Prepxl practice test 2
The Uniform Residential Appraisal Report is commonly known as the: - 1003 - 1040 - 1004 - 4506
1004. For FHA, VA, and conforming loans, appraisers will use the Uniform Residential Appraisal Report (URAR), also known as Fannie Mae Form 1004 and Freddie Mac Form 70.
Which of the following pieces of personal information is a borrower asked to provide voluntarily on the loan application? - Race, ethnicity, and sex - Race, age, and marital status - Sex and childbearing plans - Marital status and age
Race, ethnicity, and sex The section titled "Information for Government Monitoring Purposes," which asks a borrower to specify sex, race, and ethnicity, is required by the Home Mortgage Disclosure Act to aid the federal government in monitoring compliance with fair lending regulations
Under which of the following circumstances would flood insurance be required? - Property is within 100 yards of a body of water - Property is in flood zone "X" - Property is in flood zone "A" - Property is at or below sea level
Property is in flood zone "A". Flood insurance is required for property improvements located in an SFHA Zone A (an area subject to inundation by a 1%-annual-chance flood event) or a Zone V (an area along the coast subject to inundation by a 1%-annual-chance flood event with additional hazards associated with storm-induced waves).
A loan which has an initial fixed-rate period, after which the rate is adjustable for the remainder of the loan term, is called: - An I-O ARM - A hybrid ARM - A subprime loan - A conversion loan
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 this expires, the rate is adjustable for the rest of the term.
For FHA loans, the annual mortgage insurance premium (MIP) will differ based on whether the term of the loan is more or less than: - 15 years - 20 years - 25 years - 30 years
15 years. For FHA loans, the annual mortgage insurance premium (MIP) will differ based on whether the term of the loan is more or less than 15 years.
Which of the following would not need to be included in the notice of servicing transfer? - Toll-free number for the old servicer - Borrower's payment amount - Toll-free number for the new servicer - Effective date of the transfer
Borrower's payment amount. When a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower must be sent a servicing transfer statement at least 15 days before the effective date of the servicing transfer. This statement must show the name, address, and toll-free telephone numbers of both the old servicer and the new servicer, as well as the date the new servicer will begin accepting payments.
A hazard insurance company hosts a dinner for the employees of a mortgage broker. The designated broker encourages the employees to send clients to the insurance company. Who has violated RESPA? - The hazard insurance company - Both the hazard insurance company and the mortgage broker - The mortgage broker - Neither the hazard insurance company nor the mortgage broker
Both the hazard insurance company and the mortgage broker
A mortgage or deed of trust generally includes a clause that provides for release of the lien when the borrower pays off the debt, called a(n): - Alienation clause - Defeasance clause - Due-on-sale clause - Completion clause
Defeasance clause. A defeasance clause provides for release of the lien when the borrower pays off the debt and is generally included in a mortgage or deed of trust.
When would it be ethical for a mortgage broker to offer a loan with a rate higher than the best rate available to the borrower? - Never - Only when the borrower is unaware and will likely not know - If the lender agrees to subsidize the broker fee - If the borrower chooses the rate and plans to use the additional premium to offset closing costs
If the borrower chooses the rate and plans to use the additional premium to offset closing costs. While a licensee is ethically obligated to offer borrowers the best rates available to them, the concept of suitability emphasizes that the licensee must make a conscientious effort to ascertain and understand all relevant circumstances surrounding the client, and take these circumstances into account. This may include suggesting loan products that might not initially seem to be the best option, but effectively serve a particular borrower's circumstances.
Which of the following would not be considered a settlement service? - Servicing - Escrow services - Origination services - Appraisal services
servicing. Settlement services include a variety of services related to the origination, processing, or funding of a loan, including, among others, rendering credit reports and appraisals, and conducting settlement by a settlement agent (e.g., the originating lender, an attorney, or a licensed escrow agent) and any related services. They do not include loan servicing.
Which of the following in an ad for residential mortgage financing would trigger additional disclosures? - "VA financing available" - "Affordable payments" - "5.75% APR" - "5% down payment"
"5% down payment." Under TILA, an ad must disclose a number of additional credit terms if it contains a trigger term. A trigger term includes certain credit terms specifically cited in an ad, including the amount or percentage of any down payment (e.g., "5% down," "95% financing," "$6,200 down"), except when the amount of the down payment is zero; the number of payments or period of repayment (e.g., "360 monthly payments," "a 30-year loan"); the amount of any payment (e.g., "payments of less than $1,400 per month"); and the amount of any finance charge (e.g., "total financing costs of less than $3,000").
In an FHA loan, which of the following is true regarding the upfront mortgage insurance premium (UFMIP)? - A portion of it may be applied to the UFMIP of another FHA-insured mortgage - It is refundable - It is pertinent to only a small minority of FHA loans - It takes the place of the annual mortgage insurance premium
A portion of it may be applied to the UFMIP of another FHA-insured mortgage. The FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable, except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years. In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV.
Which of the following issues is not addressed in the standard deed of trust and note for an owner-occupied primary residence? - Insurance on the property - How quickly a borrower must occupy the property - Keeping hazardous substances on the property - Actual amounts for taxes and insurance
Actual amounts for taxes and insurance. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, the amount owed, the rate of interest and whether it is fixed or adjustable, the due date(s) for payment, and the terms of the loan. The mortgage or trust deed secures repayment of the note. Its covenants address topics that include occupancy, insurance, and hazardous materials, but it does not typically specify actual amounts for taxes and insurance.
Which of the following loans would not have monthly mortgage insurance at closing? - All options would have monthly mortgage insurance - 30-year FHA loan, 60% LTV - 10-year FHA loan, 85% LTV - 20-year FHA loan, 80% LTV
All options would have monthly mortgage insurance. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV. For all mortgages involving an original principal obligation (excluding financed UFMIP) less than or equal to 90% LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first. For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90%, the 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.
The S.A.F.E. Act creates several consumer protection provisions. Which of the following is not a provision created through the enactment of the S.A.F.E. Act? - Encourages responsible behavior through licensing standards - Provides consumers access to information about originators - Allows consumers a full refund if the originator is found to have engaged in unethical acts - Facilitates collection and distribution of consumer complaints between regulators
Allows consumers a full refund if the originator is found to have engaged in unethical acts. The S.A.F.E. Act includes provisions to enhance professional standards within the mortgage industry by imposing licensing requirements, providing consumers access to information about licensees at no charge through its online registry, and facilitating the collection and disbursement of consumer complaints on behalf of state and federal mortgage regulators. While the S.A.F.E. Act does have provisions ensuring compensation to victims of mortgage law violations, it does not guarantee such consumers a full refund in all cases of unethical conduct.
Which of the following best describes the market approach to appraisal? - A guarantee of value from the appraiser derived by using comparable sales of like properties - An estimate of market value derived by comparing the subject property to similar properties which have sold - A comparison of similar properties within two miles of the subject property - An estimate of value using projected cash flow from the subject property
An estimate of market value derived by comparing the subject property to similar properties which have sold. The market or market data approach, also called the sales comparison approach, bases the value of a property on the prices paid for similar, or comparable, properties in the area that have sold recently. It is the most reliable method for appraising single-family homes and land.
Considering the definitions provided by the S.A.F.E. Act, which of the following mortgage industry professionals may legally communicate with a consumer to obtain the information necessary to process a loan application? - A state-licensed loan originator - An unlicensed loan processor - An unlicensed underwriter - Any of these
Any of these. An unlicensed loan processor or underwriter may obtain and analyze information (such as verifications of income, employment, and deposits) needed in processing and underwriting a residential mortgage loan, and communicate with consumers in order to obtain that information. However, loan processors or underwriters may not take applications or offer, negotiate, or counsel the consumer about residential loan rates or terms; only licensed loan originators are permitted to do so.
What two main aspects of a loan application does an underwriter examine to determine if lender guidelines are being met? - Applicant and collateral - Applicant and credit - Credit and income -Credit and collateral
Applicant and collateral. Underwriting is the process of deciding whether to make a loan based on credit, employment, assets, and other factors. To ensure that loans are marketable in the secondary market, the underwriter assesses the borrower's ability and willingness to repay and the property's ability to serve as collateral for the debt.
For a face-to-face referral, an affiliate business relationship must be disclosed: - At or before the time of the referral - At the time of the loan application - Within three days of the loan application - Within three days of the referral
At or before the time of the 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 the referral is made (if in person, writing, or electronically), within three business days after a referral made by telephone (provided an abbreviated verbal disclosure of the existence of the arrangement and the fact that a written disclosure will be provided within three business days is made during the telephone referral), or at the time the Loan Estimate is provided, in the case of a referral by a lender (including one to an affiliated lender).
Under the Fair Housing Act: - Lending decisions cannot be made based on residency status - Charging different fees based on race is prohibited - Lenders must provide clear, plain-language disclosures - Lenders are required to report demographic information to the federal government
Charging different fees based on race is prohibited. The Fair Housing Act prohibits discrimination in the sale, rental, and financing of any residential housing based on race, color, religion, national origin, sex, familial status, or mental or physical handicap, and therefore, prohibits charging different fees based on race. Residency status is not a protected category under the Fair Housing Act. Disclosure requirements are not imposed by the Fair Housing Act. Government reporting requirements are covered under the Home Mortgage Disclosure Act (HMDA).
The agency that focuses its actions directly on consumers, consolidates responsibilities and supervision of financial entities, products, and services, and protects consumers from unfair, deceptive, and abusive acts and practices is the: - Consumer Protection Agency - Consumer Financial Protection Bureau - Federal Housing Administration - Department of Housing and Urban Development
Consumer Financial Protection Bureau. The mission of the CFPB is to make markets for consumer financial products and services work for Americans. It is focused on one goal: watching out for American consumers in the market for consumer financial products and services. This includes ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families by making sure prices are clear upfront, risks are visible, and nothing is concealed in fine print. A working market allows consumers to make direct comparisons among products and prohibits providers from using unfair, deceptive, or abusive practices.
Which of the following approaches to appraisal is most likely to include depreciation to the improvements? - Market - Comparable - Cost - Income
Cost. The cost approach can be used for any property, but because of the knowledge of construction costs that is required, it is most often used to appraise value for new buildings, where costs are easy to obtain, and for properties such as churches and public service buildings, which cannot be compared to others that have sold or to those that produce income. The appraiser estimates the value of the land and the depreciated value of the improvements on the land separately, and then adds the two values to arrive at an estimate of the property's total value. The depreciated value is equal to the cost to replace or reproduce the improvements less depreciation.
Fiduciary duties include all but which of the following? - Loyalty - Good faith - Creating a zero-cost borrower credit - Putting the borrower's interests first
Creating a zero-cost borrower credit. A licensee's fiduciary duties toward a client include loyalty and good faith, disclosure of material facts, and holding the client's interests above those of the licensee.
Which of the following can be used by state regulators to determine whether a licensee demonstrates the financial responsibility and general fitness to command the confidence of the community to engage in the mortgage business? - Credit report, net worth, payment of federal licensing fees - Credit report, net worth, surety bond, payment into a state fund - Credit report, surety bond, payment of exemption fees - Credit report, payment into a professional fund, $1 million credit line
Credit report, net worth, surety bond, payment into a state fund. The S.A.F.E. Act mandates that states include a minimum net worth requirement or surety bond requirement for applicants, or require the applicant to pay into a state recovery fund. Licensing requirements also include criminal history and credit background checks, including a credit report. These are all factors used to establish a licensee's financial responsibility and general fitness.
Which of the following can usually be added to a self-employed borrower's net income from the borrower's tax returns when calculating the borrower's income? - Total from IRS 2106 - Depreciation - Total from IRS 4506 - State taxes paid
Depreciation. For a sole proprietorship (a self-employed borrower), the income, expenses, and taxable profits are reported on the Profit or Loss from Business (Schedule C) on the owner's individual tax return (IRS Form 1040). The individual's actual income would be the net income shown on the Schedule C, plus any recurring capital gains or non-cash expenses, such as depletion and depreciation, that was deducted in arriving at the adjusted income, since the borrower did not actually have to spend the amount claimed for non-cash expenses.
When must a borrower receive notice of whether loan servicing can be assigned, sold, or transferred? - Never - this disclosure is not required - Within 30 days of the transfer of servicing - Within 15 days of the transfer of servicing - Either at the time of application or within three business days of application
Either at the time of application or within three business days of application. A mortgage 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. It must be delivered to the borrower at application or within three business days.
Which of the following does not control the discount that may be charged on permanent buydowns? - Financial markets - Lenders - Federal Reserve - Mortgage companies
Federal Reserve. A permanent buydown is a payment of discount points to lower the interest rate for the entire term of the mortgage. One discount point is equal to 1% of the loan amount. The interest rate reduction received for buying points is not set and depends on individual lenders and the financial marketplace, rather than being determined by the Federal Reserve.
Under TILA's rules in regard to higher-priced loans, a creditor or servicer may cancel an escrow account only upon the earlier of termination of the underlying debt obligation or _____ years after the loan was consummated, at the request of the consumer. - Two - Five - Three - Seven
Five. In regard to higher-priced mortgage loans, under TILA and Regulation Z, a creditor or servicer may cancel an escrow account only upon the earlier of termination of the underlying debt obligation or five years after the loan was consummated, at the request of the consumer.
Which behavior involves conspiratorial involvement of individuals using the mortgage market to benefit financially from criminal behavior? - Flipping - Fraud for profit - Money laundering - Identity theft
Fraud for profit. Fraud for profit may involve a number of persons, such as sellers, mortgage loan originators (including mortgage brokers and lenders and their individual mortgage loan originators), real estate brokers, appraisers, builders, and developers, who conspire to inflate property values and therefore loan amounts.
A lender's title insurance policy would insure against all of the following, except: - Future tax liens - Mechanic's liens - Judgments - Undisclosed encumbrances
Future tax liens. A lender's title insurance policy insures the lender or mortgagee against loss caused by a borrower's invalid title or loss of priority of the mortgage or deed of trust due to legal claims based on undisclosed encumbrances. Title insurance protects the lender against losses caused by problems that arose prior to the purchase of the property, such as mechanic's liens, judgments, and covenants and restrictions. It would not cover future tax liens.
This term refers to the practice of adjusting certain types of non-taxable income during underwriting. - Flopping - Inflating - Ballparking - Grossing up
Grossing up. Certain types of income may be grossed-up during underwriting. Underwriters may gross-up Social Security income, child support, and some other forms of income, subject to limitations based on product type and other guidelines.
Which of the following is least likely to be held in an escrow or reserve account? - HOA fees - Mortgage insurance premium - Hazard insurance reserve - Property tax reserve
HOA fees. In addition to principal and interest, a borrower's monthly mortgage payment may also include a reserve payment (also known as an escrow or impound payment) that represents approximately 1/12 of the estimated annual hazard and flood insurance premiums, mortgage insurance premiums, and property taxes. While some escrow accounts may include assessments for special improvements, homeowners' association fees, and other recurring charges, these are not a standard component of the escrow account.
Even before the adoption of the Dodd-Frank Act and the Ability to Repay Rule, which of the following federal laws created specific requirements for the verification and documentation of a borrower's repayment ability? - Home Ownership and Equity Protection Act - Real Estate Settlement Procedures Act - Fair and Accurate Credit Transactions Act - Equal Credit Opportunity Act
Home Ownership and Equity Protection Act. A lender may not extend credit subject to HOEPA based on the value of the consumer's collateral without regard to his/her repayment ability as of the date of consummation, including consideration of his/her current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations (i.e., expected property taxes, premiums for mortgage-related insurance required by the lender, and similar expenses). This prohibition does not apply to temporary (bridge) loans that have terms of 12 months or less.
A lender may charge a borrower for an appraisal fee once the borrower has received the Loan Estimate and: - The Closing Disclosure - Indicated an intent to proceed with the loan - Paid a credit report fee - Met with a financial counselor
Indicated an intent to proceed with the loan. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating an intent to proceed with the loan. Once this occurs, there is no additional waiting period before the lender may charge a fee, such as an appraisal fee.
Which of the following would not be on a deed of trust? - Legal description - Loan amount - Interest rate - Borrower's name
Interest rate. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. The mortgage or trust deed secures repayment of the note. Housing costs, including principal, interest, taxes, and insurance, are not typically specified on the deed of trust.
Under HOEPA, verifying the consumer's repayment ability in an open-end, high-cost mortgage: - Is recommended, but not required - Is based on verifying income, assets, and current obligations - Is based on the borrower's notarized financial statement - Must be carried out by an independent third party
Is based on verifying income, assets, and current obligations. A lender extending mortgage credit subject to HOEPA in an open-end high-cost mortgage may not extend credit based on the value of the consumer's collateral without regard to repayment ability as of the date of consummation, including consideration of current and reasonably-expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations (i.e., expected property taxes, premiums for mortgage-related insurance required by the lender, and similar expenses). This prohibition does not apply to temporary (bridge) loans that have terms of 12 months or less.
When the term "jumbo loan" is used to describe a loan, the loan: - Is subprime - Is nonconforming - Always has a high interest rate - Has a high loan-to-value ratio
Is nonconforming. Conventional loans that conform to the eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and Freddie Mac have a maximum loan limit for loans they will purchase, which is adjusted annually. Loans to persons with satisfactory credit but that exceed this loan limit are called jumbo loans or nonconforming loans.
Each of the following is true about the Department of Housing and Urban Development (HUD), except: - The Federal Housing Administration, with its liberal-eligibility FHA loan programs, operates under HUD's authority - It provides or makes referrals related to housing counseling for loan applicants seeking a HECM or high-cost home loan - Public housing and multi-family housing fall under its purview - It has a major role in overseeing the mortgage industry
It has a major role in overseeing the mortgage industry. Although the federal Department of Housing and Urban Development (HUD) no longer oversees the mortgage industry (that job has been taken over by the Consumer Financial Protection Bureau, or CFPB), it continues to operate in a number of important areas relating to housing. These areas include programs related to community planning and development, public housing and multi-family housing, and providing counseling for those seeking to purchase a home. The Federal Housing Administration (FHA) also operates under HUD; the FHA sponsors loan programs with relatively liberal qualification requirements, insuring financial institutions that offer loans to individuals who might not qualify for a prime loan.
Which of the following is true regarding a borrower's intent to proceed with a mortgage transaction as required under federal rule? - It must be communicated in writing - It may be communicated however the borrower chooses - It may not be communicated via email - It may not be communicated verbally
It may be communicated however the borrower chooses. A prospective borrower can indicate his/her intent to proceed with a loan in a number of ways, including orally, in person, at the time the Loan Estimate is delivered; by telephone; and in a written communication via e-mail. However, the applicant's silence (i.e., failure to communicate that he/she will not proceed) may not be used as an indication of intent to proceed.
Which of the following is not a requirement for the servicing notice given in the event of a transfer of servicing? - It must include contact information for the current lender - It must be given within 30 days of the transfer - It must include contact information for the new lender - It must inform the borrowers they may make payments to either lender for 60 days
It must be given within 30 days of the transfer. When a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower must be sent a servicing transfer statement at least 15 days before the effective date of the servicing transfer. This statement must show the name, address, and toll-free telephone numbers of both the old servicer and the new servicer, as well as the date on which the new servicer will begin accepting payments. The statement also informs the borrower that he or she cannot be penalized for making a timely payment to the prior servicer within 60 days of the servicing transfer.
Which of the following best describes the benefit of mortgage insurance to the borrower? - Reduced hazard insurance premiums - Lower down payment requirements - Mortgage insurance only benefits the lender - Relaxed underwriting conditions
Lower down payment requirements. So that he/she may get a loan with a small down payment, a borrower pays a mortgage insurance premium either as a lump sum at closing covering the life of the loan, or by paying the first year's premium at closing and then paying annual premiums as part of the mortgage payment. The amount of the premium is a percentage of the loan amount based on the borrower's down payment.
A homeowner with an FHA loan would like to sell his home and allow the buyer to assume the existing mortgage. However, he is concerned about violating a due-on-sale clause. Is a due-on-sale clause allowed under the terms of the loan? - No, because the loan is assumable - Yes, because the loan is assumable - Yes, because the loan is an FHA loan - No, because seller financing is illegal
No, because the loan is assumable. A due-on-sale (alienation) clause allows the lender to declare the entire balance of the loan due when the property is sold or transferred. This means that the loan may NOT be assumed. Since FHA and VA loans are generally assumable, a due-on-sale clause would not be included in the security instrument.
An advertisement states "Buy for less than rent." Which of the following must be disclosed under Regulation Z? - Down payment - Loan amount - APR - None of the choices
None of the choices. Under Regulation Z, an ad must disclose a number of additional credit terms if it contains a trigger (or triggering) term, which is any of a number of credit terms specifically cited in an ad. Since in this case the ad does not cite any specific credit terms, no further disclosures are required.
Which of the following is not among the initial disclosures that must currently be provided to a mortgage loan applicant? - Notice of Right to Cancel - Mortgage Servicing Disclosure - Loan Estimate - Special Information Booklet
Notice of Right to Cancel. While the Loan Estimate, Mortgage Servicing Disclosure, and Special Information Booklet are all among the initial disclosures that must be delivered to a mortgage loan applicant, the Notice of Right to Cancel is provided at closing.
Under RESPA, the servicer may require a borrower to pay into an escrow account to cover disbursements that are unanticipated or disbursements made before the borrower's monthly payments are available in the account, a cushion or reserve that must be no greater than _____ of the estimated total annual disbursements from the escrow account. - One half - One third - One sixth - One twelfth
One sixth. Under RESPA, a lender may require the borrower to establish an escrow account at closing. The loan servicer may require a borrower to pay into the account to cover disbursements that are unanticipated or disbursements made before the borrower's monthly payments are available in the account. This is the escrow cushion or reserve, which must be no greater than one sixth of the estimated total annual disbursements from the escrow account.
Finance charges that are withheld from the proceeds of the loan are considered to be: - P.O.C. charges - Third-party fees - Prepaid finance charges - Periodic interest charges
Prepaid finance charges. A prepaid finance charge (PFC) is any finance charge paid separately, in cash or by check, before or at consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower (not a third party) that must be included in computing the annual percentage rate.
The licensing requirements of the S.A.F.E. Act require all but which of the following? - Registered MLOs must complete 20 hours of pre-licensing education - Registration with the NMLS - Successfully pass federal and applicable state components of a test with at least a 75% score - Use of a unique identifier on all advertising materials
Registered MLOs must complete 20 hours of pre-licensing education. The S.A.F.E. Act includes requirements for registration with the NMLS, pre-licensing education and federal and state testing, and obtaining and displaying a unique identifier on documents, including advertising materials. Pre-licensing education requirements pertain to state-licensed loan originators, not to registered loan originators, who are not subject to licensing requirements.
Which federal law specifically requires a mortgage loan originator to obtain eight hours of education annually? - S.A.F.E. Act - RESPA - Section 10 - HERA
S.A.F.E. Act
Which federal law requires individuals to pass a written exam in order to obtain a mortgage loan originator license? - Housing and Economic Recovery Act - Mortgage Professionalism and Accountability Act - Mortgage Disclosure Improvement Act - Secure and Fair Enforcement for Mortgage Licensing Act
Secure and Fair Enforcement for Mortgage Licensing Act. Under the Secure and Fair Enforcement for Mortgage Licensing Act (the SAFE Act), an applicant for a mortgage loan originator license must pass a written national test developed by the NMLS and administered by an approved test provider that covers ethics, federal and state law, and regulations pertaining to mortgage origination, fraud, consumer protection, the nontraditional mortgage marketplace, and fair lending issues. To pass, the individual must achieve a test score of at least 75%
Stan has been in his house for 15 years and built up $100,000 in equity. He decides to do some remodeling and pay off some bills, and he wants to use a closed-end home equity loan to pay for it. He meets with Lending Guys and, because he has a great credit history, gets loan approval right away. Two weeks later he signs the documents. Which of the following is true? - Stan may rescind the loan at any time during the term of the loan - Stan's loan is not subject to provisions of the Real Estate Settlement Procedures Act - Stan may rescind the loan within 3 business days of consummation - Stan was required to provide Lending Guys with a Certificate of Completion prior to signing his final documents, indicating that he has completed homeownership counseling with a HUD-approved provider
Stan may rescind the loan within 3 business days of consummation. A borrower refinancing a primary dwelling with an open or closed end loan may cancel (rescind) the loan within 3 business days following closing. This right does not extend to the entire term. A borrower is NOT required to complete homeownership counseling unless the loan is a high-cost home loan.
For an FHA loan that requires MIP, the annual mortgage insurance premium (payable monthly as part of the mortgage payment), is based on all of the following, except: - Loan term - State in which the subject property is located - LTV - Loan program
State in which the subject property is located. The FHA funds insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable (except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the loan-to-value (LTV) ratio.
Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet the requirements of the Act, while overall responsibility for interpretation, implementation, and compliance currently lies with: - The NMLS - The Federal Reserve - HUD - The CFPB
The CFPB. Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet S.A.F.E. Act requirements. Overall responsibility for interpretation, implementation, and compliance with the S.A.F.E. Act was originally delegated to the U.S. Department of Housing and Urban Development (HUD). However, effective July 21, 2011, all of HUD's authorities and duties were delegated to the Consumer Financial Protection Bureau (CFPB).
Which of the following does not appear in the Loan Estimate? - The anticipated ARM rates for the first five years - The loan term - Whether the subject loan is assumable - The property purchase price
The anticipated ARM rates for the first five years. In the heading of the Loan Estimate, the licensee must indicate the property address and its sale price, as well as the loan's term. The Other Considerations table provides the applicant with information on appraisals, the homeowner's insurance requirement, the lender's late payment policy, loan servicing information, and whether the loan may be assumed or refinanced. Anticipated ARM rates for the first five years of the loan are not disclosed, although the total the applicant will have paid in principal, interest, mortgage insurance, and loan costs for that time period is, in the Comparisons table.
If a mortgage broker decides to use telemarketing to establish leads for loan origination, which of the following should occur? - The broker should obtain access to the Do-Not-Call Registry - The broker should invest in a state-of-the-art predictive dialer - The broker should only call former and current customers to ask for referrals - The broker should stop calling current customers unless they have given consent
The broker should obtain access to the Do-Not-Call Registry. The national Do-Not-Call Registry enables consumers to register their phone numbers as numbers not to be called by telemarketers. A company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an established business relationship exists. However, if such a consumer asks not to be contacted, the company must enter that person on their own do-not-call list of such consumers.
According to federal law, which of the following circumstances would require the lender to drop a borrower's private mortgage insurance (PMI) without the borrower's request? - The current principal balance is 80% of the original purchase price - The current principal balance is 78% of the original purchase price - The current principal balance is 75% of the current appraised value - The current principal balance is 70% of the current appraised value
The current principal balance is 78% of the original purchase price. Federal law requires automatic termination of PMI on the date when the principal balance is scheduled to reach 78% of the original purchase price. For PMI to be cancelled on that date, the borrower needs to be current on payments on the anticipated termination date.
A lender's prime rate is determined by: - The Federal Reserve - Federal law - The lender itself - The National Association of Underwriters
The lender itself. While interest rates are affected by actions taken by the Federal Reserve (the Fed), the Federal Reserve does not directly influence the interest rates that lenders charge borrowers. Each lender will set its own prime rates (i.e., the lowest rates it charges for its best customers), as well as rates for loans to other customers based on its costs and desired profit margin.
Under which of the following situations would an appraiser use the income approach to appraise a property? - The property is in an area which is primarily rental properties - All comparable sales for the property are rental properties - The new buyer is going to use the property as a rental property - The property is being used by the seller as an investment property
The new buyer is going to use the property as a rental property. The income (or capitalization) approach is used to appraise properties that produce rental income (e.g., apartments, office buildings, and rental units). It bases the value of the property on the net income the owner will receive and a rate of return (capitalization rate) the owner should find acceptable. The estimated net income is calculated by subtracting an allowance for vacancies and bad debts from scheduled gross income to arrive at effective gross income, and then subtracting fixed expenses, operating expenses, and reserves to replace items that will wear out.
A borrower is refinancing their first mortgage, but leaving their second mortgage in place. Which of the following is true? - The second mortgage holder will need to agree to a subordination - This will not be possible due to lien priority - The second lien holder will need to reconvey - The second lien holder will need to abrogate
The second mortgage holder will need to agree to a subordination. A mortgage is a second mortgage when it is recorded after another mortgage that is still outstanding on the same property; or when it has a subordination clause specifying that it has lower priority (i.e., is subordinate) even though it may have had priority based on its date of recording, or will remain subordinate in the event that the first mortgage is refinanced. In order to preserve lien priority under the circumstances described, the second mortgage holder will need to agree to a subordination clause.
If a borrower waives the right to receive a copy of an appraisal: - They must receive a copy within 30 days of closing - The lender is never required to give the borrower a copy of the appraisal - They must receive a copy seven days before closing - They must receive a copy at or before consummation
They must receive a copy at or before consummation. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. An applicant may waive the timing requirement and agree to receive a copy at or before consummation or account opening.
Which of the following is true regarding a lender's ability to collect an appraisal fee? - This is not allowed until closing - This is allowed as long as the borrower has received the Loan Estimate and expressed an intent to proceed - This is allowed as long as the borrower has expressed an intent to proceed - This is allowed as long as the Loan Estimate has been mailed
This is allowed as long as the borrower has received the Loan Estimate and expressed an intent to proceed. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating an intent to proceed with the loan.
Which of the following fees would NOT be used in calculating the APR? - Closing fee - Underwriting fee - Mortgage insurance - Title insurance
Title insurance. The annual percentage rate (APR) represents the relationship of the total finance charge to the total amount financed, as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. Among other charges, finance charges include points, loan fees, and mortgage insurance premiums, but not title insurance premiums.
What is the maximum cushion that servicers can hold in a borrower's reserve account? - Two months' taxes, one month insurance - One month taxes, one month insurance - Two months' taxes, two months' insurance - Whatever the lender deems as "reasonable under the circumstances"
Two months' taxes, two months' insurance. A borrower's monthly mortgage payment may include a reserve payment (also known as an escrow or impound payment) that represents approximately 112112 of the estimated annual hazard and flood insurance premiums and property taxes. When there is need of an account, the borrower may be required to make an initial deposit into the reserve account at settlement to ensure that the regular monthly deposits will accumulate enough to pay the property taxes, insurance premiums, or other charges when they are due. The maximum amount that a lender can collect for this deposit cannot exceed the sum of an amount sufficient to pay taxes, insurance premiums, or other charges up to the due date of the new loan's first full monthly mortgage installment payment, plus an additional amount sufficient to pay future estimated taxes, insurance premiums, and other charges, not in excess of two months' worth, which is 1616 of the estimated charges for the following 12 months.
What is the specific distinction between state-licensed and registered loan originators? - Unlike state-licensed loan originators, registered loan originators are exempt from licensing requirements - State-licensed loan originators are only allowed to originate in the states in which they hold a license, while registered loan originators may obtain one license and conduct business anywhere - Only state-licensed loan originators carry a unique identifier - Registered loan originators need only ten hours of pre-licensing education, while state-licensed loan originators need 20 hours
Unlike state-licensed originators, registered originators are exempt from licensing requirements. A registered mortgage loan originator is an individual who meets the requirements of a mortgage loan originator, is an employee of a covered financial institution, is registered with the NMLS, and maintains an NMLS unique identifier. Unlike state-licensed originators, registered originators are exempt from licensing requirements.
Which of the following is true concerning the refundability of a VA funding fee? - VA funding fees are refundable if the borrower is overcharged - VA funding fees are refundable if the borrower is active military - VA funding fees are never refundable - VA funding fees are refundable if the borrower is a wounded veteran
VA funding fees are refundable if the borrower is overcharged. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender's exposure to loss in the event of a borrower's default that results in foreclosure. However, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed, instead of a mortgage insurance premium. The funding fee is only refundable if the borrower was overcharged. There are some exceptions to the imposition of a funding fee, including for veterans with disabilities. A veteran receiving VA compensation for a service-connected disability is exempt from the fee requirement.
The residual income method applies to which of the following types of loans? - Jumbo - Conventional - VA - FHA
VA. The VA uses two methods for qualifying its borrowers: a 41% debt-to-income ratio (including housing and fixed debt), and the residual income method, which determines whether the veteran has enough income after paying fixed debts to cover daily living expenses. This method can qualify a borrower whose ratio might exceed the 41% limit.
