NMLS 3
If a mortgage balance is $215,000 and there is a home equity line of credit in a subordinate lien position possessing a line amount of $55,000 and an outstanding balance of $0.00, what is the CLTV if the home is worth $475,000? a) 56% b) 45% c) 19% d) 21%
pay attn: CLTV VS TLTV Answer: b) The CLTV constitutes all outstanding debt in relation to the subject property's appraised value. Since the line of credit does not have an outstanding balance, the LTV of 45% is the same as the CLTV (215,000 + 0 = 215,000 / 475,000).
If a borrower's total expense ratio is 45%, her gross monthly income is $12,500, and the housing expense amounts to $1,575, how much is her remaining expense? a) $4,050 b) $5,625 c) $10,925 d) $3,500 .
Answer: a) All expenses consume 45% of the borrower's gross monthly income. If the income is $12,500, 45% of that equates to $5,625. If the housing expense consumes $1,575 of the $5,625, the remaining $4,050 is the amount constituting her remaining expense
Which of the following disclosures is not required by RESPA for a refinance transaction? a) HUD's Home Loan Toolkit b) Loan Estimate c) Mortgage Servicing Disclosure Statement d) ABAD
Answer: a) Although RESPA requires the issuance of HUD's Home Loan Toolkit, it is only required for purchase-money transactions. The Loan Estimate and Mortgage Servicing Disclosure Statement are required on all transactions, and the ABAD is only required after a referral to a service provider in which the referring party has an ownership interest of 1% or greater or vice versa.
All but which of the following conditions would instigate the repayment of a reverse mortgage? a) One of the two borrowers passes away b) The borrower temporarily relocates to a rehabilitation facility for eighteen months c) Delinquent real estate taxes d) The local municipality exercises its rights under eminent domain
Answer: a) Although a reverse mortgage will become due and payable upon the death of a borrower, if one borrower dies but leaves a surviving borrower, the loan stays in effect. The loan would become due and payable upon the passing of all obligated borrowers and their spouses. Vacating the property for more than one year, allowing real estate taxes to become delinquent, and the exercising of eminent domain would all trigger the repayment of a reverse mortgage.
The Loan Originator Compensation Rule: a) Ensures the proper application of loan proceeds b) Guarantees that the borrower receives the lowest possible interest rate c) Requires that loan originators earn fair compensation for the work they perform d) Defines the compensation amount earned for each loan
Answer: a) Among other things, the Loan Originator Compensation Rule requires that any money resulting from the utilization of above-par pricing gets fully credited to the customer at closing. Prior to this rule, loan originators would often sell higher-than-market interest rates to customers and pocket resulting the "overages." Because of this rule, that practice that is no longer permitted.
Which of the following is permissible under the Equal Credit Opportunity Act? a) Asking an applicant to define her race b) Asking about a woman's intention to have more children since the expenses associated with additional children may adversely affect her ability to repay the debt c) Asking an applicant whether or not he is divorced after he discloses alimony payments as one of his liabilities d) Asking the applicant of what country she is a citizen
Answer: a) As an exception to accommodate HMDA, ECOA allows mortgage loan originators to ask their customers to self-define their race, national origin, and sex. Inquiring about an individual's intention to procreate is never acceptable nor is asking an applicant to elaborate about their marital status. Although applicants are required to define themselves as U.S. citizens, permanent resident aliens, or otherwise justify their legitimate presence in the United States, inquiring as to the country of their citizenship is never permitted.
Temporarily adding someone's name to a bank account that they do not technically own in order to provide them with enough assets to qualify for a mortgage is known as: a) Asset renting b) Chunking c) Straw buying d) Committing identity theft
Answer: a) Asset renting is fraudulently representing ownership of funds to enhance one's ability to qualify for financing
Which of the following loans would be exempt from HOEPA coverage? a) A purchase-money mortgage securitizing a vacation property b) A primary-residential home purchase c) A primary-residential home equity loan d) A primary-residential refinance
Answer: a) HOEPA applies to primary-residential purchase-money mortgages, refinances, closed-ended home equity loans, and open-ended credit plans. Loans exempt from HOEPA coverage consist of reverse mortgages, construction loans (initial construction phase only), loans originated and directly financed by a Housing Finance Agency (HFA), loans originated under the U.S. Department of Agriculture's Rural Development Loan Program, and mortgages secured by vacation or second homes and investment properties.
An office clerk earns an annual salary of $45,000 by working a 40-hour work week with a 1/2-hour unpaid lunch period each day. What is his hourly rate of pay? a) $23.07 b) $21.63 c) $23.43 d) $28.12
Answer: a) If the clerk earns $45,000 annually, this translates to $865.38 weekly (45,000 / 52). The weekly rate of $865.38 is then divided by 37.5 (since each day includes a 1/2-hour unpaid lunch break) to calculate his hourly rate of $23.07.
What is a potential drawback associated with a bi-weekly mortgage? a) Lenders and mortgage servicers generally charge a one-time and/or periodic fee to manage this service b) The loan term is accelerated c) The borrower saves money on interest d) The borrower builds equity at an accelerated pace
Answer: a) Lenders and mortgage servicers generally charge a one-time and/or periodic service fee to transform a borrower's loan to and maintain it on a bi-weekly payment schedule. The borrower can achieve the same results, without any added expense, by remitting one extra monthly payment directly against the principal balance each calendar year.
Which of the following is an example of disparate treatment? a) A mortgage company located in an Asian community only conducts business in English b) A mortgage originator who only speaks English refers an applicant to a colleague who speaks the customer's native language c) A mortgage originator refuses to work with anyone who is not a U.S. citizen d) An east coast mortgage company does not operate after 5:00 p.m. EST
Answer: a) Only conducting business in English is not disparate treatment in and of itself. What causes it to potentially and adversely affect a particular population subset and be considered disparate treatment is the fact that the company is located in an Asian community. By only offering services in English, while located within an Asian community, the Asian population who may not speak English may be adversely affected. The loan originator who refers a customer who does not speak their language is not committing any type of offense because she does not speak their language. She is going the extra mile by referring that customer to someone with whom they can work. Refusing to work with non-U.S. citizens is an example of discrimination not disparate treatment. Operating up until 5:00 p.m. EST is fine because it affects all potential customers nationwide, not just some
An aggregate escrow analysis identifies an overage in the amount of $35.00. What must the servicer do? a) Nothing b) Refund the $35.00 to the borrower c) Reduce the borrower's next mortgage payment by $35.00 d) Apply the $35.00 towards outstanding late charges
Answer: a) RESPA requires mortgage servicers to refund escrow overages amounting to $50.00 or more in the form of a credit to the next periodic mortgage payment or via check to the borrower. Although the servicer may opt to refund the $35.00 overage, it isn't compelled to do anything since overages of less than $50.00 may stay in escrow to be absorbed by future shortages or added to future overages.
Which of the following credit score ranges affords the applicant access to standard mortgage pricing? a) 740+ b) 680 - 739 c) 640 - 679 d) 620 - 639
Answer: a) Standard mortgage pricing is the pricing associated with the highest credit scores. Lower scores result in higher pricing to offset risk.
An individual falsely representing an ownership interest in and the right to sell a property is known as a: a) Straw seller b) Property flipper c) Straw buyer d) Conspirator
Answer: a) Straw sellers falsely claim ownership to a property for a fee and often appear at closings to act as the legitimate seller.
Which regulation governs the issuance of the CHARM? a) TILA b) RESPA c) ECOA d) HMDA
Answer: a) TILA requires that a Consumer Handbook on Adjustable Rate Mortgages (CHARM) be issued within three days of an application for a closed-ended ARM.
Which of the following is an example of a non-conforming loan? a) NINA b) 30-year fixed, fully qualifying c) 15-year fixed, fully qualifying d) 5/1 ARM, fully qualifying
Answer: a) The NINA stands for "no income/no asset." It does not conform to FNMA or FHLMC underwriting parameters since the applicant does not have to demonstrate qualification beyond having employment and quality credit.
The FHA was established in 1934 as a result of the: a) National Housing Act b) Federal Housing Act c) Federal Housing Administration d) Depository Institutions Deregulation and Monetary Control Act
Answer: a) The National Housing Act, establishing the FHA, was one of the federal government's responses to improve conditions resulting from the Great Depression.
A property contains a first mortgage carrying a balance of $180,000 and a home equity line of credit carrying an outstanding balance of $27,000 with a line amount of $33,000. If the TLTV is 71%, what is the property value? a) $300,000 b) $291,550 c) $338,000 d) $262,000
Answer: a) The sum of all encumbrances equates to 71% of the property value. The mortgage balance of $180,000 plus the line amount of $33,000 totals $213,000. The total encumbrance of $213,000 divided by 71% concludes a property value of $300,000.
All refinances must demonstrate: a) A net tangible benefit to the borrower b) A reduction in rate, term, or payment c) No unilateral benefit to the lender d) Cash back to the borrower of no more than 2% of the loan's proceeds
Answer: a) To ensure that borrowers are not being pressured into unnecessarily refinancing for the sole benefit of the lender and/or loan originator, all refinances must demonstrate a net tangible benefit to the borrower. Underwriters must complete a tangible net benefit worksheet for all refinance applications underwritten
MLO Monica is refinancing the only mortgage secured by her customer's primary residence. She just realized that the APR of the interest rate that her customer locked exceeds the APOR by 1.625%. Which of the following statements now applies? a) An escrow account is mandatory b) A 2055 drive-by appraisal is sufficient c) MLO Monica must offer a lower rate to her borrower d) The three-day right to rescind is now extended to three years
Answer: a) With only a few exceptions, when a loan meets the criteria that classifies it as a higher-priced mortgage, an escrow account managing the homeowner's insurance and real estate taxes becomes mandatory for the first five years. Additionally, a written appraisal with an interior inspection is required. Higher-priced mortgages are permitted as long as the above-referenced conditions apply. Lastly, there is no change to the standard right of rescission requirements.
Qualified mortgages limit pre-payment penalties to: a) Three percent of the balance during the first year b) Five percent of the balance for the life of the loan c) One percent of the balance up through year four d) QM's prohibit pre-payment penalties
Answer: a) With the implementation of QM's through the Dodd-Frank Act, prepayment penalties are limited to: 3% of the outstanding balance during the first year, 2% of the outstanding balance during the second year, 1% of the outstanding balance during the third year, and no penalty thereafter.
What is the maximum penalty that the Commissioner may impose against a licensee? a) $10,000 b) $25,000 c) One year in prison d) $5,000
Answer: b) "The maximum amount of penalty for each act or omission ... shall be $25,000. Each violation or failure to comply with any directive or order of the Commissioner is a separate and distinct violation or failure."
Beyond what percentage of use of available credit will a potential creditor start becoming concerned? a) 50% b) 30% c) 75% d) 33%
Answer: b) A consumer who accesses their credit capacity beyond 30% causes a potential creditor to question whether or not that individual is living beyond his or her means and utilizing credit responsibly.
A tri-merge credit report: a) Contains all three credit reports one after the other b) Contains data merged from all three credit repositories c) Results from a customer interview by all three credit repositories d) Is required by an underwriter requesting three credit reports
Answer: b) A tri-merge credit report merges data from all three credit repositories so that a complete credit review may be utilized. Some creditors only report to one or two credit repositories. Failure to review data from all three repositories may result in a lender missing valuable information.
The penalty for violating the Gramm-Leach-Bliley Act may include: a) One year in prison b) A fine of up to $10,000 c) Ten years imprisonment d) Forfeiture of loan proceeds
Answer: b) Each violation of the Gramm-Leach-Bliley Act may subject the violator to a fine of up to $10,000.
The requirement to include the credit repository's name and address on the adverse action notice is established through: a) ECOA b) FCRA c) ECOA & FCRA d) FACTA
Answer: b) FCRA requires that financial institutions provide their applicants with the name and address of the credit repository from which they secured the applicant's credit report so that the applicant may request a free copy of their credit report from the credit repository whenever they are denied credit due to credit-related reasons.
The maximum amount of homeowner's insurance coverage a lender may require is: a) $510,400 b) Full replacement coverage c) The amount of the loan balance d) The lender may require any amount it desires
Answer: b) Full replacement coverage protects the lender's interests and covers the replacement cost of the property in the event of a loss.
What is another common term for a home equity loan? a) HELOC b) Subordinate lien c) Private mortgage d) Assumption f credit.
Answer: b) Home equity loans are often originated along with or after the origination of a first mortgage. As such, they take a subordinate lien position against the property's title and are therefore typically referred to as subordinate liens. Any lien, whether a home equity loan, line of credit, or otherwise occupying a secondary or lower lien position may be referred to as a subordinate lien. A HELOC is a home equity line o
If an ARM's start rate is 3.5%, the caps are 5/2/5, the margin is 4%, and at the initial adjustment period the index is 3.5%, to what interest rate will the borrower's interest rate adjust? a) 5.5% b) 7.5% c) 4.5% d) 8.5%
Answer: b) If the start rate is 3.5%, the 5/2/5 caps would prevent the rate from ever increasing beyond 8.5%. If the new index is 3.5% at the loan's first change point, the customer's interest rate will increase from 3.5% to 7.5% because the margin is 4% and index + margin = FIAR (3.5 + 4 = 7.5).
Which of the following is not a characteristic of a sub-prime borrower as defined by the Statement on Subprime Lending? a) Foreclosure, repossession, or charge off within the previous 23 months b) Possessing more than two mortgages c) Two or more 30-day delinquencies within the previous 12 months d) Bankruptcy within the previous five years
Answer: b) Owing multiple mortgages is not a concern as long as the borrower is qualified and managing the payments as agreed.
The FHA 203(k) loan is the FHA's: a) Good Neighbor Next Door Program b) Rehabilitation loan c) ARM d) Condo financing program
Answer: b) The 203(k) is the FHA rehabilitation program allowing for the acquisition of a property along with financing needed renovation. It may be used as both a purchase and refinance option.
An applicant works as a dental assistant earning $25.00 per hour. She works a 35-hour work week and gets paid bi-weekly. What is her gross bi-weekly pay? a) $3,792 b) $1,750 c) $1,896 d) $2,000
Answer: b) The hourly rate of $25 is multiplied by 35 to calculate the weekly rate of $875. The weekly rate of $875 is multiplied by 52 to calculate the annual rate of $45,500. The annual rate of $45,500 is divided by 26 to calculate the bi-weekly rate of $1,750.
The Truth-in-Lending Act addresses all of the following except: a) Right of rescission b) Comparative shopping c) The cost of the credit d) Advertising
Answer: b) The three main purposes of TILA consist of disclosing the cost of the credit to the customer, establishing the right of rescission applicable to non-purchase, primary residential transactions, and overseeing advertising. Comparative shopping considerations are addressed through RESPA.
A company falsely promoting that a particular product it offers is endorsed by the federal government is in violation of which regulation? a) ECOA b) TILA c) GLBA d) Patriot Act
Answer: b) The truth-in-Lending Act prohibits advertising and promotion that falsely implies that the government has endorsed a particular program, product, or service.
Gross rental income is considered at what percentage in the absence of a federal income tax return schedule E? a) 50% b) 75% c) A schedule E review is mandatory d) 80%
Answer: b) To account for vacancy potential, applicants are credited with 75% of gross rental income earned.
To be approved for a mortgage, the applicant should be able to demonstrate: a) The intention to repay b) The ability to repay c) The inclination to repay d) A history of repayment
Answer: b) To be approved for mortgage financing, an applicant should be able to clearly demonstrate that s/he is able to repay the loan through a thorough review of his or her income, assets, employment, and credit.
Which of the following describes the VA ARM cap structure? a) 5% IAC - 2% PC - 5% LOLC (5/2/5) b) 1% PC - 5% LOLC (1/5) c) 2 % IAC - 6% LOLC (2/6) d) VA ARMs do not allow for interest rate caps
Answer: b) VA loans generally limit the periodic rate change to 1% above or below the previous rate and the life-of-loan cap to no more than 5% above the initial interest rate.
A/an ______________ is typically a fixed-rate vehicle whereas a/an ______________ is typically an adjustable rate vehicle. a) HELOC/HEQ b) ARM/30-year fully-amortizing loan c) HEQ/HELOC d) Reverse mortgage/construction loan
Answer: c) A home equity loan (HEQ) is a closed-ended, fixed-rate financial vehicle whereas a home equity line of credit (HELOC) is an open-ended, adjustable-rate financial vehicle.
A higher-priced mortgage loan is a loan through which the APR exceeds the APOR by: a) 3.5% or more on first-lien instruments b) 3.25% or more on second-lien instruments c) 1.5% or more on first-lien instruments d) 2.0% or more on second-lien instruments
Answer: c) According to 12 CFR 1026.35 - Requirements for higher-priced mortgage loans, a higher-priced mortgage loan is a loan secured by the consumer's principal dwelling bearing an annual percentage rate (APR) that exceeds the Average Prime Offer Rate (APOR) by 1.5% or more for loans secured by a first lien with a principal obligation that does not constitute jumbo financing, by 2.5% or more for loans secured by a first lien with a principal obligation that constitutes jumbo financing, or by 3.5% or more for loans secured by subordinate liens
A loan originator, processor, underwriter, appraiser, and closer are all in cahoots to defraud lenders of closing funds for their own personal gain. They fabricate complete files to submit to lenders for funding. This is an example of: a) Straw buying b) Straw selling c) Creating air loans d) Committing affiliate fraud
Answer: c) Air loans are loan files submitted to lenders for funding whereby everything contained within the file is false, fabricated, and fraudulent. Air loans are an extreme example of fraud for profit.
Which of the following is not a part of a credit report? a) Credit scores b) Credit inquiries c) Applications in process d) Public records
Answer: c) Although an inquiry will immediately appear on an individual's credit profile, an application in process won't appear on an individual's credit report until it becomes an actual tradeline.
Which of the following is not an acceptable asset to be used in mortgage qualifying? a) A checking account with a stable balance over two months b) Gift funds c) Cash on hand d) Seller's concessions
Answer: c) Cash on hand is never permitted unless its legitimate source can be clearly identified and the money deposited into a deposit account.
FHA loan limits are often defined by: a) Household income b) Household size c) Geographic location of the property d) Overall applicant qualification
Answer: c) FHA loan limits vary by geographic location, specifically, the county in which the property is located. FHA loan limits may be ascertained at https://entp.hud.gov/idapp/html/hicostlook.cfm.
The four elements of mortgage fraud, as defined by Fannie Mae, are: a) Intent, material misrepresentation, neglect, and deceit b) Misrepresentation, reliance, harm, and damages c) Intent, misrepresentation, omission, and neglect d) Misrepresentation, deceit, steering, and neglect
Answer: c) Fannie Mae considers mortgage fraud to contain the elements of an intent to defraud, a misrepresentation to the consumer or lender, the omission of important and relevant information, and neglect of fiduciary responsibility to the customer or lender.
Convincing an appraiser to fraudulently overvalue a property that is ultimately sold for the artificially-inflated price with the fraudulent proceeds split between the seller and the appraiser is an example of: a) Fraud for housing b) An air loan c) Fraud for profit d) Illegal property flipping
Answer: c) Fraud for profit is when some or all of the professional players orchestrating a fraudulent transaction benefit from the fraud. Although artificially-inflated values are often a component to illegal property flipping, that is not the best possible answer since the question did not indicate how long ago the property was initially acquired.
When a recovery is affected against an individual's surety bond, the licensee: a) Will surrender his or her license within 15 days b) Will surrender his or her license within 30 days c) Will be required to immediately file a new surety bond d) Will undergo a 60-day license suspension
Answer: c) If a claim is paid out of an individual's surety bond, the licensee will immediately need to file a new bond.
Andrew Advertiser creates an advertisement for Molly Mortgagelender. In the ad, Andrew highlights Molly's 1/1 ARM and describes it as adjustable but does not mention the loan's two-year pre-payment penalty. Within three weeks of the ad's publication, both Molly and her company are indicted for violating the Mortgage Acts and Practices Regulation. What was the basis of the indictment? a) Bait and switch b) False advertising c) Omission d) Originating a loan containing a pre-payment penalty
Answer: c) In accordance with the MAP Rule, "A representation omission, or practice is material if it is likely to affect a consumer's choice of or conduct regarding a product." Since the loan being advertised was a standard ARM, by omitting any mention of the two-year pre-payment penalty, the consumer was not given all of the material information necessary to render an educated decision
Residual income requirements for VA financing are based on: a) Family size and credit score b) Household income and property location c) Property location and family size d) Applicant income and property location
Answer: c) In addition to the VA's DTI requirement, all VA loan applicants must meet residual income requirements to demonstrate that there will be enough money left over after all monthly expenses are paid. The requirements for residual income are determined based on the household's size and the location of the property.
All but which of the following are not covered by RESPA? a) Simple assumptions b) The sale of loans on the secondary market c) Loans intended for sale to Freddie Mac d) Bridge loans
Answer: c) RESPA covers: loans made with funds insured by the federal government, loans made with funds from a lender regulated by the federal government, loans that are intended for sale to Fannie Mae or Freddie Mac, loans made by a creditor regulated under the Truth-in-Lending Act, and loan transactions involving federally related mortgage loans. Loans that are exempt from RESPA coverage consist of loans for 25 acres or more, loans for business, commercial, or agricultural purposes, temporary financing (bridge loans), loans secured by vacant land, loan assumptions that are permissible without lender approval (a simple assumption falls within this category), loans sold on the secondary market, and loan conversions when a new note is not required and the provisions are consistent with those of the original mortgage.
A title binder schedule B: a) Provides the property's legal description b) Describes the estate type c) Describes any outstanding encumbrances d) Defines the terms of the insurance
Answer: c) Schedule B is the section of the title insurance binder on which any and all outstanding liens and encumbrances appear.
Higher-priced mortgage loans are addressed in Section ____________ of ____________? a) 32/TILA b) 35/RESPA c) 35/TILA d) 32 RESPA
Answer: c) Section 35 of TILA addresses the requirements surrounding higher-priced mortgage loans.
During an investigation, a licensee may maintain access to its documents and records: a) Unconditionally b) After 30 days c) Unless the Commissioner has reasonable grounds to believe the documents or records of the licensee have been or are at risk of being altered or destroyed for purposes of concealing a violation d) A licensee is deprived of access to its records during any investigation
Answer: c) Since licensees generally need their documents and records to conduct business, licensees are allowed to maintain access to their documents and records during investigations unless the Commissioner feels that allowing the licensee access would jeopardize the investigation.
On a purchase transaction, LTV is defined as: a) The loan amount divided by the purchase price b) The loan amount divided by the appraised property value c) The loan amount divided by the lesser of the purchase price or appraised property value d) The loan amount divided by the greater of the purchase price or appraised property value
Answer: c) Since purchase prices and property values may differ, the LTV is established by dividing the loan amount by the lesser of the purchase price or appraised property value. The borrower may tap into equity established by a property value higher than the purchase price by selling the home as soon as immediately after purchasing it or by waiting one full year and refinancing or securing a home equity product.
A police officer is paid a base salary of $1,800 bi-weekly. The previous year she earned a gross income of $63,000 and the year before that $60,000. She attributes the difference to overtime with a strong likelihood of continuance. With what monthly income do you credit her? a) $5,250 b) $5,000 c) $5,125 d) $3,900
Answer: c) Since the overtime has been increasing and is likely to continue, you may count it as part of the police officer's annual income. The two years' gross earnings are averaged together to derive an annual average income of $61,500, the monthly equivalency of which is $5,125. The base salary is $3,900 monthly (1,800 x 26 / 12) and the average monthly overtime is $1,225 (5,125 - 3,900). The base monthly income of $3,900 plus the monthly overtime of $1,225 equates to her gross monthly income of $5,125.
The current conventional conforming loan limit for single-family properties is: a) $484,350 b) $1,000,000 c) $510,400 d) $453,100
Answer: c) The Federal Housing Finance Agency (FHFA) establishes annual loan limits beyond which jumbo financing would be required. The current conventional/conforming loan limit for single-family properties is $510,400.
Sylvia Sloppyloans meets with a husband and wife in a coffee shop to take their first-time homebuyer mortgage application. Which of the following actions would constitute a violation of the U.S.A. Patriot Act? a) Sylvia discusses her customers' financial affairs at a volume easily overheard by other customers b) Sylvia immediately orders a credit report the moment she sits down with her applicants c) Sylvia asks to see the husband's photo identification but does not ask his wife to see hers d) Sylvia starts discussing low-down-payment programs assuming that her applicants have little money with which to work
Answer: c) The U.S.A. Patriot Act requires positive identification of all applicants through the visual inspection of a valid, government-issued, photo identification bearing a picture that closely resembles the person presenting it. By asking to see the husband's but not the wife's identification, Sylvia violated the U.S.A. Patriot Act. Loudly discussing their financial affairs would compromise their rights under the Gramm-Leach-Bliley Act. Failing to secure permission before accessing their credit profiles would violate the Fair Credit Reporting Act. Lastly, assuming their financial state without inquiring could be interpreted as steering or violating the Equal Credit Opportunity Act.
The annual escrow account review that a mortgage servicer performs is referred to as an: a) Escrow roundup b) Escrow analysis c) Aggregate escrow analysis d) Annual accounting
Answer: c) The aggregate escrow analysis analyzes the money in escrow to ensure that the servicer has enough funds to disburse the anticipated disbursements. The borrower's payment amount is adjusted accordingly to account for increases or decreases in whatever is paid through the escrow account. If the escrow account contains more money than is needed, the servicer generally must refund or credit that amount back to the borrower.
If an advertisement is published in a language other than English, the explanation of lending terms resulting from the use of triggering terms: a) Is no longer applicable b) May be in the same language of the ad or English c) Must be in the same language in which the ad is written d) Must appear in both English as well as the language in which the ad is written
Answer: c) The clear and conspicuous disclosure of lending terms resulting from the use of triggering terms must be in the same language in which the main content of the ad appears.
The primary concern of loan originators being able to retain YSP as compensation surrounds the concept of: a) Caveat emptor b) Law of agency c) Fiduciary duty d) Illegal compensation
Answer: c) The concept of fiduciary duty establishes the loan originator's responsibility to look out for the customer's best interests. If the loan originator is able to earn a higher income by charging a higher interest rate, the loan originator receives an incentive to do what is in his or her own best interests versus the customer's.
Which one of the following is not one of the four ARM components? a) Frequency of change b) Index c) Start rate d) Caps
Answer: c) The four components of an ARM are: frequency of change, index, margin, and caps.
Which of the following may be considered an advantage to FHA financing? a) Qualification is not required b) Credit is not considered c) Lower minimum down payment amount d) No limitation on property usage
Answer: c) The minimum down payment permitted through FHA financing is 3.5%, much lower than its standard conventional counterpart's of 5%.
______________ is the utilization one's own funds to lend to borrowers. Through this type of lending, the lender earns all of the interest and underwrites based on its own rules. a) Seller financing b) Secondary market lending c) Portfolio lending d) Portfolio leasing
Answer: c) When a lender lends its own money, it makes its own rules and earns the interest itself. Loans such as these are generally held in "portfolio" and may take a lender a while to achieve its return on investment. Portfolio lenders also usually retain all of the risk.
What is one of the outcomes resulting from the Great Depression? a) Falling home prices b) Rising mortgage interest rates c) The establishment of the secondary market d) The establishment of the primary market
Answer: c) With the 1938 creation of FNMA, the U.S. housing market was introduced to the secondary market. FNMA purchased mortgages originated and underwritten to its standards by saving and loan companies thereby channeling money into the housing market and allowing saving and loans to resume residential lending with mitigated risk.
If a licensed mortgage loan originator acts in the capacity of an approved instructor by instructing approved continuing education courses, she may receive CE credit at a rate of: a) Two hours of credit for every two hours taught b) One hour of credit for every hour taught c) Licensed loan originators may not receive CE credit for instructing approved CE courses d) Two hours of credit for every hour taught
Answer: d) A licensed mortgage originator may satisfy their annual eight-hour CE requirement after instructing four hours of approved CE.
A ______________ is an example of an open-ended instrument while a/an ______________ is an example of a closed-ended instrument. a) home equity loan/auto loan b) student loan/home equity line of credit c) home equity loan/home equity line of credit d) revolving credit card/boat loan
Answer: d) Closed-ended financing is a "one-time" allocation of funds that is repaid systematically under agreed upon terms involving a regular periodic payment amount and an established amortization term. Open-ended financing can be considered "two-way" money. Money may be borrowed against an established credit line amount, repaid, and then borrowed again under the terms of the credit agreement. Loans are typically closed-ended whereas credit lines are typically open-ended.
If a home is worth $475,000 and contains two loans, the CLTV of which equates to 93%, what is the balance of the second mortgage if the LTV of the first one is 56%? a) $266,000 b) $441,750 c) $90,250 d) $175,750
Answer: d) If the two mortgages equate to a 93% CLTV of the $475,000 value and the first mortgage constitutes 56% of that, it stands to reason that the second mortgage constitutes 37% (93 - 56). Multiplying the $475,000 value by 37% concludes the second mortgage balance as $175,750.
The NMLS&R requires Mortgage Call Reports to be filed: a) Annually b) Semi-annually c) The NMLS&R does not require Mortgage Call Reports d) Quarterly
Answer: d) Mortgage Call Reports are required quarterly of all lenders. The reports transmit details pertaining to the loans originated by that lender during the previous quarter
At what interest rate tier would a 17-year note be priced? a) 17-year tier b) 15-year tier c) 30-year tier d) 20-year tier
Answer: d) Mortgage terms typically run between 10 and 30 years in increments of five. If a mortgagor chooses an "odd-year term," that term is usually priced to the next highest five-year increment.
A loan collateralizing a geodesic dome would be considered: a) A unique property loan b) A rehabilitation loan c) A construction loan d) A niche loan
Answer: d) Niche loans offer financing on unique property types or for individuals with unique borrowing needs. They are generally retained in portfolio and not sold into the secondary market.
Of the following creditors, which one is not regulated by TILA? a) A business that offers credit to consumers b) A creditor that makes its credit subject to a finance charge c) A creditor that regularly extends credit to consumers d) A creditor that makes the credit it issues repayable in four installments
Answer: d) TILA regulates creditors that offer credit to consumers, that make the credit subject to a finance charge or payable under the terms of a written agreement requiring repayment in more than four installments, and that regularly extend credit to consumers.
Which of the following is not an index utilized in constructing ARMs? a) COFI b) LIBOR c) COSI d) TIPI
Answer: d) The COFI is the Cost of Funds Index. The LIBOR is the London Interbank Offered Rate. The COSI is the Cost of Savings Index. The TIPI is fictional.
A financial institution must provide its customers with its privacy policy: a) At the time that the account is opened b) Only upon customer request c) Only when it intends to share customer information d) At the time that the account is opened and annually thereafter
Answer: d) The GLBA requires financial institutions to automatically provide their customers with their privacy policies upon opening an account as well as annually. In some cases, the creditor may be allowed to post its privacy policy on its website in lieu of annual notifications.
Although she remits a payment monthly, Lucy Loanpayer became 60-days delinquent months ago and cannot seem to catch up. Her last month's payment reduced her conventional mortgage to a 78% LTV. When will her mortgage servicer automatically remove her PMI? a) Never - PMI is a life-of-loan requirement b) Immediately now that she has achieved a 78% LTV c) Once she submits an appraisal demonstrating that her equity is 22% or greater d) Once she becomes current
Answer: d) The Homeowners Protection Act mandates that PMI be automatically removed once a loan reaches 78% LTV as long as the loan is current. Although Lucy is at 78% LTV, she will not be released of her obligation to pay PMI until she either becomes current or reaches her loan's amortization midpoin
Which of the following is not an example of an ALT-A loan? a) NINA b) NINANE c) SIVA d) NABA
Answer: d) The NINA is a "no income/no asset" loan. The NINANE is a "no income/no asset/no employment" loan. The SIVA is a "stated income/verified asset" loan. There is no such loan type as the NABA.
HOEPA is Section ___________ of ____________? a) 35/TILA b) 203/RESPA c) 32/RESPA d) 32/TILA
Answer: d) The Truth-in-Lending Act was amended in 1994 when Section 32 was added enacting the Home Ownership and Equity Protection Act (HOEPA). This regulation was enacted to address and stop predatory lending practices in purchases, refinances, open-ended credit plans, and closed-ended home equity loans that abusively charged excessive points, interest rates, and fees.
If an air traffic controller is paid $2,800 semi-monthly, what is his monthly income? a) $6,067 b) $12,133 c) $1,400 d) $5,600
Answer: d) The semi-monthly income may either be multiplied by 24 to calculate the annual income and then divided by 12 to secure the monthly equivalency or simply multiplied by two.
HUD's primary purpose is to: a) Create strong, sustainable, and inclusive communities b) Provide quality, affordable homes to all c) Meet the need for quality rental homes d) All of the above
Answer: d) When chartered by former president Lyndon B. Johnson in 1965, HUD was seen as a means to strengthen the federal government's relationship with states and cities on urban issues. HUD's mission, as related on its web site, is, "...to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination, and transform the way HUD does business."
PMI is required with an LTV of above 80%. A mortgage closes at a balance of $179,000 along with a home equity line of credit possessing a credit limit of $21,000 and an outstanding balance of $10,500. The mortgage is a 15-year note at a fixed rate of 6.5%. The property appraised for $224,000. Which of the following statements is correct? a) The CLTV is 90% b) The loan will require PMI c) The TLTV is 95% d) PMI will not be required
Answer: d) With a mortgage balance of $179,000 and an appraised value of $224,000, the LTV is 79%. Since PMI would only be required if the LTV was higher than 80%, PMI is not required.
