and regular in nature. However, the loan term is shorter than the time needed to repay the full loan balance by making those payments. Therefore, at the end of the loan term, a large balloon payment is needed to pay off the remaining balance.

Question 39

Information held by the NMLS relating to the employment history or disciplinary actions taken against a mortgage loan originator:

Is not confidential, but is not available for public access
Is confidential and is not available for public access
Is not confidential and is available for public access
Is confidential, but is available for public access

Answer 39

The answer is is not confidential and is available for public access. The requirements under any federal and/or state law regarding the privacy or confidentiality of any information or material provided to the NMLS continue to apply after such information has been disclosed to the NMLS. However, information or material held by the NMLS relating to the employment history and/or disciplinary and enforcement actions taken against a mortgage loan originator, is not protected by confidentiality and is available for public access.

Question 40

In the Closing Disclosure, which of the following questions is the loan originator required to answer about each of the items in the Loan Terms table?

“Has this information been verified?”
“Can this amount increase after closing?”
“Is this payment subject to a late fee?”
“Has this information changed from the Loan Estimate?”

Answer 40

The answer is “Can this amount increase after closing?” The first table on page 1 of the Closing Disclosure is the Loan Terms table, which lists the same information given in the Loan Estimate’s Loan Terms table (i.e., loan amount, interest rate, the monthly principal and interest, and space to indicate whether the product has a prepayment penalty or balloon payment). This information is updated to reflect the terms that will be in place at consummation, and the loan originator must answer the question “Can this amount increase after closing?” for each item.

Question 41

Inquiring as to whether income is derived from alimony, child support, or separate maintenance is prohibited by which of the following?

Regulation C
Regulation Z
Regulation D
Regulation B

Answer 41

The answer is Regulation B. Under Regulation B, a loan originator may not ask whether an applicant receives alimony, child support, or separate maintenance payments not needed in order to get credit, unless he or she is first told that this information does not have to be provided. If regular alimony, child support, or separate maintenance payments need to be counted as income to qualify for credit, an applicant may be asked to prove that it has been received consistently.

Question 42

Which of the following best describes the order in which payments will be applied according to the standard deed of trust?

Interest, escrow, principal
Principal, escrow, interest
Late fees, principal, interest
Interest, principal, escrow

Answer 42

The answer is interest, principal, escrow. In a standard deed of trust, payments are applied to interest first, then to principal, and then to escrow items, such as tax and insurance payments.

Question 43

Under the Bank Secrecy Act, each institution must develop a written _____ compliance program, which must be approved by the institution’s board of directors.

Anti-money laundering
Anti-trust account fraud
Anti-terrorist financing
Anti-discrimination

Answer 43

The answer is anti-money laundering. Under the Bank Secrecy Act, financial institutions are required to develop a written anti-money laundering compliance program, which must be approved by the institution’s board of directors. Minimum requirements for the program include internal controls and metrics to ensure compliance; independent auditing of compliance; the designation of individuals responsible for managing compliance; and staff training for compliance.

Question 44

The penal sum of a loan originator’s required surety bond must be maintained:

In an amount that reflects the dollar amount of loans originated
In a flat-rate amount determined by each state
In an amount that reflects the number of loans originated
In an amount that reflects the originator’s years of professional experience

Answer 44

The answer is in an amount that reflects the dollar amount of loans originated. Each mortgage loan originator must be covered by a surety bond. If he or she is an employee or exclusive agent of a mortgage licensee, the surety bond of the employing licensee may be used to satisfy the loan originator surety bond requirement. The penal sum of the surety bond must reflect the dollar amount of loans originated.

Question 45

Homes for All considers itself a nonprofit organization. In order for its employees to be exempt from the licensing requirements of the S.A.F.E. Act, each of the following must be true about Homes, except:

It has tax-exempt status under the Internal Revenue Code
Its employee compensation package does not encourage an employee to act in his or her own interests over that of his or her clients
It promotes affordable housing
It may engage in both nonprofit and for-profit activities

Answer 45

The answer is it may engage in both nonprofit and for-profit activities. The S.A.F.E. Act provides an exemption for the licensing of loan originators that are employees of a bona fide nonprofit organization. This exemption would not apply to any for-profit activities.

Question 46

Under Fannie Mae guidelines, the amount of hazard insurance must be equal to:

The appraised value
The purchase price
The lower of the replacement cost or the unpaid loan amount
80% of the replacement cost

Answer 46

The answer is the lower of the replacement cost or the unpaid loan amount. Fannie Mae requires that for any first-lien mortgage (excluding a reverse mortgage), the minimum hazard insurance coverage required is the lesser of 100% of the insurable value of the improvements, as established by the property insurer, or the unpaid principal balance of the mortgage, as long as it equals the minimum amount (80% of the insurable value of the improvements) required to compensate for damage or loss on a replacement cost basis. If it does not, then the coverage that does provide the minimum required amount must be obtained.

Question 47

Mortgage interest rates are influenced by all of the following, except:

Foreclosure rates
Regional property tax rates
Loan fraud
Federal Reserve activities

Answer 47

The answer is regional property tax rates. Interest rates on long-term debt instruments, such as residential mortgages, are influenced by changes in such economic indicators as the gross domestic product (GDP), which measures the amount of goods and services produced in the United States, and the Consumer Price Index (CPI), which measures the average change in prices of consumer goods and services. Features of the economic climate, such as loan fraud, loan payoff rates, and foreclosure rates, will all have an impact on interest rates. Rates are also affected by actions taken by the Federal Reserve (the Fed), which controls the country’s monetary policy, though the Fed does not itself directly set the interest rates that individual lenders will charge borrowers. Each lender will set its own prime rates (i.e., the lowest rates it charges for its best customers), as well as rates for loans to other customers based on its costs and desired profit margin. Regional property tax rates will impact monthly payments, but they do not have a direct relationship with the interest rates set for mortgage loans.