Compucram: MLO - Things I need to study...

When a 15-year fixed-rate mortgage is compared to a 30-year fixed-rate mortgage, which statement is FALSE as it relates to the 15-year loan? CORRECT ANSWER: Higher interest rates are usually applied.

A shorter-term loan, such as a 15-year fixed-rate loan, poses less of a risk to a lender. Because the risk is lower, lenders charge a lower interest rate for 15-year loans versus 30-year loans.

All of the following are available payment plans for adjustable-rate HECMs EXCEPT a______ payment plan. CORRECT ANSWER: single disbursement lump sum

A single disbursement lump sum is an option for fixed-rate Home Equity Conversion Mortgages (HECMs).

A loan covered by HOEPA may NOT have CORRECT ANSWER: negative amortization.

Loans that result in negative amortization or have prepayment penalties are not permitted under the Home Ownership and Equity Protection Act (HOEPA).

A _____ mortgage loan is made by an institutional lender or a private party with real estate as security for the loan that the government neither guarantees nor insures. CORRECT ANSWER: conventional

A conventional mortgage loan is usually made by a bank or institutional lender and is not insured or guaranteed by a government entity or agency, such as FHA or VA. Conventional loans may be conforming loans or nonconforming loans; however, most conventional loans conform to guidelines set by government-sponsored entities (GSEs), such as Freddie Mac and Fannie Mae, so that they may be sold in the secondary market. When a loan meets the criteria necessary to be sold in the secondary market, it is considered a conforming loan.

What is the minimum number of comps required by most secondary lenders to ensure an accurate estimate of value when performing the market appraisal approach? CORRECT ANSWER: three

A minimum of three comparables is required by most secondary market lenders to ensure the market value of a property identified on an appraisal report has been arrived at using sufficient data.

Which statement is TRUE as it relates to how a lender determines if the settlement charge goes on the Closing Disclosure in Section B (Services Borrower Did Not Shop For) or Section C (Services Borrower Did Shop For)? a. If borrower Ellie chose the provider from a written list, the fee goes in Section B of the CD. b. If borrower Ellie chose the provider from a written list, the fee goes in Section C of the CD.

a. If borrower Ellie chose the provider from a written list, the fee goes in Section B of the CD.

Seller Dan knows that he has an outstanding lien on his property, so he pays one of the parties to the transaction to ignore it. Who did Dan most likely involve in his mortgage fraud scheme? CORRECT ANSWER: title company

If the title company intentionally leaves the lien off the title report, the other parties to the transaction may have no knowledge about it and, therefore, be innocent of any attempted fraud.

Loan assumption refers to the circumstance when a CORRECT ANSWER: new buyer takes over the seller's existing mortgage loan.

Assumption of a loan occurs when a new buyer takes over the seller's existing mortgage loan.

One of the qualifying standards for a conventional conforming mortgage is that the borrower's total debt obligations DO NOT EXCEED what percentage of stable monthly income? CORRECT ANSWER: 36%

Conventional conforming loans sold to Fannie Mae or Freddie Mac require a 28% housing expense ratio and 36% debt-to-income ratio. Fannie Mae and Freddie Mac may approve loans higher than the suggested 28/36 ratios if the loan file has other compensating factors (strong assets, long job time, etc.), but technically the maximum ratios for a conforming loan are 28/36.

A(n) _____ is defined as any claim, lien, charge, or liability that affects or limits the fee simple title to real property.

Encumbrance An encumbrance is defined as any claim, lien, charge, or liability that affects or limits the fee simple title to real property

Which statement is FALSE as it relates to TRID requirements for providing a Loan Estimate (LE) to an applicant? CORRECT ANSWER: If a consumer requests a pre-qualification only and provides 6 of 6 elements of a complete application, the MLO is not obligated to provide a LE.

If a consumer requests a pre-approval or pre-qualification and provides five of the six pieces of information that constitute a complete application as defined by TRID, the creditor is not yet obligated to provide a LE. The creditor is not required to provide a Loan Estimate and may simply provide a pre-approval or pre-qualification in compliance with its current practice and other applicable law. However, if the consumer provides all six elements of the application, the TILA-RESPA Rule requires the creditor to provide a Loan Estimate. The fact that a consumer requests a pre-approval or pre-qualification will not change the creditor's obligation to provide a Loan Estimate.

Which of the following is NOT a requirement for providing a revised Loan Estimate (LE) to a borrower? CORRECT ANSWER: A lender is prohibited from providing revised LE disclosures for informational purposes only.

Lenders are not prohibited from providing revised disclosures, as a courtesy, for informational purposes at any time to keep the consumer updated on any changes in fees. However, such a practice may lead to confusion of both the borrower and the lender if it is not made clear that such disclosures do not impact good faith analysis. All the other statements are requirements for providing a revised Loan Estimate.

The Telemarketing Sales Rule prohibits calls to a consumer later than how many days after a consumer asks to be included on the National Do Not Call Registry? CORRECT ANSWER: 31

The Telemarketing Sales Rule requires businesses to search the registry every 31 days to avoid calling any telephone number on the National Do Not Call Registry.

A MLO takes an application for an owner-occupied property. Soon thereafter, she discovers the borrower's actual intention is for the property to be a rental property. What is the BEST action for the MLO to take? Correct Answer: She should talk to her manager and the underwriter about what she's discovered

The best answer, in this case, is that the MLO should talk to her manager and/or the underwriter about what she's discovered. SInce this could be a case of fraud or just a misunderstanding, it will be up to the manager and underwriter to determine occupancy, intent, and potential fraud and decide on a course of action.

The Mortgage Reform and Anti-Predatory Lending Act sets forth anti-predatory measures for existing high-cost mortgage loans. These measures include all of the following EXCEPT CORRECT ANSWER: prohibiting high-cost loans with adjustable rates.

Title XIV of the Dodd-Frank Act is designated as the Mortgage Reform and Anti-Predatory Lending Act. The Act addresses what Congress considers to be abusive or predatory lending practices in the mortgage industry such as setting forth requirements for existing high-cost residential mortgages. The changes to existing high-cost mortgage loans set forth by the Mortgage Reform and Anti-Predatory Lending Act include restricting balloon payments, disallowing prepayment penalties, and banning the practice of encouraging default on an existing loan when refinancing. The Act did not prohibit high-cost loans with adjustable rates.

Which of the following BEST describes how income is to be evaluated by a lender when considering it as a condition to approve or deny a mortgage loan? a. The lender evaluates the amount of income and the likelihood the income will continue. b. The lender can only include income from continuous jobrelated sources.

a. The lender cannot deny a loan because of the source of income, but can deny a loan because the income is not likely to continue.

Once the seller's lender is paid, as evidence that the lien has been released, the lender will issue a a. discharge of mortgage b. promissory note

a. Once the seller's lender is paid, that lender will issue a discharge of mortgage, a document the seller should record as evidence that the lien has been released.

Lenders hav ea legal and ethical responsibility to adhere to the Gramm-Leach-Bliley (GLB) Act when sharing nonpublic information to third parties. Which of the following is NOT considered nonpublic information that falls under the GLB Act privacy requirements? a. the loan amount that appears on a recorded mortgage b. a consumer's credit score a loan originator gets from the credit bureau

a. Within the GLB Act, the Financial Privacy Rule governs the collection and disclosure of customer's personal financial information, known as nonpublic personal information, by restricting when and under what circumstances such information may be disclosed to affiliates and nonaffiliated third parties. Information that the company believes to be lawfully public - such as mortgage loan information in a jurisdiction where that information is publicly recorded - is not restricted by the GLB Act. The sharing of the other information listed is restricted by the GLB Act.

As set forth by Regulation Z, before enforcing an acceleration clause that appears as part of the mortgage, lenders must wait until payments are delinquent at least ____ days. a. 120 b. 90

a. 120

The Loan Estimate and Closing Disclosure both have Section F Prepaids, Section G Initial Escrow Payment at Closing, and Section H Other. There is a(n) ______ tolerance for change for the costs in these three sections. a. unlimited b. zero

a. unlimited

If MLO license applicant Juan fails the pre-licensing SAFE MLO test three consecutive times, he will need to wait at least ____ before taking the test again. a: 6 months b: 3 months

a: 6 months If an MLO license applicant fails the qualified pre-licensing SAFE MLO test three consecutive times, he will need to wait at least six months before taking the test again.

A loan-to-value ratio is calculated by a: Loan Amount / Lesser of Sale Price or Appraised Value. b: Loan Amount / Appraised Value.

a: Loan Amount / Lesser of Sale Price or Appraised Value. Collateral for a mortgage loan is typically the property securing the loan. Underwriters use the loan-to-value (LTV) ratio to determine how much they are willing to loan on a given property based on its value. Recall, LTV is calculated by: Loan Amount / Lesser of Sale Price or Appraised Value = LTV.

The estimate for the interest rate shown on a Loan Estimate must be available for at least ___ business days. a: There are no time restrictions. b: 10

a: There are no time restrictions. While the estimate for most settlement charges must be available for at least 10 business days, there are no restrictions on the amount of time an interest rate must remain available.

Which is a voluntary lien? a: mortgage b: assessment

a: mortgage A mortgage is considered a voluntary specific lien, meaning that it is placed with the consent of the owner and applies to a specified property.

Which of the following is NOT exempt from the restrictions set forth by Section 32 of Regulation Z for high-cost mortgage loans? a: secondary lien secured by a residential investment property b: reverse mortgage

a: secondary lien secured by a residential investment property Section 32 applies to consumer credit transactions that are secured by the consumer's principal dwelling. Exemptions from Section 32 apply to a reverse mortgage transaction subject to § 1026.33; a transaction to finance the initial construction of a dwelling; a transaction originated by a Housing Finance Agency, where the Housing Finance Agency is the creditor for the transaction; or a transaction originated pursuant to the United States Department of Agriculture's Rural Development Section 502 Direct Loan Program.

Jake purchases a house, gets a loan from his aunt and a mortgage. His aunt records her loan May 1; the bank records its loan May 10. Jake hires a contractor in June to build a deck. Jake loses his job and never pays the contractor, the bank, his aunt, or his property taxes. When the bank forecloses, in what order will the liens be paid? a: tax lien, aunt's loan, mortgage lien, mechanic's lien b: aunt's loan, tax lien, mortgage lien, mechanic's lien

a: tax lien, aunt's loan, mortgage lien, mechanic's lien Property tax liens are senior liens that take precedence over any other liens. The remaining liens are generally paid in the order they are recorded, which is why Jake's aunt's loan would be paid second.

The tolerance for change for transfer taxes as provided on the Loan Estimate and Closing Disclosure is a: zero. b: unlimited.

a: zero. Lenders are expected to know the exact amount of the transfer tax as provided on the Loan Estimate, Section E. There is zero tolerance for change as it appears on the Loan Estimate and again on the Closing Disclosure.

____ is the interest on a loan that has accumulated since the principal investment or since the previous coupon payment if there has been one already. CORRECT ANSWER: Accrued interest

Accrued interest is the interest on a loan that has accumulated since the principal investment or since the previous coupon payment if there has been one already. When calculating interest accrued, multiply the principal by the APR and number of months, then divide by the total number of months in the year.

As result of the Flood Insurance Reform Act of 2011, mortgage lenders are required to accept CORRECT ANSWER: non-NFIP-backed flood insurance coverage provided by a private entity if that coverage meets all the same requirements as NFIP-backed flood insurance.

For a mortgage loan to be eligible for sales to a secondary market participant, the flood insurance policy must be a standard policy issued under the National Flood Insurance Program (NFIP) or a policy issued by a private insurer as long as the terms and amount of coverage are at least equal to that provided under an NFIP policy based on a review of the full policy issued by a private insurer.

_____ occurs when a mortgage loan is funded by an advance of loan funds and then the assignment of the loan is made to the same entity that advanced the funds. CORRECT ANSWER: Table funding

Table funding occurs when a mortgage loan is funded by an advance of loan funds and there is an assignment of the loan to the same entity advancing the funds. For example, a mortgage broker closes a mortgage loan with funds from XYZ lender and the loan is assigned to XYZ lender. A table-funded transaction is not a secondary market transaction

Which form lists the commission paid to a real estate broker? CORRECT ANSWER: Closing Disclosure

The Closing Disclosure requires that all compensation be disclosed.

Regulation Z Section 36 sets forth requirements for compensating mortgage loan originators. Which statement does NOT reflect one of the requirements set forth in Regulation Z? CORRECT ANSWER: A loan originator may receive compensation from a minimum of two persons/entities in connection with the same transaction.

When an MLO receives compensation directly from a consumer in connection with a mortgage loan, Regulation Z provides that no MLO may receive compensation from another person in connection with the same transaction. The final rule implements this restriction but provides an exception to allow mortgage brokers to pay their employees or contractors commissions, although the commissions cannot be based on the terms of the loans they originate. MLOs may not be paid by the consumer and another person or entity in connection with a mortgage loan closing, except an MLO may receive compensation from the loan originator organization. The rule does not prohibit a consumer from accepting a higher interest rate in return for reducing closing costs, known as yield spread premium. Consumers may pay bona fide discount points and creditors may pay an overage for higher note yield, but none of these additional fees may be paid to the loan originator.

Documentation of assets includes ____ months of bank statements (all pages) to verify available funds. CORRECT ANSWER: two

A Verification of Deposit (VOD) form may be used to verify current and average bank statement balances. Documentation of assets includes two months of bank statements (all pages) to verify available funds. Underwriters prefer to see seasoned funds, meaning the funds have been in the account for the entire period covered by the bank statements (60 days).

What type of loan is disbursed in stages, according to a preset schedule, to fund a building project? CORRECT ANSWER: construction loan

A construction loan is a temporary loan used to finance the construction of improvements and buildings on land. To protect themselves, lenders use plans for disbursing construction loan proceeds to guard against overspending by the borrower. Three common disbursement plans are the Fixed Disbursement Plan, Voucher System, and Warrant System. With a fixed disbursement plan, the lender pays the borrower a percentage of funds at a set time. With the Voucher System, the contractor or borrower must pay her own bills, and then submit the receipts to the lender for reimbursement. With the Warrant System, the lender directly pays bills presented by the various suppliers and laborers on a project.

As set forth in Section 32 of Regulation Z, which of the following is NOT a trigger that requires a lender to adhere to high-cost mortgage loan requirements? CORRECT ANSWER: APR which is 5.5% greater than the APOR for a nonconforming loan

A loan is considered a high-cost loan if the first lien on the property has an APR that exceeds the value of the APOR Index (as of the loan lock-in date) by more than 6.5 percentage points; or a second mortgage has an APR that exceeds the value of the APOR Index (as of the loan lock-in date) by more than 8.5 percentage points. Additionally, a loan is high-cost if: The total loan amount for a transaction is equal or greater than a set loan amount that is adjusted annually by the CFPB (based on changes in the Consumer Price Index) and the points and fees amount exceeds 5% of the total loan amount; or, the total loan amount for a transaction is less than a set loan amount that is adjusted annually by the CFPB (based on changes in the Consumer Price Index) and the points and fees amount exceeds the lesser of the adjusted points and fees dollar trigger of $1,103 or 8% of the total loan amount.

If MLO Dave emails a revised Loan Estimate to a borrower, it is considered received CORRECT ANSWER: three business days after the email is sent if not informed of receipt by the borrower sooner.

A revised Loan Estimate is considered received by the consumer on the day it is provided in person. If it is mailed or delivered electronically (email, fax, etc.), the consumer is considered to have received it three business days after the disclosure is mailed or transmitted.

Connor wishes to refinance his mortgage and pay off his credit cards without using any personal funds. He owes $75,000 on his first mortgage, $10,000 on his second mortgage, and $3,000 in credit card debt. What would his appraisal value need to be if his closing costs are $4,000 and he qualifies for an 80% LTV? CORRECT ANSWER: $115,000

Adding up everything Connor wishes to refinance equals $92,000. The $92,000 divided by the loan-to-value of 80% is $115,000. To check your math, $115,000 x 80% = $92,000.

George, a mortgage broker, devised fictional borrowers to obtain loans on non-existent properties, and then set up custodial accounts for escrow payments to create the appearance of a legitimate business. George is committing a mortgage fraud scam known as CORRECT ANSWER: an air loan.

Air loan scams involve loans on properties that do not actually exist. For example, a broker creates fictional borrowers and properties, opens accounts for payments, and maintains custodial accounts for escrow payments.

Regulation N (Mortgage Acts and Practices - Advertising, 12 CFR Part 1014) sets forth prohibited misrepresentations in commercial communication. A lender is in violation of Regulation N if it does maintain documents for a period of ___ months describing or evidencing all mortgage credit products available to consumers during the time period in which it made or disseminated an applicable commercial communication. CORRECT ANSWER: 24

Any person subject to Regulation N must keep, for a period of 24 months from the last date the person made or disseminated the applicable commercial communication regarding any term of any mortgage credit product, the following evidence of compliance with this part: Copies of all materially different commercial communications as well as sales scripts, training materials, and marketing materials, regarding any term of any mortgage credit product, that the person made or disseminated during the relevant time period; and documents describing or evidencing all mortgage credit products available to consumers during the time period in which the person made or disseminated each commercial communication regarding any term of any mortgage credit product, including but not limited to the names and terms of each such mortgage credit product available to consumers.

A borrower is purchasing a new home and would like to close the mortgage loan financing the purchase as fast as possible. According to the applicable rules and guidelines under Regulation Z, if the borrower closes his loan on Monday, January 8th, when can the loan fund? a: January 8 b: January 11

As this is a purchase, there is no rescission period so the loan can fund on the same day it closes. The right of rescission set forth by Regulation Z does not apply to the following: Purchase loans; construction loans; commercial loans; loans on vacation or second homes; refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling unless the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the transaction; and transactions in which a state agency is a creditor.

Certain loan programs are exempt from ability to repay requirements set forth under the Ability to Repay (ATR) Rule. All of these are loan programs that fall under this exemption EXCEPT for a(n) CORRECT ANSWER: adjustable-rate mortgage.

Certain loan programs are exempt from ability to repay requirements, including bridge loans, time-share plans, reverse mortgages, and open-end credit plans. The ATR Rule applies to almost all closed-end consumer credit transactions secured by a dwelling.

Jaycee takes out a $173,000 loan. The annual interest is $9,515. What is the interest rate on this loan? CORRECT ANSWER: 5.5%

Divide the annual interest by the principal balance to find the interest rate: $9,515 / $173,000 = 0.055 or 5.5%.

Under the SAFE Act, each state has the authority to CORRECT ANSWER: write state-specific rules or regulations or adopt procedures related to licensing of persons covered under the SAFE Act.

Each state is authorized to write state-specific rules or regulations or adopt procedures related to licensing of persons covered under the SAFE Act. The other options can only be done at the federal level.

If interest rates are high and a seller wants to make a property more marketable, one strategy to make a property more attractive to a buyer is the seller could CORRECT ANSWER: agree to pay the discount points to reduce the buyer's interest rate.

In most cases, the seller pays points to reduce the interest rate to be paid by the buyer making the property more marketable. It's far easier to sell a property if the interest rate is affordable.

The period for submitting an application for MLO license renewal is from CORRECT ANSWER: November 1 through December 31.

Licensees can submit an application for renewal from November 1 through December 31. The license of a mortgage loan originator failing to satisfy the minimum standards for license renewal by December 31 will expire.

Model state law sets forth minimum qualifications for a state to issue an applicant an MLO license, including that the MLO needs to have demonstrated financial responsibility. Though state law may differ, model state law sets forth that an individual has not shown financial responsibility when there is a pattern of seriously delinquent accounts within the past CORRECT ANSWER: 3 years.

Model state law sets forth that indicators that an individual has not shown financial responsibility include, but are not limited to:(i) Current outstanding judgments, except judgments solely as a result of medical expenses; (ii) current outstanding tax liens or other government liens and filings; (iii) foreclosures within the past three years; or (iv) a pattern of seriously delinquent accounts within the past three years.

Luther makes an offer of $105,000 on a house that was appraised for $112,000. If the seller accepts his offer, what is the minimum down payment to get an FHA-insured loan? CORRECT ANSWER: $3,675

Most FHA-insured loans require a down payment of at least 3.5% of the home's purchase price or appraised value, whichever is less. So if the purchase price is $105,000, Luther would have to make a down payment of $3,675 ($105,000 x .035).

In confidence, a real estate agent in a purchase transaction tells MLO Lyla (who is arranging financing) that his seller has agreed to hold a fixed-rate second mortgage (to be filed after the closing) as a portion of the purchase price, which was not disclosed in the mortgage application. Knowing this information now, what is the BEST course of action for Lyla? Correct Answer: She should refuse to process the loan.

Not disclosing a known second mortgage is a fraudulent act of omission; therefore, in this case, the best correct answer is that MLO Lyla needs to refuse to process or decline the loan. To process or originate the loan knowing this information is aiding and abetting an act of fraud and Lyla may be found guilty of collusion for ignoring the known information. Additionally, Lyla needs to talk to her supervisor or internal compliance officer about what she has discovered. The supervisor or internal compliance officer can then determine if a SAR needs tob e filed and/or a state regulatory authority contacted.

Sally Fields applies for a mortgage loan with Flying Mortgage for the purchase of her first home. On her initial application submitted to Flying Mortgage, Sally forgot to include her Social Security number. Flying Mortgage must send Sally a Notice of Incomplete Application within ___ days after receiving her application. CORRECT ANSWER: 30

Per Regulation B, within 30 days after receiving an application that is incomplete regarding information that an applicant can complete, the lender can either provide a Statement of Adverse Action; or, refrain from taking adverse action and notify the applicant that the application is incomplete with a Notice of Incomplete Application.

Which of the following is NOT a mandate by the Federal Trade Commission? CORRECT ANSWER: Advertisements must have a time period listed for a fixed-rate loan advertised.

The Federal Trade Commission mandates that advertising must be truthful and non-deceptive, advertisers must have evidence to back up their claims, and advertisements cannot be unfair. An advertisement may have no time period provided for a fixed-rate loan if the rate will not increase during the term of the loan.

A fraud perpetrator sends an official-looking letter to a borrower advising that the borrower's loan has been sold to them. The unsuspecting borrower then sends the mortgage payment to the address indicated on the letter and the thief makes off with the money. Which fraud scam is this? CORRECT ANSWER: mail fraud

The property may eventually go to foreclosure because the loan payments are never actually applied to the mortgage loan. Since the perpetrator used the mail, it is considered mail fraud. None of the other fraud schemes fit.

When comparing the Closing Disclosure to the Loan Estimate, ____ are subject to a zero tolerance for change. CORRECT ANSWER: application fees paid to lender

Transfer taxes and any charge paid to the lender, mortgage broker, or their affiliates for the origination, processing, and closing of a mortgage loan must not change.

A ______ is a mortgage issued to the borrower by the seller of a home as part of the purchase transaction. CORRECT ANSWER: purchase money mortgage

With a purchase money mortgage, the seller may finance all or part of the sale of property for the buyer. The seller retains a mortgage as security, and title conveyed passes to the buyer. This is a type of seller or owner financing.

Which document is not necessary to conduct a mortgage loan closing? a. appraisal b. mortgage

a The appraisal is not required to be signed at closing and not all loans require an appraisal

A mortgage lender is any person who a. makes a residential mortgage loan or lends money secured by a mortgage or deed of trust b. for compensation or gain, solicits, places, or negotiates mortgage loans for others.

a. Any person who makes a residential mortgage loan or holds himself or herself out as able to make a residential mortgage loan or who in the regular course of business lends money that is secured by a mortgage or deed of trust. Any person who for compensation or gain solicits, places or negotiates mortgage loans for others is considered a "mortgage broker".

The Fannie Mae Selling Guide sets forth requirements for the use of a power of attorney (POA) in obtaining required signatures on a security instrument. What statement does NOT accurately reflect a requirement for the use of a POA in most circumstances involved with security instrument signatures? a. The title agency closing the loan is often used as the POA signer on a security instrument. b. Eligible transactions include purchase and rate/term refinance transactions.

a. None of the following may serve as the POA agent: Lender or employee of lender; property seller, or any person related to the property seller, including a relative or affiliate; or any real estate agent with a financial interest in the transaction or any person affiliated with such real estate agent. None of the following may serve as the POA agent except in accordance with a listed permitted exception: Loan originator; affiliate of the lender or loan originator; employee of the title insurance company; or the affiliate of the title insurance company or its employee including, but not limited to, the title agency closing the loan.

Temporary authority to act as a loan originator permits which of the following to originate loans while completing any state-specific requirements for licensure? a. qualified state-licensed MLOs seeking licensure in another state b. licensees changing company sponsorship

a. Temporary authority to act as a loan originator permits qualified MLOs who are changing employment from a depository institution to a state-licensed mortgage company and qualified state-licensed MLOs who have been licensed for at least 30 days and are seeking licensure in another state to originate loans while completing any state-specific requirements for licensure such as education or testing.

Of the following situations, what is LEAST likely to be a red flag that fraud is occurring? a. derogatory information on a credit report b. key information left blank on a Closing Disclsoure

a. The fact that an applicant has derogatory information on a credit report is NOT a red flag for mortgage fraud. The other activities may be red flags that mortgage fraud is being committed.

Which situation is LEAST likely to be an example of predatory lending? a: ABC Mortgage Co. offers a subprime loan to Macy, who is coming out of bankruptcy. b: Mike paid off his $200,000 mortgage loan early with lottery winnings and the lender charged a $12,000 prepayment penalty.

a: ABC Mortgage Co. offers a subprime loan to Macy, who is coming out of bankruptcy. A subprime loan in and of itself is not evidence of predatory lending. The other situations should raise red flags as they potential indicators of predatory lending.

Fannie Mae sets forth requirements for who must sign the security instrument that is part of a mortgage loan transaction. Which of the following is NOT one of the signature requirements? a. Only persons who have an ownership interest in the security property and also have his/her income used in qualifying for the mortgage must sign. b. The domestic partner of any person who has an interest in the property must sign, if the partner's signature is necessary under state law to waive any property rights by virtue of being the owner's partner.

a. A security instrument bust me be signed by: Each person who has an ownership interest int he security property, even if the person's income is not used in qualifyin gfor the mortgage; tand the spouse or domestic partner of any person who has an interest in the property, if this or her signature is necessary under applicable state law to waive any property right he or she has by virtue of being the owner's spouse or domestic partner.

MLO Connor advertises that he will close loans in 10 business days, even though he knows that his average clsoe takes 31 days. His ad brings in 100 new customers and he works extra hard to close a few other those loans in 10 day so that his ad is legitimate. This is MOST LIKELY an example of a prohibited advertising tactic called a. bait and switch b. actual fraud

a. Because Connor was luring customers with his ad and then unable to perform the service advertised for a reasonable number of qualified applicants, he is likely to be suspected of the prohibited bait-and-switch advertising tactic.

A changed circumstance for the purpose of providing a revised Loan Estimate that can be used in determining good faith can be any of the following EXCEPT a. the MLO neglected to inform the borrower and include the additional cost necessitate by a review appraisal b. there is new information regarding the borrower that the MLO did not rely on when providing the original Loan Estimate

a. If there is no change in circumstance, and a fee was not included on the Loan Estimate due to an MLO error; then a revised Loan Estimate cannot be provided for the purpose of determining good faith.

Borrower Noah is getting a $200,000, fixed-rate, 30-year loan at 5% interest to purchase a condominium. The monthly payment of principal and interest is $1,073. Property taxes for this property are $3,900 per year. An annual homeowner's insurance policy is $864. The monthly condo association fee is $180. What is Noah's monthly PITI payment? a: $1,650 b: $1,073

a: $1,650 The monthly PITI payment for this loan is $1,650. First, the yearly property tax amount and insurance amount need to be divided by 12. Then add: $1,073 P&I + $325 monthly property tax + $72 monthly insurance premium + $180 HOA fee.

To comply with the Truth in Lending Act, the disclosed finance charge is considered accurate if it is not understated by more than ____ for closed-end credit secured by real property or a dwelling. a: $100 b: $50

a: $100 Under the TILA and Regulation Z, finance charge disclosures for open-end credit must be accurate since there is no tolerance for finance charge errors. However, both the TILA and Regulation Z permit various finance charge accuracy tolerances for closed-end credit. For credit secured by real property or a dwelling (closed-end credit only), the disclosed finance charge is considered accurate if it is not understated by more than $100. Overstatements are not violations.

If Bob pays $695.20 for principal and interest every month for 30 years on his $110,000 loan, how much interest will he pay over the life of the loan? a: $140,272 b: $250,272

a: $140,272 Bob will pay $140,272 in interest for that 30-year loan: 695.20 x 12 months = $8,342.40; $8,342.40 X 30 years = $250,272 total payment; $250,272 minus $110,000 principal = $140,272 interest.

If the original balance of the loan was $200,000, and the monthly payment is $1,073.64 P&I with $833.33 applied to interest, what will the balance be after one month? a: $199,759.69 b: $198,926.36

a: $199,759.69 Find the amount paid on principal by subtracting the interest paid from the monthly payment ($1,073.64 - $833.33 = $240.31). When you then subtract the principal reduction of $240.31 from the original balance of $200,000, you find that the balance of the loan after one month is $199,759.69. Remember: As the principal amount is reduced, the amount applied to interest will also reduce.

Dominic obtains a $300,000 mortgage loan a 5/1 interest-only ARM with a 10 year balloon at a 3% start rate, a 2% margin, and 2/6 caps. The initial monthly payment for the loan is $750. On the anniversary date of the loan, the index being used adjusts as follows: Year 1: 2.50% (initial year); Year 2: 2.75%; Year 3: 3.25%; Year 4: 3.50%; Year 5: 3.75%; Year 6: 3.00%; Year 7: 2.80%; Year 8: 5.00%; Year 9: 6.50%; Year 10: 7.50%. What is the highest monthly payment attainable during the life of Dominic's loan? a: $2,250 b: $2,500

a: $2,250 The lifetime cap for this loan is 6%. Add 6% to 3% start rate = 9.00% maximum interest rate. $300,000 x .09 / 12 = $2,250 monthly payment maximum.

Laura falls in love with a house and is desperate to buy it. The asking price is $235,000. She makes an offer of $230,000 that is accepted and the house appraises for $225,000. If her lender is willing to give her an 80% LTV loan, what is her required down payment if her offer is accepted? a: $50,000 b: $45,000

a: $50,000 The lender bases the loan-to-value on the lesser of the sales price or the appraised value. If Laura is paying $230,000 on a house appraised at $225,000, the lender will loan her $180,000 ($225,000 x .80). That means Laura will have to make a down payment of $50,000 ($230,000 sales price - $180,000 loan).

Bruce is purchasing a duplex for $275,000. He has given $2,000 in earnest money and the closing costs are $3,750. The lender has agreed to a 75% LTV. The seller has agreed to pay $2,000 in closing costs. How much does Bruce need to bring to closing? a: $68,500 b: $3,750

a: $68,500 First, calculate the down payment: $275,000 x 25% = $68,750. He has $3,750 in closing costs, so: $68,750 + $3,750 = 72,500 total needed for closing. However, credited to Bruce is $4,000 (earnest money and seller paid closing): $72,500 - $4,000 = $68,500 total amount Bruce needs to bring to closing.

With a VA-guaranteed loan, the lender may charge a flat fee, not to exceed ____of the loan amount, to cover the lender's costs and services for originating the loan. a: 1% b: 3%

a: 1% In addition to itemized charges, the lender may charge a flat fee, not to exceed 1% of the loan amount, to cover the lender's costs and services for originating the loan. If the loan does not close for any reason, the lender must refund this 1% flat fee.

When a mortgage loan meets the criteria of a higher-priced mortgage loan and the price reflected in the consumer's purchase agreement exceeds ____ of the seller's original acquisition price during the first 90 days, lenders are required to obtain a second appraisal. a: 10% b: 20%

a: 10% If the price reflected in the consumer's purchase agreement is more than 10% higher than the seller's acquisition price during the first 90 days or more than 20% higher than the seller's acquisition price during the first 91-180 days, creditors are required to obtain a second appraisal. This requirement for next home purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased. The borrower cannot pay for the cost of the second appraisal report. Higher-priced mortgage loans that exceed a set amount determined annually by the CFPB may be exempt from this additional appraisal requirement.

As set forth by Section 32 of Regulation Z, a high-cost mortgage must not include a balloon payment unless the loan has a maturity of ___ months or less because it is being used as a "bridge" loan connected with the acquisition or construction of a dwelling intended to become the consumer's principal dwelling. a: 12 b: 6

a: 12 A high-cost mortgage must not include a balloon payment unless the loan has a maturity of 12 months or less because it is being used as a "bridge" loan connected with the acquisition or construction of a dwelling intended to become the consumer's principal dwelling.

For license renewal, a mortgage loan originator is required to complete a minimum of ____ hours of continuing education on the topic of federal law. a: 3 b: 8

a: 3 Of the 8 hours of continuing education an MLO licensee is required to complete for annual license renewal, 3 hours must be on the topic of federal law.

Regulation B requires that applicants must be made aware of their right to receive an appraisal report created as the result of their mortgage loan application. This disclosure must be mailed or delivered to applicants not later than a: 3 business days after the lender receives a complete application. b: 4 business days prior to consummation.

a: 3 business days after the lender receives a complete application. As set forth by Regulation B, a creditor must provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. The creditor must mail or deliver to an applicant, not later than the third business day after the creditor receives an application for credit that is to be secured by a first lien on a dwelling, a notice in writing of the applicant's right to receive a copy of all written appraisals developed in connection with the application.

A Statement of Adverse Action must either disclose a specific principal reason for the action taken or disclose the applicant's right to request the reason(s) for denial within ____ days of receipt of the lender's notification. a: 60 b: 45

a: 60 A Statement of Adverse Action must either disclose a specific principal reason for the action taken or disclose the applicant's right to request the reason(s) for denial within 60 days of receipt of the lender's notification. The applicant also has 60 days from receipt of the Adverse Action Notice to request a copy of their credit report if the denial was due to information contained in the report.

If the amounts paid by a borrower at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the lender must refund the excess to the borrower and mail corrected disclosures reflecting that refund within how many calendar days after consummation? a: 60 b: 30

a: 60 If the amounts paid by the consumer at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the creditor must refund the excess to the consumer and mail corrected disclosures reflecting that refund no later than 60 calendar days after consummation.

Marcia's application for a mortgage loan has been denied. To stay in compliance with ECOA and Regulation B, the Adverse Action notice sent by the lender must contain a statement that Marcia can request a specific reason for the denial if she does so within ____ days of receipt of the lender's notification. a: 60 b: 45

a: 60 Per ECOA, as implemented by Regulation B, the Statement of Adverse Action must either disclose a specific principal reason for the action taken or disclose the applicant's right to request the reason(s) for denial within 60 days of receipt of the lender's notification.

As set forth by the FCRA, when adverse action is based on information in a consumer report from a consumer credit reporting agency, the Statement of Adverse Action must include notice of the consumer's right to a free copy of his consumer report. The consumer's request must be made within _____ of receipt of the adverse action notice. a: 60 days b: 30 business days

a: 60 days As set forth by the Fair Credit Reporting Act (FCRA), when adverse action is based on information in a consumer report from a consumer credit reporting agency, the Statement of Adverse Action must include Notice of the consumer's right to a free copy of his consumer report from the consumer reporting agency providing the information if requested within 60 days of receipt of the adverse action notice.

As set forth by Regulation V, a completed Chapter 13 bankruptcy and the accounts included in it are to disappear from the consumer's credit reports ___ years from the date the bankruptcy was filed. a: 7 b: 10

a: 7 Per the FCRA, as implemented by Regulation V, a completed Chapter 13 bankruptcy and the accounts included in it should disappear from the consumer's credit reports seven years from the date the bankruptcy was filed. If a consumer files a Chapter 7 bankruptcy, the consumer will probably have to wait a full 10 years for the derogatory mark to drop off credit reports.

When PMI is required for conforming fixed-rate mortgages, the lender must provide to the borrower at loan consummation a written notice that discloses the borrower's right to request cancelation of PMI, and, based on the initial amortization schedule, the date the loan balance is scheduled to reach ____ of the original value of the property. a: 80% b: 78%

a: 80% When PMI is required for conforming fixed-rate mortgages, the lender must provide to the borrower at loan consummation a written initial amortization schedule and a written notice that discloses the borrower's right to request cancelation of PMI, and, based on the initial amortization schedule, the date the loan balance is scheduled to reach 80% of the original value of the property. The written notice must also disclose the borrower's right to request cancelation on an earlier date if actual payments bring the loan balance to 80% of the original value of the property sooner than the date based on the initial amortization schedule.

The Financial Privacy Rule does NOT require which of the following? a: An entity that services a mortgage loan must provide a quarterly privacy notice to its customers. b: When a lender originates a loan to a consumer for personal, family, or household purposes, the lender must provide an initial Privacy Policy notice.

a: An entity that services a mortgage loan must provide a quarterly privacy notice to its customers. As set forth by Regulation P, which implements the Financial Privacy Rule of the GLB Act, a customer relationship with a consumer is established when an entity originates or acquires the servicing rights of a loan for personal, family, or household purposes. As set forth by Regulation P, when an entity and a consumer enter into a continuing relationship, the consumer becomes a customer and must receive the initial Privacy Policy notice and an annual (not quarterly) Privacy Policy notice. A customer must also receive notice of a revised Privacy Policy.

Section 326 of the USA PATRIOT Act amended the Bank Secrecy Act to require financial institutions to establish written a customer identification program (CIP). Which statement is FALSE as it relates to an institution establishing a CIP program? a: An individual must provide a residential or business street address; no other address is acceptable. b: A CIP program must verify a person's name, date of birth, address, and identification number.

a: An individual must provide a residential or business street address; no other address is acceptable. The definition of "financial institutions" includes a mortgage broker, brokerage, and loan originator. The CIP program must include verification of: (1) Name; (2) date of birth; (3) address, that can be a residential/business street address, an APO/FPO box number, or the residential/business street address of next of kin or of another contact individual; and (4) identification number, that can be for a U.S. person, a taxpayer identification number; or for a non-U.S. person, one or more of the following: a taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.

In compliance with the Fair Credit Reporting Act (FCRA), which of the following BEST describes the responsibility of consumer reporting agencies (CRAs)? a: CRAs must provide consumer credit information to entities with a legitimate business need. b: CRAs must report negative credit information for at least 10 years.

a: CRAs must provide consumer credit information to entities with a legitimate business need. As set forth in the FCRA, CRAs are obligated to provide credit information to entities with a legitimate business need. A potential employer may have a legitimate business need; but, an existing employer probably does not. CRAs must investigate disputed data and delete it if it is found to be incorrectly reported. Generally, CRAs must stop reporting negative credit information after seven years.

What entity has supervisory authority over nonbank mortgage originators and servicers, payday lenders, and private student lenders of all sizes? a: Consumer Financial Protection Bureau b: The Federal Trade Commission

a: Consumer Financial Protection Bureau The Consumer Financial Protection Bureau (CFPB) has supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates. In addition, the CFPB has supervisory authority over nonbank mortgage originators and servicers, payday lenders, and private student lenders of all sizes. The CFPB also supervises the larger participants of other consumer financial markets as defined by Bureau rules, including consumer reporting, consumer debt collection, student loan servicing, international money transfer, and automobile financing.

Under which federal legislation does the consumer have the right to receive a copy of the appraisal report on a dwelling that is to be used as collateral for a loan? a: ECOA b: TILA

a: ECOA Since the appraised value and the property condition are considered in the approval process, the consumer has the right to inspect the document being used to evaluate these facts, according to the Equal Credit Opportunity Act (ECOA).

A Direct Endorser is a lender who is authorized to underwrite what type of loan applications? a: FHA-insured b: nonconforming

a: FHA-insured Direct Endorsers (DEs) are authorized to underwrite their own FHA-insured loan applications and are responsible for the entire loan process through closing. Lenders that have been approved and have licensed direct endorser underwriters can underwrite their own FHA-insured mortgage loan applications. If the lender does not have a DE underwriter, the mortgage loan file must go directly to the FHA for approval.

The ______ within the GLB Act governs the collection and disclosure of nonpublic personal information to third parties. a: Financial Privacy Rule b: Safeguards Rule

a: Financial Privacy Rule Within the Gramm-Leach-Bliley Act, the Financial Privacy Rule governs the collection and disclosure of customers' personal financial information, known as nonpublic personal information, by restricting when and under what circumstances such information may be disclosed to affiliates and to nonaffiliated third parties.

Which of the following IS a restriction set forth by the Equal Credit Opportunity Act that ensures lenders are fair in their treatment of mortgage loan applicants and borrowers? a: For income stated on an application, a lender cannot ask if it is derived from alimony unless a specific disclosure is given. b: A lender must not ask for or record income from public assistance on an application.

a: For income stated on an application, a lender cannot ask if it is derived from alimony unless a specific disclosure is given. Under the ECOA, a lender must not inquire whether income stated in an application is derived from alimony, child support, or separate maintenance payments unless the lender discloses to the applicant that such income need not be revealed if the applicant does not want the income to be considered in determining the applicant's creditworthiness.

While it is unlawful to consider race when underwriting a loan, what federal legislation requires that this information be included on a mortgage loan application? a: Home Mortgage Disclosure Act b: Equal Credit Opportunity Act

a: Home Mortgage Disclosure Act The Home Mortgage Disclosure Act (HMDA) requires that specific information, such as sex, race, and ethnicity, be collected and reported to aid in determining if discriminatory practices are being used by mortgage lenders.

MLO Rob needs the Patriot Act form signed but cannot reach the borrower. The borrower is someone Rob has known since high school and is quite sure he is not a terrorist. Rob cuts and pastes the borrower's signature into the form and scans it to his email. What type of mortgage fraud is this? a: material misrepresentation b: material omission

a: material misrepresentation Any form of altered documentation is the fraudulent act of material misrepresentation.

TRID sets forth requirements on who is to provide and be listed in the creditor's information section of the Loan Estimate (LE) as a creditor. Which statement is NOT a requirement set forth by TRID? a: If there are multiple creditors, record all the names of the creditors on the LE. b: If a mortgage broker is completing the LE and the name of the creditor is unknown, leave this space blank.

a: If there are multiple creditors, record all the names of the creditors on the LE. If there are multiple creditors, use only the name of the creditor completing the LE. If a mortgage broker receives a consumer's application, the mortgage broker may provide the Loan Estimate to the consumer on the creditor's behalf. If a mortgage broker is completing the LE, use the name of the creditor if known. If a mortgage broker is completing the LE and the name of the creditor is unknown, leave this space blank.

A licensed MLO can take and accept a borrower's application in a variety of ways. Which of the following activities is considered a method of taking or accepting a loan application that requires Jim to have an MLO license? a: Jim asks questions to complete and submit potential borrower Kim's mortgage loan application through the company's automated system. b: Jim explains to potential borrower Kim the detailed process of submitting a loan application with his company.

a: Jim asks questions to complete and submit potential borrower Kim's mortgage loan application through the company's automated system. Asking questions to enter information into an online application or other automated system on behalf of the consumer is considered taking a loan application. Activities that are not considered taking an application include: Contacting a consumer to verify the information in the loan application by obtaining documentation, such as tax returns or payroll receipts; receiving a loan application through the mail and forwarding it, without review, to loan approval personnel; assisting a consumer who is filling out an application by clarifying the type of information necessary for the application and describing the steps necessary to provide that information; and explaining the loan application process.

In what section of the Closing Disclosure is a lender to record charges paid by the borrower to the lender, such as processing and rate-lock fees? a: Origination Charges b: Prepaids

a: Origination Charges Charges paid by the consumer to each creditor and loan originator for originating and extending the credit are to be recorded in Closing Disclosure, Loan Costs, Section A Origination Charges. Examples of items that are listed under the subheading Origination Charges include the application fee, origination fee, underwriting fee, processing fee, verification fee, and rate-lock fee.

The Homeowners Protection Act of 1998 is also known as the a: PMI Cancellation Act. b: Predatory Lending Prevention Act.

a: PMI Cancellation Act. The Homeowners Protection Act of 1998 is also known as the PMI Cancellation Act because it addresses homeowners' difficulties in canceling private mortgage insurance (PMI) coverage. It establishes provisions for canceling and terminating PMI, establishes disclosure and notification requirements, and requires the return of unearned premiums.

When a borrower looks at a completed Closing Disclosure, in what section of the Closing Disclosure will he find the fees for mortgage insurance premiums and per diem interest? a: Prepaids b: Services a borrower can shop for

a: Prepaids Prepaid fees, such as mortgage insurance premiums, prepaid interest, and property taxes are to be recorded in the Prepaids section of the Closing Disclosure and have an unlimited tolerance for change when compared to the Loan Estimate. These are accounts which must be funded in advance (prepaid) and are different from settlement services a borrower can shop for.

Which is an example of steering? a: Property manager Amy suggests Jake would be happier in a more diverse building. b: Seller Oscar tells his listing agent to find only Caucasian buyer prospects.

a: Property manager Amy suggests Jake would be happier in a more diverse building. Steering as prohibited by the Fair Housing Act is the discriminatory practice of channeling buyers to or away from certain neighborhoods based on their race, religion, or national origin. Amy is committing the illegal act of steering.

After closing a refinance loan on Monday the 3rd (in a month with no federal holidays), ABC mortgage learns the borrower only received one of the two required copies of the Notice of Right to Rescind. ABC Mortgage calls the borrower who then signs the form on Tuesday the 4th. When can this loan fund? a: Saturday 8th b: Friday 7th

a: Saturday 8th Generally, TILA requires that each consumer entitled to rescind must be given two copies of the rescission notice and the material disclosures. The rescission period does not begin to run until notices are provided to consumers as required. In this case, because notices were not provided as required until Tuesday the 4th, the recession period ends on Friday the 7th and the loan can fund on Saturday the 8th.

_____interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments. a: Simple b: Accrued

a: Simple A mortgage based on the calculation of interest daily is called a simple-interest mortgage. This mortgage is different from a traditional mortgage where interest calculations happen on a monthly basis. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments. The total interest paid on a simple interest mortgage will be a bit more than for a traditional mortgage because the total number of days counted in a simple interest mortgage calculation is more than a traditional mortgage calculation.

For VA-guaranteed loans, which statement is TRUE? a: The funding fee can be financed. b: All closing costs can be financed.

a: The funding fee can be financed. The variable funding fee may be financed and all closing costs may not be financed. Reasonable discount points are allowed. Because VA mortgage loans can be for the full reasonable value of the property, generally, no down payment is required by the VA.

A registered mortgage loan originator refers to a: an MLO who is registered with and maintains a unique identifier through the NMLS. b: any licensed MLO that is employed by a lender licensed under the state regulatory authority.

a: an MLO who is registered with and maintains a unique identifier through the NMLS. A registered MLO is an individual who is registered with and maintains a unique identifier through the NMLS. A registered mortgage loan originator may not necessarily be licensed under the state regulatory authority. A registered mortgage loan originator could be exempt from licensure as an employee of a depository institution or a subsidiary that is owned and controlled by a depository institution and regulated by a federal banking agency; but still registered with the NMLS.

To maintain an MLO license in compliance with license law, MLOs must report specific license amendments through the NMLS as part of keeping license information current. Which statement is FALSE as it relates to this amendment reporting process? a: The license law of each state requires the same process and timelines for amending a MU4 Form and informing the state license authority of the change. b: Many revisions to license information require that the MLO update information on the MU4 Form in the NMLS.

a: The license law of each state requires the same process and timelines for amending a MU4 Form and informing the state license authority of the change. If an MLO has an MLO license in multiple states, he may find that the process and timeline for amending his MU4 Form are different among states. The State Licensing Requirements page on the NMLS Resource Center includes Amendment Checklists for each license type in each state. Review of the appropriate Amendment Checklist will provide licensees with the instructions needed to proceed in compliance with state law.

The Fannie Mae Selling Guide sets forth requirements for the use of a power of attorney (POA) in obtaining required signatures on a security instrument. Though there are specific exceptions to the requirements, which of the following does NOT accurately reflect a requirement for the use of a POA in most circumstances involved with security instrument signatures? a: The title agency closing the loan is often used as the POA signer on a security instrument. b: Eligible transactions include purchase and rate/term refinance transactions.

a: The title agency closing the loan is often used as the POA signer on a security instrument. None of the following may serve as the POA agent: Lender or employee of lender; property seller or any person related to the property seller, including a relative or affiliate; or any real estate agent with a financial interest in the transaction or any person affiliated with such real estate agent. None of the following may serve as the POA agent except in accordance with a listed permitted exception: Loan originator; affiliate of the lender or loan originator; employee of the title insurance company; or the affiliate of the title insurance company or its employee including, but not limited to, the title agency closing the loan.

If MLO Eric wants to calculate a borrower's debt-to-income ratio, what formula is used? a: Total Debt / Gross Monthly Income b: Gross Monthly Income/Total Housing Expense

a: Total Debt / Gross Monthly Income The formula for calculating a borrower's DTI ratio is: Total Debt / Gross Monthly Income = DTI Ratio. Note that it is reasonable to assume that DTI refers to Total Debt Ratio if housing is not specified.

____ is a security instrument placing into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note. a: Trust deed b: Mortgage

a: Trust deed Trust deed is a security instrument placing into the hands of a disinterested third party a specific financial interest in the title to real property as security for the payment of a note.

Appraiser Sheila has been hired to complete an appraisal of a residential home for Lender XYZ. What is the standard form she should use to report her findings? a: Uniform Residential Appraisal Report b: Certificate of Reasonable Value

a: Uniform Residential Appraisal Report The Uniform Residential Appraisal Report (URAR) form is a standard appraisal report form used by lenders and appraisers because it has been developed and approved by secondary mortgage market players Fannie Mae and Freddie Mac. A Certificate of Reasonable Value would only be in the event of a VA loan, which is not specified here.

Borrower Cade signs the note and mortgage for a refinance on his principal residence on Thursday, December 31. What is the earliest day the funds for his loan can be disbursed (assuming no bona fide financial hardship)? a: Wednesday, Jan. 6 b: Monday, Jan.4

a: Wednesday, Jan. 6 For transactions subject to the Regulation Z right of recession, consumers can exercise the right to rescind until midnight of the third business day following loan consummation, delivery of the required rescission notice, or delivery of all material disclosures, whichever occurs last. Federal holidays and Sundays do not count toward the three business-day rescission period. In this scenario, the borrower has until midnight Tuesday to rescind the transaction. The earliest funds can be disbursed is Wednesday the 6th. When taking the National Pre-licensing Test, make sure you notice if the question is asking when the rescission expires (day 3) or the money moves (day 4).

Which of the following is NOT a feature of the USDA Section 502 Direct Loans? a: a payback period capped at 30 years b: no down payment

a: a payback period capped at 30 years Section 502 Direct Loans offered by the U.S. Department of Agriculture (USDA) have a fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower. Interest rates when modified by payment assistance can be as low as 1%. The payback period generally is up to 33 years; however, a 38 year payback period may be extended to very low income applicants who can't afford the 33 year loan term. No down payment is typically required; however, applicants with assets higher than the asset limits may be required to use a portion of those assets.

Laura's name is on the National Do Not Call Registry. At what point after she closes a loan with ABC Mortgage must ABC stop contacting her to solicit new business? a: after 18 months b: immediately

a: after 18 months A company may call a customer with whom they have an established business relationship (EBR) up to 18 months after the customer's last transaction or payment, as long as the customer did not ask to be put on an internal DNC list. If a customer has asked to be put on the company's internal Do Not Call list, the company may not call, even if there is an EBR.

A subordination agreement a: allows a mortgage to be put in first lien position over an earlier recorded mortgage. b: prohibits the borrower from selling the property without the lender's approval.

a: allows a mortgage to be put in first lien position over an earlier recorded mortgage. A subordination agreement gives a mortgage recorded at a later date the right to take priority over an earlier recorded mortgage. The lender agreeing to subordinate a lien position allows another lien, in the event of default, to "cut in line" and be paid before the now subordinate lien.

For a Loan Estimate to be seen as provided in good faith, what cost cannot change from the Loan Estimate to the Closing Disclosure? a: fees paid to a mortgage broker b: property taxes

a: fees paid to a mortgage broker Fees paid to a mortgage broker are placed in the category of fees that have a zero tolerance for change. Items on the Loan Estimate that have an unlimited tolerance for change include prepaid private mortgage insurance, property taxes, and property insurance premiums.

Which of the following is NOT exempt from the MLO license and registration requirements as set forth by the SAFE Act? a: an individual who refers or steers a prospective borrower to a particular lender or set of residential mortgage loan terms in accordance with his work duties b: a person who engages in the origination of loans that are used for business or commercial financing purposes only

a: an individual who refers or steers a prospective borrower to a particular lender or set of residential mortgage loan terms in accordance with his work duties A person is not exempt from the license or registration requirements of the SAFE Act if that person takes residential mortgage loan applications and offers or negotiates terms of residential mortgage loans for compensation or gain. This includes referring/steering a prospective borrower to a particular lender or a set of residential mortgage loan terms, in accordance with a work duty. Per this definition, a loan for a business/commercial purchase does not meet the criteria of a "residential loan application." Individuals who are only involved in credit relating to timeshare plans or originating loans with respect for work for a nonprofit are listed in Regulation H as specific exemptions.

Which of the following is NOT exempt from the MLO license and registration requirements as set forth by the SAFE Act? a: an individual who refers or steers a prospective borrower to a particular lender or set of residential mortgage loan terms in accordance with his work duties b: an employee of a bona fide nonprofit organization who acts as an MLO only with respect to his work duties

a: an individual who refers or steers a prospective borrower to a particular lender or set of residential mortgage loan terms in accordance with his work duties A person is not exempt from the license or registration requirements of the SAFE Act if that person takes residential mortgage loan applications and offers or negotiates terms of residential mortgage loans for compensation or gain. This includes referring/steering a prospective borrower to a particular lender or a set of residential mortgage loan terms, in accordance with a work duty. Per this definition, a loan for a business/commercial purchase does not meet the criteria of a "residential loan application." Individuals who are only involved in credit relating to timeshare plans or originating loans with respect for work for a nonprofit are listed in Regulation H as specific exemptions.

As part of an appraisal being conducted for a residential property, what element would be considered part of the gross living area? a: bedroom's walk-in closet b: finished basement

a: bedroom's walk-in closet Only heated, finished living areas above grade are considered in the square footage for the gross living area.

Regulation Z offers two different definitions for the term "business day"; often referred to as the "Business Day Rule" and the "More Precise Business Day Rule." The "Precise Business Day Rule" defines business day as all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). The "Precise Business Day Rule" applies to the required number of business days a: before consummation after a revised Loan Estimate is given to the consumer. b: for providing the consumer with the initial Loan Estimate.

a: before consummation after a revised Loan Estimate is given to the consumer. Regulation Z offers two different definitions for the term "business day"; often referred to as the "Business Day Rule" and the "More Precise Business Day Rule". The "More Precise Business Day Rule" defines business day as all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. The "More Precise Business Day Rule" applies to most waiting periods applied before consummation, such as the 7 business day waiting period before consummation after early disclosures and the 4 business day waiting periods before consummation after a revised LE.

All of the following are listed in Section B of BOTH the Loan Estimate and Closing Disclosure as services a borrower cannot/did not shop for EXCEPT the a: borrower's title insurance premium. b: lender's title insurance premium.

a: borrower's title insurance premium. Loan origination charges such as an appraisal fee, credit report fee, and lender's title insurance policy are services the borrower cannot shop for; thus, they go in Section B of the Loan Estimate (LE) and Closing Disclosure (CD). The borrower's title insurance policy is a service the borrower can shop for; thus, it goes in Section C of the LE. If the borrower could shop and did not shop, the fee will go in Section B of the CD. If the borrower could shop and did, the fee will go in Section C of the CD.

As defined and used throughout Regulation Z, when referring to the delivery requirements for a Loan Estimate and Closing Disclosure, the time that a consumer becomes contractually obligated to a credit transaction is called a: consummation. b: settlement.

a: consummation. In Regulation Z, consummation is not the same thing as closing or settlement. Consummation occurs when the consumer becomes contractually obligated to the creditor on the loan, not, for example, when the consumer becomes contractually obligated to a seller on a real estate transaction.

A debt or expense associated with which of the following is NOT to be recorded on a borrower's application as a reoccurring liability? a: credit union loan with seven payments remaining b: revolving credit card

a: credit union loan with seven payments remaining Generally, a lender will not consider installment loan debt with less than 10 payments remaining, except for leases, which always count regardless of how few payments remain. Therefore, a credit union loan with seven payments remaining does not need to be recorded as a borrower reoccurring liability.

As defined and used throughout FCRA, what term is BEST defined as any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit? a: creditor b: user of credit

a: creditor As defined and used throughout FCRA and Regulation V, the term creditor means any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.

Partial payments to the builder for construction progress are called a: draws. b: forwards.

a: draws. Partial payments for progress to the builder are called draws or obligatory advances.

The Government National Mortgage Association a: guarantees mortgages backed by federally insured or guaranteed loans. b: issues mortgage-backed securities.

a: guarantees mortgages backed by federally insured or guaranteed loans. The Government National Mortgage Association (GNMA or Ginnie Mae) guarantees investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans. Most loans backed by Ginnie Mae are insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Other guarantors or issuers of loans eligible for Ginnie Mae include the Department of Agriculture's Rural Development (RD) and the Department of Housing and Urban Development's Office of Public and Indian Housing (PIH).

Which of the following is an example of a subordinate loan? a: home equity loan b: purchase money mortgage

a: home equity loan Subordinate loans are secondary loans that are paid after all first liens have been paid in the event of a default. For example, home equity loans and home equity lines of credit are subordinate to the first mortgage.

A borrower's _____ ratio is the relationship of the borrower's gross monthly income to his total monthly housing expense expressed as a percentage. a: housing expense b: debt-to-income

a: housing expense A borrower's housing expense ratio is the relationship of the borrower's gross monthly income to his total monthly housing expense expressed as a percentage. The formula for calculating a borrower's housing expense ratio is: Total Housing Expense / Gross Monthly Income = Housing Expense Ratio. The housing expense ratio can also be called payment-to-income ratio or the front-end ratio.

The most common fraudulent action on the part of the appraiser is a: inflating value. b: falsifying MLS data.

a: inflating value. Inflating the value of the property is the most common fraudulent action on the part of the appraiser. The appraiser gives the MLO "what is needed" on the appraisal without regard to the property's actual market value.

In exchange for a higher interest rate, ____ offset(s) closing costs and lower the amount a borrower pays at closing. a: lender credits b: discount points

a: lender credits A lender credit is when a lender gives a borrower money to offset closing costs, and in exchange for the lender credit, the borrower pays a higher interest rate. The more lender credits a borrower receives, the higher the borrower's loan interest rate will be. Lender credits are calculated the same way as points and may appear on the Loan Estimate as negative points. For example, a lender credit of $1,000 on a $100,000 loan might be described as negative one point (because $1,000 is 1% of $100,000). That $1,000 will appear as a negative number as part of the Lender Credits line item on page 2, Section J of the Loan Estimate or Closing Disclosure.

When comparing a Closing Disclosure to a Loan Estimate, which of the following is a charge that will ALWAYS appear in Section B as a service a borrower cannot/did not shop for? a: lender's title insurance premium b: settlement agent fee

a: lender's title insurance premium A lender's title insurance policy is a service the borrower cannot shop for; thus, the fee for the policy goes in Section B of the Loan Estimate (LE) and Section B of the Closing Disclosure (CD) and thus is subject to a zero tolerance for change.

A ____ is a financial encumbrance that is described as a nonpossessory financial interest in property. a: lien b: title

a: lien A lien is a financial encumbrance. It is a nonpossessory financial interest in property. It provides a degree of security for a debt and may give the creditor or lienholder the right to foreclose on the debtor's property if the debt isn't paid. If the property goes to foreclosure, it is sold and the lienholder may receive all or part of the debt from the proceeds of the foreclosure sale.

Lenders that originate qualified mortgages will be presumed to have met the ATR/QM Rule mandated by the Dodd-Frank Act. The ATR/QM Rule applies to which of these loan types? a: loan secured by condominium unit b: home equity line of credit

a: loan secured by condominium unit Lenders that originate qualified mortgages (QMs) will be presumed to have met the Ability to Repay/Qualified Mortgage (ATR/QM) Rule mandated by the Dodd-Frank Act, thereby providing the lender with protection against potential legal challenges by borrowers and the CFPB as to the fairness of the loan. The ATR/QM Rule applies to almost all closed-end borrower credit transactions secured by a one- to four-unit dwelling, including condominium units, cooperative units, mobile homes, and trailers. It does not apply to open-end credit plans (e.g. home equity lines of credit), timeshares, reverse mortgages, bridge or construction loans (less than 12 months), vacant land, loan modifications, and certain government programs.

Lenders that originate qualified mortgages will be presumed to have met the ATR/QM Rule mandated by the Dodd-Frank Act. The ATR/QM Rule applies to which of these loan types? a: loan secured by condominium unit b: loan modification

a: loan secured by condominium unit Lenders that originate qualified mortgages (QMs) will be presumed to have met the Ability to Repay/Qualified Mortgage (ATR/QM) Rule mandated by the Dodd-Frank Act, thereby providing the lender with protection against potential legal challenges by borrowers and the CFPB as to the fairness of the loan. The ATR/QM Rule applies to almost all closed-end borrower credit transactions secured by a one- to four-unit dwelling, including condominium units, cooperative units, mobile homes, and trailers. It does not apply to open-end credit plans (e.g. home equity lines of credit), timeshares, reverse mortgages, bridge or construction loans (less than 12 months), vacant land, loan modifications, and certain government programs.

What do underwriters use to determine how much they are willing to loan on a given property based on its value? a: loan-to-value ratio b: expense-to-income ratio

a: loan-to-value ratio Collateral for a mortgage loan is typically the property securing the loan. Underwriters use the loan-to-value (LTV) ratio to determine how much they are willing to loan on a given property based on its value. LTV is calculated by: Loan Amount / Lesser of Sale Price or Appraised Value = LTV.

According to the Interagency Guidance on Nontraditional Mortgage Products, nontraditional mortgage loans may be LEAST risky for borrowers with a: low debt-income ratios. b: high debt-income ratios.

a: low debt-income ratios. The Guidance is concerned about borrowers suffering payment shock and being unable to repay a loan. A borrower with low debt-income ratios would be a safer risk.

As defined in Regulation X, which implements RESPA, ____ means a person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan. a: mortgage broker b: loan originator

a: mortgage broker As defined in Regulation X, mortgage broker means a person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan.

What cost is included in an APR calculation? a: mortgage insurance b: down payment

a: mortgage insurance The APR reflects the total cost to borrow money. Mortgage insurance is one of those costs, but the others are merely costs associated with buying property, not necessarily with a mortgage, and so are not part of the APR calculation shown on the Closing Disclosure.

If a licensed mortgage loan originator is convicted of a felony, who is responsible for reporting this information to the NMLS? a: mortgage loan originator b: state regulatory authority

a: mortgage loan originator It is the responsibility of the mortgage loan originator to keep the information in the NMLS system current by reporting changes that may impact the MLO's license status.

The ____ indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments. a: mortgage note b: Closing Disclosure

a: mortgage note The mortgage note states the promise to repay the mortgage. It indicates the amount and terms of the loan and what the lender can do if the borrower fails to make payments.

A(n) ______ title insurance policy protects the lender's interest in a subject property. a: mortgagee's (lender) b: owner's

a: mortgagee's The lender receives a mortgagee's title insurance policy from the title company to protect the lender's interest in the title. The lender's/mortgagee's title insurance policy is usually based on the dollar amount of the loan. It only protects the lender's interests in the property should a problem with the title arise. It does not protect the buyer.

On the Closing Disclosure, applicable secondary market charges passed onto the borrower must be properly identified as a: origination charges. b: Secondary market charges are not to be listed on the Closing Disclosure.

a: origination charges. Secondary market charges must be properly identified as origination charges. For example, fees charged to lenders by secondary market purchasers (FNMA, FHLMC, GNMA, etc.) when they buy the loan (e.g., property inspection waiver charged by FNMA for loans that do not involve an appraisal) must be identified as origination charges. If the lender wants to pass the charge through to borrowers, it must be included in origination charges, not settlement charges.

What is the clause that appears in many blanket and construction mortgages so that the developer or builder can sell off completed homes with clear title before having to pay off the entire amount borrowed? a: partial release clause b: subordination clause

a: partial release clause A partial release, satisfaction, or conveyance clause in a contract obligates the creditor to release part of the property from the lien and convey title to that part back to the debtor once certain provisions of the note or mortgage have been satisfied.

What is the largest component of a credit score? a: payment history b: amounts owed

a: payment history An individual's credit score is influenced by five categories. The largest component is payment history which is 35% of a FICO score. The other categories are: Amounts owed (30%); length of credit history (15%); new credit (10%); and credit mix (10%).

The Truth in Lending Act was enacted to a: prevent abuses in consumer credit cost disclosures. b: prevent kickbacks and unlawful referrals.

a: prevent abuses in consumer credit cost disclosures. The Truth in Lending Act (TILA) is designed to promote the informed use of consumer credit through proper disclosure and allows for the rescission of certain transactions secured by a borrower's principal dwelling. It is administered by the Consumer Financial Protection Bureau. The specific provisions of TILA, which are contained in Title I of the Consumer Credit Protection Act, as amended (15 U.S.C. § 1601 et seq.), are implemented by Regulation Z.

Which situation is NOT a red flag that a prohibited property flipping act may be taking place? a: purchasing and remodeling a house and selling it for quick profit b: a series of sales and quick resales

a: purchasing and remodeling a house and selling it for quick profit Purchasing and remodeling a house and then selling it for a quick profit is the good side of property 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 themselves.

As defined by the NMLS, the term ____ is typically used to signify the individual that represents a company and may be required to meet specific requirements. a: qualified individual b: sponsor

a: qualified individual As defined by the NMLS, "qualified individual" is typically used to signify the individual that represents a company and may be required to meet specific requirements. States may also refer to this individual as the "Qualified Person in Charge (QPIC)" or "Managing Principal." Note that not all states have a "Qualified Manager" position requirement.

Background checks for state MLO license applicants do not include a: questioning of friends, coworkers, or family members regarding personal character. b: completing forms to provide personal history and experience.

a: questioning of friends, coworkers, or family members regarding personal character. The background check for an MLO application does not include questioning of friends, coworkers, and family members.

At the time that Dan applied for a mortgage with MMM and received an initial Loan Estimate (LE), he did not lock an interest rate. Two weeks later, Dan decides to pay the fee and lock the rate with MMM. While preparing the revised LE to reflect the new rate lock fee, the MMM underwriter notices that received appraisal and title fee invoices are slightly higher than originally disclosed. MMM sends Dan a revised LE that reflects new fees. For good faith calculation purposes, which of the following fees paid at consummation will be compared to the REVISED Loan Estimate? a: rate lock extension fee b: appraisal fee

a: rate lock extension fee For good faith calculation purposes, the rate lock extension fee disclosed on the revised Loan Estimate will be compared to actual costs charged at consummation because the change was a valid change circumstance. MMM should disclose the higher title and appraisal fees since it is the best information reasonably available; however, the disclosure of those fees is for informational purposes only and good faith will still be determined based on the fees disclosed in the initial Loan Estimate.

The provisions of the Real Estate Settlement Procedures Act are designed to do all of the following EXCEPT a: remove limits on amounts that lenders can require borrowers to place into an escrow account. b: disclose to borrowers the likelihood that a loan will be sold or transferred.

a: remove limits on amounts that lenders can require borrowers to place into an escrow account. Section 10 of RESPA sets limits on the amounts that a lender may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance, and other charges related to the property.

In the "About Your Finances" section of the URLA, the borrower is to identify if she has conveyed title to any property in lieu of foreclosure in the past ___ years. a: seven b: three

a: seven In the "About Your Finances" section of the URLA, the borrower is to identify if she has conveyed title to any property in lieu of foreclosure in the past seven years.

Of the following four liens on Marcia's property, which is in first priority when a property is foreclosed and sold? a: special assessment tax lien b: judgment lien

a: special assessment tax lien A special assessment tax lien is a superior lien. All others are junior liens.

Under the SAFE Act, the ______is responsible for ensuring the proper and legal control of MLO licensing within the state. a: state regulatory authority b: NMLS

a: state regulatory authority The state regulatory authority must effectively supervise and enforce state requirements for MLO licensing.

Mortgage loan originators are prohibited from a: telling an appraiser a minimum value needed to approve the loan. b: withholding fees from appraisers for substandard performance.

a: telling an appraiser a minimum value needed to approve the loan. A mortgage loan originator must never ask an appraiser to hit a mark by telling the appraiser the minimum amount the appraised value needs to be to get the loan approved. This is unethical and, if acted upon, is an example of collusion in appraisal fraud.

The Fair Housing Act requires lenders to display what in all branch offices? a: the Equal Housing Lender Poster b: a list of rights under the Fair Housing Act

a: the Equal Housing Lender Poster The Fair Housing Act requires the displaying of the Equal Housing Lender Poster, which indicates to the public that the lender is in compliance with the Act.

With a HECM, the amount a person is able to borrow will depend on all of the following EXCEPT a: the loan-to-value ratio. b: age of the youngest borrower or eligible non-borrowing spouse.

a: the loan-to-value ratio. With a Home Equity Conversion Mortgage (HECM), the amount that can be borrowed is determined by considering the age of the youngest borrower or eligible non-borrowing spouse; current interest rate; and the lesser of the appraised value, the HECM FHA mortgage limit (adjusted annually), or the sales price (only applicable to HECM for Purchase).

Generally, lenders prefer that borrowers have reserves that cover ____ months of a PITI mortgage payment after the borrower makes the down payment and pays all closing costs. a: two b: four

a: two Reserves are cash on deposit or other highly liquid assets a borrower will have available after the loan funds. Lenders like to see at least enough to cover two months of a PITI mortgage payment after the borrower makes the down payment and pays all closing costs; however, in most cases, this is not required.

Generally, lenders prefer that borrowers have reserves that cover ____ months of a PITI mortgage payment after the borrower makes the down payment and pays all closing costs. a: two b: four

a: two Reserves are cash on deposit or other highly liquid assets a borrower will have available after the loan funds. Lenders like to see at least enough to cover two months of a PITI mortgage payment after the borrower makes the down payment and pays all closing costs; however, in most cases, this is not required.

The purpose of an appraisal is BEST described as helping the lender determine a: whether the collateral is sufficient security for the loan. b: if the house is in sellable condition.

a: whether the collateral is sufficient security for the loan. The appraiser is the eyes of the lender to determine if, in the event of foreclosure, the lender could expect to recover its money.

Regulation Z applies to all residential loans a: with more than four installments. b: with four or less installments.

a: with more than four installments. Regulation Z, which implements TILA, does not apply to business, commercial, or agricultural loans, loans payable with four or less installments, loans without a finance charge, or to loans made to corporations, partnerships, associations, and agencies.

Mary finally is building that dream home in the country on the five acres she has owned for seven years. Can she use the equity in the land in lieu of cash for a down payment on a construction loan? a: yes, regardless of whether the land is free and clear, as long as there is enough equity b: no, land may never be used in lieu of a down payment

a: yes, regardless of whether the land is free and clear, as long as there is enough equity In almost all cases, equity in land from the building site that has been owned long enough may be applied to the cash requirements for a construction loan.