Quiz 5: Federal Laws Governing Mortgage Practice

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

A creditor may not finance any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling (including home equity lines of credit [HELOCs]). However, this prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Age may be considered when applicants are younger than 18 years of age and too young to sign contracts

RESPA is administered by Federal Reserve. FEMA. The Consumer Financial Protection Bureau FTC.

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

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

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

Compared to a loan without a prepayment penalty, a loan with a prepayment penalty will generally have lower loan fees. a higher interest rate. a lower interest rate. higher loan fees.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

GLBA requires that the consumer be given reasonable means and a reasonable opportunity to opt out, but does not impose a specific period of time.

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

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

While it is unlawful to consider race when underwriting a loan, what federal legislation requires that this information be included on the loan application? Truth in Lending Act Fair Credit Reporting Act Home Mortgage Disclosure Act Equal Credit Opportunity Act

HMDA requires mortgage loan originators completing the application to provide information regarding ethnicity, race, and sex on the application for HMDA reporting.

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

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

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

Negative amortization is prohibited under HOEPA and Regulation Z.

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

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

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

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

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

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

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

Payment for a referral to a settlement service provider such as a real estate agent violates RESPA.

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

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

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

RESPA banned a number of practices involving kickbacks, fee splitting, and unearned fees by parties involved in or related to a real estate transaction.

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

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

RESPA limits or prohibits all of the following, EXCEPT: delivery time on required info for the applicant. kickbacks and referral fees. amount of funds required by the borrower to hold in escrow. amount paid for origination fees

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

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

RESPA requires that a lender or mortgage broker provide the borrower with a special information booklet prepared by HUD within three business days of receiving a mortgage loan application.

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

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

An applicant for a real estate loan cannot be asked about their ethnicity. income. liabilities. religion.

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

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

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

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

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

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

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

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

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

The Truth in Lending Act applies to commercial loans. home loans. agricultural loans. business loans.

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

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

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

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

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

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

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

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

TILA was originally enacted to provide accurate and truthful information to consumers relating to the cost and terms of credit being offered so they may more easily compare various loan products

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

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

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

The Disposal Rule, a part of the Fair and Accurate Credit Transactions Act (FACTA), regulates the way consumer information is disposed of, and is intended to protect consumer

Which of the following is NOT included as a protected class by the Equal Credit Opportunity Act? receipt of public assistance marital status veteran status religion

The Equal Credit Opportunity Act (ECOA) prohibits discrimination in all credit transactions based on 1) Race, 2) Color, 3) National origin, 4) Religion, 5) Sex, 6) Marital status, 7) Age, provided the applicant has the legal capacity to enter into a contract, 8) The applicant's receipt of income from public assistance programs, and 9) The applicant's right under the Consumer Credit Protection Act to exercise in good faith any right provided for in that act. Veteran status is not an ECOA-protected class.

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

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

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

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

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

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

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

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

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

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

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

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

Which is NOT a purpose for the Mortgage Servicing Disclosure Statement? To inform the consumer the likelihood that the servicing of the mortgage will be sold To inform the consumer the possibility that the mortgage could be sold To inform borrowers that they have certain rights under federal law To inform the borrower that the lender will not be transferring the servicing of the loan

The Servicing Disclosure Statement discloses whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding. It does not cover whether the lender can sell the loan itself.

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

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

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

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

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

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

Which law governs residential mortgage loan closings? GLBA HMDA TILA RESPA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The purpose of ECOA is to enable all potential borrowers, have an equal opportunity to obtain credit.

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

The purpose of the Safeguards Rule is to require financial institutions protect their clients NPI by developing and executing policies and procedures designed to manage and secure private data.

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

The purpose of the Safeguards Rule is to require financial institutions protect their clients' non-public personal information (NPI) by developing and executing policies and procedures designed to manage and secure private data.

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

The reason for the rejection must be specific. A statement of failure to meet requirements is not.

In Regulation X, the term loan originator applies to a loan processor. a mortgage broker only. a mortgage lender only. a mortgage broker or mortgage lender.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Under TILA's Qualified Mortgage (QM) Rule, a QM of $325,750 may not have points and fees that exceed _______ of the total loan amount. 3% 4% 5% 6%

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

The pricing model used for subprime loans has been cost based. index based. risk based. uniform.

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

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

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

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

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

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

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

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

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

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

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