National Practice Exam #5
Triniton, Inc. has two violations of The National Do Not Call Registry. What is the total of their fines
$32,000 $16,000 x 2 = $32,000
Red flags as noted in FACTA generally fall into one of the following categories except:
A. Alerts, notifications, or warnings from a consumer reporting agency B. Straw buyers involved in a transaction C. Suspicious activity relating to a covered account D. Notices from consumers or law enforcement authorities about possible identity theft Answer: B. Straw buyers are not usually the problem with identity theft or inaccurate credit information.
The National Do Not Call Registry applies to all of the following except:
A. Any plan, program, or campaign to sell goods or services through interstate phone calls B. Telemarketers who solicit consumers on behalf of third party sellers C. Sellers who provide goods or services to consumers in exchange for payment D. Political organizations seeking to promote their positions or raise money Answer: D. This is correct.
According to the SAFE Act, which of the following must have the MLO license:
A. Anyone who for compensation or expectation of it originates loans B. Underwriters C. Contract loan processors D. A and C Answer: D. Yes, underwriters do not have to have the MLO designation.
Which of the following are requirements of creditors according to FACTA:
A. Contact the consumer named on the account when running a credit report with a fraud alert B. Print no more than five digits of a credit card number on any receipt at a point of sale transaction C. Assess the validity of change of address requests D. All of the above Answer: D. Yes, these are precautions a creditor must take.
Section 114 of FACTA—Red Flag Rules—apply to which of the following:
A. Federal and state chartered banks and credit unions B. Non-bank lenders C. Any person who requests a consumer report D. All of the above Answer: D. Yes, this also includes mortgage brokers and any person who regularly participates in a credit decision, including setting terms of credit. Any person requesting a consumer report is included here because this person is required by law to reasonably verify the identity of the subject of a consumer report in the event of a notice of address discrepancy.
Which of the following is the best, most inclusive definition of a nontraditional mortgage product:
Anything other than 30-year fixed This is the definition of a nontraditional mortgage product according to the SAFE Act.
Which of the following is the lender's concern regarding a borrower taking on negative amortization:
At the end of the term, the property might be lower than the loan balance and not qualify for a refi that could pay the balloon payment Regarding "C", "all payments as scheduled" would include the balloon payment, which if made, would pay off the loan.
Why do lenders like ARMS:
Because they spread the risk of fluctuating interest rates on to the borrower If rates increase, payments go up. If rates decrease, payments go down. In times of fluctuating interest rates the lender's losses relative to the current market are not as severe.
When loans meet Fannie Mae/Freddie Mac standards and can be sold on the secondary market, they are called which of the following:
Conforming Conforming is the term that should jump out when considering meeting secondary market standards
Which of the following statements best describes consumers' rights based on FACTA:
FACTA requires that consumers applying for credit to receive the Home Loan Applicant Credit Score Information Disclosure notice, which explains their rights
The Fair and Accurate Credit Transaction Act (FACTA) is a 2003 amendment to which of the following laws:
FCRA This is the Fair Credit Reporting Act.
The National Do Not Call Registry is under the oversight of which of the following federal agencies:
FTC Yes, this agency manages the Do Not Call Registry.
FACTA was enacted to fight primarily which of the following crimes:
Identity theft Yes, this and to help the consumer dispute inaccurate credit information.
Regarding the company's internal do not call list, which of the following is true:
If a consumer is on a company's internal do not call list, the company cannot call even if there is an EBR This is correct. Being on the internal do not call list trumps everything.
Which of the following best defines negative amortization:
Not only is no principal being paid, but not all of the interest due is being paid, hence the loan balance is growing due to this deferred interest If the loan continues in a negative amortization status, the balance of the loan will be greater than it was at the beginning of the loan because unpaid interest is accruing and is being added to the balance of the loan.
Which of the following would be a way for a borrower to get a conventional loan without making a 20% down payment:
Secondary financing This is where a borrower borrows money from another source other than the primary lender.
Which of the following terms goes with a fully amortized loan:
Self-liquidating Yes, when the last payment is made, the debt has been liquidated.
According to the FCRA, credit reporting agencies may not report outdated negative credit information. How long may a Chapter 11 bankruptcy remain on the report:
Seven years A Chapter 11 bankruptcy is a reorganization and may remain on a consumer's credit report up to seven years.
Which of the following would be a primary reason for a loan to be classified as nonconforming:
Substandard credit of the borrower While some lenders might offer a loan to B and C borrowers, such a loan would not be sold to Fannie or Freddie.
All of the following statements are true about a Graduated Payment Mortgage (GPM) except:
The borrower makes larger payments at the beginning of the loan, with payments decreasing yearly in the later years This is the incorrect statement. The others are true.
Which of the following best describes the terms of a 5/25 interest only/fixed loan:
The loan is interest only for the first five years, and then fully amortized at a fixed rate for the duration of the term
Which of the following best describes combined loan-to-value ratio (CLTV):
The percentage of the property value that is borrowed through a combination of more than one loan This is correct, such as a first mortgage and a second home equity loan.
In a conventional loan with a 15-year term, which of the following is the primary reason that the interest rate is lower than for a 30-year term loan:
There is less risk for the lender There is less risk because the lender is exposed to risk for only half the time of a 30-year loan.
According to the FCRA, what is the time limit a credit reporting agency may report a criminal conviction:
There is no time limit for a criminal conviction
Which of the following statements refer to nonconforming loans:
These loans do not meet the standards to be sold to Fannie Mae or Freddie Mac Regarding "D", all subprime loans are nonconforming, but not all nonconforming loans are subprime. Regarding "A", this answer refers to nontraditional, not nonconforming.
Why are such a wide variety of mortgage products offered by lenders:
To meet the varied needs of borrowers The objective is to ensure that a borrower can be accepted for a loan program that he or she can be successful at paying off. Unfortunately, not everyone applicant qualifies for a loan.
Which of the following URLs will result in a free copy of the consumer's credit report for the consumer:
www.annualcreditreport.com
Which of the following best describes a hybrid mortgage:
A combination of the best features of fixed, amortized, adjustable, and/or interest only to best meet the needs of the borrower A hybrid reflects the needs of the borrower to get the debt resolved. Different plans fit different profiles, but the objective is to resolve the debt.
According to the FCRA, which of the following is true regarding a credit reporting agency limiting access to a consumer's credit file:
A credit reporting agency may not give out a consumer's credit file to a prospective employer without the written consent of the consumer This is correct. And the FCRA does specify which parties are considered to have a valid need to request a consumer's credit file
Which of the following statements best identifies with a conventional loan:
A loan not insured or guaranteed by a government entity B and D would be similar, but the fact that meets Fannie and Freddie standards and is acceptable for purchase makes it a conforming loan, not conventional.
Which of the following is true regarding The National Do Not Call Registry:
A telemarketer or seller may call a consumer with whom it has an established business relationship for up to eighteen months after the consumer's last purchase, delivery, or payment, even if the consumer's number is on the National Do Not Call Registry This is correct--18 months if there is an EBR, even if the consumer's phone number is on the National Do Not Call Registry.
To accept secondary financing, a lender would probably require which of the following:
A. A subordination clause to ensure that the first mortgage always takes priority B. A minimum of 5% down payment C. Regularly scheduled payments D. All of the above Answer: D. Yes, all of these would probably be requirements for a lender to accept secondary financing in this market.
Which of the following statements match up with subprime loans:
A. B-C credit B. Portfolio loans C. Higher interest rates and fees D. All of the above Answer: D. Subprime loans are still being made today, even in California. Responsible MLOs and underwriters will want to see compensating factors such as larger down payments or secondary financing to ensure that the loan can be paid off. These loans will remain in a lender's portfolio rather than be sold to Fannie or Freddie.
All of the following are requirements that FACTA places on businesses to ensure effective security and disposal of sensitive personal consumer information except:
A. Burn or shred papers B. Destroy or erase electronic files C. Ball it up and double bag it in a trash bag D. Place all pending loan documents in locked desks, cabinets, or storage rooms C. Ball it up and double bag it in a trash bag Disposal methods must preclude reconstruction of the information.
All of the following are required of companies because of The National Do Not Call Registry except:
A. Companies must keep national lists of customers and prospects updated every 30 days B. Companies may not call a consumer after 31 days of the consumer being placed on the registry C. Companies must keep an updated internal list of customers D. Pay a fine for violation of the restrictions of the registry Answer: A. Actually, the lists must be updated at least every 90 days.
Loan programs are broadly classified as which of the following:
A. Conventional B. Government-agency sponsored C. Conforming or nonconforming D. All of the above Answer: D. Yes, these are the broad categories.
Which of the following agencies enforce the National Do Not Call Registry:
A. FTC B. FCC C. State law enforcement officials D. All of the above Answer: D. Yes, all of these enforce the National Do Not Call Registry.
What is the significance of the creditor or mortgage broker receiving an official loan application from a consumer:
A. It starts the processing of the loan request B. It triggers mandated disclosures to the borrower C. It places the creditor and broker under obligation to the borrower D. All of the above Answer: D. Yes, all of these are set in motion.
Additional rights a consumer has under the Fair Credit Reporting Act (FCRA) include which of the following:
A. Request their credit score B. Dispute incomplete or inaccurate information C. Limit prescreened offers D. All of the above Answer: D. This is correct.
All of the following statements are true regarding fully amortized loans except:
A. Payments remain constant for the entire life of the loan B. The amounts applied to principal and interest are adjusted each month C. At the end of the loan term, most of the monthly payment goes toward interest D. Total payments over the life of the loan pay off the entire balance of principal and interest due at the end of the term Answer: C. At the end of the term, most of the monthly payment goes toward principal. At the beginning of the term, most of the monthly payment goes toward interest.
All of the following are exempt from the restrictions of The National Do Not Call Registry except:
A. Political organizations B. Telephone surveyors C. Telemarketers representing third party sellers D. Charities Answer: C. This is the only "for profit" caller listed here.
Which of the following are things a consumer can do to combat identity theft thanks to FACTA:
A. Request that the first five digits of their Social not be included in the credit report they receive B. Place a credit freeze so no one can apply for credit using their information C. Place a fraud alert with the credit bureau D. Any and all of these can be done by the consumer Answer: D. These are consumer protection measures that can be taken thanks to the provisions of FACTA.
Which of the following would be a primary reason for a loan to be classified as nonconforming:
A. Secondary financing B. Size of the loan C. Jumbo loan D. Both "B" and "C" Answer: D. Yes, the size of the loan is one primary reason for a loan to be called nonconforming. A Jumbo loan is generally considered at this time over $417,000.
Which of the following would be acceptable ways for a borrower to obtain secondary financing:
A. Seller carry back B. An additional junior lien from an outside source C. The seller could offer a conventional 80/20 loan D. All of the above Answer: D. Regarding "C", if the loans meet all standards and criteria, the first can still be sold to Fannie and Freddie.
Which of the following are advantages to a borrower of a fixed rate loan:
A. The borrower doesn't have to worry about rates going up B. The borrower doesn't have to worry about a sudden increase in payment amount C. The borrower can refinance if the rates go down D. All of the above Answer: D. Yes, all of these conditions favor the borrower.
Which of the following are advantages to a lender of a fixed rate loan:
A. The rate is locked in even if interest rates go up B. It is a guaranteed rate of return C. The rate the lender receives cannot go down D. Both "B" and "C" Answer D. This is correct.
Which of the following is the most adequate definition of rescind:
A. To withdraw B. To take back C. To annul or to vacate D. Any of the above Answer: D. These are all good, as well as abrogate, or to revoke. In the loan business, borrowers have the right to rescind within three business days in the case of a refinance of a personal residence, or for three years in the case of a lender failing to disclose the consumers right to rescind or required material disclosures. Rescission unravels the transaction with all funds being returned as if the loan transaction never occurred.
Which of the following statements are true about Adjustable Rate Mortgages:
Conventional mortgages can involve ARMs This is correct. Adjustable rate conventional mortgages do exist.
According to the FCRA, credit reporting agencies may not report outdated negative credit information. How long may a Chapter 7 bankruptcy remain on the report:
Ten years A Chapter 7 bankruptcy is a full liquidation and may remain on a consumer's credit report up to ten years.