NMLS 5
An ARM is at the start rate of 3.75%. The index is currently 1.5% and the margin is 3.5%. The caps are 2/6 and the interest rate is at its first adjustment period. To what rate does the interest rate adjust? a) 5.75% b) 5.0% c) 5.25% d) 4.75% 0%.
ASK Answer: b) With the index at 1.5% and the margin at 3.5%, the FIAR is 5.0%. The 2% periodic rate cap would prevent the rate from increasing by more than 2%. Since 5.0% is less than 2% above the current rate of 3.75%, the rate adjusts from 3.75% to 5.
The shorter the lock-in period the _______ the cost. a) Lower b) Higher c) More flexible d) More rigid
Answer: a) A lock-in period is the period during which the lender guarantees the applicant a particular interest rate. The shorter the timeframe from interest rate lock to loan funding, the lower the cost because the lender is reserving the money for a shorter period of time.
In a lien theory state: a) The borrower retains both legal and equitable title b) The borrower gives legal title to the lender c) Foreclosures are prohibited d) Foreclosures require the lender to first validate its lien
Answer: a) A property located in a title theory state requires the borrower to issue legal title to the mortgagee. The mortgagee technically owns the property until the debt is paid at which time the deed is transferred to the homeowner. In a lien theory state, the borrower retains equitable title. A property located in a lien theory state requires the lender to place a lien against the property's title that necessitates the initiation of a judicial foreclosure proceeding in the event of default
Which of the following individuals would be subject to a VA funding fee? a) A decorated war veteran b) A disabled veteran with a 15% service-related disability c) The spouse of a disabled war veteran with a 15% service-related disability d) The surviving spouse of a veteran killed in military action
Answer: a) A veteran who sustains a service-related disability deemed by the Dept. of Veterans Affairs to be 10% or greater along with his or her spouse and/or surviving spouses of veterans who died while in service are exempt from having to pay a VA funding fee when pursuing VA financing.
Sally and Steven live in a home in which both of their names appear on the deed. Only Sally, however, has signed the conventional Promissory Note. When Sally decides to refinance the mortgage, she elects not to involve Steven since the debt is not his and neglects to mention him to the loan originator. What does her mortgage loan originator inform her after reviewing the title binder? a) That Steven will have to prepare a Power of Attorney that is specific to the transaction and approved by the lender allowing her to sign the Mortgage on his behalf at closing b) That Steven will also have to be added as an obligated party c) That they will be unable to approve the loan because Steven is not an obligated owner d) That Steven will have to be removed from the title for the loan to go through
Answer: a) Although removing Steven from the title of the property is always an option, it may not be the easiest or most favorable solution. Because he has an ownership interest, Steven must consent to whatever liens are placed against the title of the property. To remain a non-obligated owner, Steven will either have to attend the closing and sign the Security Instrument (but not the Note) or he will need to sign a Power of Attorney, specific to this transaction and approved by the lender, that affords Sally (or a different third party) the right to sign the Security Instrument on his behalf.
A loan is scheduled to close on October 2nd. Utilizing a/an _____________ will likely reduce the amount of cash that the applicant needs to bring to closing. a) Interest credit b) Right to rescind c) Seller's gift d) Credit card advance
Answer: a) An interest credit is issued when the first payment due date is established as the first day of the month directly following the month in which the loan closed. Since the entire month's worth of interest will be collected through the receipt of the first payment, the interest credit refunds the applicant the per diem interest amount for the days of the month prior to closing when they did not yet owe the money.
What should a mortgage originator be certain to discuss with an applicant considering an ARM? a) Worst-case scenario b) Affordability assuming a 2% rate increase c) How long the borrower intends to be in the home so that the right ARM product can be selected for the borrower to avoid going through a rate adjustment d) How long the borrower intends to be in the home so that she won't have to pay any pre-payment penalty
Answer: a) Any time a borrower chooses an ARM, the loan originator should make certain that the borrower is aware of, accepting of, and qualified for worst-case scenario. Even if it's unlikely to occur, the borrower should be prepared for worst-case scenario or s/he may be wise to consider a different option.
Co-mingling funds is an ethical violation of: a) RESPA b) ECOA c) TILA d) The Patriot Act
Answer: a) Co-mingling funds involves mixing funds intended for a particular purpose, such as the payment of customers' taxes and insurance premiums, with funds intended for other business purposes such as business administration. Co-mingling funds constitutes a RESPA violation.
Other than Community Lending products, what is the minimum conventional down payment? a) 5% b) 3.5% c) 3% d) 1.5%
Answer: a) Conventional mortgages typically require a minimum down payment of 5%. This money may come from the borrower's own funds, gift funds, subordinate financing, or a combination thereof.
When must a Victim's Notice of Rights be issued to a consumer? a) Whenever a consumer reports identity theft to a CRA b) Any time an individual is a crime victim c) Any time a suspicious activity report is filed d) Annually and automatically to all customers
Answer: a) FACTA requires a Notice of Victim's Rights to be issued by the CRA to any individual reporting identity theft. It describes protections afforded to anyone who becomes a victim of identity theft as well as guides them as to what they can do to attempt to resolve the issue.
Which of the following constitutes a registered loan originator? a) A loan originator employed by an institution regulated by the Farm Credit Administration b) A mortgage broker c) A Realtor who receives compensation from a mortgage brokerage d) A title company settlement agent
Answer: a) If an individual originates mortgages for an institution regulated by the Farm Credit Administration, s/he does not require a license but must possess an NMLS unique identifier by becoming a registered loan originator.
The cost of the interest owed from the day of funding through the end of the month in which the loan funds is referred to as: a) Interim interest b) Per diem interest c) Refracted interest d) Rescinded interest
Answer: a) Interim interest is the term used for interest owed from the date of a loan's funding through the end of the month in which the loan funds. Since the first payment due date is usually the first of the month after the month following closing, that payment only covers interest owed for the month which it directly follows. Since interest is owed from the day of funding, and since the first payment does not cover the interest owed from that date through the last day of the month in which the loan funds, the applicant is required to bring this amount to the closing table. This amount is referred to as "interim interest." For example, a purchase loan closes and funds on May 15th. The first payment due date is July 1st. The July 1st payment only covers interest owed from June 1st through June 30th. The borrower needs to bring interim interest to the closing table to pay for the interest owed from the day of funding through the last day of May.
A borrower accepts a fixed rate, 30-year loan but, at closing, is presented with documents representing a 5/1 ARM. The loan originator explains that the ARM is better because of its lower start rate. This scenario exemplifies: a) Unfair and deceptive trade practices b) Redlining c) Predatory lending d) Reverse redlining
Answer: a) Since the loan originator arranged for one loan and ultimately produced another, his actions constituted unfair and deceptive trade practices. This example may also be referred to as "bait & switch."
Penny Producer receives two voicemails. The first is from an individual inquiring about a $35,000 mortgage. The second caller requests information about a $350,000 loan. Penny calls the callers back in the order in which the calls were received. A week later Penny's manager is notified by a representative from the Federal Trade Commission that Penny passed a compliance check. The process by which federal regulators check on the behavior of mortgage loan originators is referred to as: a) Testing b) Secret shopping c) Self-testing d) External compliance
Answer: a) Testing is the process through which federal examiners "test" mortgage professionals to determine whether or not they act compliantly. In this case, had Penny returned the call from the $350,000 loan customer first, even though the caller inquiring about the $35,000 loan called first, Penny could have been accused of committing "disparate treatment." This is because the caller inquiring about the lower loan amount may not have been able to afford a more expensive home and she could have been seen as giving the more profitable caller preferential treatment. Testing that catches violations are sanctioned far more severely than are violations that are self-identified and self-reported.
Another term for the Initial Escrow Statement is the: a) Escrow Accrual Sheet b) Escrow Status Disclosure c) Escrow Analysis d) Aggregate Escrow Analysis
Answer: a) The Initial Escrow Statement, also referred to as the Escrow Accrual Sheet, defines the status of the escrow account as of the closing date and further defines who is responsible for issuing any escrow-related disbursement due within 60 days of closing.
Which of the following would constitute an asset unable to be considered for credit qualification? a) Six years' worth of accumulated cash savings that was deposited into a savings account a week prior b) Documented lottery winnings c) Documented winnings from legitimate casino gambling d) Cash savings deposited into a savings account six months ago
Answer: a) The lender will generally review up to three months' worth of asset statements. All deposits and credits may be subject to verification. Cash deposits that are unable to be "sourced" may be eliminated from consideration. Furthermore, the underwriter may opt to decline an application in the presence of funds unable to be sourced even if those funds are not needed. Cash savings cannot usually be sourced
A ______ settlement is a settlement whereby funds are issued immediately after closing or, when applicable, immediately after rescission expires. A/an ______ settlement is a settlement whereby funds are issued after the documents have been recorded into public record. a) Wet / dry b) Reclusive / Incorporative c) Dry / wet d) Salient / restricted
Answer: a) Wet settlements issue the funds immediately after settlement or, when the transaction is rescindable, immediately after the rescission period expires. Dry settlements record the documents into public record before issuing the funds. Typically, east coast settlements are wet and west coast settlements are dry.
assuming the existence of a permissible purpose, which of the following constitutes permission to order someone's credit report? a) Completing a pre-qualification contact request b) Completing a 1003 c) Calling a loan originator to inquire about mortgage rates d) E-mailing a loan originator to inquire about available mortgage products
Answer: b) A loan originator may only access an individual's credit profile with a permissible purpose and permission. Permission may be rendered verbally, in writing, or automatically through the completion of a Uniform Residential Loan Application (FNMA form 1003).
Which of the following mortgage types requires the customer to undergo independent, third-party, homeownership counseling? a) ARM b) Reverse c) No income, no asset d) Construction
Answer: b) All reverse mortgages require the applicant to produce a certificate evidencing their completion of independent, third-party, homeownership counseling.
A "party to the transaction" is: a) Anyone who signs the Note b) Anyone who signs the Mortgage c) A co-signer d) An obligated, non-owner
Answer: b) Anyone who has an ownership interest in a property being financed is considered a "party to the transaction." All "parties to the transaction" must sign the Mortgage or Trust Deed acknowledging and consenting to the lien being attached to the property in which they maintain an ownership interest.
By considering what, may an underwriter approve a VA loan with a back-end DTI that exceeds 41%? a) Compensating factors b) Adequate residual income c) The applicant's rank while serving in the military d) The branch of service in which the applicant served
Answer: b) Based on geographic location and family size, if an applicant earns a specific amount of residual income or more, an underwriter may be inclined to approve a VA loan application with a back-end DTI ratio of greater than 41%.
Which of the following is not an example of predatory lending? a) Only offering sub-prime mortgage products to someone qualified for standard mortgage products b) Charging higher rates to someone with lower credit scores c) Only offering ARM products with lower start rates in order for borrowers to afford larger houses d) Focusing on specific socioeconomic neighborhoods to promote higher-priced mortgage products
Answer: b) Charging higher interest rates to someone with a lower credit score, known as risk-based pricing, offsets risk and is therefore acceptable as long as the higher rate doesn't violate other regulatory considerations and the borrower is still able to afford the payments.
Under FACTA, what must a financial institution do? a) Disclose the Loan Estimate within three days from the date of application b) Provide any and all relevant information in its records at no charge to an individual claiming to be a victim of identity theft c) Provide any and all relevant information in its records at a modest charge to an individual claiming to be a victim of identity theft d) Provide an opportunity for its customers to opt out of the sharing of their personal information
Answer: b) Financial institutions must provide an individual claiming to have been victimized by identity theft with a copy of anything and everything in its records pertaining to the alleged claim. The financial institution may not charge the requester for the documentation. Disclosing the Loan Estimate within three days of application is a RESPA requirement, and offering customers the option of opting out of information sharing falls under the GLBA.
Which of the following flood zone types would not require flood insurance? a) A flood zone containing prefix A b) A flood zone containing prefix E c) A flood zone containing prefix VE d) A flood zone containing prefix V
Answer: b) Flood zone prefixes A, V, and VE require the homeowner to maintain flood insurance when a mortgage securitizes the property.
LP stands for: a) Loan Processing b) Loan Prospector c) Loan Production d) Loan Provisioning
Answer: b) Freddie Mac's (FHLMC's) Automated Underwriting System (AUS) is referred to as Loan Prospector or LP.
If an attorney wishes to accept compensation by a mortgage brokerage for loans originated, the attorney: a) Must register through the NMLS b) Must be licensed as a loan originator c) Must take the appropriate mortgage originations training courses d) Must be an employee of the mortgage company
Answer: b) If an individual is compensated by a licensed entity for mortgage origination activities, that individual must also be licensed as a loan originator.
A customer applies for a loan amount of $250,000. What would his minimum down payment have to be in order to avoid PMI? a) $50,000 b) $62,500 c) $200,000 d) $75,000
Answer: b) If the loan amount is $250,000 the loan would have to be at an original LTV of 80% to avoid PMI. An 80% LTV on a loan amount of $250,000 equates to a purchase price/appraised value of $312,500 (250,000 / 80%). A 20% down payment on a purchase price/appraised value of $312,500 amounts to $62,500 (312,500 x 20%).
A mortgage originator must consider loan suitability when developing an application. What is something that she will consider in doing so? a) The net tangible benefit provided by particular mortgage products b) The applicant's income relative to her existing expenses c) How long the applicant intends to remain in the home d) How long it will be before the applicant gets a pay raise
Answer: b) Loan suitability refers to the borrower's ability to repay the loan. In considering whether or not a particular loan is suitable for a particular borrower, the lender must be confident that the borrower will be able to comfortably manage the payments.
All but which of the following documents is an informational disclosure? a) CHARM booklet b) Closing Disclosure c) Mortgage Servicing Disclosure Statement d) When Your Home is on the Line: What You Should Know About Home Equity Lines of Credit
Answer: b) The Closing Disclosure is a cost disclosure since it reflects the final accounting of the mortgage transaction.
A credit bureau failing to maintain a consumer's privacy is a violation of the: a) GLBA b) FCRA c) RESPA d) FACTA
Answer: b) The FCRA requires CRAs to protect consumers' privacy along with the sanctity of their information in credit transactions. It is for these reasons why permission to access credit, along with a permissible purpose, is always required from anyone seeking to access someone's credit data.
Which of the following is another term for the FHA ARM? a) FHA 5/1 b) FHA 251 c) FHA 203(k) d) FHA 203(b)
Answer: b) The FHA 251 refers to the FHA's adjustable rate mortgage offered in 1/1, 3/1, 5/1, 7/1, and 10/1 formats. The 203(k) is the FHA rehabilitation loan and the 203(b) is the standard 30-year FHA fixed-rate loan.
What is the primary intention of the FHA 203(g) Good Neighbor Next Door program? a) So that neighborhood residents get to know their neighbors b) To encourage professionals such as police officers, firefighters, and EMTs to move into neighborhoods c) To increase property values d) To ensure that homes in particular neighborhoods are well kept
Answer: b) The GNND program offers significant benefits to certain professionals such as firefighters, police officers, and EMTs in exchange for moving into the neighborhood and heightening the professionalism and safety of the people living within the community.
Which of the following is not a federal banking agency? a) The Comptroller of the Currency b) The USDA c) The National Credit Union Administration d) The FDIC Answer: b) The USDA does not oversee banking or lending although it does support USDA Section 502 rural housing financing.
Answer: b) The USDA does not oversee banking or lending although it does support USDA Section 502 rural housing financing.
Of which of the following third-party service providers would a lender be prohibited from insisting on the specific use? a) Flood certification provider b) Settlement agent c) Lender legal representation d) Credit repository
Answer: b) There are five specific settlement service providers that a lender may dictate the use of: flood certification provider, tax search provider, appraiser, credit repository, and lender legal representation when it is customary for the lender to retain its own legal representation. Otherwise, RESPA affords all applicants the right to choose their own settlement service providers.
Your mortgage applicant presents a picture ID at the time of application that does not closely resemble him. What action, if any, must you take? a) No further action is required since the ID was otherwise valid b) You must follow the protocol established by your company's Identity Theft Prevention Program required under FACTA c) You must ask the customer for another ID containing a picture that better resembles him d) You must refuse to take the application
Answer: b) Under FACTA's Red Flags Rule, all companies must have a formal policy in place to prevent identity theft. Since the picture on the ID did not resemble the person standing in front of you, you must comply with your company's Identity Theft Prevention Program.
What was the term once used for the loan proceeds mortgage originators sometimes retained as compensation by charging an interest rate higher than par? a) Escrow overage b) YSP c) Enhanced commission d) Enhanced origination fee
Answer: b) Yield spread premium (YSP) described the "monetary change" resulting from securing an interest rate higher than par. Up until 04/01/2011, loan originators and lenders were allowed to retain YSP as income.
Two applicants apply for a loan together. One of the applicant's credit scores are 617, 683, and 612. His co-applicant's credit scores are 784, 690, and 693. What is the score that the lender uses to underwrite the loan? a) 637 b) 683 c) 617 d) 693
Answer: c) A chain is only as strong as its weakest link. Since lenders base their underwrite on the applicant's middle credit score, when multiple applicants apply for a loan, the lender uses the lowest of all applicants' middle credit scores.
The 4506-T authorizes a financial institution to secure: a) A copy of the applicant's criminal history b) A copy of the applicant's driving record c) A copy of the applicant's federal tax return transcript d) A copy of the applicant's federal tax return
Answer: c) A signed IRS form 4506-T authorizes the provider to receive a copy of the federal tax return transcript of the individual who signed it. There is no fee for this reques
What is an "active duty" alert? a) A notification that a mortgage company's customer has been called for active military duty and, as such, may not be reported as delinquent to the credit repositories b) An alert advising a mortgage company that they must defer the customer's payment during military deployment c) An alert appearing on an actively-deployed service member's credit report alerting anyone accessing their report that the subject is actively serving in the military d) An alert that a military reservist receives when called to deploy
Answer: c) Active military personnel may not be able to adequately monitor their credit. As such, active duty alerts may be placed on their credit profiles alerting potential creditors that their subject is actively serving in the military. A potential creditor must strongly scrutinize any applicant's identification in the presence of an active duty alert.
A husband and wife are refinancing their conventional mortgage. Although the wife's father technically has an ownership interest in the property as well, he is not a party to the note. The father, therefore, is referred to as a/an: a) Interested party b) Obligated non-owner c) Non-obligated owner d) Obligated owner
Answer: c) An individual possessing an ownership interest in a property to which s/he is not obligated to the debt is referred to as a non-obligated owner. An obligated owner has both an ownership interest in the property as well as an obligation to the debt. An obligated non-owner is an individual who has no property rights but is fully obligated to the debt.
If a state licensing authority grants a license to an individual who it later learns committed a crime that would normally disqualify the individual from licensing, the state authority: a) Can do nothing since the license was already issued b) Can immediately revoke the license c) Can prohibit the licensee from conducting further business d) Can criminally prosecute the licensee for fraud
Answer: c) If additional information is discovered by a licensing authority after issuing a license that would normally have caused the authority to originally deny the licensee's application, the authority may order the licensee to refrain from further activity until such time that a permanent decision is rendered.
A conventional mortgage balance is $155,000 and pays off on the fifth calendar day of the month. Assuming that the current month's payment was credited on the first and the loan carries a per diem of $19.55, what is the final payoff? a) $155,000.00 b) $155,019.55 c) $155,097.75 d) $155,977.50
Answer: c) If the balance owed on the first of the month is $155,000 and the loan pays off five days later, five additional days of interest are due. Since $19.55 x 5 = $97.75, $155,000 + $97.75 = $155,097.75.
What is the minimum FHA down payment for someone whose credit score is less than 580? a) 3.5% b) 5% c) 10% d) FHA will not finance anyone who's credit score is below 580
Answer: c) In October, 2010, the minimum FHA down payment was increased from 3.5% to 10% for anyone whose credit score falls below 580.
What constitutes a "covered account" as referenced under the FTC's Red Flags Rule? a) An account maintained by a creditor, intended for commercial use, and designed to permit multiple payments b) An account maintained by a private individual, intended for personal use, and designed to permit multiple payments c) An account maintained by a financial institution, intended for family use, and designed to permit multiple payments d) An account maintained by a creditor, intended for household purposes, and designed to be repaid through a one lump-sum payment
Answer: c) In accordance with the FTC's Red Flags Rule, a covered account includes any account that is offered or maintained by a financial institution or creditor, is intended for personal, family, or household purposes, and is designed to permit multiple payments or transactions
In the presence of non-traditional income, which of the following is not needed? a) Sourcing b) Seasoning c) Monitoring d) Establishing continuance
Answer: c) In the presence of non-traditional income, a lender must ensure that the recipient is legally entitled to receive the income, has been consistently receiving it for the previous year (six months for obligated child support), and is expected to receive it for at least three more years.
An individual prepares a form to mail out to residents of the community soliciting credit card information to provide them with a discounted credit report review. In actuality, he is only seeking credit card information to steal peoples' identities. If caught, this individual could be prosecuted for: a) Bank fraud b) Money laundering c) Mail fraud d) Conspiracy
Answer: c) Mail fraud does not require a person to actually mail anything. A person can be convicted of mail fraud if their scheme to defraud involves even the potential use of the U.S. mail or another commercial delivery service.
Which of the following is an example of nontraditional credit? a) A boat loan with three months remaining b) A student loan in deferment c) An electricity bill d) A car loan for which the applicant has co-signed .
Answer: c) Non-traditional credit consists of utilities or any monthly obligation that would not typically appear on a traditional credit report. Non-traditional credit is often used when an applicant does not have sufficient credit to warrant an appropriate credit review. A non-traditional credit report requires at least one tradeline to be housing related
How many total hours of ethics are required to satisfy annual continuing education requirements? a) Four b) Three c) Two d) Eight
Answer: c) Of the eight hours required by the NMLS for annual continuing education, two hours must address ethics.
If a loan originator fails to renew her license by midnight on December 31st (into January 1st), the originator: a) May only work on files in progress b) May originate normally as long as she intends to renew by March 1st c) May no longer originate mortgages in any capacity d) May take and process applications but she may not be paid for them until she renews her license
Answer: c) Once a license expires, the loan originator may not conduct any activities for which a license is required until the license is renewed.
For who were subprime mortgages ideally created? a) Anyone who qualified b) Those with damaged credit c) Those with damaged credit or in need of "outside the box financing" d) Those in need of "outside the box" financing
Answer: c) Subprime mortgages were created to assist those in need of "outside the box" financing along with those who had damaged credit because they did not meet the qualificational requirements of standard mortgage financing.
A banker opens a checking account for a customer and fails to give her an opt out notice and the bank's privacy policy but mails it to her a week later. What regulation, if any, did the banker violate? a) TILA b) FCRA c) GLBA d) No regulatory violation occurred
Answer: c) The GLBA mandates that all customers receive a privacy policy and opt out information at the time that any financial account is opened. OPTOUT AND PRIVACY POLICY= GLBA Gramm-Leach-Bliley
How many sections does a URLA contain? a) 8 b) 13 c) 10 d) 12
Answer: c) The ten sections of form 1003 consist of: 1.) Mortgage and Terms of Loan, 2.) Property Information and Purpose of Loan, 3.) Borrower Information, 4.) Employment Information, 5.) Monthly Income and Combined Housing Expense Information, 6.) Assets and Liabilities, 7.) Details of Transaction, 8.) Declarations, 9.) Acknowledgement and Agreement, and 10.) Information for Government Monitoring Purposes.
Marty Moneybags wishes to pursue a cash-out refinance of his four-family investment property. He currently has a first mortgage and a home equity line of credit in a secondary lien position that he does not wish to pay off or release. To actualize the refinance, his home equity servicer will be asked to sign a/an: a) Order of indemnification b) Consent decree c) New promissory note d) Subordination agreement
Answer: d) Any time a first mortgage is refinanced and a secondary lien retained, the servicer of the secondary lien will be asked to sign a subordination agreement through which it agrees to remain in a subordinate lien position. With the exception of servicers servicing liens of less than $50,000 on properties located in the Commonwealth of Virginia, servicers are not required to sign subordination agreements. They may require compliance with specific requirements to do so, and, when they agree to subordinate, they often charge fees.
Which of the following is true of VA loans? a) Closing costs may be financed into a VA loan b) Anyone may secure VA financing as long as they served in the military c) VA mortgages require a minimum down payment of 3.5% d) The maximum origination fee allowed by the VA is 1%
Answer: d) Closing costs must always be paid out of pocket. Any veteran may secure a VA mortgage as long as s/he qualifies and can present a valid certificate of eligibility. The minimum down payment is 0% on VA mortgages of up to $510,400, and the maximum origination fee permitted by the VA is 1%
Two types of conventional mortgages are: a) Conforming and FHA b) FHA and VA c) Conforming and traditional d) Conforming and portfolio
Answer: d) Conventional financing refers to mortgage loans that are not funded, purchased, or securitized by purely-governmental entities. Conforming describes any loan that "conforms" to Fannie Mae or Freddie Mac underwriting criteria as well as FHFA-established annual loan limits. Conforming and portfolio loans (portfolio meaning loans which are underwritten to an individual lender's individual parameters) are always conventional. Government loans adhere to government underwriting criteria and defined loan limits.
A home is purchased for the appraised value of $165,000. The customer puts down 10% on his conventional loan. How much more will the customer have to pay in principal for the PMI to be automatically removed assuming the loan remains consistently current? a) $132,000 b) $16,500 c) $128,700 d) $19,800
Answer: d) If the purchase price is $165,000 and the customer puts down 10%, the loan amount equates to $148,500 (165,000 - 16,500). Once the LTV reaches 78% of the original LTV, the PMI will be automatically removed assuming that the loan is current. The 78% LTV will be achieved once the balance reaches $128,700 (165,000 x 78%). If the loan amount starts at $148,500, an additional $19,800 will have to be paid against principal balance to reach the $128,700 balance equating to a 78% LTV.
The penalty for violating certain federal statutes includes: a) Federal imprisonment for up to one year b) A one-million-dollar fine c) Federal imprisonment for up to 30 years d) Federal imprisonment for up to 30 years along with a fine of up to one million dollars
Answer: d) Penalties are steep. Violate a federal statute and you could face up to 30 years in federal prison and/or a fine of up to one million dollars.
The daily interest amount owed is called: a) Interim interest b) Accumulated interest c) Amortized interest d) Per diem interest
Answer: d) Per diem interest refers to the daily interest amount owed. The formula for calculating the per diem interest amount is the outstanding balance multiplied by the interest rate divided by 365.
Which of the following would not constitute a red flag?? a) Your customer's residence is 250 miles from her employer b) The applicant mentioned being rushed through a home inspection c) Your applicant randomly calls a co-applicant by a name other than the name under what she applied d) Your applicant changed jobs during the loan application
Answer: d) Red flags do not automatically evidence wrongdoing. Red flags do require additional scrutiny and, usually, an explanation. Although an applicant changing jobs during a mortgage application may cause additional work, the need for further explanation, and could possibly render them un-creditworthy, that, in and of itself, would not be a red flag.
Which of the following is not a tool with which to calculate an applicant's income? a) Bank statements b) Pay stubs c) W-2 forms d) State income tax returns
Answer: d) State income tax returns are not used to determine an applicant's income for mortgage underwriting purposes. Bank statements reflecting pay deposits, pay stubs, W-2 forms, 1099 forms, and federal income tax returns are some of the documents used to substantiate a mortgage applicant's income.
A customer applies for a closed-ended ARM. Which of the following must be issued to her within three business days? a) A CHARM Booklet b) An Early ARM Disclosure c) A CHARM booklet and an ABAD d) A CHARM Booklet and an Early ARM Disclosure
Answer: d) TILA requires the issuance of both the CHARM Booklet and an Early ARM Disclosure within three business day of an application for a closed-ended ARM. The CHARM Booklet discusses how ARMs perform while the Early ARM Disclosure describes the terms specific to the ARM for which the applicant applied.
Fumbling Finance originates the purchase of a three-family primary residential property. Prior to closing, they issue one Closing Disclosure to the primary borrower. What regulation, if any, did Fumbling Finance violate? a) TRID b) RESPA c) TILA d) Fumbling Finance did not violate any regulation
Answer: d) TRID requires that all parties to the transaction be issued a Closing Disclosure on a rescindable loan. Since a purchase transaction is not rescindable, Fumbling Finance did not fumble this one.
The APR on the Closing Disclosure is reflected as 5.75%. The final APR is ultimately 6.0%. According to TILA, what must happen? a) Nothing since the final APR was not higher than the previous APR by 0.5% or more b) The borrower must receive a closing cost credit c) The lender must issue a revised Closing Disclosure d) The lender must issue a revised Closing Disclosure and refrain from closing the loan for three additional precise business days
Answer: d) TRID requires the re-disclosure of the Closing Disclosure along with a three-day delay in closing any time when the final APR is higher than the APR disclosed on the original Closing Disclosure by more than 0.125% or when the final finance charge is higher than the finance charge disclosed on the original Closing Disclosure by more than $100.
An applicant objects to presenting a loan originator with photo identification during a face-to-face mortgage application. After the loan originator explains that positive identification is required, the applicant fumbles through her purse and claims to be unable to find her ID. The loan originator spots a driver's license in her purse despite the applicant insisting that there is no ID in her purse. What should the loan originator do? a) Refuse to take the loan application b) Postpone the application and ask the applicant to return with a valid, government-issued photo ID c) Take the application anyway since she otherwise seems like an honest person d) Postpone the application, ask the applicant to return with a valid, government-issued photo ID, and complete a SAR
Answer: d) The application should be postponed because the loan applicant cannot guarantee that she is who she claims to be. She should be instructed to return with a valid ID and, since her actions were suspicious, the loan originator should complete and file a suspicious activity report.
Whole life insurance policies contain: a) A cash value b) A face value c) A market value d) Both a cash and face value
Answer: d) The cash value is the amount that would be secured through the current surrender of the life insurance policy. The face value is the ultimate value that the policy will achieve upon maturation.
Of the following businesses, which is not subject to the Patriot Act? a) Casinos b) Banks c) Automobile Dealerships d) Lottery retailers .
Answer: d) The list of financial institutions subject to the Patriot Act is long. Some of the types of businesses subject to this regulation consist of: federally-regulated banks, foreign banks located throughout the United States, credit unions, non-federally-regulated private banks, persons involved in real estate closings and settlements, casinos, pawnbrokers, and automobile dealerships
Which of the following is an example of a note receivable? a) The borrower is paying a car loan b) The borrower sold a house and financed the purchaser's mortgage for which she is receiving regular payments c) The borrower has signed a promissory note obligating himself to a mortgage on a different property d) The borrower is owed money for which he has been unsuccessfully collecting
KNOW THIS Answer: b) A note receivable is an income stream earned from the repayment of a debt someone owes to the note holder. If the note is produced along with an on-time, 12 consecutive or greater monthly payment history as well as evidence of a minimum three-year continuance, the note receivable may be utilized as qualifying income.
Which of the following is not a consideration of option loans? a) The potential for negative amortization b) Balance caps c) Re-cast points d) Two possible payment options ched.
KNOW THIS Answer: d) Option loans afford borrowers with four monthly payment options from which they may freely choose. By remitting the minimum payment option, the borrower would most likely experience negative amortization. Option loans generally contain a balance cap which, when reached, triggers the servicer to adjust the payment amount to accommodate the existing balance, remaining term, and current interest rate. Since reaching the balance cap is never guaranteed, options loans also include a re-cast point that, when reached, would also cause the servicer to adjust the payment amount in the same manner as if the balance cap was rea
Which of the following constitutes a valid change of circumstance under TRID? a) When the title insurance company intended for use terminates operations during the transaction b) When the loan originator miscalculates more than 10% of the cumulative settlement fees c) When market interest rates increase and the loan has yet to be locked d) When the borrower goes away on vacation during her loan's processing
KNOW THIS Answer: a) TRID defines a change of circumstances to be: an extraordinary event beyond anyone's control, when information that the lender initially relied upon is ultimately deemed to be inaccurate or changes post-disclosure, when new and relevant information surfaces post-disclosure, the occurrence of a natural disaster or act of God, or when the title insurance company intended for use terminates operations during the transaction.
