Mortgage Loan Originator Prelicense Exam Prep

What kind of loan is used for short term financing and is intended to be replaced with a long term financing? A) A construction loan B) A first mortgage loan C) A junior loan D) An open-end loan

A) A construction loan A construction loan's purpose is to finance the construction of a project. It is short term and designed to be replaced with permanent financing once the construction is complete or when the property is sold.

What risk is PMI intended to cover? A) A foreclosure sale that was not enough to pay the outstanding loan balance B) Loss in property value serving as collateral C) Death of the borrowers D) Interest rates rising

A) A foreclosure sale that was not enough to pay the outstanding loan balance Private Mortgage Insurance (PMI) is insurance to protect the lender of conventional loans. PMI insures the lender against loss when a borrower defaults. This insurance reduces the lender's risk because losses are shared between the lender and the insurance company if the loan results in a default. The PMI company pays the lender for its loss.

A loan that is subordinate to another loan that has first priority is called what? A) A junior loan B) A wrap around loan C) A rollover loan D) A participation loan

A) A junior loan A junior loan is any loan inferior or subordinate to another loan that is first in priority.

Which of the following would be included as an expense in calculating the debt-to-income ratio? Assuming any debt has at least 10 months of payments remaining. A) A personal loan B) Auto insurance C) A monthly cell phone bill D) Utilities such as electricity and water

A) A personal loan The expenses included in the debt-to-income ratio include the minimum monthly payments for consumer loans, auto loans or leases, credit card debt, student loans, child or spousal support (alimony), and business expenses (if self-employed). Necessities, such as rent, utilities (phone, gas, water), insurance (auto, health), food and entertainment are not included.

In a mortgage where the lender is also the seller, what is this called? A) A purchase money mortgage B) A reverse equity mortgage C) A refinancing mortgage D) A participation mortgage

A) A purchase money mortgage A purchase money mortgage typically refers to a mortgage given by a buyer to a seller wherein the seller is the lender in the transaction.

Under the definitions of the Dodd-Frank Act, taking unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs or conditions of the product or service is which kind of act? A) Abusive B) Deceptive C) Subprime D) Unethical

A) Abusive Under the definitions of the Dodd-Frank Act in regard to UDAAPs, an abusive act or practice includes taking unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs or conditions of the product or service.

A conventional loan is A) a loan that isn't issued, insured or guaranteed by a government entity. B) a loan that meets Fannie Mae's eligibility requirements. C) a loan that is uninsured. D) a loan that is secured by a 1-or-2-family dwelling.

A) a loan that isn't issued, insured or guaranteed by a government entity. A conventional loan is one that is not issued, insured or guaranteed by a government entity. It may or may not be insured by a private entity, or eligible for purchase by Fannie Mae. If it were eligible for purchase, it would be a conforming loan.

Compared to a loan without a prepayment penalty, a loan with a prepayment penalty will generally have A) a lower interest rate. B) a higher interest rate. C) lower loan fees. D) higher loan fees.

A) a lower interest rate. Because a loan with a prepayment penalty discourages the borrower from refinancing immediately if market interest rates drop, loans with a prepayment penalty will generally have lower interest rates than those without.

Drew is a mortgage loan applicant. When he lists the property that he owns, but rents it out, then A) positive cash flow is included with gross income. B) the income can be used if it is expected to continue for one year. C) the income can be used if it is from the rental of a second home. D) negative cash flow is ignored.

A) positive cash flow is included with gross income. Rental income, except from second homes, may be used to qualify an applicant if the income can be reasonably expected to continue for at least 3 years. Positive cash flow is added to gross income, and negative cash flow is added to total liabilities.

Features designed to "strip away," or reduce, a borrower's equity in the collateral and increase the likelihood of foreclosure are typical of A) predatory loans. B) ARM loans. C) refinancing loans. D) loans originated by brokers.

A) predatory loans. A number of actions of lenders and their mortgage loan originators have earned the term "predatory lending." Most regulators consider predatory lending to be the extension of credit to borrowers who cannot afford the credit on the terms being offered. Predatory loans can be recognized by one or more of the inclusion of features designed to "strip away," or reduce, a borrower's equity in the collateral and increase the likelihood of foreclosure.

The purpose of TILA is to A) promote the informed use of credit. B) provide assistance to elderly homeowners looking for reverse mortgages. C) extend credit to low-income individuals. D) guard against discrimination in housing.

A) promote the informed use of credit. TILA is the Truth in Lending Act, enacted in 1968. Its purpose is to promote the informed use of credit. It requires that creditors provide accurate and truthful info to consumers relating to cost and terms of credit being offered, so they may more easily compare credit offers.

On the Closing Disclosure, by signing the last page of the document the applicant has confirmed that they: A) received the Closing Disclosure. B) approve of all changes when compared to the Loan Estimate. C) agree to the terms of the mortgage loan. D) waived their rights not to be discriminated against.

A) received the Closing Disclosure. If the creditor includes a signature line, by signing the Closing Disclosure document the consumer is only signifying that he or she has received the Closing Disclosure. The disclosure is not a confirmation of loan acceptance.

The Truth in Lending Act (TILA), implemented by Regulation Z, A) require lenders to provide accurate and truthful information to consumers. B) outlaw kickbacks that increase the cost of settlement services to consumers. C) addresses servicers' obligations to correct errors asserted by borrowers. D) requires the itemization of services and fees charged to the borrower by the lender or broker.

A) require lenders to provide accurate and truthful information to consumers. TILA and its implementing regulation, Regulation Z, requires lenders to provide accurate and truthful information to consumers. Kickbacks are prohibited by RESPA. Servicers are obligated to correct errors through Regulation X. The itemization of services and fees charged to the borrower are contained in the Loan Estimate, which is also required by RESPA.

The type of mortgage that can provide the borrower with a monthly check instead of the borrower paying a monthly payment is known as a A) reverse mortgage. B) conforming loan. C) nonconforming loan. D) graduated payment mortgage.

A) reverse mortgage. The purpose of a reverse mortgage is to give money back to qualified borrowers without requiring them to make monthly payments. Seniors (defined as adults age 62 or older) can use the equity in their home for any use, including but not limited to health care, home repairs and upkeep, and/or to maintain a lifestyle that is otherwise not affordable.

The pricing model used for subprime loans has been A) risk based. B) index based. C) uniform. D) cost based.

A) risk based. Under a risk-based pricing model, mortgages are priced based on the underlying risk of the borrower. Borrowers with riskier profiles pay higher prices. This has been the basis for subprime loans.

The document that includes all borrower information is A) the 1003. B) the 1210. C) the HUD-1. D) the 1004.

A) the 1003. The 1003 is the loan application that contains all pertinent data about the applicant.

Which is NOT a purpose for the Mortgage Servicing Disclosure Statement? A) to inform the consumer the likelihood that the mortgage could be sold B) to inform borrowers that they have certain rights under the law C) to disclose the percentages of the loan closings this lender has serviced in the last three years D) to inform the consumer the likelihood that the servicing of the mortgage will be sold

A) to inform the consumer the likelihood that the mortgage could be sold The Servicing Disclosure Statement discloses whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding.

Which one of the following is NOT a settlement service as defined by RESPA? A) Pest and fungus inspections B) An interior home decorator C) Real estate appraisals D) Title examinations

B) An interior home decorator Settlement services include any service provided in connection with a real estate arrangement, including title searches, title examinations, provision for title certificates, title insurance, services rendered by an attorney, preparation of title documents, property surveys, provision of credit reports or appraisals, real estate appraisal services, home inspection services, services rendered by a real estate broker, pest and fungus inspections, loan origination services, escrow services, and settlement closing services.

Which law gives a consumer who has had their credit card used by an identify thief the ability to place a freeze on her credit report? A) Gramm-Leach-Bliley Act B) FACTA C) ECOA D) SAFE Act

B) FACTA The Fair and Accurate Credit Transactions Act (FACTA) addressed a number of issues, such as the growing problem of identity theft in the United States, by allowing consumers to place alerts on their credit histories if identity theft is suspected.

Which federal legislation requires that the borrower have the right to receive a copy of his or her credit report, without charge, annually? A) ECOA B) FCRA C) RESPA D) HMDA

B) FCRA FCRA provides consumers with the right to a free copy of the credit report once per year, or any time credit has been denied.

Relevant financial information about an applicant who applies for an FHA or conventional residential mortgage is entered on a A) FHLMC 95. B) FNMA 1003. C) FNMA 1005. D) FNMA 1008.

B) FNMA 1003. The correct answer is a FNMA 1003. The FNMA 1003 (or FHLMC 65) is the Uniform Residential Loan Application.

Fannie Mae is the more common name of the A) Federal Housing Agency. B) Federal National Mortgage Association. C) Federal Housing Finance Agency. D) Federal Home Loan Mortgage Corporation.

B) Federal National Mortgage Association. The Federal National Mortgage Association is commonly know as Fannie Mae.

REMICs provide a variety of benefits that attract a substantial amount of investor capital. Which of the following options is NOT one of the benefits that REMICs provide? A) Avoiding double taxation B) Federal guarantee C) Greater flexibility D) Pass-through securities

B) Federal guarantee The REMICs loan pool can contain a variety of loan types, which allows greater flexibility, avoids double taxation and, as a result, can attract a substantial amount of investor capital to secondary market investments.

The Bank Secrecy Act (BSA) requires financial institutions to establish an anti-money laundering (AML) compliance program. Which of the following components is NOT required by the BSA? A) Internal controls to ensure compliance B) Financial or employment incentives for reporting any suspicious activities C) Ongoing AML training for company employees D) Independent auditing of the compliance program

B) Financial or employment incentives for reporting any suspicious activities Controls, policies, training, and independent audits and assessment are required components of an anti-money laundering program. Incentives for reporting suspicious activity are not required.

Which of the following is NOT required by the BSA? A) Implementing an anti-money laundering (AML) program B) Generating requests for information from FinCEN C) reporting suspicious activity and transactions D) Reporting large currency transactions

B) Generating requests for information from FinCEN It is not a requirement of the BSA to generate requests for information from FinCEN. Suspicious activities and large currency transactions must be reported and an anti-money laundering program must be implemented.

A borrower who wants a loan that allows for rapid payoff by increasing principal payments would likely use this type of loan: A) Participation mortgage B) Growing equity C) Graduated payment D) Open-end

B) Growing equity A growing equity mortgage has a fixed interest rate but provides for rapid payoff by increasing the amount of the principal payments.

Which one of these convictions would prevent an MLO applicant from obtaining a MLO license? A) Drug Possession eight years ago B) Health Care fraud sixteen years ago C) Felony Domestic Violence six years ago D) Indecent Exposure two years ago

B) Health Care fraud sixteen years ago According to the SAFE Act the minimum standards for licensing and registration as a State-licensed mortgage loan originator shall include not having been convicted of, or plead guilty or nolo contendere, to a felony in a domestic, foreign, or military court at any time preceding such date of application if such felony involved an act of fraud, dishonesty, a breach of trust, or money laundering.

What is the adjustable number used to compute the interest rate on an ARM called? A) Margin B) Index C) Prepayment D) Cap

B) Index An adjustable rate mortgage, also called an ARM, is a mortgage with an interest rate that is tied to an economic index. The borrower's interest rate is adjusted as the index changes.

Which of the following is a characteristic of a USDA Section 502 guaranteed loan? A) The interest rate is set by the USDA. B) It has a 30-year term. C) The interest rate is adjustable. D) There is a 3.5% required down payment.

B) It has a 30-year term. For moderate income borrowers, the USDA has a guaranteed loan program, Section 502, which is similar to that offered by the federal VA, as the loans have a 30-year term, a fixed interest rate set by the lender, and no required down payment.

If the loan amounts, maturity dates, and interest rates are the same for loans A and B, but loan A is a straight (interest-only) loan and loan B is fully amortized, which of the following is correct? A) Loan B will have a balloon payment B) Loan B will have higher periodic payments C) Loan A will be paid off first D) Loan A will have a lower interest cost

B) Loan B will have higher periodic payments Since loan A has payments of interest only, and loan B has payments that include principal and interest, B's periodic payments will be larger. It is loan A that will have the balloon payment at the end of the loan term to pay the remaining balance.

What type of scam entails homeowners who are encouraged to refinance their property over and over until little or no equity remains? A) Extreme lending B) Loan flipping C) Reverse equity D) Property skimming

B) Loan flipping Loan flipping, sometime also referred to as churning, is the repeated refinancing a loan within a short period of time without benefit to the borrower.

The index LIBOR is actually called the A) London Interbank Other Rate. B) London Interbank Offered Rate. C) London Prime Rate. D) LIBOR is Based On Rate.

B) London Interbank Offered Rate. An index is a guide used by lenders that measures an interest rate change. The most common indexes are the one-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). Some lenders use their own cost of funds as an index.

Which of these clauses require the borrower's homeowner's insurance company to pay loss proceeds from fire first to the lender to the extent of their loan amount, and then to the homeowner? A) Exculpatory B) Loss payable C) Escrow account D) Estoppel

B) Loss payable The loss payable clause requires the homeowner's insurance company to pay the proceeds first to the lender in the extent of any loan amount owed to the lender. This clause also requires the insurance carrier to notify the lender in the event of policy lapse or cancellation.

Which one of the following is TRUE regarding mortgage call reports? A) Report includes only loans that are non-traditional B) Mortgage Companies are required to submit Mortgage Call Reports at the end of each quarter C) Mortgage Loan Officers are required to submit Mortgage Call Reports at the end of each quarter D) Call report includes all sales calls and contacts a loan officer made in the last quarter

B) Mortgage Companies are required to submit Mortgage Call Reports at the end of each quarter Companies that hold a state license or state registration through NMLS are required to complete a Mortgage Call Report (MCR). Companies must submit at least their application and origination activity information on a quarterly basis.

Which one of the following is NOT a SAFE Act prohibited behavior? A) Engage in any unfair or deceptive practice toward any person. B) Only allow licensed mortgage loan originators to solicit loans C) Solicit, advertise, or enter into a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of soliciting, advertising, or contracting; D) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead borrowers or lenders or to defraud any person;

B) Only allow licensed mortgage loan originators to solicit loans Conducting or assisting in any business without holding a valid license is prohibited by the SAFE Act.

Which clause allows the borrower to pay off their note early by making payments in excess of those regularly due? A) Amortization B) Prepayment C) Acceleration D) Quick pay

B) Prepayment A prepayment clause allows the borrower to make payments in excess of the minimum payment, thereby allowing the borrower to pay off the note in a shorter time.

Which law governs residential mortgage loan closings? A) HMDA B) RESPA C) TILA D) GLBA

B) RESPA The correct answer is RESPA. RESPA, the Real Estate Settlement Procedures Act, governs residential mortgage loan closings (settlement). TILA requires disclosures of loan costs, ECOA requires equal treatment of loan applicants, and GLBA defines (among other things) consumer privacy rights.

What kind of note has no payments until its date of maturity and then requires just one payment to pay it if full? A) Balloon payment note B) Straight note C) Note with call feature D) Amortized note

B) Straight note A note that provides that the whole debt is to be paid at maturity in one lump sum is called a straight note.

Which one of the following is NOT one of the disclosures required by RESPA? A) Special Information Booklet B) Voluntary Disclosure of sex and race C) The Annual Escrow Statement D) Servicing Disclosure Statement

B) Voluntary Disclosure of sex and race RESPA requires the delivery of a servicing disclosure statement, an annual escrow statement, and a special information booklet. The voluntary disclosure of sex and race is part of the loan application and under HMDA.

All of the following might serve as mitigating factors in a creditor's decision to offer risk layering, EXCEPT A) a lower debt-to-income (DTI) ratio. B) a higher-priced property securing the loan. C) a higher credit score. D) significant liquid assets.

B) a higher-priced property securing the loan. A provider should offer an interest-only loan with reduced documentation or a simultaneous second-lien loan that combines (i.e., layers) features increasing its risk only if mitigating factors can support the underwriting decision and the borrower's repayment capacity. Mitigating factors can include higher credit scores, lower LTV and DTI ratios, significant liquid assets, mortgage insurance or other credit enhancements, but not higher pricing.

TILA specifies that for each variable-rate loan program in which a consumer expresses an interest, the required loan program disclosure must include all of the following EXCEPT A) a statement that the consumer should ask about the current margin value and current interest rate. B) a statement that other lenders may offer similar ARM products at competitive rates. C) the fact that the loan program contains a demand feature. D) a statement that disclosure forms are available for the lender's other variable-rate loan programs.

B) a statement that other lenders may offer similar ARM products at competitive rates. TILA specifies that for each variable-rate loan program in which a consumer expresses an interest, the required loan program disclosure must include, among other features, the fact that the loan program contains a demand feature; a statement that the consumer should ask about the current margin value and current interest rate; and a statement that disclosure forms are available for the lender's other variable-rate loan programs; but NOT a statement that other lenders may offer similar ARM products at competitive rates.

A low introductory rate on an adjustable-rate mortgage is called A) an index. B) a teaser rate. C) a payment rate. D) an interest rate.

B) a teaser rate. A teaser rate is a low, temporary introductory rate on an adjustable-rate mortgage.

An applicant for a loan originator license who fails the license exam may retake it a second time A) after a wait of six months. B) after a wait of 30 days. C) immediately. D) after a wait of 24 hours.

B) after a wait of 30 days. An applicant for a loan originator license who fails the license exam may retake the test up to three times with a minimum interval of 30 days between each retest. After failing three tests, he must wait at least six months before taking the test again.

Which is NOT a protected class according to the federal Fair Housing Act? A) disability B) age C) familial status D) national origin

B) age Taken as a whole, the federal fair housing laws protect seven classes of persons. The seven protected classes are: Race, Color, Country of origin (i.e., national origin), Religion, Sex/gender, Handicap status (i.e., disability), and Familial status

The clause in the mortgage that makes the note due in full upon sale or transfer of a property is called a(n) A) prepayment penalty clause. B) alienation clause. C) defeasance clause. D) subordination clause.

B) alienation clause. An alienation clause is one type of acceleration clause. This clause is also frequently referred to as a due-onsale clause. This clause gives the lender the right to accelerate the loan (call it due on sale) if the original borrower sells or transfers the property.

A straw borrower is someone who A) applies for loans from multiple lenders for the same property. B) allows their name and information to be used to obtain a mortgage, but does not intend to live in the house. C) defaults on a mortgage and then abandons the property. D) uses fraudulent income data on a loan application in order to get a larger loan.

B) allows their name and information to be used to obtain a mortgage, but does not intend to live in the house. A straw buyer is a person whose credit profile is used to serve as a cover in a loan transaction, and who typically does not plan to occupy the property.

The Truth in Lending Disclosure Statement is A) a loan agreement. B) an estimate of finance charges for a particular loan. C) a loan commitment. D) a guarantee of finance charges.

B) an estimate of finance charges for a particular loan. The Truth in Lending Disclosure Statement shows the finance charge. This is the dollar amount the credit will cost the borrower. It includes any charge payable directly or indirectly by the borrower and imposed directly or indirectly by the creditor for the extension of credit.

An appraisal is A) an analysis of the structural components. B) an opinion of value. C) a determination of value. D) the price agreed to by a buyer and seller.

B) an opinion of value. An appraisal is the appraiser's informed opinion of the value of the property.

Under the Real Estate Settlement Protection Act (RESPA), in regard to a face-to-face-referral of a borrower to an affiliated entity, the Affiliated Business Arrangement Disclosure must be delivered to the borrower A) within three business days of application. B) at or prior to the time of referral. C) at or before application. D) within three business days of the time of referral.

B) at or prior to the time of referral. When a settlement service provider refers a borrower to one or more affiliates with whom it has an ownership or other beneficial interest, an Affiliated Business Arrangement (AfBA) Disclosure Statement must be given on a separate piece of paper to the borrower at or before the time of a face-to-face referral or a referral made in writing or by electronic media.

Financing that provides a fixed amount of money repayable over a fixed period is A) conventional. B) closed-end. C) conforming. D) open-end.

B) closed-end. Closed-end financing is any financing, whether primary or subordinate, that provides a fixed amount of money repayable over a fixed period. Open-end financing is financing that allows the borrower to borrow, repay and reborrow, up to a credit limit, whenever he wants (e.g., as with credit card financing).

A loan applicant's employment is usually verified by A) an applicant's signed sworn statement in regard to his employment status. B) completion of a VOE by the employer. C) a letter from the employer on his letterhead. D) a copy of the applicant's bank statement.

B) completion of a VOE by the employer. For an employee applying for a loan, a lender may send a Verification of Employment (VOE) to the employer to verify income and employment history or verify income directly from the applicant's paycheck stubs.

Loss in value due to any cause is called A) functional obsolescence. B) depreciation. C) wear and tear. D) market fluctuation.

B) depreciation. The correct answer is depreciation. Depreciation is a loss in value due to any cause. Functional obsolescence is one type of depreciation, resulting from loss of functionality due to basic construction techniques used, as well as inadequacy (e.g., a single-car garage, a small water heater), outdatedness or overadequacy in a building.

In order to renew his license, a state-licensed loan originator must do all of the following EXCEPT A) continue to meet the minimum standards for license issuance. B) document originating at least six loans in the previous calendar year. C) satisfy the annual continuing education requirements. D) pay all required renewal fees.

B) document originating at least six loans in the previous calendar year. In order to renew his license, a state-licensed loan originator must continue to meet the minimum standards for license issuance; satisfy the annual continuing education requirements; and pay all required renewal fees. There is no requirement to originate a minimum number of loans.

PITI includes all of the following EXCEPT A) private mortgage insurance. B) existing debts. C) monthly principal and interest on the loan. D) taxes.

B) existing debts. A housing ratio, also known as a housing expense ratio and a front-end ratio, compares the applicant's monthly housing costs to his gross monthly income. Housing costs are referred to as PITI. The PITI includes monthly principal and interest being paid for the mortgage loan (and private mortgage insurance or mortgage insurance premium, if applicable); taxes (one-twelfth of the annual property tax bill); and insurance (one-twelfth of the annual homeowners hazard insurance premium).

The Bank Secrecy Act requires any financial institution that detects violations involving insider abuse of any form to A) file a CTR. B) file an SAR. C) contact OFAC. D) contact the FBI.

B) file an SAR. The Bank Secrecy Act (BSA) requires financial institutions to file a Suspicious Activity Report if criminal violation involving insider abuse is detected. A SAR must be filed with FinCEN within 30 days of the initial detection. A copy of the report, with any additional documentation, must be maintained for at least 5 years.

A loan applicant received a $20,000 gift from a relative to assist in the purchase of a home within the 60 days prior to the purchase agreement or loan application. This will be treated by the lender as a A) loan. B) gift. C) asset. D) liability.

B) gift. The correct answer is "gift". Generally, if the gift had been in the applicant's account over 60 days, it would be "seasoned" and treated as an asset. If it is more recent, it is treated as a gift , and may require documentation (gift letter, bank statements of the donor, etc.) to ensure that the gift is a gift and not a loan.

A federal VA loan is _____ by the VA. A) funded B) guaranteed C) originated D) insured

B) guaranteed A VA loan is guaranteed by the VA. The loan is made by a private lender, and the VA loan guarantee is similar to mortgage insurance.

An ethical approach to suitability should focus on A) the licensee's cumulative experience of borrowers' needs. B) identifying an individual borrower's needs and recommending an appropriate product. C) finding a loan for which the borrower qualifies based on initial loan terms. D) maximizing the fees generated for the lender and the loan originator.

B) identifying an individual borrower's needs and recommending an appropriate product.

The term thing of value, as defined by RESPA A) does not include sales or rentals at specially discounted prices or rates. B) includes a reduction in credit against existing obligations. C) is confined to tangible, physical objects only. D) includes money, but not stocks or dividends.

B) includes a reduction in credit against existing obligations. The term "thing of value" as used in RESPA includes any payment, advance, funds, loan, service or other consideration. The term covers money, things, discounts, salaries, commissions, fees, stocks and dividends; distributions of partnership profits, franchise royalties, increased equity in a parent or subsidiary entity; services, sales or rentals at special prices or rates; lease or rental payments based in whole or in part on the amount of business referred; trips and payments of another person's expenses; and reductions in credit against existing obligations.

The portion of an adjustable rate mortgage used to compute the interest rate that can change and is based on the COFI, LIBOR, or any other factor outlined in the note is known as the A) rate. B) index. C) cap. D) margin.

B) index. An adjustable rate mortgage is a mortgage with an interest rate that is tied to an economic index. The borrower's interest rate is adjusted as the index changes.

Maggie Mae is the largest A) seller of loans to the secondary market. B) insurer of conventional mortgage loans. C) single private mortgage purchaser. D) savings and loan institution.

B) insurer of conventional mortgage loans. Maggie Mae is the first and largest insurer of conventional mortgage loans.

The FHA A) is a lender. B) insures loans. C) is a federal mortgagee. D) provides loans for more than 80% LTV.

B) insures loans. The FHA insures loans and does not make or provide money for loans.

In the processing of a loan application, a lender's credit scoring system helps to evaluate A) the loan amount. B) the applicant's creditworthiness. C) the mortgage broker's fee. D) the monthly payment amount.

B) the applicant's creditworthiness. A lender's credit scoring system evaluates an applicant's creditworthiness based on his key attributes and aspects of the transaction.

If an interest rate is locked on a loan application and the interest rate lowers by .25% during the lock-in period A) the borrower must pay a higher rate to compensate for the lender's inability to charge the higher rate on new applications. B) the lender will NOT automatically lower the interest rate to be charged the borrower. C) the borrower cannot apply for a different loan at the new rate. D) the lender will lower the interest rate to be charged the borrower.

B) the lender will NOT automatically lower the interest rate to be charged the borrower. If the rate is locked, the buyer is stuck with that rate unless he decides to apply for a new loan.

Private mortgage insurance (PMI) is NOT required when A) interest rates are low. B) the loan has been paid down to less than 78% of the property's current value. C) interest rates are high. D) a buyer makes less than 20% down payment on a loan.

B) the loan has been paid down to less than 78% of the property's current value. The Homeowners Protection Act requires the lender to automatically cancel the PMI if the LTV reaches 78% of the home as long as the borrower is current and in good standing.

With regard to adjustable loans with interest rate caps, it is true that A) the loan payments can go up when the index plus the margin is less than the rate the borrower has been paying before the adjustment. B) the loan payments may increase even if the index rate decreases. C) the cap is lower when the adjustment period is longer. D) the cap period is always one year.

B) the loan payments may increase even if the index rate decreases. The loan payments may increase even if the index rate decreases, as long as the index plus the margin is more than the rate the borrower has been paying before the adjustment. The cap period is whatever the adjustment period is, which could be one to five years. The cap would be higher when the adjustment period is longer, as the lender cannot make changes as frequently.

In regard to an ARM with a periodic adjustment cap, a new rate that is subject to an interest cap at the time of an adjustment is equal to A) the current rate plus the cap. B) the lower of the current rate plus the cap or the index plus margin. C) the index rate plus margin. D) the higher of the current rate plus the cap or the index plus margin

B) the lower of the current rate plus the cap or the index plus margin. In regard to an ARM with a periodic adjustment cap, a new rate that is subject to an interest cap at the time of an adjustment is equal to the lower of the current rate plus the cap or the index plus margin.

Under RESPA, who would be subject to fines and penalties if a kickback is paid? A) the person who paid the kickback B) the person who initiated the kickback arrangement C) all parties paying or receiving a kickback D) the person who received the kickback

B) the person who initiated the kickback arrangement RESPA banned a number of practices involving kickbacks, fee splitting, and unearned fees by parties involved in or related to a real estate transaction.

The principal-agent problem refers to A) lack of proper supervision of loan originators in contact with borrowers. B) the relative lack of consequences for lenders' agents when borrowers default. C) instances of of fraud committed by borrowers against lenders. D) conflicts of interest between real-estate professionals and mortgage professionals.

B) the relative lack of consequences for lenders' agents when borrowers default. Because the broker is compensated for originating a loan as long as the lender accepts it, and may not be penalized if he does not actually commit any misrepresentation and the borrower defaults later in the term of the loan, he might be less concerned with the suitability of the loan for the borrower or with the accuracy of information presented in the mortgage application than the lender is. The broker's primary concern is to provide enough information so the mortgage lender will fund the loan and compensate the broker. This creates a conflict between his opportunity for personal financial gain and the proper performance of his responsibilities. The relative lack of consequences for a lender's agent subjects the mortgage delivery system to what economists and political scientists call "the principal-agent problem."

For conforming loans, stable monthly income can include average overtime bonuses and tips if paid consistently for at least A) three years. B) two years. C) four years. D) five years.

B) two years. The correct answer is two years (24 months). For conforming loans, stable monthly income can include secondary sources of income that may vary in terms of quantity, quality and durability and are more difficult to analyze. These forms of income can include average overtime wages, bonuses, automobile allowances and tips, if consistently paid for at least two years.

On a $100,000 loan, the borrower is charged 2 discount points by the lender and 1 point mortgage broker fee by the originator. How much does the borrower have to pay to close the loan? A) $0 B) $1,000 C) $3,000 D) $4,000

C) $3,000 The correct answer is $3,000. The borrower pays a total of 3 points. One point is 1% of the loan amount. 100,000 x 3% = $3,000

A borrower got a loan for a home which cost $200,000. He borrowed 80% and paid 1 point for a loan origination fee and 2 discount points. The amount of loan fees is A) $1,600. B) $3,200. C) $4,800. D) $6,000.

C) $4,800. The correct answer is B. The loan amounts is 80% x $200,000 = $160,000. The points amount to 3% (1% + 2%) of the loan amount. Amount of Loan Fees = Loan Amount x Percentage of Fees = $160,000 x 3% = $4,800.

The loan amount (principal) is $50,000 and the annual interest paid is $5,500. What is the annual interest rate? A) 9% B) 10% C) 11% D) 12%

C) 11% $5,500 / ($50,000) = 0.11

A lender has how many days to notify the borrower of an underwriting decision? A) 60 days B) 3 days C) 30 days D) 10 days

C) 30 days Under Regulation B, a lender must notify an applicant of an adverse action taken on the loan application within 30 days after receiving a completed application.

A borrower earning $34,000 annually, has a projected monthly mortgage payment of $840 (including taxes and insurance), a monthly $100 HOA fee, and a monthly $87 credit card payment. What is the front-end ratio? A) 27.6% B) 29.6% C) 33.2% D) 36.2%

C) 33.2% The monthly income is $34,000 ÷ 12 months = $2,833.33 per month The front-end ratio (housing costs) is $840 PITI + $100 HOA = $940.$940 ÷ $2,833.33 = .332 = 33.2% The credit card payment would be factored into a back-end ratio.

A lender who does not cancel PMI when the LTV reaches 78% is in violation of which federal law? A) Home Ownership and Equity Protection Act B) ECOA C) Homeowners Protection Act D) Fair Housing Act

C) Homeowners Protection Act The Homeowners Protection Act also requires the lender to automatically cancel the PMI if the LTV reaches 78% of the home as long as the borrower is current and in good standing.

Which of the following is TRUE of the fully indexed rate? A) Initial rate + margin = fully indexed rate B) Fully indexed rate + margin = index rate C) Index rate + margin = fully indexed rate D) Margin + cap = fully indexed rate

C) Index rate + margin = fully indexed rate The fully indexed rate is the index rate plus the margin (the lender's profit).

Which one of the following is NOT true about an Annual Percentage Rate (APR)? A) It is usually higher than the nominal rate. B) It enables the borrower to compare the percentage costs of different loans. C) It is the same as the nominal rate shown in the note. D) It represents the relationship of the total finance charge to the total amount financed, as a yearly rate.

C) It is the same as the nominal rate shown in the note. The APR is NOT the same as the nominal rate, or the interest rate shown in the note, as it includes all finance charges, not just interest.

What is the most common appraisal approach used in appraising single-family housing? A) Income approach B) Cost approach C) Market data approach D) Rental approach

C) Market data approach The market data approach is the method most commonly used to appraise residential real estate.

Unique Identifier refers to: A) Loan Number B) Credit Reference number C) NMLS Number D) State License number

C) NMLS Number All loan originators that are not employees of a depository institution must obtain a license from the NMLS. A unique identifier number (NMLS ID) is assigned to each licensee.

What results when a loan balance grows due to deferred interest? A) Interest growth B) Disintermediation C) Negative amortization D) Hypothecation

C) Negative amortization A minimum payment that may be less than the amount of interest due each month and may not be enough to reduce the amount the borrower owes on the loan. This is called negative amortization.

Under the MARS rule, may a mortgage assistance relief services company, in its advertising, tell a consumer to stop communicating with his lender or servicer? A) Only if it advises the consumer to seek financial counseling from a HUD-approved nonprofit first. B) Yes, with no further requirements. C) No, this is prohibited under the MARS Rule. D) Only if it includes a toll-free number where further information is available.

C) No, this is prohibited under the MARS Rule. In advertising its services or soliciting business, a mortgage assistance relief services company may not tell a consumer to stop communicating with his lender or servicer.

Which type of note requires regular installment payments and gives the lender the ability to demand full payment after a specified period? A) Amortized B) Balloon C) Note with call feature D) Straight

C) Note with call feature A note with a call feature requires the borrower to make regular installment payments and also allows the lender to demand payment in full any time after some point.

RESPA requires the use of the Closing Disclosure for A) any residential property. B) any commercial or residential property. C) One-to-four family residences. D) single-family dwellings only.

C) One-to-four family residences. RESPA applies to all federally related loans secured by a mortgage placed on one-to-four family residential properties.

Many lenders require borrowers set aside money in a reserve or impound account called an escrow. This money is to be used for any of the following except: A) Mortgage insurance B) Property taxes C) Origination fees D) Flood insurance

C) Origination fees Lenders use escrow funds to ensure that necessary expenses are paid on time in order to protect their interest in the property that is securing the loan. Necessary, time-sensitive expenses that may impact the property securing the loan are items like mortgage insurance, homeowners insurance, property taxes and flood insurance if applicable.

What best describes negative amortization? A) Borrowing more than you can afford B) Increase in payments over the term of the loan C) Payments that are insufficient to pay interest with the difference added to the principal D) The maximum amount the interest rate can increase

C) Payments that are insufficient to pay interest with the difference added to the principal A minimum payment that may be less than the amount of interest due each month and may not be enough to reduce the amount the borrower owes on the loan. This is called negative amortization. The amount of any interest the borrower does not pay will be added to the principal of the loan, increasing the amount of the loan and the amount of interest the borrower will pay over the life of the loan

Which period gives a defaulting mortgagor the right to redeem their property by paying the debt owed, plus costs? A) Hypothecation period B) Period of reconveyance C) Period of redemption D) Period of reverter

C) Period of redemption The amount of time that the defaulting mortgagor has to redeem the property after the date of the sheriff's sale is known as the period of redemption.

A mortgage broker must act both ethically and responsibly. Which of the following is not considered unethical? A) Having a buyer sign forms in blank for convenience B) Delaying a closing to obtain additional income C) Provide guidance in writing a credit explanation letter D) Locking the interest rate for a loan application with two lenders at the same time

C) Provide guidance in writing a credit explanation letter The highest personal standards of conduct and practice mean that the needs of the client-borrower should always come before personal needs for monetary gain.

Quasi means being partly or almost. Institutional lenders are those that are a prime source of real estate loans. Which of these is a quasi-institutional lender? A) Mutual Savings Bank B) Savings and Loan Institution C) Real Estate Mortgage Trust D) Commercial Bank

C) Real Estate Mortgage Trust The real estate mortgage trust (REMT) primarily buys and sells mortgages and makes some loans so it is a quasi-institutional lender. All of the others are institutional lenders.

A real estate agent receives a $50 restaurant gift certificate from a mortgage broker as a token of appreciation for referring a home buyer to the mortgage broker. Which of the following laws was violated as a result of this transaction? A) Fair Credit Reporting Act B) Fair Housing Act C) Real Estate Settlement Procedures Act (RESPA) D) Equal Credit Opportunity Act (ECOA)

C) Real Estate Settlement Procedures Act (RESPA) Payment for a referral to a settlement service provider such as a real estate agent violates RESPA.

ABC Bank receives a change of address request from a consumer. What requires the bank to follow up with him to verify the validity of the request? A) Federal Reserve B) SAFE Act C) Red Flag Rules D) Truth in Lending Act

C) Red Flag Rules The Fair and Accurate Credit Transactions Act (FACTA) contained provisions aimed at creating policies and procedures to help identity theft prevention. The rules relating to identity theft are referred to as the Red Flags Rules. The rules are designed to identify in advance any red flags relating to identity theft. In so doing, a business can be better prepared to spot suspicious patterns that may occur and take steps to prevent potential problems from escalating into a costly identity theft event for a consumer.

An applicant applies to a mortgage company for a home loan. She is refused based on the reputation of the neighborhood where the subject property is located for a high number of foreclosures. This is an example of what illegal practice? A) Puffing B) Blockbusting C) Redlining D) Steering

C) Redlining Redlining is the practice of refusing to make mortgage loans or issue insurance policies in specific geographical areas for reasons other than the qualifications of the applicant.

Payment by a mortgage broker for which of the following would constitute giving a thing of value in violation of RESPA? A) Mortgage insurance from a mortgage insurer B) Title search services by a title company C) Referrals from a real estate broker D) Title research services by an attorney

C) Referrals from a real estate broker RESPA prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan.

What regulation forbids the seller to require the use of a particular title company as a condition of sale? A) Regulation Z B) Regulation B C) Regulation X D) Regulation C

C) Regulation X Unless the seller pays all title insurance charges, RESPA (implemented by Regulation X) prohibits a seller from requiring a buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.

The federal regulation that implements the Real Estate Settlement Procedures Act is A) Regulation Z. B) Regulation C. C) Regulation X. D) Regulation B.

C) Regulation X. The federal regulation that implements the Real Estate Settlement Procedures Act is Regulation X. Regulation Z implements the Truth in Lending Act.

RESPA applies to which of the following mortgage transactions? A) Business B) Commercial C) Residential D) Agricultural

C) Residential RESPA only covers federally related residential mortgage transactions.

S.A.F.E. stands for: A) Secure and Fair Enforcement for Registering Act B) Secure and Federal Enforcement for Mortgage Licensing Act C) Secure and Fair Enforcement for Mortgage Licensing Act D) Safe and Fair Enforcement for Mortgage Licensing Act

C) Secure and Fair Enforcement for Mortgage Licensing Act SAFE stands for the Secure and Fair Enforcement for Mortgage Licensing Act.

How does RESPA define an Application? A) Pulling a credit report to evaluate a borrower B) Signing all required documents C) Submitting the borrower's financial information in anticipation of a credit decision D) The borrower answering all of the mortgage loan originator's questions

C) Submitting the borrower's financial information in anticipation of a credit decision The definition of an application is "the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the borrower's name, the borrower's monthly income, the borrower's social security number to obtain a credit report, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator. An application may either be in writing or electronically submitted, including a written record of an oral application."

At closing a borrower may deposit funds to establish reserves for which of the following? A) Prepayment penalties B) Payment of late fees C) Taxes and insurance D) Prepaid interest

C) Taxes and insurance Reserves are established with a lender so the lender will collect 1/12 of the annual taxes and insurance premium with each mortgage payment, and then pay the full year's tax and insurance bills when due.

RESPA is administered by A) FTC. B) Federal Reserve. C) The Consumer Financial Protection Bureau D) FEMA.

C) The Consumer Financial Protection Bureau As of 2011, RESPA, formerly administered by HUD, is now administered by the Consumer Financial Protection Bureau.

Under ECOA, which of the following could be a deciding factor in denying a loan application? A) The applicant's ethnicity B) The applicant's religion C) The applicant is under 18 years old D) The race of those in the neighborhood in which the property is located

C) The applicant is under 18 years old Age may be considered when applicants are younger than 18 years of age and too young to sign contracts.

Of these liens, which is the primary lien? A) The wrap around encumbrance B) The blanket encumbrance C) The first mortgage D) The junior mortgage

C) The first mortgage A first mortgage is one that has a first lien priority position; it is the primary lien.

Which government agency makes loans when no local lender is available? A) Department of Housing and Urban Development B) Fannie Mae C) USDA Rural Development D) Federal Housing Administration

C) USDA Rural Development The United States Department of Agriculture (USDA) offers loan programs for low- to moderate-income borrowers in eligible rural areas.

According to Regulation P, implementing the Gramm-Leach-Bliley Act (GLBA), nonpublic personal information can be disclosed by a financial institution to A) the spouse. B) a business partner of the individual taking a loan. C) a consumer reporting agency. D) another financial institution.

C) a consumer reporting agency. With disclosure to the consumer and a contractual confidentiality agreement, a financial institution can provide nonpublic personal information to a consumer reporting agency.

Under the Dodd-Frank Act, offering to provide a product or service that is not in fact available is considered A) problematic conduct. B) creative marketing. C) a deceptive act or practice. D) predatory lending.

C) a deceptive act or practice. Deception is not limited to situations in which the consumer has already been misled; it may also be deceptive if it is likely to mislead consumers. Deceptive acts or practices include offering to provide a product or service that is not in fact available.

A consumer credit transaction that features an APR that exceeds the average prime offer rate by at least 1.5% for a comparable transaction secured by a first lien on a dwelling is called A) an adjustable loan. B) a subordinate loan. C) a higher-priced loan. D) a covered loan.

C) a higher-priced loan. A higher-priced loan is a consumer credit transaction secured by the consumer's principal dwelling with an APR that exceeds the average prime offer rate (APOR) for a comparable transaction by at least 1.5% for loans secured by a first lien on a dwelling, or 3.5% for loans secured by a subordinate lien on a dwelling.

All of the following are covered by RESPA, EXCEPT A) reverse mortgages. B) refinances. C) a loan for buying vacant property. D) property improvement loans.

C) a loan for buying vacant property. Purchase loans, assumptions, refinances and reverse mortgages, as well as subordinate lien loans, including property improvement loans, are all covered by RESPA. Vacant property is not covered by RESPA, unless the property will have a dwelling placed upon it within 2 years of loan consummation.

In Regulation X, the term loan originator applies to A) a loan processor. B) a mortgage broker only. C) a mortgage broker or mortgage lender. D) a mortgage lender only.

C) a mortgage broker or mortgage lender. The revised Regulation X added "loan originator" as a new term. This term is defined as either a mortgage lender or a mortgage broker.

An instrument that creates a voluntary lien on real property to secure repayment of a debt is known as A) an easement. B) a promissory note. C) a mortgage. D) a restrictive covenant.

C) a mortgage. A voluntary lien is one that a property owner voluntarily places against a property. Mortgages or trust deeds are the most common examples of voluntary liens.

A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance increases over the loan. This is an example of A) a graduated payment mortgage. B) a balloon mortgage. C) a negative amortized mortgage. D) an adjustable rate mortgage.

C) a negative amortized mortgage. A minimum payment that may be less than the amount of interest due each month and may not be enough to reduce the amount the borrower owes on the loan. This is called negative amortization. The amount of any interest the borrower does not pay will be added to the principal of the loan, increasing the amount of the loan and the amount of interest the borrower will pay over the life of the loan

Mortgage Loan Originator (MLO) means all of the following, except: A) a person who takes a residential mortgage loan application B) a person who offers or negotiates terms of a residential mortgage loan C) a person or entity solely involved in extensions of credit relating to timeshare plans D) an individual who for compensation or gain or in the expectation of compensation or gain

C) a person or entity solely involved in extensions of credit relating to timeshare plans The SAFE Act exempts from the definition of a mortgage loan originator any person or entity solely involved in extensions of credit relating to timeshare plans.

The Disposal Rule, a part of the Fair and Accurate Credit Transactions Act (FACTA), is intended to prevent A) abuse of covered loans. B) abuse of mandatory arbitration clauses. C) acts of consumer fraud such as identity theft. D) predatory use of prepayment penalties.

C) acts of consumer fraud such as identity theft. The Disposal Rule, a part of the Fair and Accurate Credit Transactions Act (FACTA), regulates the way consumer information is disposed of, and is intended to protect consumer

The Gramm-Leach-Bliley Act provides that, with certain exceptions, a financial institution may disclose to a nonaffiliated third party a consumer's nonpublic personal information only if A) the consumer will benefit from the disclosure. B) it is requested by the third party. C) it provides a privacy notice to the consumer. D) the third party submits a written request.

C) it provides a privacy notice to the consumer. The law provides that, with certain exceptions, a financial institution may disclose to a nonaffiliated third party a consumer's nonpublic personal information only if it provides a privacy notice to the consumer.

The interest rate of an adjustable rate mortgage (ARM) changes periodically based on A) the length of its adjustment period. B) the federal funds rate. C) its index. D) changes in its margin rate.

C) its index. The interest rate for an adjustable-rate mortgage will change based on the index to which the rate is tied.

All of the following can be expressed as points EXCEPT A) mortgage broker fee. B) loan origination fee. C) late fee. D) yield spread premiums.

C) late fee. Fees that may be expressed as points include a loan origination fee, a mortgage broker's fee, discount points and yield spread premiums, which are all percentages of the loan amount, or loan balance.

Nick Jones got a loan with payments based on amortization over 30 years, but he has to pay it off in five years. This type of arrangement best describes a A) mortgage with negative amortization. B) fully amortized mortgage. C) partially amortized (balloon) mortgage. D) reverse mortgage.

C) partially amortized (balloon) mortgage. A partially amortized (balloon) mortgage provides for some, but not total, amortization during the term of the mortgage. It has payments that are equal and regular in nature. However, the loan term is not sufficiently long to enable the full loan balance to be paid. At the conclusion of the loan term, there is a large balloon payment due to pay the balance left owing.

In lieu of a surety bond or net worth requirement, a state may require a loan originator to A) undergo a voluntary audit within the first year of licensing. B) send an increased amount of periodic reports to the state licensing authority. C) pay a certain amount into a state consumer protection fund. D) take additional prelicensing education hours.

C) pay a certain amount into a state consumer protection fund.

A HELOC is a type of mortgage A) that features lower payments in the beginning that increase during the life of the loan. B) where the balance fluctuates as the borrower accesses funds. C) that requires a balloon payment at the end of the loan term. D) that uses more than one property as collateral.

B) where the balance fluctuates as the borrower accesses funds. The home equity line of credit permits a borrower to borrow over and over using the equity in the home as the security for the loan. The line of credit loan operates in a manner similar to a credit card in that the amount of the balance may be increased or decreased as more money is drawn on the credit line or as the credit line is paid down.

On a $100,000 loan with a 20-year term and 4.75% interest rate, a lender charged a loan origination fee of $5,500 and two discount points. What is the total amount of lender charges? A) $7,400 B) $7,500 C) $7,570 D) $7,630

B) $7,500 2 points = 2% x $100,000 loan = $2,000; $2,000 + $5,500 = $7,500

An adjustable rate mortgage loan was written at 5% interest with a 1/5 cap. If the index rate increases 1% each year, what would the ARM interest be at the 12th year? A) 6% B) 10% C) 11% D) 16%

B) 10% An ARM with a 1/5 cap has a 1% cap per year and a 5% lifetime cap. The interest rate on the loan could never be increased by more than 1% in a year or by more than 5% (to a maximum of 5% + 5% = 10%) over the life of the loan.

Robert is a licensed mortgage broker. He wants to call former clients for referrals. He can contact them, even if they are on the federal do-not-call list, for up to A) 6 months B) 18 months C) 3 days D) 12 weeks

B) 18 months The correct answer is 18. Former clients can be called for up to 18 months from the date of the last closing.

Under the ATR/QM rule, a prepayment penalty on a covered loan may not exceed ________ of the outstanding loan balance prepaid when the loan is prepaid during the first two years following consummation. A) 1% B) 2% C) 3% D) 4%

B) 2% Under the ATR/QM rule, a prepayment penalty on a covered loan may not exceed two percent of the outstanding loan balance prepaid when the loan is prepaid during the first two years following consummation; and one percent of the outstanding loan balance prepaid if prepaid during the third year following consummation.

Under the SAFE Act, what is the minimum number of hours of prelicense education for mortgage loan originator applicants? A) 10 B) 20 C) 25 D) 30

B) 20 A loan originator must have completed required prelicensing education consisting of at least 20 hours of NMLS-approved education.

In order to avoid having private mortgage insurance, a buyer's down payment must be at least A) 10% B) 20% C) 25% D) 30%

B) 20% The correct answer is 20%. A down payment is the difference between the purchase price and loan amount. It does not include closing costs. As a percentage, it is 100 percent of the price less the LTV or the CLTV. If the LTV is 80 percent, the down payment is 20 percent. When a loan is above 80 percent, the lender may require that the borrower purchase mortgage insurance.

Qualifying guidelines on an FHA loan are A) 28% housing ratio and 36% total debt ratio. B) 31% housing ratio and 43% total debt ratio. C) 36% housing ratio and 41% total debt ratio. D) 29% housing ratio and 41% total debt ratio.

B) 31% housing ratio and 43% total debt ratio. The monthly mortgage payment cannot exceed 31% of the borrower's gross income and the total monthly financial obligations of the borrower (mortgage, bills, etc.) cannot exceed 43% of the borrower's gross income.

Under Regulation X, a servicer must establish, or make good faith efforts to establish, contact with a delinquent borrower no later than the ___ day of the borrower's delinquency and promptly inform the borrower about the availability of loss mitigation options, if appropriate. A) 25th B) 36th C) 45th D) 60th

B) 36th A servicer must establish, or make good faith efforts to establish, contact with a delinquent borrower no later than the 36th day of the borrower's delinquency and, promptly after establishing live contact, inform the borrower about the availability of loss mitigation options, if appropriate.

Under HOEPA, if a late fee is permitted by the terms of a high-cost loan, it may not exceed _____ of the payment past due. A) 3% B) 4% C) 5% D) 6%

B) 4% Under HOEPA, if a late fee is permitted by the terms of a high-cost loan, it may not exceed four percent of the payment past due.

An applicant has a lock-in agreement providing for an interest rate of 5.5% per annum for 15 years. If interest rates offered by the lender increase by 0.5% during the lock-in period, the interest rate for the applicant's loan will be A) 5.0% B) 5.5% C) 6.0% D) 6.5%

B) 5.5% The correct answer is 5.5%. Because the rate is locked in, it does not increase for the borrower.

What is the minimum passing score that a loan originator applicant must earn to pass the NMLS license examination? A) 70% B) 75% C) 80% D) 85%

B) 75% An applicant must pass the examination with a score of at least 75%.

Which mortgage requires the borrower to make monthly payments of principal and interest, plus one-twelfth of the annual property taxes and annual insurance premiums in addition to principal and interest payments? A) A growing equity mortgage B) A budget mortgage C) A participation mortgage D) A rollover mortgage

B) A budget mortgage A mortgage that puts payments for 1/12th of annual property taxes and 1/12th of the annual hazard insurance premium into a escrow account is a budget mortgage.

Also called a non-conforming loan, what kind of loan exceeds the maximum set for a conforming loan? A) A junior mortgage B) A jumbo mortgage C) A conventional loan D) An open-end mortgage

B) A jumbo mortgage A jumbo mortgage is a mortgage that exceeds the normal maximum set for conforming loans.

Which one of the following is NOT considered dwellings under the Home Mortgage Disclosure Act? A) A condominium unit B) A recreational travel trailer C) A 10-unit apartment building D) A manufactured home

B) A recreational travel trailer Under HMDA, a dwelling is any residential structure, whether or not attached to real property, including vacation or second homes and rental properties, multifamily as well as oneto four-family structures, individual condominium and cooperative units and manufactured and mobile homes. HMDA excludes recreational vehicles, such as recreational travel trailers, boats and campers and transitory residences, such as hotels, hospitals and college dormitories.

What clause can be used to make one loan a lower priority than another? A) A defeasance clause B) A subordination clause C) A chattel clause D) An alienation clause

B) A subordination clause A subordination clause allows a debt to be made inferior to a subsequent debt that may be placed against the property at a later date.

If the borrower defaults on a note, what clause allows the lender to demand full payment immediately? A) Prepayment B) Acceleration C) Late charge D) Demand

B) Acceleration When a borrower defaults on the note, an acceleration clause allows the lender to accelerate the payment of the loan by requiring the entire balance to be immediately due and payable.

Which one of the following is NOT a federally-protected fair housing class? A) Religion B) Age C) Familial status D) Sex

B) Age Taken as a whole, the federal fair housing laws protect seven classes of persons. The seven protected classes are: Race, Color, Country of origin (i.e., national origin), Religion, Sex/gender, Handicap status (i.e., disability), and Familial status. Age is federally protected with regards to credit (ECOA), and might be protected from fair housing discrimination at a state level.

What kind of note requires periodic payments in installments? A) Balloon B) Amortized C) Note with call feature D) Straight

B) Amortized The main feature of the amortized note is that of requiring periodic payments in which the loan principal balance is paid off in installments.

Payment caps limit A) both payment increases and interest increases. B) interest increases only. C) payment increases only. D) neither payment increases nor interest increases.

C) payment increases only. The payment cap limits only the amount of payment increases. It does not limit interest rate increases. Therefore, payments limited by such caps may not cover all the interest charged on the loan. The unpaid interest is automatically added to the debt, so that interest is then charged on that amount. Because any unpaid interest is added to the mortgage principal, the borrower owes more than the amount originally borrowed.

Which of the following is true of the COFI? A) It stands for the Cost of Funds Index. B) It is the preferred index if interest rates are expected to fall. C) It is only used in the 11th Federal Home Loan Bank District. D) It stands for the Cost of Future Interest.

A) It stands for the Cost of Funds Index. This index is the Cost of Funds Index. It is based on a weighted average interest rate paid by members of the 11th Federal Home Loan Bank District, but is used for ARM loans made anywhere. The basis for the index makes it slow to change. So it is a good index in a market where interest rates are expected to rise, while the LIBOR, a faster moving index, is best for a market in which rates are expected to fall.

If payments on a note are not paid in a timely manner, what clause allows the lender to charge a fee for this? A) Late charge clause B) Acceleration clause C) Demand clause D) Prepayment clause

A) Late charge clause A note with a late charge clause may impose a late charge for payments not made in a timely manner.

To comply with the Safeguard Rules of the Gramm-Leach-Bliley Act, a mortgage loan originator should A) send loan applicants an adverse action notice within 30 days. B) consider all legal forms of income when evaluating a loan application. C) place all loan applications and documentation in a secure place when not working on them. D) note the race of all loan applicants on the loan application.

C) place all loan applications and documentation in a secure place when not working on them. The purpose of the Safeguards Rule is to require financial institutions protect their clients' non-public personal information (NPI) by developing and executing policies and procedures designed to manage and secure private data.

A mortgage loan originator charges a fee that is based on the percentage of the mortgage loan amount. This fee is referred to as A) kickback. B) interest rate percentage. C) points. D) prepayment penalty.

C) points. A loan fee based on a percentage of the loan amount or principal balance is referred to as "points." One point is equal to one percent of the loan amount. Fees commonly referred to as points may include a brokers fee, an origination fee, discount points and yield spread premiums.

ABC Mortgages makes a loan with consumer even though he is unlikely to repay it, anticipating that they'll eventually foreclose and get the borrower's equity in the property. This is an example of A) secondary lending. B) prime lending. C) predatory lending. D) subprime lending.

C) predatory lending. Any mortgage loan practice in which the homeowner does not benefit and the lender does benefit should be regarded as predatory lending.

Karen has a loan in which her loan servicer permits her to paying an extra $200 per month towards the principal balance so that she can pay the debt off earlier than if she was making the minimum payments. This is known as a: A) lock-in clause. B) prepayment penalty. C) prepayment privilege. D) take-out loan.

C) prepayment privilege. A prepayment privilege clause is identified by language in the loan instrument that allows the borrower to pay the required monthly payment, or more, or an amount equal to, or not less than the required monthly payment. This clause allows the borrower to pay additional sums in order to pay the loan off ahead of schedule, without penalty.

Gramm-Leach-Bliley's Safeguards Rule requires financial institutions to maintain safeguards in order to A) provide customers with access to their records. B) make it easier to retrieve customer information. C) protect customer information from unauthorized access. D) maintain updated customer information.

C) protect customer information from unauthorized access. The Safeguards Rule requires all financial institutions to design, implement and maintain safeguards to protect customer information against unauthorized access.

The purpose of a Market Conditions Addendum is to A) provide recommendations for marketing the subject property under current market conditions. B) detail results of prior marketing efforts for the property. C) provide the lender with a clear understanding of the market trends and conditions in the subject neighborhood D) replace the URAR.

C) provide the lender with a clear understanding of the market trends and conditions in the subject neighborhood For FHA, VA and conforming loans, appraisers will use the Uniform Residential Appraisal Report (URAR) (Form 1004). The appraiser must also attach a Market Conditions Addendum (Form 1004MC) to provide the lender with a clear understanding of the market trends and conditions in the subject neighborhood. Elements addressed in the addendum include trends in the absorption rate (i.e., the rate at which properties for sale have been or can be sold within a given area); inventory, median sale and list prices, days on market (DOM), list-to-sale price ratio, and seller concessions (e.g., mortgage payments, points and fees, and in condominium or cooperative projects, items such as homeowners' association fees and guaranteed rental programs); and foreclosure and REO sales.

MLO Jon from ABC Mortgage is meeting with a potential borrower. What may Jon NEVER ask about during the loan application process? A) marital status B) national origin C) religion D) race

C) religion A lender that receives an application for credit for the purchase or refinancing of a dwelling to be occupied by the applicant as a principal residence is required under Regulation B 1002.13 to request, as a part of the application, the following information regarding the applicant: Race or national origin (categories are: American Indian, Alaskan Native, Asian or Pacific Islander, Black, White, Hispanic, or Other to be specified.), Sex, Marital Status (categories are: married, unmarried, or separated), Age.

Subordinate financing relates to A) seller financing. B) financing in the secondary mortgage market. C) second mortgages. D) subprime loans.

C) second mortgages. Subordinate financing is a junior, or second, mortgage. This is a loan secured by property that is already encumbered by a loan that has not been paid off.

Which of the following is NOT included as a protected class by the Equal Credit Opportunity Act? A) receipt of public assistance B) religion C) sexual orientation D) marital status

C) sexual orientation Taken as a whole, the federal fair housing laws protect seven classes of persons. The seven protected classes are: Race, Color, Country of origin (i.e., national origin), Religion, Sex/gender, Handicap status (i.e., disability), Familial status

A defeasance clause A) assigns any rents from the property to the lender. B) allows a buyer to terminate a transaction if he is unable to obtain financing. C) states the lender will release the lien when the loan is repaid. D) waives an owner's right of redemption.

C) states the lender will release the lien when the loan is repaid. A defeasance clause states that if the loan is paid according to the terms of the note and the other covenants are fulfilled, the lender will release the lien.

Truth in Lending Act disclosures CANNOT be given by A) fax. B) hand delivery. C) telephone. D) mail.

C) telephone. The TIL Disclosure must be in writing and mailed, faxed or hand delivered. They cannot be given by telephone.

An acceleration clause in a note provides that A) redemption of the loan will defeat a foreclosure. B) upon sale of the property the loan must be repaid, unless the lender gives consent otherwise. C) the entire loan balance is due upon default. D) upon repayment of the debt in full, the note and mortgage will be voided.

C) the entire loan balance is due upon default. The acceleration clause accelerates the payment schedule, causing the entire loan balance to be due upon default.

The market where lenders and investors buy and sell existing mortgages or mortgage-backed securities is A) the gray market. B) the subprime market. C) the secondary market. D) the primary market.

C) the secondary market. The correct answer is the secondary market. The secondary market is where lenders and investors buy and sell existing mortgages or mortgage-backed securities. Mortgage-backed securities are specifically developed for sale to investors in the secondary mortgage market.

The Safeguards Rule, which implements the security requirements of the GLB Act, requires mortgage brokers to have reasonable policies and procedures to ensure A) the security and confidentiality of public and nonpublic personal customer information. B) nonpublic personal customer information is accurate. C) the security and confidentiality of nonpublic personal customer information. D) nonpublic personal customer information is readily accessible.

C) the security and confidentiality of nonpublic personal customer information. The Safeguards Rule, which implements the security requirements of the GLB Act, requires financial institutions to have reasonable policies and procedures to ensure the security and confidentiality of nonpublic personal customer information. Financial institutions covered by the rule include mortgage brokers.

The minimum number of comparables needed for a residential mortgage appraisal is A) one. B) four. C) three. D) six.

C) three. The minimum number of comparables needed for a residential mortgage appraisal is three.

When a telemarketer calls a person on the do not call list in violation of the do not call regulations, he is subject to a fine of A) $5,000. B) $7,500. C) $12,000. D) $16,000.

D) $16,000. The fine for calling someone on the do not call list or calling a customer after they have requested the telemarketer not to is $16,000 (It originally had been $11,000).

Private Mortgage Insurance costs for a $300,000 loan with a factor of 1.2% would be: A) $3,000 B) Not enough information C) $120 D) $300

D) $300 The correct answer is $300.00. A factor of 1.2 percent, expressed as a decimal would be 0.012. To calculate monthly costs, multiply the loan amount by the factor ($300,000.00 x 0.012) = $3,600.00 and divide it by the number of months in a year ($3,600 / 12) = $300.00.

The limit for a loan origination fee for a HECM is A) 1%. B) 1.5%. C) 1.75%. D) $6,000.

D) $6,000. The correct answer is $6,000. The HECM is FHA's reverse mortgage loan program. It has a maximum origination fee of 2% up to an MCA of $200,000, plus 1% of the MCA above $200,000, up to $6,000.

A borrower has an additional three-business day waiting period if the true APR on a fixed-rate loan deviates from the Loan Estimate by more than A) .25%. B) 2%. C) $2,000. D) 1/8 of 1 percentage point.

D) 1/8 of 1 percentage point. There are specific changes that can occur before consummation that require a new three-day waiting period. This includes the actual APR becoming inaccurate, which is determined by the regulations outlined in § 1026.22(a)(2) as being no more than 1/8 of 1 percentage point (.125%) above or below the APR on the Closing Disclosure.

To qualify for an FHA loan, a borrower without any compensating factors must meet which of the following ratios? A) 36% housing/47% debt B) 28% housing/36% debt C) 43% debt D) 31% housing/43% debt

D) 31% housing/43% debt For an FHA loan the housing-to-income ratio for an FHA loan is 31% and the debt-to-income ratio is 43%. For a conforming loan the ratios are 28%/36%. For a VA loan the only ratio is 41% for debt plus a residual income calculation.

RESPA requires that when an escrow account is required to manage tax and insurance payments, an initial escrow account statement showing all payments to be deposited and all disbursements to be made from the escrow account during the following year must be given to the borrower at or within________ after settlement. A) 60 days B) 10 weeks C) 3 months D) 45 days

D) 45 days The correct answer is 45 days. When an escrow account is required to manage tax and insurance payments, an initial escrow account statement showing all payments to be deposited and all disbursements to be made from the escrow account during the following year must be given to the borrower at or within 45 days after settlement.

Under RESPA, when a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower cannot be penalized for making a timely payment to the prior servicer within ________ of the loan transfer. A) 15 days B) 30 days C) 45 days D) 60 days

D) 60 days The correct answer is 60 days. When a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower cannot be penalized for making a timely payment to the prior servicer within 60 days of the loan transfer.

What kind of loan is used when a purchaser borrows equity from a current property to pay for a new property? A) A construction loan B) A refinancing loan C) A conventional loan D) A bridge loan

D) A bridge loan A bridge loan is for the benefit of a purchaser who needs to borrow from the equity of the presently owned property to purchase another property.

What action is called for when a mortgagor doesn't make payments? A) A default of mortgage B) A sheriff's sale C) A right of redemption D) A judicial foreclosure

D) A judicial foreclosure If the borrower does not make payments as promised, the borrower is in default. When this occurs, the mortgagee (lender) will file court action called judicial foreclosure in the county in which the property is located.

When a lender is willing to reduce the interest rates on a property in exchange for a portion of the sale proceeds when that property is sold, this is what type of loan? A) A reverse equity mortgage B) A purchase money mortgage C) A rollover mortgage D) A participation mortgage

D) A participation mortgage In a participation loan, the lender reduces the interest rate in exchange for a percentage of the profit when the property is sold.

What clause prohibits a borrower from paying more than the specified monthly payment on a loan amount? A) A prepayment privilege B) An estoppel clause C) A loss payable clause D) A prepayment penalty

D) A prepayment penalty With a prepayment penalty clause, the lender may either limit the amount of prepayment a borrower is permitted to make at any given time or may permit the imposition of a penalty for prepayment of a loan amount.

What clause allows the borrower to pay more than the required monthly payment on a loan amount? A) A prepayment penalty B) A loss payable clause C) A future advance clause D) A prepayment privilege

D) A prepayment privilege A prepayment privilege allows the borrower to pay the required monthly payment "or more" or an amount equal to "not less than" the required monthly payment.

Which of the following is an example of an easement? A) A right to use another's property for any purpose B) The government's right to take private property. C) An option to acquire property for development D) A right of way allowing a person to cross over another's property to gain access to his own

D) A right of way allowing a person to cross over another's property to gain access to his own An easement is an irrevocable right to use property of another for a specific purpose, such a right of way providing ingress and egress to a property or a utility line.

A mortgage where the payments are consistent for 3-to-5 year intervals is referred to as what? A) A growing equity mortgage B) An adjustable rate mortgage C) A graduated payment mortgage D) A rollover mortgage

D) A rollover mortgage A rollover mortgage is where the rate and payments are constant for three-year to five-year periods and generally have a rate cap of five percent over the maximum 30-year period.

What kind of loan is it where interests rates change based on a specific index? A) Growing equity mortgage B) Open-end mortgage C) Graduated payment mortgage D) Adjustable rate mortgage

D) Adjustable rate mortgage An adjustable rate mortgage (ARM) is one where interest rate changes occur during the life of the loan generally based upon a specified index.

When offering an adjustable rate mortgage, which of the following must be given to the borrower? A) A written disclosure if terms materially change before closing B) The Consumer Handbook on Adjustable Rate Mortgages C) A written disclosure when the adjustable rate mortgage is offered D) All of the above

D) All of the above The correct answer is all of the above. Disclosures must be furnished in writing at the time an adjustable rate mortgage loan is offered to a borrower and whenever the terms of the adjustable rate mortgage change prior to closing. The Consumer Handbook on Adjustable Rate Mortgages must also be given to the borrower.

Loan documentation fraud may involve the A) borrower. B) broker. C) lender. D) All of the above

D) All of the above The correct answer is any of these. Loan documentation fraud may involve a borrower, broker, or lender knowingly making false statements, altering documents, or concealing material facts.

The Federal Do-Not-Call Implementation Act allows licensees to call persons A) on the registry if they have done business with those persons within the last 18 months. B) on the registry if they responded to an information hotline within the last three months. C) who are not listed on the registry. D) All of the above

D) All of the above Where an organization has established a business relationship with a person, it may call that person for up to 18 months after his last purchase, payment or delivery, even if his name is on the National Do Not Call Registry. The rules therefore allow a company to call a potential client or customer who has made an inquiry or submitted an application for up to three months after the inquiry or application, unless he asks not to be contacted.

Which of the following would qualify as a simultaneous loan under the definitions of TILA and Reg Z? A) A covered transaction on the same dwelling made to two co-borrowers B) A transaction which should be covered structured in a way meant to evade TILA regulation C) A covered transaction made to one borrower by two lenders on the same dwelling D) An additional covered loan on the same dwelling made to the same borrower before closing on the covered transaction

D) An additional covered loan on the same dwelling made to the same borrower before closing on the covered transaction A simultaneous loan is an additional covered transaction or an open-end home equity line of credit that will be secured by the same dwelling which is made to the same consumer at the same time or before the closing on the covered transaction; or if made after the closing, made to cover the closing costs of the first transaction.

The conduct of which of the following professions is governed by the USPAP? A) A mortgage broker B) A banker C) A real estate broker D) An appraiser

D) An appraiser The Uniform Standards of Professional Appraisal Practice (USPAP) guides the professional conduct of appraisers. An appraiser is required to perform their assignments ethically and competently, while remaining objective, impartial, and independent.

When a loan allows the borrower to increase the amount borrowed without acquiring another loan, what is this type of loan called? A) A graduated loan B) A growing equity loan C) A purchase money loan D) An open-end loan

D) An open-end loan An open-end mortgage, while setting a maximum loan amount, allows the borrower to keep borrowing any part of the debt that has been repaid without instituting a new mortgage.

Which one of the following is NOT a reason a state licensing agency would conduct examinations and investigations of its licensees? A) Determining a licensee's compliance with state law B) Initial licensing or license renewal C) License suspension, conditioning, revocation, or termination D) Assessing a licensee's profitability and the scope of the licensee's business

D) Assessing a licensee's profitability and the scope of the licensee's business The state licensing agency may conduct examinations and investigations for the purpose of initial licensing or license renewal; license suspension, conditioning, revocation or termination; or determining compliance with state law; but NOT assessing a licensee's profitability and the scope of his business.

What is the purpose of the Federal National Mortgage Administration? A) Guarantee home loans B) Lending money C) Buy mortgage securities D) Buy existing loans

D) Buy existing loans Fannie Mae buys existing loans, thereby increasing the amount of money available for housing.

Which type of scam by the homeowner, who attempts to refinance their property over and over until little to no equity remains? A) Property skimming B) Quit Claim C) Strawbuyer D) Churning

D) Churning Loan flipping, sometime also referred to as churning, is the repeated refinancing a loan within a short period of time without benefit to the borrower. Those that engage in loan flipping earn fees, addition loan points, and other fees from the refinance transaction.

Which of the following is permitted in a high-cost loan under HOEPA? A) An increase in the interest rate after default B) A prepayment penalty more than 36 months after consummation C) Negative amortization D) Consolidation of two periodic payments to be paid in advance from the proceeds

D) Consolidation of two periodic payments to be paid in advance from the proceeds A high-cost loan may not provide for negative amortization; a payment schedule that consolidates MORE than two periodic payments and pays them in advance from the proceeds; a prepayment penalty more than 36 months after consummation; or an increase in the interest rate after default.

Of the following, which is an institutional lender? A) Real Estate Investment Trust B) Real Estate Mortgage Trust C) Pension fund D) Credit union

D) Credit union A credit union is an institutional lender, the rest are quasi-institutional lenders.

What two documents are required of a military-discharged borrower when applying for a VA loan? A) CRV and DD214 B) COE and NOV C) NOV and DD214 D) DD214 and COE

D) DD214 and COE For Department of Veterans Affairs VA home loans, you will need: a Certificate of Eligibility (COE), a Statement of Service for active duty military, which must be dated within the past 30 days, or a Certificate of Release or Discharge from Active Duty (Form DD214) for discharged military, the amount of child care expense paid for the care of minor children, and current orders for active duty military.

This clause allows the lender to ask for full payment at any time. A) Acceleration B) Prepayment C) Late charge D) Demand

D) Demand The demand clause allows the lender to demand full payment at will.

A mortgage loan originator knows that the applicant's source of income is public assistance, so he tells the applicant not to waste his time filling out an application for a mortgage loan. What federal law has the MLO violated? A) The MLO has not violated any federal law. B) HMDA C) CRA D) ECOA

D) ECOA In 1976, ECOA was amended to make it unlawful to discriminate in any credit transaction based on race, color, religion, national origin, age, receipt of public assistance, or the good faith exercise of rights under the Consumer Protection Act.

Which law prohibits discrimination based on sex, race, age, national origin, marital status, and source of income? A) Truth in Lending B) RESPA C) Fair Housing Act D) Equal Credit Opportunity Act

D) Equal Credit Opportunity Act The Equal Credit Opportunity Act prohibits discrimination in lending based upon race, color, religion, national origin, sex, age, marital status, and because a person may be on public assistance income.

An interest rate that doesn't change during the life of the loan is which type of loan? A) Open-end B) Growing equity C) Conventional D) Fixed rate

D) Fixed rate A fixed rate loan is one in which the interest rate remains the same for the life of the loan and requires equal monthly payments consisting of principal and interest until the debt is retired in full.

How are insurance companies involved in real estate? A) They are involved in purchase or construction of real estate B) They lend to individual borrowers C) They purchase foreclosed properties D) They provide funds to lending institutions

D) They provide funds to lending institutions Insurance companies provide substantial funds to lending institutions, which in turn lend to individual borrowers who are involved in the purchase or construction of large commercial projects such as shopping centers, office buildings, warehouses and apartment complexes.

Anna Tomlin works for and is supervised by loan originator Jerry Perkins, collecting and analyzing data related to residential mortgage loans. She communicates with borrowers, but does not offer or negotiate loan rates or terms or advise consumers about residential mortgage loan rates or terms. Under SAFE Act definitions, Anna is A) required to be licensed. B) a loan originator. C) a real estate broker. D) a loan processor.

D) a loan processor. A loan processor or underwriter is an individual who performs clerical or support duties at the direction of and subject to the supervision and instruction of a state-licensed loan originator or a registered loan originator. Clerical or support duties include the receipt, collection, distribution and analysis of information common for the processing and underwriting of a residential mortgage loan; and communicating with a consumer to obtain the information necessary for processing and underwriting of a loan as long as such communication does not include offering or negotiating loan rates or terms or counseling consumers about residential mortgage loan rates or terms. A person working solely as a loan processor or underwriter is not required to be licensed under the SAFE Act.

A loan in which assets and employment are verified, but income is not disclosed or used in qualifying the borrower, the loan decision is based on the borrower's credit rating and down payment or equity in the property, and standard guideline ratios relating housing expense and living expense to income are ignored, is called a A) limited-doc loan. B) stated income, stated assets loan. C) bank statement program. D) a no-ratio documentation loan.

D) a no-ratio documentation loan. For all of the other no-doc or low-doc loans, the applicant must satisfy standard guideline ratios relating housing expense and living expense to income, even though the figures used might not be verified. However, with a no-ratio documentation loan, assets and employment are verified, but income is not disclosed or used in qualifying the borrower. The loan decision is based on the borrower's credit rating and down payment or equity in the property, and standard guideline ratios relating housing expense and living expense to income are ignored. Generally, the major requirements to qualify for such a loan are that the borrower has a substantial down payment and a review of the applicant's credit score, amount of loan desired, and amount of documentation he is willing to provide.

Each individual loan originator is identified in the NMLS database by A) social security number. B) license number. C) originator ID code. D) a unique identifier.

D) a unique identifier. Each person registered in the NMLS is assigned a unique identifier in the form of a unique number for that individual.

Under TILA and Reg Z, a lender may not extend a higher-priced mortgage loan to a consumer without obtaining, prior to consummation A) a signed statement that the borrower has researched other loan options before committing to a higher-priced loan. B) certification that the borrower is qualified to make financial decisions. C) a notarized statement that the borrower has read and understood the terms of the loan. D) a written appraisal of the property serving as collateral.

D) a written appraisal of the property serving as collateral. A lender may not extend a higher-priced mortgage loan to a consumer without obtaining, prior to consummation, a written appraisal of the property serving as collateral for the loan. The appraisal must be performed by a certified or licensed appraiser who conducts a physical visit of the interior of the subject property.

What clause gives a lender the right to declare the entire loan balance due immediately because of borrower default or for violation of other contract provisions? A) alienation clause B) defeasance clause C) prepayment clause D) acceleration clause

D) acceleration clause When a borrower defaults, an acceleration clause allows the lender to accelerate payment of the loan by requiring the entire principal balance immediately due and payable.

In an ARM, rates will change periodically. This period is known as the A) changing period. B) interim period. C) relief period. D) adjustment period.

D) adjustment period. The period between rate changes in an adjustable rate mortgage (ARM) is called the adjustment period.

The primary purpose of the Equal Credit Opportunity Act (ECOA) is to ensure A) every borrower will get a loan. B) all creditors have an equal opportunity to make loans. C) low-income borrowers are given favorable treatment when applying for a loan. D) all borrowers are given an equal chance to get a loan.

D) all borrowers are given an equal chance to get a loan. The purpose of ECOA is to enable all potential borrowers, have an equal opportunity to obtain credit.

RESPA limits all of the following, EXCEPT: A) delivery time on required info for the applicant. B) amount of funds required by the borrower to hold in escrow. C) kickbacks. D) amount paid for origination fees

D) amount paid for origination fees RESPA provides more effective advance disclosure to buyers and sellers of settlement costs, eliminates kickbacks and referral fees that tend to increase the costs of certain settlement services, and reduces amounts buyers are required to place in escrow accounts established to ensure the payment of real estate taxes and insurance. RESPA does not place limits on loan origination fees.

For purposes of mortgage licensing, all of the following are considered immediate family members, and therefore an individual may negotiate a mortgage loan on their behalf with being required to be licensed, EXCEPT A) a grandparent. B) a sibling through adoption. C) a stepparent. D) an aunt.

D) an aunt. A state is not required to license certain individuals as loan originators, including any individual who offers or negotiates terms of a residential mortgage with or on behalf of an immediate family member (i.e., a spouse, child, sibling or parent; grandparent or grandchild; stepparents, stepchildren or stepsiblings; and any individual who is a family member as a result of an adoptive relationship).

The rate at which the amount financed (i.e., the loan amount less the prepaid finance costs) produces the monthly loan payment is the A) equity growth rate. B) annual interest rate. C) amortization rate. D) annual percentage rate.

D) annual percentage rate. The interest rate for a loan is not the annual percentage rate. The interest rate is the rate at which the loan amount produces the monthly loan payment. An annual percentage rate (APR), a term established by the Truth-in-Lending Act, is the rate at which the amount financed (i.e., the loan amount less the prepaid finance costs) produces the monthly loan payment.

The belief that a loan originator shouldn't be responsible for determining that a loan is suitable for a borrower (as that is the borrower's responsibility) is known as A) Fiduciary responsibility. B) laissez faire. C) material disclosure. D) caveat emptor.

D) caveat emptor. Caveat emptor means "buyer beware" and holds that a buyer should be held responsible for his decisions.

If a loan instrument contains an assumption clause, most loan instruments permit the lender to: A) initiate a subordination agreement. B) collect the rent directly from the tenant. C) convey clear title when assuming the mortgage from the borrower. D) charge an assumption fee.

D) charge an assumption fee. If the loan permits an assumption, most loan instruments permit the lender to charge an assumption fee. The fee may be a percentage of the loan balance being assumed or a flat fee.

In the event of default, an acceleration clause in a mortgage instrument allows a lender to A) sell the property. B) increase the interest rate. C) bypass judicial foreclosure procedures. D) declare the balance due.

D) declare the balance due. In the event a borrower defaults on a note, the acceleration clause allows a lender to speed up payment of the loan by requiring the entire unpaid principal balance of the note immediately due.

In order to meet the annual continuing education requirement, a state-licensed loan originator must complete at least _____ hours of NMLS-reviewed and -approved coursework. A) six B) 10 C) 12 D) eight

D) eight In order to meet the annual continuing education requirement, a state-licensed loan originator must complete at least eight hours of NMLS-reviewed and -approved coursework.

The federal Truth in Lending Act A) requires a lender to estimate the seller's closing costs on residential loans. B) dictates all loan applications must be made in person. C) mandates the use of a standard loan application. D) regulates advertising with references to mortgage interest rates.

D) regulates advertising with references to mortgage interest rates. TILA was originally enacted to provide accurate and truthful information to consumers relating to the cost and terms of credit being offered so they may more easily compare various loan products

An applicant for a real estate loan cannot be asked about their A) income. B) liabilities. C) ethnicity. D) religion.

D) religion. Religion is not a basis for creditworthiness. Asking for that information of a borrower is a violation of ECOA. Income and liabilities are factors that might affect creditworthiness, so they are not in violation of ECOA. Ethnicity, sex and race can be asked about for monitoring purposes.

If a mortgage loan originator or real estate agent suggests to a client that he move to a particular area to reside in a community that he will "fit into," that MLO or real estate agent would be guilty of A) redlining. B) flipping. C) blockbusting. D) steering.

D) steering. Steering is the often subtle practice of discouraging buyers from considering certain neighborhoods or channeling them to particular neighborhoods.

An Alt-A loan is a class of A) reverse mortgage. B) seller financing. C) adjustable rate loan. D) subprime loan.

D) subprime loan. An Alt-A loan is a type of subprime loan. The term refers to the category of loan where there is alternative documentation and a credit score below that of a grade A borrower.

A borrower is buying a house for $180,000. He provides a down payment of $40,000. If he pays three discount points, what is the total cost of the points? A) $4,200 B) $4,667 C) $5,400 D) $6,000

A) $4,200 Loan Amount × Number of Points (percentage) = Dollars Paid in Points $180,000 - $40,000 down payment = $140,000 loan$140,000 × .03 = $4,200

An applicant lists a rental property from which they expect to earn $1,000 per month rent. In calculating the applicant's DTI ratio for an FHA loan, assuming the property is to be newly rented, the loan originator must treat the value of this income as A) $750. B) $1,250. C) $0, as it is not from wages. D) $1,000.

A) $750. FHA allows only 75% of any gross rental income to be considered in the calculation, to account for lack of occupancy and maintenance issues.

Using a 36% back-end ratio, an applicant for an 80% conventional loan, with a gross monthly income of $3,600 and monthly fixed debts of $400 would be eligible for a loan with monthly payments to PITI of A) $896. B) $1,008. C) $1,296. D) $1,368.

A) $896. The correct answer is $896. For an 80% loan, the borrower must generally not have fixed expenses in excess of 36% of income. 36% x $3,600 = $1,296.$1,296 - $400 = $896 available for PITI. The applicant could qualify for a loan with payments of $896.

Under FCRA (Reg V) how many how many free credit reports from each bureau can a consumer receive each calendar year? A) 1 B) 2 C) 3 D) 4

A) 1 Under this act, consumers are allowed to request and obtain a free credit report once every 12 months in order to monitor activity relating to their credit report.

When providing a fixed-rate loan to a borrower you are allowed a slight error in the disclosed APR. What is that tolerance? A) 1/8 of 1 percent B) No tolerance limits are allowed on the CD. C) 1/4 of 1 percent D) 1/2 of 1 percent

A) 1/8 of 1 percent The actual APR becomes inaccurate when it is more than 1/8 of 1% above or below the APR on the Closing Disclosure.

When qualifying a borrower, an installment debt does not need to be included in the debt ratio when the balance of the term of repayment is less than how many months? A) 10 months B) 15 months C) 5 months D) 20 months

A) 10 months Installment debt with less than 10 months remaining need not be included in the qualifying ratios.

In the event that a loan servicer sells or transfers the servicing rights to another loan servicer, a servicing transfer statement must be provided to the borrower at least ________ before the effective date of the loan transfer. A) 15 days B) 45 days C) 60 days D) 20 days

A) 15 days The borrower must be provided with the servicing transfer statement at least 15 days before the effective date of the loan transfer. This statement must show the new servicer's name, address, and phone number, as well as the date the new servicer will commence accepting payments.

Under the BSA, a Currency Transaction Report (CTR) which is not filed electronically must be filed within ______ following the day on which the reportable transaction occurred. A) 15 days B) 24 hours C) 20 days D) 5 weeks

A) 15 days Under the BSA, a financial institution must report to FinCEN single or structured currency transactions that exceed $10,000 using a Currency Transaction Report (CTR). Currency transactions include "any deposit, withdrawal, exchange or other payment or transfer" that involves currency. A CTR must be filed within 15 days following the day on which the reportable transaction occurred (25 days if filed electronically), and a copy must be retained by the institution for at least five years.

Under TILA if the tolerance of the APR is exceeded by the allowable tolerance, it must be re-disclosed again how many days before closing? A) 3 business days B) 30 business days C) 7 business days D) No problem as you are re-disclosing the APR before closing

A) 3 business days There are specific changes that can occur before consummation that require a new three-day waiting period. In this case, consummation may need to be postponed to comply with the three-day rule.

Under TILA's Qualified Mortgage (QM) Rule, a QM of $100,000 or more may not have points and fees that exceed _______ of the total loan amount. A) 3% B) 4% C) 5% D) 6%

A) 3% Under TILA's Qualified Mortgage (QM) Rule, a QM of $100,000 or more may not have points and fees that exceed three percent of the total loan amount.

Which of the following statements regarding title insurance is TRUE? A) A borrower is required by the lender to pay for lender's title insurance. B) The seller pays for all title insurance purchased in the closing of the sale of the seller's property. C) A borrower is required by the lender to pay for both lender's title insurance and owner's title insurance. D) A borrower is required by the lender to pay for owner's title insurance.

A) A borrower is required by the lender to pay for lender's title insurance. A borrower is required to pay for lender's title insurance to protect the lender from issues that could impair the seller's ability to convey marketable title such as undisclosed liens. Since an owner's title insurance protects the borrower, it is not required by the lender.

Which of the following is true regarding interest-only (I-O) loans? A) After the interest-only period, the monthly payment will increase, even if interest rates stay the same. B) A fixed-rate mortgage may not be offered on an interest-only plan. C) The longer the I-O period, the lower the monthly payments will be after the I-O period ends. D) Typically, an I-O loan allows a borrower to pay interest only for two to three years.

A) After the interest-only period, the monthly payment will increase, even if interest rates stay the same. While a fixed-rate mortgage may be offered on an interest-only (I-O) payment plan, most mortgages that offer an I-O payment plan have adjustable interest rates. An interest-only ARM payment plan allows a borrower to pay only the interest for a specified number of years, typically between three and 10 years. This allows the borrower to have smaller monthly payments for a period of time. After that, the monthly payment will increase, even if interest rates stay the same, because the borrower must start paying back the principal as well as the interest each month. Therefore, with an interest-only ARM, payment shock will often occur when the I-O period ends. The longer the I-O period, the higher the monthly payments will be after the I-O period ends, as the remaining period within which all of the principal must be repaid will be correspondingly shorter.

Which of the following is NOT a RESPA violation? A) An employer pays its own employee for referrals. B) A mortgage broker pays for title services on behalf of a developer in return for which the developer agrees to refer buyers to the mortgage broker. C) A mortgage broker pays a real estate broker for mortgage loan referrals. D) A mortgage lender gives an attorney a fee for introducing a customer.

A) An employer pays its own employee for referrals. RESPA prohibits a business entity from paying any other business entity or the employees of any other business entity for the referral of settlement service business. RESPA does allow payment by an employer to its own bona fide employees for any referral activities.

In response to an oral inquiry about the cost of credit, the Truth in Lending Act requires which of the following to be disclosed? A) Annual percentage rate B) Simple interest rate C) Federal funds rate D) Federal Reserve discount rate

A) Annual percentage rate TILA requires that the annual percentage rate must be provided to consumers in any disclosure of credit terms.

Which term is used to describe knowingly advertising or offering one set of terms that are very appealing but are not readily available and then pressuring a person into signing a contract with other, more expensive terms? A) Bait and switch B) Steering C) Nonconforming D) Cut and run

A) Bait and switch A mortgage broker or lender must avoid bait-and-switch tactics, which involve knowingly advertising or offering one set of terms that are very appealing but are not readily available and then pressuring the borrower into signing a contract with more expensive terms and hidden fees.

The authority to implement and enforce the SAFE Act sits with A) CFPB. B) NMLS. C) FinCEN. D) HUD.

A) CFPB. When the SAFE Act was adopted in 2008, the CFPB did not yet exist. The CFPB was formed in 2010 as a result of the Dodd-Frank Act, which included provisions to transfer regulatory authority over the SAFE Act to the CFPB.

Which clause stipulates that the borrower can regain clear title after the repaying a loan? A) Defeasance clause B) Escalator clause C) Alienation clause D) Exculpatory clause

A) Defeasance clause The defeasance clause in loan documents stipulates that the borrower will be able to regain clear title after the debt is paid.

Which law requires that all consumers are given an equal chance to obtain credit? A) Equal Credit Opportunity Act B) Fair Credit Reporting Act C) Fair and Accurate Credit Transaction Act D) Home Mortgage Disclosure Act

A) Equal Credit Opportunity Act The primary purpose of the Equal Credit Opportunity Act (ECOA) is to prevent discrimination in the granting of credit by requiring banks and other creditors to make extensions of credit equally available to all creditworthy applicants with fairness, impartiality, and without discrimination on any prohibited basis.

This clause allows a lender to change a loan's rate of interest at fixed, predetermined amounts and intervals. These increases are NOT tied to any index. A) Escalator B) Prepayment C) Index D) Exculpatory

A) Escalator An escalator clause permits the lender to change the interest rate of the loan agreement. If the loan instruments contain an escalator clause, the lender will be permitted to change the interest rate at predetermined amounts at predetermined intervals. The amount of the increases are fixed and not tied to any index.

A person has how many years from the time of the occurrence of an alleged ECOA violation to file a civil suit against the creditor? A) Five years B) One year C) Two years D) Seven years

A) Five years A person has five years from the time of the occurrence of an alleged ECOA violation to file a civil suit against the creditor.

Which of the following might be considered unethical performance as a mortgage originator? A) Having the consumer sign blank forms, so they do not have to come to your office B) Counseling the consumer C) Having the loan application package prepared in advance D) Describing the mortgage program to make sure the customer understands the loan

A) Having the consumer sign blank forms, so they do not have to come to your office The highest personal standards of conduct and practice mean that the needs of the client-borrower should always come before personal needs for monetary gain.

Which act amended the Truth in Lending Act, establishing disclosure requirements and prohibiting equity stripping and other abusive practices in connection with high-cost mortgages? A) Home Ownership and Equity Protection Act (HOEPA) B) Homeowners Protection Act (HPA) C) Community Reinvestment Act (CRA) D) Home Mortgage Disclosure Act (HMDA)

A) Home Ownership and Equity Protection Act (HOEPA) Originally signed into law in 1994 as an amendment to the Truth in Lending Act's (TILA) Regulation Z, The Home Ownership and Equity Protection Act (HOEPA) was enacted to address a number of abusive practices relating to loan refinances and closed-end home equity loans with high interest rates or high fees.

A loan that has an initial period during which the rate is fixed, after which, for the remainder of the loan term, the rate is adjustable, is called A) a hybrid ARM. B) a conversion loan. C) a subprime loan. D) an I-O ARM.

A) a hybrid ARM. A hybrid ARM is a mix (hybrid) of a fixed-rate loan and an adjustable-rate loan. It has an initial period during which the rate is fixed, after which, for the remainder of the loan term, the rate is adjustable.

What fact about a borrower may an underwriter take into consideration when approving a mortgage loan application? A) Likelihood of continued income B) Receipt of public assistance C) Ancestry D) Marital status

A) Likelihood of continued income ECOA prohibits discrimination against an applicant on the basis of race, color, religion, national origin, sex, marital status or age (provided the applicant is of age to enter into a contract), because part or all of the applicants income derived from public assistance, or because the applicant in good faith exercised any right under the Consumer Credit Protection Act. An underwriter cannot consider any of the protected basis, but can consider the applicant's likelihood of continued income.

Which of the following would be an example of the money laundering scheme called structuring? A) Making cash deposits or withdrawals at dollar values of $10,000 or less at multiple teller windows on a single banking day B) Buying and selling the same property repeatedly by related individuals C) Assuming of an account holder's name by a different individual D) Obtaining mortgage loans using false appraisals

A) Making cash deposits or withdrawals at dollar values of $10,000 or less at multiple teller windows on a single banking day Structuring involves making cash deposits or withdrawals at dollar values of $10,000 or less, at multiple teller windows on a single banking day, or at multiple branch locations or by multiple individuals into a single account on a single day.

Which one of the following about a state-licensed loan originator is NOT TRUE? A) Must be employed by a depository institution. B) May not be employed by an institution regulated by the Farm Credit Administration. C) May be licensed by the CFPB if seeking licensing in a state that has failed to establish a licensing system D) Must maintain a unique identifier through the NMLS.

A) Must be employed by a depository institution. A state-licensed loan originator is any individual who is a loan originator; is NOT an employee of a depository institution, a subsidiary that is owned and controlled by a depository institution and regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration; and is licensed by a state (or by the CFPB if the loan originator is seeking licensing in a state that has failed to establish a licensing system) and maintains a unique identifier through the NMLS.

What do the initials NMLS stand for? A) Nationwide Mortgage Licensing System and Registry B) National Mortgage Loan Service and Repository C) Nationwide Mortgage License Service and Repository D) National Mortgage Licensing System and Registry

A) Nationwide Mortgage Licensing System and Registry NMLS stands for the Nationwide Mortgage Licensing System and Registry.

Which of the following is TRUE with regard to margin rates of adjustable rate mortgages? A) Once set, the margin usually does not change over the life of the loan. B) All lenders charge the same margin rate. C) When comparing two loans, the one with the lower margin rate will always have the lower interest rate. D) A lender may not charge more than the limit allowed by the Federal Reserve.

A) Once set, the margin usually does not change over the life of the loan. The margin rate provides the lender's profit. Once set it usually remains constant for the life of the loan. The index rate is the rate that changes. The interest rate is equal to the index rate plus the margin rate. A loan could have a lower interest rate with a higher margin rate, if the index rate were lower.

A Mortgage Servicing Disclosure Statement is required by what law? A) RESPA B) TILA C) SAFE Act D) HOEPA

A) RESPA At the time of application, or within three business days of receiving a loan application, the mortgage loan originator is required by RESPA to give to the applicant or mail to the applicant a Servicing Disclosure Statement.

When recorded, which document clears a mortgage lien secured by a promissory note from the public record? A) Satisfaction of mortgage B) Certificate of redemption C) Satisfaction of note and mortgage D) Deed

A) Satisfaction of mortgage The satisfaction of mortgage has the effect of removing or clearing the mortgage lien from the public record.

In qualifying the income of a sole proprietor borrower, a mortgage loan originator should consider which of the following to be most important? A) Schedule C net income plus non-cash expenses and depreciation B) Schedule C net income C) Form 1040 adjusted gross income D) Expenses reported on Form 2106

A) Schedule C net income plus non-cash expenses and depreciation The individual's actual income would be the net income shown on his Schedule C plus any depreciation that was deducted in arriving at his adjusted income, since the borrower did not actually have to spend the amount claimed for depreciation. Schedule C shows his net income for self-employment. Form 2106 shows reimbursed expenses, including expense allowances. The Form 1040 is the tax return. It shows his taxable adjusted income, which is arrived at after deducting non-cash expenses.

Which one of the following is NOT an activity the NMLS requires all state licensed originators to participate in? A) Take a 5-hour CE class annually B) Register for an NMLS number C) Take a 20 hours of pre-licensing (PE) course D) Submit to a fingerprint and background check

A) Take a 5-hour CE class annually The SAFE Act requires each licensed mortgage loan originator to complete at least eight hours of continuing education each year.

What is the lifetime cap on an adjustable rate loan? A) The maximum the interest rate can increase over the life of the loan B) The maximum the payment rate can increase over the life of the loan C) The maximum the rate can increase at the end of the loan D) The maximum the interest rate can increase at the adjustment

A) The maximum the interest rate can increase over the life of the loan ARMs are required to have overall caps or lifetime caps to limit the interest rate increase over the life of the loan.

What is used to permanently identify a loan originator? A) Unique identifier B) Social Security number C) Mortgage processor identification number D) License number

A) Unique identifier A unique identifier is a number or other identifier that permanently identifies a loan originator.

An alienation clause allows the lien holder to: A) accelerate the loan if the borrower sells the property (collateral) that secured the loan. B) substitute the original borrower with a new borrower (i.e., an alien borrower). C) advance future sums to the borrower in addition to the original amount loaned. D) collect an additional fee if the borrower pays off the loan before the end of the loan term.

A) accelerate the loan if the borrower sells the property (collateral) that secured the loan. An alienation clause is also frequently referred to as a due-on-sale clause. This clause gives the lender the right to accelerate the loan (call it due on sale) if the original borrower sells or transfers the property used as collateral to secure the loan.

The mortgagor is known as the A) borrower. B) broker. C) one that holds a mortgage. D) lender.

A) borrower. The mortgagor is the individual who owns the mortgaged property. This party is also known as the borrower and is the party giving the mortgage to the lender.

Under the Gramm-Leach-Bliley Act, a customer may prevent a mortgage broker from making his nonpublic personal information available to any third party A) by opting out. B) by notifying the consumer reporting agencies to not report it. C) only by refusing to provide this information to the mortgage broker. D) only by refusing to sign authorization for making the information available.

A) by opting out. Consumers and customers have the right to opt out of (or say no to) having their information shared with certain third parties. The privacy notice must explain how (and offer a reasonable way) they can do that.

A borrower closed a loan last week with ABC Mortgage Company. Her name is on the National Do Not Call Registry and on ABC's internal do not call list. ABC A) cannot call her because she is on ABC's internal list. B) can call her for up to 18 months from the transaction date. C) can call her for up to 3 months because they have an established business relationship. D) cannot call her because she is on the National Do Not Call Registry.

A) cannot call her because she is on ABC's internal list. The only exception to the do-not-call rule is if there is an established business relationship. An established business relationship means a relationship with anyone with whom a business has done business with or who has made an inquiry to the business. The consumer may ask not to be contacted by the company, in which case the company must put the consumer on their own do-not-call list.

Consumers in _________ are protected by the Truth-In-Lending Act. A) credit transactions B) property evaluations C) real estate practices D) property offers

A) credit transactions The Truth-in-Lending Act (TILA) ensures that creditors provide consumers with accurate information regarding the cost and terms of credit offered.

The purpose of the Fair Credit Reporting Act is to A) ensure the accuracy of information in consumer reports. B) lower the cost of credit reports. C) help consumers shop for credit agencies. D) enable consumers to improve their credit scores.

A) ensure the accuracy of information in consumer reports. The Fair Credit Reporting Act (FCRA), enforced by the Consumer Financial Protection Bureau, is designed to ensure the accuracy and privacy of the information in consumer reports.

Interest, service charges, transaction charges, buyer's points, loan fees and mortgage insurance are examples of what is included in the dollar amount called the A) finance charge. B) lease fee. C) rate disclosure. D) available credit.

A) finance charge. The finance charge is the dollar amount charged for credit. It includes interest and other costs, such as service charges, transaction charges, buyer's points, loan fees and mortgage insurance. It also includes the premiums for credit life, accident and health insurance, if required, and for property insurance, unless the buyer may select the insurer.

A conforming loan is a loan that A) follows the secondary market criteria set by Fannie Mae/Freddie Mac. B) exceeds the maximum loan amount established by Fannie Mae/Freddie Mac. C) is for more than $417,000 on a single family home and also called a jumbo loan. D) is offered to borrowers who do not meet qualifications for Fannie Mae/Freddie Mac.

A) follows the secondary market criteria set by Fannie Mae/Freddie Mac. Conventional loans, also known as conforming mortgages, are those that are eligible for purchase through the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

The Fair and Accurate Credit Transactions Act (FACTA) states that, upon request, consumers must be given a copy of their credit report A) for free once every twelve months. B) for free once every three months. C) for free as frequently as they request it. D) for a fee once every twelve months.

A) for free once every twelve months. FACTA requires the three major credit reporting agencies to allow consumers to obtain a free copy of their own credit report every 12 months, so they can have an opportunity to discover and correct errors in their credit records and make sure that accounts have not been fraudulently opened in their names.

Adverse actions include all of the following EXCEPT: A) foreclosure B) change in terms of existing credit. C) refusal to grant the amount of credit requested. D) denial of credit.

A) foreclosure Adverse action is a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on the terms requested. Foreclosure of a property would not constitute an adverse action.

The primary objective of mortgage lenders or brokers engaging in flipping is typically A) generating additional loan points, loan fees, prepayment penalties, and fees. B) originating a refinancing loan which creates a real benefit for the borrower. C) creating an ongoing relationship with borrowers. D) targeting borrowers with limited access to mainstream credit.

A) generating additional loan points, loan fees, prepayment penalties, and fees. Flipping, also called churning, is repeated refinancing of a loan within a short period of time, without any real benefit to the borrower. The primary objective of the mortgage broker and/or lender is to generate additional loan points, loan fees, prepayment penalties, and fees from financing the sale of credit-related products. Many of these loans have adjustable rate features so that borrowers may need to refinance an adjustable rate loan when the interest rate adjusts. Then when a borrower has to return to a lender to refinance the loan, possibly to avoid foreclosure, he is charged additional points and fees. Typically, the new loan is just as unaffordable as the first, and the result may still be foreclosure.

A loan originator refers her customer to XYZ Title Company, which is owned by her family. According to RESPA, she must A) give full affiliation disclosure to the customer when, or before, she makes the referral. B) disclose the relationship only if the client chooses XYZ Title. C) also provide a list of alternative title companies to the customer. D) not make any referral, as it is prohibited by RESPA.

A) give full affiliation disclosure to the customer when, or before, she makes the referral. When applicable, Regulation X requires that an Affiliated Business Arrangement Disclosure Statement (AfBA) must be delivered to the borrower whenever a settlement service provider involved in a RESPA-covered transaction refers the consumer to a business partner. The referring party must give the AfBA disclosure to the consumer at or prior to the time of the referral.

The purpose of HMDA's reporting of borrower information is to determine A) if there is discrimination in lending. B) which lenders are lending the most in particular areas. C) the total annual amount of mortgages financed. D) which programs are being used by what type of loan.

A) if there is discrimination in lending. HDMA provides the public with loan data that can be used to assist in determining whether financial institutions are serving the housing needs of their communities, public officials in distributing public-sector investments so as to attract private investment to areas where it is needed; and in identifying possible discriminatory lending patterns.

Information held by the NMLS relating to the employment history or disciplinary actions taken against a mortgage loan originator A) is not protected by confidentiality and is available for public access. B) is protected by confidentiality, but is available for public access. C) is not protected by confidentiality, but is not available for public access. D) is protected by confidentiality and is not available for public access.

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

The Homeowners Protection Act (HPA) allows borrowers with good history to request the cancellation of their PMI when the mortgage is paid down to the point that A) it equals 80% of the original purchase price OR the appraised value of the home at the time the loan was obtained, whichever is less. B) it equals 75 of the original purchase price OR the appraised value of the home at the time the loan was obtained, whichever is less. C) it equals 50% of the current value of the home. D) it equals 78% of the current value of the home.

A) it equals 80% of the original purchase price OR the appraised value of the home at the time the loan was obtained, whichever is less. The HPA allows a borrower with good history to request that the PMI be canceled. The request must be made in writing, and the borrower has to have not been 30 days late in the past 30 days, or 60 days late in the past two years, and the mortgage must have been paid down to 80% of the original purchase price or the appraised value of the home at the time of the loan, whichever amount is less. Additionally, there must be no additional liens on the property, and the property must not be worth less than the original purchase price.

A clause in the note that prohibits the borrower from prepaying the loan is the A) lock-in clause. B) prepayment penalty. C) due-on-sale clause. D) prepayment privilege.

A) lock-in clause. A lock-in clause prohibits prepayment. The prepayment penalty allows the borrower to prepay, but imposes an extra charge if the borrower does prepay. The prepayment privilege allows the borrower to prepay the loan. The due-on-sale (alienation) clause allows the lender to accelerate the loan, or refuse to allow another person to assume the loan, if the title is transferred.

Which one of the following is NOT considered a changed circumstance under RESPA (Regulation X)? A) market fluctuations. B) Information about the estimated value of the property found to be inaccurate after the LE has been provided. C) New information particular to the borrower that was not relied on when providing the LE. D) War, disaster, or other emergency affecting the loan transaction.

A) market fluctuations. The term "changed circumstances" includes Acts of God, war, disaster or other emergency; information particular to the borrower or transaction that was relied on in providing the good faith estimate (i.e., the Loan Estimate) and that changes or is found to be inaccurate after the GFE has been provided (e.g., information about the borrower's credit quality, the loan amount, the estimated value of the property, or any other information that was used in providing the GFE); new information particular to the borrower or transaction that was not relied on in providing the GFE; and other circumstances that are particular to the borrower or transaction (e.g., boundary disputes, the need for flood insurance, or environmental problems). Market price fluctuations by themselves are not considered changed circumstances.

In regard to obtaining property, the SAFE Act states that loan originators A) must not do so by fraud or misrepresentation. B) must not do so without using the services of a real-estate licensee. C) may do so in any way they see fit. D) may not do so in the course of their professional duties.

A) must not do so by fraud or misrepresentation. It is prohibited for any person, when engaging in mortgage loan origination activity, to obtain property by fraud or misrepresentation.

A __________ is one in which the minimum required periodic installment payments on a loan are insufficient to pay the accrued interest. A) negative amortization note B) prepayment clause C) note with call feature D) mortgage

A) negative amortization note A negative amortization note is one in which the minimum required periodic installment payments on a loan are insufficient to pay all of the accrued interest. As a result, the unpaid interest is added to the principal amount of a mortgage loan, causing the loan balance to increase rather than decrease.

When a cap limits the increase of a borrower's monthly payments and the deferred interest is added to the principal, this is known as A) negative amortization. B) risk. C) redlining. D) an ARM.

A) negative amortization. Negative amortization occurs when a payment cap limits a borrower's monthly payments and the deferred interest is added to the amount owed on the loan.

Buyer with a credit score of 703 makes an offer of $156,000 on a house that was appraised for $162,000. If the seller accepts his offer, how much would his minimum down payment be on an FHA loan? A) $0 B) $5,460 C) $5,670 D) $7,800

B) $5,460 Only 3.5% down payment based on the loan amount is required, despite his credit score or the property appraisal price.

If a borrower's annual property taxes are $3,000, and assuming there are no deficits in the escrow account, how much can the borrower be asked to pay for taxes each month once monthly mortgage payments start? A) $200 B) $250 C) $300 D) $600

B) $250 The correct answer is $250. The borrower cannot be required to pay more than 1/12 of the annual property taxes or other charges once monthly mortgage payments start. There are exceptions if a larger payment is needed to make up for an escrow account deficit due to increased taxes or insurance premiums, or to establish or maintain a two-month cushion.

Provisions of the BSA require a financial institution to report to FinCEN on a Currency Transaction Report (CTR) any large currency transaction that exceeds A) $5,000. B) $10,000. C) $20,000. D) $50,000.

B) $10,000. The correct answer is $10,000. Provisions of the BSA also require a financial institution to report to FinCEN on a CTR any large currency transaction that exceeds $10,000. Such a transaction may be a single transaction or a structured currency transaction (i.e., multiple transactions made by or on behalf of the same person designed to evade reporting requirements).

For a $240,000, 3/1 adjustable rate mortgage with a rate of 5.5%, what would the per diem interest be? Assume a 360 day year. A) $29.66 B) $36.66 C) $54.17 D) $121.21

B) $36.66 The correct answer is $36.66. "per diem" means "per day," so you are looking for the daily interest incurred on the $240,000 loan amount. $240,000 x 0.055 = $13,200 ÷ 360 = $36.66

Which one of the following is NOT required by HMDA to be reported for each transaction by the lender? A) Information about the property to which the loan relates such as its type and location (including the census tract). B) Applicant's credit history, debt-to-income ratio, and expense-to-income ratio. C) Applicant's ethnicity, race, sex, and annual income. D) Disposition of the application such as whether it was denied or resulted in the origination of a loan.

B) Applicant's credit history, debt-to-income ratio, and expense-to-income ratio. For each transaction the lender must report the following data: The loan (or application), including the type and amount of the loan made (or applied for) and, in limited circumstances, its price; the disposition of the application, such as whether it was denied or resulted in the origination of a loan; the property to which the loan relates, such as its type (single family vs. multifamily) and location (including the census tract) and the applicant's ethnicity, race, sex, and annual income.

Which of the following does NOT meet the definition of a currency transaction under the Bank Secrecy Act (BSA)? A) Exchanging money B) Applying for a mortgage C) Withdrawing money D) Depositing money

B) Applying for a mortgage Currency transactions include "any deposit, withdrawal, exchange, or other payment or transfer" that involves currency.

Which participant in the loan process would be most likely to overvalue a property? A) Title company employee B) Appraiser C) Attorney D) Loan originator

B) Appraiser If the appraisar deliberately overstates the property value, the borrower can obtain more money in the form of a cash-out refinance, by the seller in a purchase transaction, or by the organizers of a for-profit mortgage fraud scheme.

A loan applicant borrows $20,000 for his downpayment on his home. How will this be treated by the lender? A) As an asset B) As a liability C) As a gift D) It depends on how long ago he got the loan.

B) As a liability This is a liability, as it is a debt. If it were a gift, it would be treated as an asset if the gift had been received over 60 days prior to the applicant, or as a gift if it had been received within 60 days of the application.

Which of the following does a prospective licensee NOT need to furnish to the NMLS for the purposes of licensing and registration? A) Authorization to obtain an independent credit report. B) Authorization to obtain educational records from a college or university. C) Authorization to obtain information related to administrative, civil or criminal findings by any governmental agency. D) Fingerprints for submission to the FBI.

B) Authorization to obtain educational records from a college or university. When applying to any state for licensing and registration as a state-licensed loan originator, the applicant must furnish to the NMLS information concerning his identity, including fingerprints for submission to the FBI or any entity authorized to receive such information for a state, national and international criminal history background check; personal history and experience, including authorization to obtain an independent credit report obtained from a consumer reporting agency, and information related to administrative, civil or criminal findings by any governmental agency.

Which of these tasks is the primary function of a mortgage broker? A) Make loans within a specific geographical area B) Bring borrowers and lenders together to complete a lending transaction C) Get underwriting approvals from lenders D) Service loans from lenders

B) Bring borrowers and lenders together to complete a lending transaction The purpose of a mortgage broker is to bring borrowers and lenders together.

What is the name of the booklet required with an ARM loan? A) Understanding Your Non-Traditional Loan B) CHARM Booklet C) When your home is on the line D) Settlement Costs and You

B) CHARM Booklet When a borrower applies for an ARM loan, the loan originator is required to give the borrower the Consumer Handbook on Adjustable Rate Mortgages (the CHARM booklet) within three business days of application.

Which of the following charges have no tolerance restriction? A) Transfer taxes B) Charges incurred when the borrower selects settlement services providers NOT on the service provider's list. C) The credits or charges for the interest rate chosen while the borrower's interest rate is locked. D) The lender's or mortgage broker's origination charges

B) Charges incurred when the borrower selects settlement services providers NOT on the service provider's list. When borrowers selects settlement services they shopped for outside of the provided list, there is no tolerance restriction on the loan provider's good faith estimate (i.e., Loan Estimate). The other choices provided above all have a zero tolerance.

Page 1 of the Loan Estimate and Page 1 of the Closing Disclosure are in the same format. Using the same format is intended to allow the borrower to do which of these things? A) Select which one of the two documents will be used at closing. B) Easily compare the final loan terms and costs with the initial estimate. C) Report to the CFPB when there is an undocumented out-of-tolerance fee. D) To give to their real estate agent to prove they are pre-qualified for a loan.

B) Easily compare the final loan terms and costs with the initial estimate. Since page 1 of the Loan Estimate and page 1 of the Closing Disclosure form page are in the same format and present the same information, a consumer can easily compare the two forms.

Which of the following is NOT an objective of the Bank Secrecy Act? A) Improving reporting and aiding investigations of financial crimes B) Ensuring that the financing methods of terrorist financing activity are made public as soon as possible C) Documenting large currency transactions D) Preventing and detecting money laundering and criminal activity financing

B) Ensuring that the financing methods of terrorist financing activity are made public as soon as possible The objectives of the Bank Secrecy Act include preventing and detecting money laundering and criminal activity financing; documenting large currency transactions; improving reporting; and aiding investigations of financial crime. Although suspicious activities are reported to the appropriate authorities under its provisions, the BSA does not call for such activities to be made public as one of its objectives.

Under HOEPA, verifying the consumer's repayment ability in an open-end, high-cost mortgage A) is based on the borrower's notarized financial statement. B) is based on verifying income, assets and current obligations. C) is recommended, but not required. D) must be carried out by an independent third party.

B) is based on verifying income, assets and current obligations. A lender must verify the consumer's repayment ability in an open-end, highcost mortgage by verifying the amounts of income or assets it relies upon to determine repayment ability. (Expected income or assets may be verified by the consumer's W-2 forms, tax returns, payroll receipts, financial institution records or other third-party documents that provide reasonably reliable evidence of the consumer's income or assets.); and verifying the consumer's current obligations, including any mortgage-related obligations associated with another credit obligation undertaken prior to or at account opening and secured by the same dwelling.

When the term jumbo loan is used to describe a loan, it means that the loan A) is subprime. B) is nonconforming. C) has a high loan-to-value ratio. D) has a high interest rate.

B) is nonconforming. A jumbo loan is a loan that exceeds the amount eligible for a conforming loan, so it is nonconforming. It may be made to a person with very good credit (so it would not be a subprime loan). It may have a higher rate than a conforming loan, but would not be as high as a subprime or Alt-A loan. The LTV may be high or low (i.e., whatever is negotiated).

A blanket loan is a type of mortgage that: A) is a non-conforming loan product that can be sold to Freddie Mac or Fannie Mae. B) is popular with builders because it covers more than one property. C) allows an applicant to borrow against the existing equity in the property. D) reduces the mortgage lender's interest rate over the term of the loan.

B) is popular with builders because it covers more than one property. A blanket loan, or blanket mortgage, is a type of loan that covers (i.e., blankets) more than one piece of real property. Blanket loans are popular with builders and developers who buy large tracts of land, then subdivide them to create many individual lots or parcels to be sold individually.

All of the following are covered by the MARS Rule EXCEPT A) mortgage brokers that promote refinancing transactions as a way for homeowners to avoid foreclosure. B) lenders or servicers that offer mortgage assistance relief services in connection with loans they own or service. C) for-profit mortgage assistance relief services providers. D) real estate professionals who promote their services as a way to help consumers to avoid foreclosure.

B) lenders or servicers that offer mortgage assistance relief services in connection with loans they own or service. Persons in the mortgage industry that are covered by the MARS Rule include for-profit mortgage assistance relief services providers; mortgage brokers that promote loan origination or refinancing transactions as a way for homeowners to avoid foreclosure(a mortgage broker that does not promote its services in such a manner is generally not covered by the Rule); real estate professionals who promote their services as a way to help consumers to avoid foreclosure (e.g., by helping a homeowner obtain a loan modification); and in certain cases, attorneys. The Rule does not cover lenders or servicers that offer mortgage assistance relief services in connection with loans they own or service (e.g., the Rule would not apply if a loan servicer helps a homeowner avoid foreclosure by modifying a loan it services). The Rule also does not cover mortgage licensees that offer loan origination or refinancing services for purposes other than to assist a consumer in avoiding delinquency or foreclosure.

An escrow account established at closing to pay property taxes and insurance premiums is typically controlled by the A) lender. B) loan servicer. C) borrower. D) seller.

B) loan servicer. A lender may require the borrower to establish an escrow account at closing. The loan servicer establishes or controls this account on behalf of a borrower to pay property taxes, property insurance premiums (including flood insurance), mortgage insurance premiums or other charges with respect to the mortgage loan, to ensure they are paid on time.

Under the MARS rule, a company that offers to negotiate, obtain or arrange a loan modification on behalf of a consumer is a A) mortgage restructuring consultant. B) mortgage assistance relief service provider. C) foreclosure alternative licensee. D) loan modification provider.

B) mortgage assistance relief service provider. A mortgage assistance relief service is defined under the MARS Rule as a "service, plan or program offered or provided to the consumer in exchange for consideration" that provides services in relation to a consumer's mortgage such as negotiating a possible loan modification, modifying the consumer's payment arrangements or negotiating a short sale of a dwelling on behalf of a consumer. More specifically, mortgage assistance relief services include activities to assist, or attempt to assist, a consumer with, among other functions, negotiating, obtaining or arranging a loan modification. A mortgage assistance relief services provider is a person that "provides, offers to provide or arranges for others to provide any mortgage assistance relief service."

Insurance that reduces the lender's risk of loss in the event of foreclosure is A) surety insurance B) mortgage insurance C) fidelity insurance D) title insurance

B) mortgage insurance The purpose of mortgage insurance, whether private, FHA, or the VA guarantee, is to compensate the lender for their loss in the event of a foreclosure. It is required when the borrower has less than a 20% down payment because of the increased risk of foreclosure.

Market value can best be defined as a property's A) listing price. B) most probable selling price. C) most recent selling price. D) appraised value for property tax purposes.

B) most probable selling price. Market value is defined by the Appraisal Institute as the highest price in terms of money that a property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus.

All may be included in a borrower's income analysis EXCEPT A) revealed alimony and child support. B) sporadic overtime and bonuses. C) regular earnings and overtime. D) pensions, interest, and dividends.

B) sporadic overtime and bonuses. If a borrower receives bonus and/or commission income, it is usually separated from the base pay on the pay stubs. To be able to give a borrower credit for bonus or commission income you'll need to obtain a VOE that shows a two-year history of the borrower receiving the bonus or commission as well as its likelihood to continue.

For an FHA 30-year loan with a minimum down payment, the annual MIP A) will be canceled when the loan balance is down to 78% of the purchase price or appraised value at the time of purchase, provided the borrower has paid annual MIP for at least five years. B) must be paid until the loan is paid off. C) will be canceled when the borrower's equity reaches 20% of the purchase price or appraised value at the time of purchase, provided he has paid the annual MIP for at least five years. D) will be canceled when the borrower's equity reaches 22% of the purchase price or appraised value at the time of purchase, regardless of the length of time he has paid the annual MIP.

B) must be paid until the loan is paid off. For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90 percent, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.

Under the Homeowners Protection Act (HPA), a lender or servicer must notify a consumer of his rights regarding PMI insurance at all of the following times EXCEPT A) at loan closing. B) once the loan reaches 80% of the lower of the home's purchase price or the appraised value of the home at the time of purchase. C) upon cancellation or termination of the PMI. D) annually

B) once the loan reaches 80% of the lower of the home's purchase price or the appraised value of the home at the time of purchase. A lender or servicer must notify a consumer of his rights regarding PMI insurance at loan closing; annually; and upon cancellation or termination of the PMI.

The Uniform Residential Loan Application includes a section requesting information for government monitoring. Applicants must complete this section A) in all cases. B) only if they want to. C) if they are applying for a FHA/VA loan or a federally sponsored loan program. D) None of the above

B) only if they want to. This section is completed at their option. If they decide not to answer these questions, they check the "I do not wish to furnish this information" box.

To obtain a VA loan, an applicant would most likely have to A) make a down payment. B) pay a funding fee. C) ensure that the seller of the property makes any necessary repairs. D) apply to the FHA for the loan.

B) pay a funding fee. VA loans are made by approved lenders but are guaranteed by the federal Department of Veterans Affairs. The guarantee is similar to mortgage insurance. However, an upfront funding fee (similar in purpose to an upfront mortgage insurance premium) is generally charged (with some exceptions, including disabled vets), but it may be financed. The primary advantage of a VA loan is that there is no down payment required. The interest rate is not lower than for other loans, the seller is generally not required to make repairs, and finance charges are not significantly lower.

In order for the government to be able to monitor compliance with fair lending laws, loan originators may ask questions about all of the following characteristics of an applicant EXCEPT A) ethnicity. B) physical handicap. C) race. D) sex.

B) physical handicap. As required by HMDA, a credit applicant hoping to obtain credit for the purposes of purchasing or refinancing a principal residence which will secure the loan may be asked information about his marital status, age, ethnicity, race, and sex.

At closing, the buyer realizes that the lender changed the terms of the loan, but since he was facing foreclosure, he felt he had no choice but to go ahead with the refinance or lose the house. This could be an example of A) loan flipping. B) predatory lending. C) affinity marketing. D) negative amortization.

B) predatory lending. Any mortgage loan practice in which the homeowner does not benefit and the lender does benefit should be regarded as predatory lending.

According to the SAFE Act, bait-and-switch advertising is A) permitted, with no further requirements. B) prohibited. C) permitted with full disclosure before closing. D) permitted only if a loan is ultimately found for the borrower.

B) prohibited. It is prohibited for any person, under any circumstances to engage in bait-and-switch advertising when engaging in mortgage loan origination activity.

Under TILA and Regulation Z, the time within a loan's term at which payments that will fully amortize the loan are required is called A) full index term. B) recast. C) amortization cycle. D) recalibration.

B) recast. The correct answer is recast. Recast is the time within a loan's term at which payments that will fully amortize the loan are required. In other words, recast occurs at the end of the period during which payments on an adjustable-rate mortgage are based on a low introductory rate; interest-only payments may be made on an interest-only loan; and negatively amortizing payments may be made on a negative amortization loan.

HMDA reporting requirements apply to loans for all of the following types of dwellings EXCEPT A) cooperative units. B) recreational travel trailers. C) vacation homes. D) condominiums.

B) recreational travel trailers. Under HMDA, a dwelling is any residential structure, whether or not attached to real property. It includes vacation or second homes and rental properties; multi-family as well as one to four-family structures; individual condominium and cooperative units; manufactured homes (housing units built in a factory and taken to the place where they will be occupied) and mobile homes. HMDA excludes recreational vehicles such as travel trailers, boats and campers, and transitory residences such as hotels, hospitals, and college dormitories.

The Equal Credit Opportunity Act protects those who A) apply for admission to an educational institution. B) seek loans from a financial institution. C) seek employment in a company. D) apply for government jobs.

B) seek loans from a financial institution. ECOA applies to any creditor who regularly extends credit, including mortgage bankers, banks, small loan and finance companies, retail and department stores, credit card companies and credit unions, as well as anyone involved in granting credit such as real estate brokers and mortgage brokers who arrange financing.

Of these, who is responsible for the accurate accounting of all monies due to and from the parties in a real estate sale? A) broker B) settlement or escrow agent C) lender D) real estate agent

B) settlement or escrow agent In the case of a real estate sale agreement, the buyer deposits funds into escrow and, if a lender is involved, the lender delivers loan documents to be executed by the buyer (i.e., the borrower). The seller will then execute a deed in favor of the buyer. When all of the terms of the escrow have been met, the buyer receives the deed to the property and the seller receives the amount of funds equal to the purchase price agreed to in the real estate sale agreement

Under HOEPA, a high-cost loan includes any consumer credit transaction that is secured by the borrower's principal dwelling in which the total points and fees payable exceed ________ of the total loan amount for a transaction with a loan amount of $20,000 or more. A) 3% B) 4% C) 5% D) 6%

C) 5% The correct answer is five percent. Under HOEPA, a high-cost loan includes any consumer credit transaction that is secured by the borrower's principal dwelling in which the total points and fees payable exceed, for a transaction with a loan amount of $20,000 or more, five percent of the total loan amount; or, for a transaction with a loan amount of less than $20,000, the lesser of eight percent of the total loan amount or $1,000. Additional thresholds for high-cost loans apply under HOEPA's definition.

A home is appraised at $100,000. The borrower currently has a loan of $50,000, an open-end line of credit with a limit of $25,000 and a current balance of $17,500. What is his LTV? A) 15% B) 25% C) 50% D) 75%

C) 50% The correct answer is 50%. For the LTV, only the first loan amount is considered. If there will be two loans securing the property, the ratio calculation formula remains the same. With two debts securing the property, however, the CLTV equates to the sum of the first and second mortgages' currently-outstanding balances in relation to the subject property's value. When the secondary financing is a HELOC, the first loan balance plus any outstanding draw amount is used to calculate the CLTV.

A first-lien loan secured by the borrower's principal dwelling is a high-cost loan under HOEPA if the APR exceeds the APOR by more than ________ if the dwelling is personal property (e.g., a manufactured home) and the loan amount is less than $50,000. A) 6.5% B) 7.5% C) 8.5% D) 9.5%

C) 8.5% A first-lien loan secured by the borrower's principal dwelling is a high-cost loan under HOEPA if the APR exceeds the APOR by more than 6.5 percent, or more than 8.5 percent if the dwelling is personal property (e.g., a manufactured home) and the loan amount is less than $50,000. Additional thresholds for high-cost loans apply under HOEPA's definition.

What is the loan-to-value if the loan amount is $139,500, the appraised value is $164,117, and the sale price is $155,000? A) 80% B) 85% C) 90% D) 95%

C) 90% The loan-to-value ratio is the loan amount divided by the lesser of the sales price or appraised value. In this instance, the sale price ($155,000) is less than the appraised price ($164,117). $139,500 (loan amount) ÷ $155,000 (sale price) = 0.90, or an LTV of 90%

Which type of mortgage secures more than one property but will release individual properties from the mortgage for partial payment of the debt? A) A wrap around mortgage B) A construction mortgage C) A blanket mortgage D) A package mortgage

C) A blanket mortgage A blanket mortgage encumbers two or more parcels of real estate and includes a partial release clause that permits the release of a certain parcel upon the payment of a specified amount of the loan.

A loan originator not working for a federally insured institution must obtain: A) License issued by HUD B) A national license issued through the Conference of State Bank System C) A licensed issued by the state of jurisdiction D) A national license issued through the NMLS

C) A licensed issued by the state of jurisdiction An individual who works for a federally-insured depository institution must be registered with the NMLS. All other loan originators must be licensed with the state(s) in which they do business. This means that a licensed mortgage loan originator in Texas cannot originate loans in Arizona without satisfying the requirements for licensure in the state of Arizona.

The promise to repay a monetary obligation is contained in which of the following? A) A loan application B) A Loan Estimate C) A note D) A mortgage

C) A note The correct answer is a note. A note is a written document in which a borrower promises to repay a debt, either on demand or at a certain time. A mortgage is given with a note to the lender to make the borrower's property security for the note.

What is used to verify how much of a loan has been paid off up to a certain date? A) A chattel certificate B) An estoppel certificate C) A reduction certificate D) A hard money certificate

C) A reduction certificate A reduction certificate is a statement from a lender certifying the payoff amount of a loan as of a certain date.

What kind of loan is intended to provide elderly home owners with a monthly income, where the home is sold after the death of the home owners? A) A budget mortgage B) A bridge loan C) A reverse equity mortgage D) A rollover mortgage

C) A reverse equity mortgage The reverse mortgage (or reverse equity mortgage) provides elderly homeowners with a monthly income by borrowing against a home's equity.

Under the MARS Rule, when may a mortgage assistance relief services company collect a fee from a borrower? A) Once it proposes an arrangement to the consumer's lender or servicer B) After it has provided a consumer with a written offer from the consumer's lender C) After it has provided a consumer with a written offer from the consumer's lender or servicer and the consumer has accepted the offer D) Once it undertakes to contract a lender on the consumer's behalf

C) After it has provided a consumer with a written offer from the consumer's lender or servicer and the consumer has accepted the offer The most significant consumer protection included in the MARS Rule is the ban on the collection of advance fees. It is prohibited for a mortgage assistance relief services company to collect a fee until after it has provided a consumer with a written offer from the consumer's lender or servicer and the consumer has accepted the offer.

Which is NOT a requirement of the Safeguards Rule of the Gramm-Leach-Bliley Act? A) Protect against any anticipated threats or hazards to the security of consumer records B) Protect against the unauthorized access or use of consumer information in ways that could result in substantial harm or inconvenience to customers C) Allow consumers to add their phone numbers to a list that prohibits unauthorized calls D) Ensure the security and confidentiality of customer records

C) Allow consumers to add their phone numbers to a list that prohibits unauthorized calls The purpose of the Safeguards Rule is to require financial institutions protect their clients NPI by developing and executing policies and procedures designed to manage and secure private data.

Which clause would allow a lender to charge interest based on the fluctuations of the treasury bill rate? A) An exculpatory clause B) An escalator clause C) An index clause D) A future advance clause

C) An index clause An index clause permits the lender to change the interest rate charged at predetermined time intervals based upon the fluctuations in the listed index.

Annual interest on a loan can be calculated by multiplying the loan amount by A) 365 or 360. B) Prepaid Interest. C) Annual Percent Interest. D) Daily Interest.

C) Annual Percent Interest. Annual Interest = Loan Amount x Annual Percent Interest

Which type of note is amortized and requires one or more lump sums during its amortization period? A) Note with call feature B) Amortized note C) Balloon payment note D) Straight note

C) Balloon payment note Most balloon notes are amortized notes that require a lump sum payment toward the principal prior to the note being fully amortize.

Andy is a real estate broker. He rents office space from Better Brokers, Inc. a mortgage broker and receives a $50 discount on rent for every borrower referred to Better Brokers. Who is guilty of a RESPA violation? A) Better Brokers only B) Andy only C) Both Andy and Better Brokers D) Neither Andy nor Better Brokers

C) Both Andy and Better Brokers Both Andy and Better Brokers are in violation of RESPA's prohibition against payment or receipt of a thing of value for referrals.

Clear Lake Lending refers all their borrowers to attorney Renee Turner when they need to perform a title search. In return, Turner gives Clear Lake a significant discount on legal services whenever they get in legal hot water. Who is guilty of violating RESPA in this scenario? A) Clear Lake only B) Turner only C) Both Turner and Clear Lake D) Neither Turner nor Clear Lake

C) Both Turner and Clear Lake Both Turner and Clear Lake are in violation of RESPA's prohibition against payment or receipt of a thing of value for referrals.

What document does the VA use to determine the amount of a veteran's entitlement? A) CRV B) DD-214 C) COE D) URUR

C) COE Veterans and active-duty service members must first obtain a Certificate of Eligibility (COE) from Veterans Affairs. The COE is a formal document that certifies that the borrower has a VA entitlement and is eligible to participate in the program.

A person wanting a loan to build a house would apply for what type of loan? A) Adjustable B) Take out C) Construction D) Reverse mortgage

C) Construction The correct answer is construction. The interim loan that is used for financing construction is a construction loan. The loan obtained to pay off the construction loan is the take out loan. The take out loan does not finance the construction.

The CFPB initials stand for? A) Consumer Protection Finance Bureau B) Consumer Financial Political Bureau C) Consumer Financial Protection Bureau D) Consumer Protection Financial Bureau

C) Consumer Financial Protection Bureau The CFPB stands for the Consumer Financial Protection Bureau.

Payment of which of the following would reduce a borrower's interest rate? A) Mortgage broker fee B) Yield spread premium C) Discount points D) Loan origination fee

C) Discount points Discount points are charged to a borrower for a loan at an interest rate below par. A loan origination fee is paid for processing the loan; its payment does not affect the interest rate.

Which of the following regulations ensures that financial institutions and other firms engaged in granting credit exercise their responsibility to make credit available without discrimination based on the basis of sex or marital status? A) HMDA B) FACTA C) ECOA D) RESPA

C) ECOA The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to make it unlawful for creditors to discriminate based on sex or marital status.

The reporting of a consumer's credit history is regulated and protected by which regulation? A) RESPA B) TILA C) FCRA D) ECOA

C) FCRA FCRA stands for the Fair Credit Reporting Act, and regulates the reporting of a consumer's credit. The FCRA requires credit reporting agencies to maintain accurate reports and to limit access to credit information.

Which loan has annual monthly payment increases annually for a specified number of years before converting to a fixed-rate loan? A) Open-end B) Growing equity C) Graduated payment D) Reverse equity

C) Graduated payment A graduated payment loan allows the borrower to make small payments the first year of the loan and then increase annually for a set number of years before becoming fixed for the balance of the loan term.

What kind of loans does the Government National Mortgage Association primarily act as a secondary market for? A) Reverse mortgages B) Mortgage loans C) High risk loans D) Subsidized loans

C) High risk loans Ginnie Mae acts as a secondary market for loans that carry a greater risk for the lender.

A homeowner has a home worth $220,000. He has an outstanding loan of $165,000, and a HELOC with a limit of $30,000, on which he has drawn $12,000. Which of the following is NOT true? A) His CLTV is 80.5% B) His LTV is 75% C) His TLTV is 94% D) His TLTV must be higher than the CLTV and LTV.

C) His TLTV is 94% The LTV is the closed-end loan divided by the value. The CLTV is the sum of the closed-end loan and the draw divided by the value. The TLTV (total loan-to-value ratio) is the sum of the HELOC limit and the closed-end loan ($195,000) divided by the value and has to be higher than the other ratios.

Which of the following is the best way to determine defects in a home? A) Title search B) Loan documents C) Home inspection D) Professional appraisal

C) Home inspection The purpose of an appraisal is to provide an estimate of value. The purpose of an inspection is to report on structural defects.

In assessing a consumer's ability to repay under TILA's Ability to Repay (ATR) Rule, a creditor must consider all of the following factors in regard to a consumer, EXCEPT A) reasonably expected income or assets, other than the value of the property securing the loan. B) current debt obligations, including alimony and child support. C) age and marital status. D) credit history.

C) age and marital status. Factors in assessing a consumer's ability to repay under TILA's Ability to Repay (ATR) Rule include current or reasonably expected income or assets other than the value of the property securing the loan; current debt obligations, including alimony and child support; and credit history; but NOT age and marital status.

The SAFE Act definition of a mortgage loan originator includes A) a loan processor performing clerical tasks on behalf of a loan originator. B) an individual involved solely in extensions of credit relating to timeshare plans. C) an individual who negotiates the terms of mortgage loans on behalf of borrowers. D) an organization which takes residential mortgage loan applications.

C) an individual who negotiates the terms of mortgage loans on behalf of borrowers. Under the SAFE Act, the term mortgage loan originator means an individual (NOT a business entity or organization) who, for compensation or gain, takes a residential mortgage loan application; and offers or negotiates terms of a residential mortgage loan. The term does not include an individual engaged solely as a loan processor or underwriter or any individual who performs purely administrative or clerical tasks on behalf of a person who is licensed as a loan originator; or a person or entity solely involved in extensions of credit relating to timeshare plans.

Under the SAFE Act, specific interest rates, points or other financing A) terms used in a licensee's ad or solicitation must be competitive. B) available for at least 90 days from the date of ad publication. C) available at the time of ad publication D) expressed as percentages.

C) available at the time of ad publication It is prohibited for any person, when engaging in mortgage loan origination activity to solicit, advertise or enter into a contract for specific interest rates, points or other financing terms unless the terms are actually available at the time of soliciting, advertising or contracting.

The lender usually does not allow the source of a borrower's down payment to be A) savings. B) proceeds from the sale of a house. C) borrowed funds. D) a gift from a relative.

C) borrowed funds. When a lender loans money to a borrower to finance real estate, the lender needs written evidence that the borrower borrowed the money, along with the borrower's written promise to pay back the money

The combined loan-to-value ratio can be found by A) dividing the total of all loans by the total down payment. B) multiplying the total of all loans by the property value. C) dividing the total of all loans by the property value. D) dividing the property value by the total of all loans.

C) dividing the total of all loans by the property value. The combined loan-to-value ratio can be found by dividing the total of all loans by the property value. For example, if the property is worth $120,000, and the borrower got an 80% first loan and a $18,000 second loan, his loan-to-value ratio would be ($96,000 + $18,000 ) / $120,000 = 95%.

In the course of an examination, the state licensing agency is permitted to take any of the following actions EXCEPT A) subpoena witnesses. B) administer oaths and affirmations. C) enforce house arrest on a licensee. D) control access to documents, records, and other materials of a person under examination.

C) enforce house arrest on a licensee. State agencies are authorized, in the course of an examination or investigation, to: administer oaths or affirmations; subpoena witnesses, require the production of relevant documents and control access to those documents and records of any person under investigation. However, the state licensing agency is not authorized to enforce house arrest to prevent obstruction of the investigation or examination.

ECOA allows a creditor to deny a loan to an applicant for any of the following reasons EXCEPT A) a credit report indicating defaulted payments to several other creditors. B) failure to respond to a notification of incomplete application. C) failure to meet minimum requirements based on the creditor's standards. D) income below a specified required minimum.

C) failure to meet minimum requirements based on the creditor's standards. The reason for the rejection must be specific. A statement of failure to meet requirements is not.

Ethics A) is more obvious and clear-cut than legal regulations. B) follows the letter of the law, and nothing more. C) goes beyond minimum legal expectations. D) is not relevant to the mortgage lending industry.

C) goes beyond minimum legal expectations. Ethics extends beyond what is required by legal regulations, so ethics go beyond minimum legal expectations. Ethics are extremely relevant to the mortgage lending industry, concerning what should be done, rather than just what the law will let you get away with. Consequently, ethics are not always as obvious and clear-cut as legal regulations.

A woman may be denied credit on the basis of any of the following EXCEPT A) she has a number of gaps in employment over the past two years. B) she has a hearing loss and has a number of late payments of as much as 90 days in her credit report. C) her current pregnancy is an indication that she may stop working once the baby is born. D) she lacks sufficient funds for the necessary down payment.

C) her current pregnancy is an indication that she may stop working once the baby is born. The fact that the applicant is a woman or disabled does not prevent a creditor from denying a loan application on the basis of lack of funds, lack of steady employment or poor credit history. ECOA does prohibit creditors from discriminating against a woman based on her child-bearing intentions or assuming that a woman will stop working because she is having children.

A purpose of the Home Mortgage Disclosure Act (HMDA) is to A) help lenders decide on mortgage interest rates. B) provide borrowers with property listings and their prices. C) identify possible discriminatory lending patterns. D) ensure that prices of homes are fairly quoted.

C) identify possible discriminatory lending patterns. The main purpose of the HMDA is to provide the public with information about how well institutions are meeting the credit needs of the people in the neighborhood and communities they serve, aid public officials in targeting public investments so as to attract investments from the private sector, allow for the public to determine possible discriminatory lending patterns (such as redlining areas in which they will not offer loans or loans with favorable terms) and to assist in enforcing anti-discriminatory statutes.

A predatory loan may have many features of a subprime loan, but will also involve one or more of the following features EXCEPT: A) Fraud has been used to repeatedly refinance a mortgage in order to charge high points and fees B) The loan is based on the foreclosure value, rather than on the ability to repay the loan C) loan includes a prepayment penalty and late fees that may be excessive compared to similar products D) the borrower has been prompted to repeatedly refinance a loan, allowing the lender to repeatedly collect high points and fees.

C) loan includes a prepayment penalty and late fees that may be excessive compared to similar products Institutions engaging in predatory lending risk being charged with a violation of Section 5 of the FTC Act. A predatory loan may have many features of a subprime loan, but must also involve at least one of a number of elements. These elements include basing the loan predominantly on the foreclosure value of collateral rather than ability to repay; inducing a borrower to repeatedly refinance a loan to charge high points and fee (this practice is known as "loan flipping"); or deceiving the borrower to conceal the nature of the loan or products.

State departments or agencies granted the authority to adopt and implement the SAFE Act A) are typically state educational departments. B) are given unlimited authority in regard to mortgage legislation. C) may be a division within a larger umbrella agency. D) are always headed by a Commissioner.

C) may be a division within a larger umbrella agency. The authority to adopt and implement the standards of the SAFE Act is delegated to state regulatory agencies by state law. The agencies that receive this authority are usually state banking departments or offices of state financial institutions. The state departments/agencies governing mortgage activities use different titles that vary from state to state. These departments/agencies may also be a division within a larger umbrella agency and may be headed by a Commissioner, Director or Superintendent. There are limitations to the authority that legislators delegate to regulatory agencies, and these limitations are defined by the law. Regulators are not allowed to exceed the authority that is delegated to them through legislation. For example, a state regulator may not require an applicant for a loan originator license to prove that he has a degree from a four-year accredited college unless the state law establishes higher education as a standard that licensees must meet.

A residential mortgage loan, as defined by the SAFE Act A) cannot be a loan secured by a condominium unit. B) must be primarily for personal, family, or commercial use. C) may be secured by residential real estate on which a dwelling is to be constructed. D) cannot be secured by a deed of trust.

C) may be secured by residential real estate on which a dwelling is to be constructed. The SAFE Act defines a mortgage loan as any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling. A dwelling is a residential structure that contains one to four units, whether or not that structure is attached to real property. The term "dwelling" includes an individual condominium unit, cooperative unit, mobile home and trailer, if it is used as a residence.

Due to the principal-agent problem, compared to borrowers who obtained loans through retail sources, borrowers of loans originated by brokers are A) less likely to default. B) more likely to be charged a lower interest rate. C) more likely to prepay faster. D) less likely to face foreclosure.

C) more likely to prepay faster. The relative lack of consequences for a lender's agent subjects the mortgage delivery system to what economists and political scientists call the principal-agent problem. Evidence of this problem has been produced in studies showing that borrowers of loans originated by brokers are more likely to prepay faster and to default than similar borrowers who obtained loans through retail sources; and are charged a higher interest rate in order to compensate the lenders for the higher risk of default and prepayment created by the principal-agent problem.

A base point is A) 1% of interest. B) the same as a discount point. C) one-hundredth of 1%. D) 1% of the loan amount.

C) one-hundredth of 1%. The amount of change in interest rates is often expressed in terms of base points. A base point is equal to one-hundredth of 1%. Therefore, a reduction in mortgage interest rates of .25% (which is 25/100 of 1 percent) is a reduction of 25 base points.

When an FHA borrower sells the home he purchased five years ago, his loan can be assumed A) only if the lender decided not to include a due-on-sale clause in the mortgage. B) only if the original borrower agrees to remain liable for the loan if the buyer defaults. C) only if the buyer will occupy the property. D) without regard to the qualifications of the buyer.

C) only if the buyer will occupy the property. All FHA loans are assumable, subject to the person assuming the loan qualifying. However, a loan insured after 1989 can be assumed only by an owner-occupant.

A home equity line of credit (HELOC) is a form of A) closed-end financing. B) high-priced loan C) open-end financing. D) subprime financing.

C) open-end financing. Open-end financing is financing that allows the borrower to borrow, repay and reborrow, up to a credit limit, on demand (similar to credit card financing). A HELOC is a form of revolving credit in which the borrower's home serves as collateral. The credit limit is established based on a percentage of the home's appraised value less the balance owed on any existing mortgage.

Charging a borrower broker fees when the borrower never met or knew of the broker, charging borrowers for a detailed appraisal when only a drive-by appraisal was done, and itemizing charges that are duplicative or should be included under other charges are all aspects of a predatory lending practice called A) flipping. B) packing. C) padding. D) steering.

C) padding. Padding costs includes many deceptive practices, including charging a borrower broker fees when the borrower never met or knew of the broker, charging borrowers for a detailed appraisal when only a drive-by appraisal was done, and itemizing charges that are duplicative or should be included under other charges.

In order to discover whether there are any liens or mortgages on a property, one would order a A) mortgage. B) survey. C) title search. D) loan commitment.

C) title search. When a title insurance company receives a request for title insurance, a title examiner will perform a title search (in the title plant and the recorder's office) in order to determine the condition of the title to the real property. He will trace the conveyances and encumbrances relating to the real property in order to discover any flaws in the recorded title to that property, including encumbrances, liens (such as mortgages), judgments, title defects and other matters affecting title to the land, or the ability of the seller to convey a marketable title.

The maximum amount the charge for a category of settlement costs may exceed the estimated amount is the A) index. B) margin. C) tolerance. D) allowance.

C) tolerance. Tolerance is the maximum amount by which the charge for a category of settlement costs may exceed the estimated amount for that category on a GFE.

Section IV of Form 1003 records the details of the applicant's employment over the past A) three years. B) five years. C) two years. D) 10 years.

C) two years. Section IV of Form 1003 records the details of the applicant's employment over the past two years, showing names and addresses of employers, phone numbers, titles or types of businesses, and the length of time employed at the jobs and in the same line of work. If the applicant has been in his current position for less than two years or is working in more than one job, he also must show the amount of income from each job.

A lender extending mortgage credit subject to HOEPA may not, within one year of making a high-cost loan, refinance the same borrower into another such loan A) unless it refers the borrower to an affiliate lender. B) with no exceptions. C) unless the refinancing is in the borrower's interest. D) unless the transaction was wholly initiated by the buyer.

C) unless the refinancing is in the borrower's interest. A lender extending mortgage credit subject to HOEPA may not, within one year of making a high-cost loan, refinance the same borrower into another such loan unless the refinancing is in the borrower's interest.

What is the key difference between the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association? A) Freddie Mac sells modified mortgage-backed securities B) Freddie Mac guarantees payments on high risk loans C) Freddie Mac is authorized to purchase VA loans D) Freddie Mac primarily deals with savings and loan institutions

D) Freddie Mac primarily deals with savings and loan institutions Fannie Mae buys FHA, federal VA, and conventional loans, and is the United States' largest single private mortgage purchaser. Freddie Mac buys FHA, federal VA, and conventional loans from a variety of primary lenders. However, the vast majority of loans purchased by Freddie Mac originate out of savings and loan institutions.

Which of the following is associated with a federal VA loan? A) PMI B) Risk-based pricing C) MIP D) Funding fee

D) Funding fee For a VA loan, the applicant is charged an upfront funding fee, which may be financed. This pays for a guarantee that ensures the lender against loss in the event the borrower defaults. PMI (private mortgage insurance) serves the same purpose as the VA guarantee, but is used in conventional financing. MIP (mortgage insurance premium) refers to the charge to a borrower obtaining an FHA loan for the insurance to protect the lender against default. Risk-based pricing is the concept of charging the borrower a higher interest rate that should cover a lender's losses on high-risk loans, so as to avoid the need for mortgage insurance (i.e., self-insurance). It was used for subprime loans.

Which of the following charges have a 10% tolerance? A) Settlement services selected by a borrower who shopped for his own service provider B) Daily interest charges C) Origination fees D) Government recording charges

D) Government recording charges Government recording charges have a 10% tolerance. The origination fee has a zero tolerance. Charges with no tolerance restriction include settlement services selected by a borrower who shopped for his own service provider, homeowners insurance and daily interest charges.

Which type of mortgage loan provides for scheduled payments that increase over a set period of time so as to fully amortize the loan by its maturity? A) Reverse mortgage B) Hybrid ARM C) Payment-option ARM D) Graduated payment mortgage

D) Graduated payment mortgage A graduated payment mortgage has a payment schedule that provides for increasing payments during an initial period, then level payments for the remainder of the loan term. Reverse mortgages provide for no scheduled payments.

A loan that results in negative amortization is illegal under what law? A) RESPA B) HMDA C) FACTA D) HOEPA

D) HOEPA Negative amortization is prohibited under HOEPA and Regulation Z.

Which federal law requires a lender to verify that the customer is able to repay their loan before approving their high-cost loan application? A) Homeowners Protection Act B) Community Reinvestment Act C) Home Mortgage Disclosure Act D) Home Ownership and Equity Protection Act

D) Home Ownership and Equity Protection Act HOEPA requires that a consumer obtaining a high-cost mortgage must meet the ability-to-repay requirements prior to loan consummation.

A seven-year ARM has interest rate caps of 4/2/5. Which of the following is true? A) Over the course of three years, the interest rate on the loan may rise by 6%. B) The interest rate can never be higher than 4% above the start rate. C) The rate will go up by 4% when it first adjusts in the loan's first year. D) If changes are annual, the interest rate cannot increase by more than 2% in any year.

D) If changes are annual, the interest rate cannot increase by more than 2% in any year. The initial cap is 4%. When the first change takes effect at the start of the eighth year of the loan, it cannot result in a rate higher than 4% above the start rate. However, an initial cap of 4% does not mean the rate will necessarily go up by 4% when it adjusts, only that it can adjust by as much as 4%. The periodic cap is 2% (and applies to any change during the remainder of the loan term). If the changes are annual, the rate cannot increase by more than 2% in any year. The lifetime cap is 5%. Therefore, the interest rate can never be higher than 5% above the start rate.

Under the MARS Rule, which of the following disclosures does NOT need to be provided by mortgage assistance relief services company to a consumer? A) If the consumer stops making payments on his mortgage, he could lose his home and damage his credit as a result. B) The lender may not agree to any modification to the consumer's loan. C) The company is in no way affiliated with the government and does not have any sort of special approval from the government or the consumer's lender. D) If the consumer chooses to reject an offer obtained by the provider from the lender or servicer, he must still pay the provider's fee.

D) If the consumer chooses to reject an offer obtained by the provider from the lender or servicer, he must still pay the provider's fee. A provider must disclose that it is in no way affiliated with the government and that it does not have any sort of special approval from the government or the consumer's lender; that the lender may not agree to any modification to the consumer's loan; that, if the consumer stops making payments on his mortgage, he could lose his home and damage his credit as a result; and that the consumer may stop doing business with the provider at any time, may accept or reject any offer obtained by the provider from the lender or servicer, and if he chooses to reject the offer, is not obligated to pay the provider's fee.

The Gramm-Leach-Bliley Act (GLBA) requires that consumers be given what period of time to opt out of allowing the sharing of their nonpublic personal information? A) 90 days B) 30 days C) Seven days D) No specified time, but a reasonable opportunity.

D) No specified time, but a reasonable opportunity. GLBA requires that the consumer be given reasonable means and a reasonable opportunity to opt out, but does not impose a specific period of time.

May a creditor finance credit insurance premiums in connection with a mortgage loan transaction? A) Yes, with no further requirements. B) Only if the borrower has received financial counseling. C) Only if the borrower signs a waiver consenting to this practice. D) No, this is prohibited by TILA.

D) No, this is prohibited by TILA. A creditor may not finance any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling (including home equity lines of credit [HELOCs]). However, this prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis.

A lender or any other person is prohibited by Regulation Z from basing a loan originator's compensation on what basis? A) The number of loans made to new customers vs. returning customers or established borrowers B) The originator's percentage of mortgage loan applications that successfully make it past closing C) The monetary amount of credit financed by a mortgage transaction D) None of the above

D) None of the above The correct answer is none of the above. All of the criteria listed above are acceptable and legal basis for loan originator compensation. Regulation Z protects customers from unfair practices by prohibiting compensation based on specific terms and conditions of a mortgage transaction, such as interest rate, prepayment penalties, originating a defined number of loans at a higher-than-average rate, and type of collateral.

Regulation P implementing the Gramm-Leach-Bliley Act applies to what type of information collected by a financial institution? A) Nonpublic personal or business information B) Public personal information C) Business information D) Nonpublic personal information about consumers

D) Nonpublic personal information about consumers The privacy rule requires that a privacy notice be a clear, conspicuous, and accurate statement of the company's privacy practices, including what information the company collects about its consumers and customers, with whom it shares the information, and how it protects or safeguards the information. The notice applies to the nonpublic personal information (NPI) the company gathers and discloses about its consumers and customers. NPI is any personally identifiable financial information that a financial institution collects about an individual in connection with providing a financial product or service.

The name for this loan tells us that the lender reduced the loan interest rate in exchange for part of the sale proceeds when the property is sold: A) Reverse equity mortgage B) Purchase money mortgage C) Future investment loan D) Participation mortgage

D) Participation mortgage

Charging fees for which of the following services is prohibited by RESPA? A) An appraisal B) Credit report C) Loan origination D) Preparation of the escrow account statements

D) Preparation of the escrow account statements Companies can charge fees for the credit report, appraisal, or loan origination. However, Regulation X prohibits charging a fee for preparing and distributing the escrow account statements or statements required by TILA.

Which of the following actions would be considered unethical in regards to loan documentation? A) Providing the employment history of the applicant B) Providing the social security number of an applicant C) Providing the current occupancy of the property D) Providing the identity of a prior customer to obtain a loan for a customer otherwise unable to qualify on their own

D) Providing the identity of a prior customer to obtain a loan for a customer otherwise unable to qualify on their own The mortgage broker is permitted to provide all necessary information to qualify an applicant, but providing the identity of a prior customer to qualify a customer who otherwise would not be able to qualify is an example of loan documentation fraud, and is both unethical and illegal.

Which law requires a loan originator to provide a special information booklet to a borrower? A) Consumer Protection Act B) Truth in Lending Act C) Uniform Settlement Statement D) Real Estate Settlement Procedures Act

D) Real Estate Settlement Procedures Act RESPA requires that a lender or mortgage broker provide the borrower with a special information booklet prepared by HUD within three business days of receiving a mortgage loan application.

In the sales comparison appraisal approach, the appraiser uses which of the following as comparable sales? A) Statewide trends B) National sales C) Recent listings D) Recent sales in the area

D) Recent sales in the area The sales comparison approach is based on the comparison of the subject property to similar properties in the area that were sold recently.

Which is NOT a part of the Gramm-Leach-Bliley Act? A) Pretexting Provisions B) Financial Privacy Rule C) Safeguards Rule D) Red Flags Rules

D) Red Flags Rules The three components of the Gramm-Leach-Bliley Act are: Financial Privacy Rule, Safeguards Rule, and Pretexting Protection

Which statement is correct? A) Regulation Z implements the Real Estate Settlement Procedures Act. B) Regulation X implements the Truth in Lending Act. C) Regulation V implements the Home Mortgage Disclosure Act. D) Regulation B implements the Equal Credit Opportunity Act.

D) Regulation B implements the Equal Credit Opportunity Act. Regulation B was issued by the Board of Governors of the Federal Reserve System to implement the provisions of the Equal Credit Opportunity Act.

Home Mortgage Disclosure Act is also known as A) Regulation X B) Regulation Z C) Regulation V D) Regulation C

D) Regulation C Regulation C: Home Mortgage Disclosure Act (HMDA)

When a borrower pays their mortgage in full, what is the name of the document the lender should record? A) Certificate of repayment B) Satisfaction of note C) Certificate of redemption D) Satisfaction of mortgage

D) Satisfaction of mortgage When the note is paid in full, the mortgagee will execute a satisfaction of mortgage.

Where do mortgage bankers typically get their funds for lending? A) FSLIC B) Depositors C) Commercial banks D) Stock and bondholders

D) Stock and bondholders Large mortgage bankers use their own money as the source of funds for the real estate loans they make. These funds are typically derived from dollars invested in the company by stock and bondholders.

When secondary financing for a mortgage loan is a HELOC, the loan balance plus the total line limit is used to calculate the A) CLTV. B) down payment. C) LTV. D) TLTV.

D) TLTV. When secondary financing is a HELOC, the loan balance plus any draw amount is used to calculate the TLTV. The loan balance plus the total line limit is used to calculate the TLTV.

What is money laundering? A) The process of converting multiple cash deposits into wire transfers for multiple accounts. B) The process of taking legally obtained funds and using them for illegal purposes. C) The process of taking old, mutilated money and recycling it into new currency. D) The practice of cleaning "dirty" money using financial transactions to make the money look like it came from legal sources.

D) The practice of cleaning "dirty" money using financial transactions to make the money look like it came from legal sources. Money laundering is the practice of filtering illegal gains, or "dirty" money, through a series of financial transactions in an effort to "clean" the funds so that they appear to be proceeds from legal activities.

An escrow account A) is set up to assure the borrower's loan payments are made promptly. B) protects the borrower in the event he is unable to make his tax payments. C) does not necessitate sending out any statements to the borrower. D) ensures timely payment of taxes and other charges related to the property.

D) ensures timely payment of taxes and other charges related to the property. A lender may require that a borrower pay his taxes and insurance premiums in installments with the loan payments to the lender. The funds are held in an escrow account until released for payment to the tax authorities and insurance company. This ensures that payments related to the property are paid on time. At settlement or within the next 45 days, the borrower must be given an initial escrow account statement showing all payments to be deposited and all disbursements to be made from the escrow account during the following year. After closing, the loan servicer must deliver an annual escrow statement summarizing all escrow account deposits and payments during the servicer's 12-month computation year, and notifying the borrower of any shortages or surpluses in the account and the course of action being taken.

The SAFE Act A) prohibits kickbacks in a federally-related mortgage loan transaction. B) prevents abuses in consumer credit cost disclosures. C) allows financial institutions to obtain, verify, and record information that identifies each person who opens an account. D) establishes minimum standards for licensing and registering mortgage loan originators.

D) establishes minimum standards for licensing and registering mortgage loan originators. The objectives of the SAFE Act are to provide for a single national source for registration and licensing and registration of residential mortgage originators as well as to establish minimum standards to be met and maintained for annual license renewal.

In order for a loan originator license to be approved, the applicant must not have been convicted of a felony involving fraud A) in the last seven years. B) in the last ten years. C) in the last five years. D) ever.

D) ever. The applicant must show that he has not been convicted of, or pled guilty or nolo contendere to, a felony in any court during the seven-year period preceding the date of the application. However, if the felony involved an act of fraud, dishonesty or a breach of trust or money laundering, the application will not be approved.

Nicki needs money to expand her restaurant as well as pay for an addition on her home. Nicki submits a loan request for $98,000 using her mortgage-free home as collateral. She is planning to spend $57,000 on two industrial ovens and cooling units, and the remainder on her home addition. This loan will be A) exempt from RESPA because the loan is partially a home improvement loan, which is not covered by RESPA. B) covered by RESPA because the loan is to an individual and is secured by a property with a dwelling. C) covered by RESPA, as the collateral is a mortgage on a dwelling and at least 25% of the loan will be used for a personal purpose. D) exempt from RESPA because it is a business loan.

D) exempt from RESPA because it is a business loan. Since more than 50% of the proceeds will be used for business purposes, this would be considered a business loan. Loans that will be primarily for business, commercial, or agricultural purposes are not covered by RESPA. In determining whether credit to finance an acquisition - such as new equipment for Nicki's restaurant - is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered: The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose. The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose. The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose. The size of the transaction. The larger the transaction, the more likely it is to be business purpose. The borrower's statement of purpose for the loan. Official interpretation of 3(a) Business, Commercial, Agricultural, or Organizational Credit

The required prelicensing education hours for mortgage loan originators include three hours on A) recordkeeping. B) nontraditional mortgage loan products. C) state law. D) federal law.

D) federal law. The 20 hours of education must include three hours of federal law and regulations; three hours of ethics, including instruction on fraud, consumer protection and fair lending issues; and two hours of training related to lending standards of the nontraditional mortgage product marketplace (i.e., any mortgage product other than a 30-year fixed-rate mortgage.

According to TILA's ATR Rule, in making a Qualified Mortgage (QM), required underwriting standards include calculation of monthly payments using the maximum interest rate that may apply during the loan's first ____ years. A) two B) three C) four D) five

D) five The correct answer is five. According to TILA's ATR Rule, in making a Qualified Mortgage (QM), required underwriting standards include calculation of monthly payments using the maximum interest rate that may apply during the loan's first five years.

A VA borrower who has obtained a VA loan once can A) never obtain another VA loan. B) assume a VA loan, but not obtain a new one. C) have full eligibility restored to obtain a new VA loan if his prior loan is still outstanding and has been assumed by a financially qualified buyer. D) have full eligibility restored to obtain a new VA loan if he has repaid the prior loan and sold the property securing that loan.

D) have full eligibility restored to obtain a new VA loan if he has repaid the prior loan and sold the property securing that loan. An applicant who has used all or part of his entitlement for a VA loan can get it back to purchase another home if: the prior property has been sold and the VA loan has been paid in full; or a qualified veteran buyer has agreed to assume the outstanding balance on the VA loan and substitute his entitlement for the same amount of entitlement the applicant originally used to get the loan; or one time only, the applicant has repaid the prior VA loan in full, but has not disposed of the property securing that loan. An applicant will also have remaining entitlement (but not restored entitlement) if his existing VA loan has not been paid off and has been assumed by a qualified buyer.

The Truth in Lending Act applies to A) business loans. B) agricultural loans. C) commercial loans. D) home loans.

D) home loans. TILA applies only to loans for personal, family and household use. It does not apply to business, commercial or agricultural loans.

The penal sum of a loan originator's required surety bond must be maintained A) in a flat-rate amount determined by each state. B) in an amount that reflects the originator's years of professional experience. C) in an amount that reflects the number of loans originated. D) in an amount that reflects the dollar amount of loans originated.

D) in an amount that reflects the dollar amount of loans originated. Each mortgage loan originator must be covered by a surety bond. If he is an employee or exclusive agent of a person subject to the state's SAFE Act, the surety bond of his employing licensee may be used to satisfy the loan originator surety bond requirement. The penal sum of the surety bond must be maintained in an amount that reflects the dollar amount of loans originated.

Analysis of a borrower's qualifications is performed for a self-employed person when the applicant A) is paid 20% of the company's profits. B) is a key employee. C) is paid significant bonus money. D) is a 25% owner of the business.

D) is a 25% owner of the business. Secondary market guidelines require review of a borrower's tax returns as a self-employed person when he owns at least 25% of the business.

When an interest rate floats, it A) cannot go down or up. B) cannot go up but can go down. C) cannot go down but can go up. D) is not guaranteed until it is locked.

D) is not guaranteed until it is locked. When a rate floats, it is not guaranteed until it is locked. If the rate is not locked, it floats, up or down.

The stage in a mortgage application in which a loan package is prepared for underwriting is called A) loan servicing. B) prescreening. C) prequalification. D) loan processing.

D) loan processing. Once the application is completed, it is processed. Loan processing is the preparation of the loan package (i.e., the application and supporting documents) for underwriting. It includes the collection and verification of detailed information on the borrower and on the real estate transaction itself to help determine the borrower's ability and desire to repay the loan.

Under the SAFE Act, licensed loan originator responsibilities in regard to record keeping include all of the following EXCEPT A) not knowingly withholding, removing or destroying any books or records. B) making records and books available to the state regulator. C) permitting interviews of principals, loan originators and independent contractors by state regulators. D) making all of the licensee's records available to borrowers upon demand.

D) making all of the licensee's records available to borrowers upon demand. Licensed loan originators and those required to be licensed must make records and books available to their state regulator and permit interviews of officers, principals, loan originators, employees, independent contractors, agents and customers; and may not knowingly withhold, abstract, remove, mutilate, destroy or secrete any books, records, computer records or other information during an investigation or examination. They are NOT required to make all of the licensee's records available to borrowers upon demand.

The MARS Rule protects consumers from harmful practices in regards to A) adjustable rate mortgage loans. B) prepayment penalties. C) payment shock. D) mortgage relief services.

D) mortgage relief services. The Mortgage Assistance Relief Services Rule (MARS Rule) was issued to protect consumers from mortgage relief scams. The rule established specific requirements and prohibitions in order to regulate the industry.

Under the ATR/QM rule, a creditor who offers a covered transaction that includes a prepayment penalty A) must obtain a signed waiver of consent from the borrower. B) is in violation of the law. C) cannot charge any late fees for the transaction. D) must offer the borrower a similar loan without a prepayment penalty.

D) must offer the borrower a similar loan without a prepayment penalty. Covered transactions may have prepayment penalties only under certain conditions. If a creditor offers a consumer a covered transaction that includes a prepayment penalty, it must also offer a loan product that does not have a prepayment penalty; has an annual percentage rate that may not increase after consummation; and has the same type of interest rate (not the same APR) as the loan that has the prepayment penalty (e.g., a fixed rate or variable rate).

In a note, what gives the lender the right to charge the borrower a fee for retiring the loan early? A) due on sale clause B) alienation clause C) acceleration clause D) prepayment penalty

D) prepayment penalty A prepayment penalty allows a lender to either limit the amount of prepayment a borrower is permitted to make at any given time, or impose a penalty for prepayment.

An estimate made by a mortgage loan originator of the amount of a loan for which the borrower can qualify based on the borrower's statements regarding their financial condition is called a A) loan underwriting. B) loan servicing. C) loan originating. D) prequalification.

D) prequalification. Prequalification is an estimate made by a mortgage loan originator of the amount of a loan for which the buyer can qualify based on his statements regarding his financial condition.

A subordination clause in a mortgage A) prohibits the borrower from selling the property without the lender's approval. B) allows the borrower to rescind the sale under certain circumstances. C) permits the borrower to construct an improvement on the property. D) puts the mortgage in first lien position over an earlier recorded mortgage.

D) puts the mortgage in first lien position over an earlier recorded mortgage. The subordination clause would allow the mortgage loan to be in first position even though the recording of another loan, such as a construction loan, was placed on the property prior to the mortgage loan.

Warning signs of loan problems, or possible fraud, are commonly called A) multiplicity. B) yield spread premiums. C) risk analysis. D) red flags.

D) red flags. "Red flag" is the term used to describe a warning sign of fraud.

The practice of lenders refusing to provide financing to qualified applicants on reasonable terms and conditions due to the geographic area in which the property is located is called A) blockbusting. B) steering. C) underwriting. D) redlining.

D) redlining. The practice of lenders refusing to provide financing to qualified applicants on reasonable terms and conditions due to the geographic area in which the property is located is redlining. Blockbusting is scaring owners into selling. Steering is directing buyers or renters to certain areas. Underwriting is analyzing credit risk.

Focusing on elderly, poor, or uneducated borrowers and using tactics to get these borrowers to accept loans that are not affordable or in their best interest is a predatory lending tactic and is called A) flipping. B) packing. C) steering. D) targeting.

D) targeting. When predatory lenders and mortgage brokers single out a vulnerable person with limited access to mainstream sources of credit using abusive practices, this is considered targeting. Fraudulent, deceptive or high-pressure sales tactics are used to compel the vulnerable person to accept loans that are not affordable or in their best interest. The true costs, risks and appropriateness of the transaction to the borrower are seldom adequately disclosed, and bait-and-switch tactics are frequently used.

Licensed and certified appraisers must perform their appraisals according to standards contained in A) the URAR. B) ECOA. C) the 1003. D) the USPAP.

D) the USPAP. Appraisers are certified or licensed by the states, according to standards developed by The Appraisal Foundation. The Appraisal Foundation developed Uniform Standards of Professional Appraisal Practice (USPAP), to which appraisers must adhere in performing their appraisals.

Under Regulation P and the Gramm-Leach-Bliley Act, nonpublic personal information includes A) the assessed value of the property securing a loan. B) the address of the property securing a loan. C) a customer's phone number. D) the customer's current loan balances.

D) the customer's current loan balances. Nonpublic information includes any information obtained about an individual from a transaction involving financial product(s) or service(s) (for example, the fact that an individual is a consumer or customer of a particular product or service, account numbers, payment history, loan or deposit balances, and credit or debit card purchases). It does not include information for which there is a reasonable basis to believe it is lawfully made publicly available, such as a telephone number, address or assessed property values.

The interest rate of a variable or adjustable rate mortgage will be directly affected by changes in A) the Fed's discount rate. B) the note rate. C) the lender's prime rate. D) the index rate.

D) the index rate. A variable (or adjustable) rate mortgage is one in which the interest rate is based on an index rate and a margin rate. The index rate will go up or down. The margin rate will remain constant. The lender periodically adjusts the interest rate based on changes in that index rate.

Which item is NOT included in the calculation that determines the annual percentage rate? A) the lender's discount points B) the broker's origination fee C) the mortgage insurance premium D) the title insurance premium

D) the title insurance premium The annual percentage rate is the base interest rate plus any applicable fees, charges, closing costs, points, etc. that are part of the total cost to the borrower.

A combined loan-to-value ratio (CLTV) occurs when A) the borrower is taking out two loans for two properties. B) the loan is an adjusted-rate mortgage (ARM) loan. C) two borrowers co-sign a loan on a property. D) there will be two loans on one property.

D) there will be two loans on one property. When there will be two loans on the property, the ratio calculation is the same except that the loan amount will be the sum of both the first and second mortgages. This is called a combined loan-to-value ratio (CLTV).

Independent contractors may not engage in residential mortgage loan origination activities as a loan processor or underwriter unless A) they first notifies the state licensing authority of their intention to do so. B) they are a state-licensed loan processor or underwriter. C) they can be granted an exception by the CFPB. D) they are a state-licensed loan originator.

D) they are a state-licensed loan originator. An independent contractor is an individual who performs his duties other than at the direction of and subject to the supervision and instruction of an individual who is licensed and registered as required under the SAFE Act or is exempt from licensing. An independent contractor may not engage in residential mortgage loan origination activities as a loan processor or underwriter unless he is a state-licensed loan originator.

A lender can be protected from loss by encumbrances or a defective title through A) PMI. B) liability insurance. C) errors and omissions insurance. D) title insurance.

D) title insurance. When a title insurance company receives a request for title insurance, a title examiner will perform a title search in the title plant and the recorder's office. The title search involves an examination of public records to trace the conveyances and encumbrances relating to the property; and ensure that no one except the current owner has a valid claim to the property.

A mortgage typically does NOT A) get recorded. B) create a voluntary lien. C) hypothecate the property. D) transfer title to the lender.

D) transfer title to the lender. In addition to giving a note, a borrower gives the lender a security instrument, either a mortgage or trust deed (or deed of trust), which in most states, hypothecates the property as security for the note. In hypothecating the property, the borrower pledges it as security, or collateral, without actually giving up legal title or possession. The mortgage or trust deed, signed by the borrower, encumbers his real estate. It creates a specific, voluntary, contractual lien on the real estate to secure repayment of the note and gives the lender a right to foreclose on the real estate if the borrower defaults on the loan. It is recorded so that anyone interested in acquiring the property or providing a loan to the owner will be aware of the fact that the property is security for another loan.

In a purchase transaction closing, hypothecation occurs. This is described as A) the transfer of title through the deed. B) the seller transferring appliance warranties to the buyer. C) assigning the mortgage from the broker to the lender. D) using property as collateral without surrendering use or possession of it.

D) using property as collateral without surrendering use or possession of it. To hypothecate a property means to pledge the property as a security for the payment of a debt without giving up use of the property. A borrower who gives a lender a note and mortgage hypothecates the property.

Under RESPA, the mortgage servicing disclosure statement discloses A) the schedule and amount for any late fees during the term of the loan. B) a specification of any loan fees related to loan servicing. C) the contact information for any borrower inquiries concerning the servicing of the loan. D) whether loan servicing may be assigned or transferred while the loan is outstanding.

D) whether loan servicing may be assigned or transferred while the loan is outstanding. A mortgage servicing disclosure statement discloses whether the servicing of the loan (i.e., collection of payments) may be assigned, sold or transferred to any other person at any time while the loan is outstanding. Regulation X provides a model format for this disclosure, which may be amended to add information that clarifies or enhances the model language.

Day 4: Licensing Exam Contents

Segment 10: Closing

Day 4: Licensing Exam Contents

Segment 11: Financial Calculations

Day 4: Licensing Exam Contents

Segment 12: Specific Loan Programs

Day 1: Introduction

Segment 1: The Mortgage Lending Industry

Day 1: Introduction

Segment 2: Basic Loan Finance Documents

Day 1: Introduction

Segment 3: Loan Types and Terminology

Day 1: Introduction

Segment 4: The SAFE Act

Day 2: Federal Mortgage Related Laws (Part 1)

Segment 5: Federal Laws Governing Mortgage Practice

Day 3: Ethical Practices (Part 1)

Segment 6: Ethics and Consumer Protection

Day 3: Ethical Practices (Part 1)

Segment 7: Fraud and Money Laundering

Day 3: Ethical Practices (Part 1)

Segment 8: The Mortgage Loan Application

Day 4: Licensing Exam Contents

Segment 9: Processing and Underwriting