Wrong Answers Flashcards
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?
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.
What is Freddie Mac’s automated underwriting system called?
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.
Which of the following statements most accurately describes the term “predominant value”?
A.The final value an appraiser reports on an appraisal
B. The most common sales price for the neighborhood
C. The highest sales price in the neighborhood
D. The average sales price for the neighborhood
The most common sales price for the neighborhood
Insurance which guarantees a lender a certain lien position on the title to a property free from undisclosed encumbrances is called
Lender’s title policy
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?
“Can this amount increase after closing?”
Assume a Loan Estimate is mailed on Monday. The borrower receives the Loan Estimate on Wednesday, and calls the originator that day to let them know it was received and they would like to move forward, and signs and returns it to the lender. What is the earliest date the lender could charge the borrower for the appraisal?
Wednesday
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
The borrower signs a waiver consenting to the balloon payment
Information held by the NMLS relating to the employment history or disciplinary actions taken against a mortgage loan originator:
Is not confidential and is available for public access
All of the following are mortgage loans subject to coverage under the Home Mortgage Disclosure Act, except:
A loan to purchase a condominium unit
A home improvement loan made for the purpose of repairing, rehabilitating, or remodeling a dwelling
A home equity loan used to pay off outstanding medical bills
A loan to purchase a mobile home or multi-family dwelling
The answer is a home equity loan used to pay off outstanding medical bills. Loans subject to the Home Mortgage Disclosure Act (HMDA) include home purchase loans for any residential dwelling, home improvements loans made for the purpose of repair, rehabilitation or remodeling a dwelling, and refinance loans of a loan previously covered by HMDA
Which of the following best describes the Homeowners Protection Act?
Regulates higher-priced mortgage loans
Sets forth Section 32 loan rules
Establishes PMI requirements
Implements the Home Ownership and Equity Protection Act
Establishes PMI requirements
The Disposal Rule, a part of the Fair and Accurate Credit Transactions Act, is intended to prevent:
Acts of fraud such as identity theft
Under the Telemarketing Sales Rule, which of the following is true about an established business relationship?
It is a relationship between a company and a consumer, based on a consumer’s inquiry about an offered product or service within three months immediately preceding the date of a telemarketing call
If a company and a consumer have an established business relationship, the company is never prohibited from making telemarketing sales calls to the consumer
An established business relationship only exists if a consumer has purchased goods or services from the company
An established business relationship would exist if a consumer made an inquiry of the company within six months of a telemarketing phone call
The answer is it is a relationship between a company and a consumer, based on a consumer’s inquiry about an offered product or service within three months immediately preceding the date of a telemarketing call. An established business relationship is 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 (NOT six months) immediately preceding the date of a telemarketing call.
Which of the following is not a requirement of the E-Sign Act?
Establish a process for withdrawing consent to e-delivery of documents
Establish a process to ensure that the consumer is able to use applicable technology
Provide notice to consumer of their right to receive documents in paper form
Obtain written consent from consumer to utilize electronic signatures
The answer is obtain written consent from consumer to utilize electronic signatures. The E-Sign Act allows for the use of electronic records to satisfy any law, regulation, or rule that requires information be provided in writing, as long as the consumer consents to electronic delivery. The consumer must be advised that he or she has the option to receive information in a non-electronic form, the right to subsequently opt out of electronic delivery, and the right to be provided with information about the hardware and software required to allow him or her to access and retain the electronic records. The consumer’s consent to electronic delivery must be provided in a way that reasonably shows that he or she can access information in the electronic form that will be used
A mortgage loan in the amount of $15,757 is a high-cost home loan if it has points and fees that exceed:
5% of the loan amount
6% of the loan amount
$1,099
$1,260
The answer is $1,099. A loan may be a high-cost home loan if it exceeds a points and fees threshold. For a transaction like this one, which has a loan amount of less than $21,980, the loan is high-cost if its points and fees equal the lesser of 8% of the total loan amount or $1,099. In this case, $15,757 × 8% = 1,260. $1,099 is less than 8% of the loan amount, meaning that if its points and fees exceeded $1,099, it would be high-cost.
Under the PATRIOT Act, an account established to receive deposits from or make payments on behalf of a foreign financial institution, or to handle other financial transactions related to such an institution, is called:
A correspondent account
Which of the following best describes the process of releasing a lien from the title of a property after a loan has been paid off?
Deed transfer
Deed release
Reconveyance
Conveyance
The answer is reconveyance. To provide public notice that a mortgage loan has been repaid and to clear it from the public record, a satisfaction or release is recorded to clear a mortgage lien, or a deed of reconveyance is recorded to clear a trust deed lien.
Which of the following is considered to be a security instrument?
A promissory note
A trust deed
A hard money note
An equitable title
The answer is A trust deed. A promissory note is a borrower’s promise to pay. That promise to pay is secured by a security instrument, such as a mortgage or trust deed.
Which of the following would not be considered a prepaid finance charge?
Title insurance premium
Flood certification fee
Discount points
Mortgage insurance
The answer is title insurance premium. A prepaid finance charge is any finance charge paid separately, in cash or by check, before or at consummation of the loan or withheld from the proceeds. They include loan origination, discount, and commitment fees, any prepaid private mortgage insurance premium, upfront mortgage insurance premium, VA funding fee, or USDA guaranty fee, underwriting, processing, and courier fees, if paid to the creditor, buydown funds, and prepaid interest. The cost of a title insurance premium is NOT a prepaid finance charge.
A borrower obtains a loan for $250,000 at 5% interest. If they make their required monthly payment of $1,342.05 for the first two months, what is the principal balance of the loan after the second payment?
The answer is $249,397.98. The licensee would calculate the annual interest on the outstanding balance to figure out the amount of principal applied at each payment. Month #1: $250,000 × 5% = $12,500. $12,500 ÷ 12 = $1,041.66 (monthly interest); $1,342.05 (monthly payment) − $1,041.66 = $300.39 (principal); $250,000 − $300.39 = $249,699.61. Month #2: $249,699.61 (principal) × 5% = $12,484.98 ÷ 12 = $1,040.42 (monthly interest); $1,342.05 − $1,040.42 = $301.63 (principal); $249,699.61 − $301.63 = $249,397.98 (principal owing).
A transaction or open-end home equity line of credit that will be secured by the same dwelling that secures the first mortgage loan on the dwelling, made to the same borrower at the same time, is:
A simultaneous loan
This term refers to the practice of adjusting certain types of non-taxable income during underwriting.
Inflating
For an FHA loan that requires MIP, the annual mortgage insurance premium (payable monthly as part of the mortgage payment), is based on all of the following, except:
A.Loan term
B.State in which the subject property is located
C.LTV
D.Loan program
State in which the property is located
The licensing requirements of the S.A.F.E. Act require all but which of the following?
A.Registered MLOs must complete 20 hours of pre-licensing education
B.Registration with the NMLS
C.Successfully pass federal and applicable state components of a test with at least a 75% score
D. Use of a unique identifier on all advertising materials
Registered MLOs must complete 20 hours of pre-licensing education
Which of the following does not appear in the Loan Estimate?
A.The anticipated ARM rates for the first five years
B.The loan term
C.Whether the subject loan is assumable
D.The property purchase price
The anticipated ARM rates for the first five years
The Special Information Booklet must be delivered to the borrower within how many business days of the creditor’s receipt of an application?
Three
Which of the following may be a qualified mortgage?
A.A 30-year adjustable-rate mortgage loan granted to a borrower with a debt-to-income ratio of 45%
B.A 40-year fixed-rate mortgage
C. A 35-year fixed-rate mortgage with points and fees equaling 3.75% of the loan amount
D. A 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan
A 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan
Which of the following is not among the initial disclosures that must currently be provided to a mortgage loan applicant?
A.Notice of Right to Cancel
B.Mortgage Servicing Disclosure
C.Loan Estimate
D. Special Information Booklet
A. Notice of Right to Cancel (this is offered at Closing)
A broker has originated two loans this month, one of which is for his father. Both borrowers are equally qualified and are looking for exactly the same loan. If the broker charges his father a total of $500 in origination fees, what is the origination fee that should be charged to the other borrower?
A.It varies; everything in the mortgage business is negotiable
B.The origination fee should be less than 3% of the loan amount if he is well qualified
C.If the borrowers are equally qualified, fees should be comparable
D. Origination fees are not charged to family members
If the borrowers are equally qualified, fees should be comparable
Which of the following fees would NOT be used in calculating the APR?
A.Closing fee
B.Underwriting fee
C.Mortgage insurance
D.Title insurance
The answer is title insurance. The annual percentage rate (APR) represents the relationship of the total finance charge to the total amount financed, as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. Among other charges, finance charges include points, loan fees, and mortgage insurance premiums, but not title insurance premiums.
Which of the following is NOT required by the BSA?
A.Reporting suspicious activity and transactions
B.Generating requests for information from FinCEN
C.Reporting large currency transactions
D.Implementing an anti-money laundering (AML) program
Generating requests for information from FinCEN
A homeowner with an FHA loan would like to sell his home and allow the buyer to assume the existing mortgage. However, he is concerned about violating a due-on-sale clause. Is a due-on-sale clause allowed under the terms of the loan?
No, because the loan is assumable
Yes, because the loan is assumable
Yes, because the loan is an FHA loan
No, because seller financing is illegal
No, because the loan is assumable
Stan has been in his house for 15 years and built up $100,000 in equity. He decides to do some remodeling and pay off some bills, and he wants to use a closed-end home equity loan to pay for it. He meets with Lending Guys and, because he has a great credit history, gets loan approval right away. Two weeks later he signs the documents. Which of the following is true?
Stan may rescind the loan at any time during the term of the loan
Stan’s loan is not subject to provisions of the Real Estate Settlement Procedures Act
Stan may rescind the loan within 3 business days of consummation
Stan was required to provide Lending Guys with a Certificate of Completion prior to signing his final documents, indicating that he has completed homeownership counseling with a HUD-approved provider
Stan may rescind the loan within 3 business days of consummation
Assume that the Loan Estimate is mailed on Tuesday. The office is open six days a week and closed on Sundays. What is the earliest day on which the transaction could close?
The following Wednesday
The following Friday
The following Monday
The following Tuesday
The following Wednesday (7 days consummation from mailed)
Which of the following can be used by state regulators to determine whether a licensee demonstrates the financial responsibility and general fitness to command the confidence of the community to engage in the mortgage business?
Credit report, net worth, payment of federal licensing fees
Credit report, net worth, surety bond, payment into a state fund
Credit report, surety bond, payment of exemption fees
Credit report, payment into a professional fund, $1 million credit line
Credit report, net worth, surety bond, payment into a state fund
Under TILA’s rules in regard to higher-priced loans, a creditor or servicer may cancel an escrow account only upon the earlier of termination of the underlying debt obligation or _____ years after the loan was consummated, at the request of the consumer.
Five
What two main aspects of a loan application does an underwriter examine to determine if lender guidelines are being met?
Applicant and collateral
What is the specific distinction between state-licensed and registered loan originators?
A.Unlike state-licensed loan originators, registered loan originators are exempt from licensing requirements
B.State-licensed loan originators are only allowed to originate in the states in which they hold a license, while registered loan originators may obtain one license and conduct business anywhere
C.Only state-licensed loan originators carry a unique identifier
D.Registered loan originators need only ten hours of pre-licensing education, while state-licensed loan originators need 20 hours
The answer is unlike state-licensed originators, registered originators are exempt from licensing requirements. A registered mortgage loan originator is an individual who meets the requirements of a mortgage loan originator, is an employee of a covered financial institution, is registered with the NMLS, and maintains an NMLS unique identifier. Unlike state-licensed originators, registered originators are exempt from licensing requirements.
For a face-to-face referral, an affiliate business relationship must be disclosed:
At or before the time of the referral
A mortgage or deed of trust generally includes a clause that provides for release of the lien when the borrower pays off the debt, called a(n):
Defeasance clause
Which of the following is true concerning the refundability of a VA funding fee?
A.VA funding fees are refundable if the borrower is overcharged
B.VA funding fees are refundable if the borrower is active military
C.VA funding fees are never refundable
D.VA funding fees are refundable if the borrower is a wounded veteran
VA funding fees are refundable if the borrower is overcharged
When must a borrower receive notice of whether loan servicing can be assigned, sold, or transferred?
A.Never - this disclosure is not required
B.Within 30 days of the transfer of servicing
C.Within 15 days of the transfer of servicing
D. Either at the time of application or within three business days of application
Either at the time of application or within three business days of application
A mortgage broker is unable to assist a client and refers him to another mortgage broker for origination services. The second broker pays the referring broker a fee for providing the lead. Which of the following is correct?
A.Payment of the fee is illegal
B.The fee is legal as long as the brokers have a pre-existing agreement in place
C.The fee is legal as long as the brokers do not have a pre-existing agreement in place for payment of referral fees
D.The fee is illegal unless the brokers provide a disclosure to the client
A. Payment of the fee is illegal
If a borrower waives the right to receive a copy of an appraisal:
They must receive a copy at or before consummation
What is the maximum cushion that servicers can hold in a borrower’s reserve account?
A.Two months’ taxes, one month insurance
B.One month taxes, one month insurance
C.Two months’ taxes, two months’ insurance
D.Whatever the lender deems as “reasonable under the circumstances”
Two months’ taxes, two months’ insurance
The residual income method applies to which of the following types of loans?
A.Jumbo
B.Conventional
C.VA
D.FHA
VA
Which of the following would not need to be included in the notice of servicing transfer?
A.Toll-free number for the old servicer
B.Borrower’s payment amount
C.Toll-free number for the new servicer
D.Effective date of the transfer
Borrower’s Payment Amount
Which of the following in an ad for residential mortgage financing would trigger additional disclosures?
A.”VA financing available”
B.”Affordable payments”
C.”5.75% APR”
D.”5% down payment”
The answer is “5% down payment.” Under TILA, an ad must disclose a number of additional credit terms if it contains a trigger term. A trigger term includes certain credit terms specifically cited in an ad, including the amount or percentage of any down payment (e.g., “5% down,” “95% financing,” “$6,200 down”), except when the amount of the down payment is zero; the number of payments or period of repayment (e.g., “360 monthly payments,” “a 30-year loan”); the amount of any payment (e.g., “payments of less than $1,400 per month”); and the amount of any finance charge (e.g., “total financing costs of less than $3,000”).
Under which of the following situations would an appraiser use the income approach to appraise a property?
A.The property is in an area which is primarily rental properties
B.All comparable sales for the property are rental properties
C.The new buyer is going to use the property as a rental property
D.The property is being used by the seller as an investment property
The answer is the new buyer is going to use the property as a rental property. The income (or capitalization) approach is used to appraise properties that produce rental income (e.g., apartments, office buildings, and rental units). It bases the value of the property on the net income the owner will receive and a rate of return (capitalization rate) the owner should find acceptable. The estimated net income is calculated by subtracting an allowance for vacancies and bad debts from scheduled gross income to arrive at effective gross income, and then subtracting fixed expenses, operating expenses, and reserves to replace items that will wear out.
Supervisory authority afforded to state agencies over the mortgage industry allows them to impose all of the following sanctions, except:
A.Order the removal and ban of individuals from employment as loan originators
B.Suspend, terminate, or refuse renewal of a loan originator license for a violation of state or federal law
C.Assess jail time for fraudulent activities
D.Impose civil money penalties for individuals acting as loan originators without a valid license or registration
Order the removal and ban of individuals from employment as loan originators
A(n) _____ is an individual who accepts a fee to falsely claim ownership to a property.
straw seller
All of the following individuals are exempt from requirements to obtain a mortgage loan originator license, except for a person who:
A.Extends credit only for timeshare plans
B.Negotiates a residential mortgage loan secured by a dwelling that is the individual’s residence
C.Negotiates the terms of a residential mortgage on behalf of a cousin
D.Is an employee of a local government agency and who acts as a loan originator in their official duty as an employee
The answer is negotiates the terms of a residential mortgage on behalf of a cousin. S.A.F.E. Act exemptions include individuals solely involved in extensions of credit referring to timeshare plans; an individual who is an employee of a federal, state, or local government agency or housing finance agency, acting as a loan originator only pursuant to his or her official duties; and an individual who offers or negotiates terms of a residential mortgage loan secured by his own dwelling, or only with or on behalf of an immediate family member. However, a cousin is not considered an immediate family member under the legal definition, which includes a spouse, child, sibling, parent, grandparent, or grandchild, including stepparents, stepchildren, stepsiblings, and adoptive relationships.
Under RESPA, the servicer may require a borrower to pay into an escrow account to cover disbursements that are unanticipated or disbursements made before the borrower’s monthly payments are available in the account, a cushion or reserve that must be no greater than _____ of the estimated total annual disbursements from the escrow account.
1/6
For FHA loans, the annual mortgage insurance premium (MIP) will differ based on whether the term of the loan is more or less than:
A.15 years
B.20 years
C.25 years
D.30 years
15 years
A first-lien mortgage loan will exceed the HOEPA APR threshold and qualify as a high-cost mortgage if its APR is:
6.5 percentage points above the average prime offer rate for a comparable transaction
Under the Truth in Lending Act, a creditor is defined as:
A natural person, business, or financial organization that regularly extends credit to consumers
A loan has a rate of 6% for 30 years with a payment of $1,400 per month for the first five years and a payment of $1,800 per month for the remaining 25 years. What type of loan is this?
The answer is interest-only option fixed-rate. The loan has a rate of 6% for 30 years, meaning it has a fixed rate. This loan has an interest-only feature for the first five years.
Which of the following settlement services would not be covered by RESPA?
A.Services of a real estate agent
B.Office supply provider
C.Processing services
D.Title abstractor
Office supply provider
With what type of loan do payments, including principal and interest, remain constant throughout the life of the loan?
A.A balloon loan, as long as the maturity date is beyond ten years
B.An ARM with a conversion option
C.Fixed rate
D.An FHA loan
Fixed Rate
The federal agency that implements and enforces rules related to the origination of FHA loans is the:
HUD
Which of the following is not within the authority of the state regulators responsible for the effective system of supervision and enforcement of the SAFE Act?
A.Determine criminal sentences for non-licensed entities under the Act
B.Issue licenses to conduct business under the Act
C.Deny, suspend, revoke licenses issued under the Act
D.Examine, investigate, and conduct enforcement actions
The answer is determine criminal sentences for non-licensed entities under the Act. A state regulator has the responsibility to carry out the administration of the SAFE Act, but is not involved in criminal prosecution or penalty decision making.
If a foreclosure proceeding has been initiated by a creditor, the borrower may exercise his/her three-year right to rescind if the finance charge for the loan was understated by:
More than $35
A _____ is defined as any mortgage product other than a 30-year fixed-rate mortgage.
Non Traditional Mortgage
How long must flood insurance be in place?
Until the balance is paid off
For what length of time can an unpaid tax lien remain on a credit report?
Indefinitely
Which of the following is not a characteristic of an HPML?
A.It is secured by the borrower’s principal dwelling
B.It has an APR that exceeds the average prime offer rate by 1.5 percentage points for a loan secured by a first lien on the home
C.It has an APR that exceeds the average prime offer rate by 3.5 percentage points for a loan secured by a subordinate lien on the home
D.It has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points
It has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points
In order for a small creditor to originate a balloon payment qualified mortgage, the small creditor must hold the loan in its portfolio for:
3 years
Which of the following is the least-expensive type of reverse mortgage?
A.HECM
B.Proprietary mortgage
C.Non-recourse
D.Single purpose
The answer is single purpose. A single-purpose reverse mortgage is a low-cost loan offered to low-income borrowers by state and local agencies or non-profit organizations. They are typically made for purposes such as payment of property taxes or payment for home improvements.
Five siblings have ownership rights to a property. If a refinance transaction affecting the property is subject to rescission, how many of these individuals must submit a rescission notice in order to void the loan?
Any one of the five
When would a license be suspended without a hearing?
If a licensee fails to request a hearing with the state regulator
What document would an underwriter rely on for detailed information concerning the collateral for a mortgage loan?
A.The property appraisal
B.The borrower’s asset statements
C.The URLA
D.The borrower’s employment documentation
The property appraisal
