Mortgage Loan Origination - ProSchools - Practice Exam

A loan is offered with a 5% note rate. If the buyer uses a 2/1 buydown to obtain the loan, the interest rate for the remainder of the loan term following the end of the buydown period will be 5%. 4%. 3%. 2%.

The correct answer is A. A 2/1 buydown in this case means the borrower pays 2% less than the 5% note rate, or 3% the first year. He then pays 4%, 1% less than the note rate the second year. After that, he pays 5% for the rest of the term.

Which of the following is TRUE of a dual contract? It defrauds the lender providing the funds for the purchase of the property. It deprives the seller of receipt of the full price of the property. It deprives third parties of their proper fees. It is usually used so the real estate agent may earn a higher commission.

The correct answer is A. A dual contract is an instrument that states a sales price higher than the actual sales price in an effort to obtain a larger loan from a lender or lending institution or for the purpose of misinforming a governmental agency or some other reason.

The type of loan that does not require any verification of credit, employment or income or periodic repayment is a reverse mortgage. open-end credit plan. second mortgage. primary mortgage.

The correct answer is A. A reverse mortgage transaction provides for the lender to give a borrower periodic payments until the borrower no longer lives in his home. Then the borrower or his estate must repay the loan in a lump sum.

A title insurance agent may charge a fee for title insurance services which are ultimately rendered. guarantee the payment of the principal or interest notes. accept a fee for the referral of title insurance business. charge more than the state-determined fee for a tax certificate.

The correct answer is A. A title insurance company or agent may not guarantee the payment of the principal or interest of bonds, notes, or other obligations; give or receive any type of compensation for the referral of title insurance business; give or receive any portion of any fee for title insurance business unless services, (e.g., an examination of a title or a determination of insurability of a title) were actually rendered; or charge more for a tax certificate than the state-determined fee which the company paid to obtain it.

For a VA loan, if the CRV is below the sales price of the property, the borrower may purchase the property at the purchase price, if he pays the additional amount in cash. will forfeit his earnest money if he withdraws from the transaction. may borrow the additional amount needed to purchase the property with nothing down. cannot obtain a VA loan to purchase the property at the agreed price.

The correct answer is A. A veteran may not borrow more than the value shown on the CRV. He can, however, buy the property for the purchase price if he pays the difference in cash. If he does not wish to do so, he can terminate the transaction, and receive a refund of his earnest money, per the escape clause that is required in the VA sales agreement.

Which of the following cannot be charged to a borrower in an FHA loan transaction? Tax service fee Loan origination fee Discount points Mortgage broker fee

The correct answer is A. AN FHA borrower can be charged all reasonable and customary loan fees, including discount points, origination fees, broker fees, appraisal fees, etc. The only prohibited fee is the tax service fee.

A VA borrower who has obtained a VA loan once can have full eligibility restored to obtain a new VA loan if he has repaid the prior loan and sold the property securing that loan. assume a VA loan, but not obtain a new one. never obtain another VA loan. have full eligibility restored to obtain a new VA loan if his prior loan is still outstanding and has been assumed by a financially qualified buyer.

The correct answer is A. An applicant who has used all or part of his entitlement for a VA loan can get it back to purchase another home if: the prior property has been sold and the VA loan has been paid in full; or a qualified veteran buyer has agreed to assume the outstanding balance on the VA loan and substitute his entitlement for the same amount of entitlement the applicant originally used to get the loan; or one time only, the applicant has repaid the prior VA loan in full, but has not disposed of the property securing that loan. An applicant will also have remaining entitlement (but not restored entitlement) if his existing VA loan has not been paid off and has been assumed by a qualified buyer.

Licensed and certified appraisers must perform their appraisals according to standards contained in the USPAP. the URAR. the 1003. ECOA.

The correct answer is A. Appraisers are certified or licensed by the states, according to standards developed by The Appraisal Foundation. The Appraisal Foundation developed Uniform Standards of Professional Appraisal Practice (USPAP), to which appraisers must adhere in performing their appraisals.

With regard to construction financing, which of the following is TRUE? The permanent financing used to replace the construction loan is a take-out loan. The construction loan is a long-term loan. The construction loan is a closed-end mortgage. The full amount of the loan is released to the borrower upon recording of the note and mortgage.

The correct answer is A. Construction financing is a high-interest loan providing interim (or temporary) financing, extending from the commencement of the work until the work is completed and the loan is replaced by a lower interest, more permanent form of financing (a take-out loan). The basis for most construction loans is the open-end mortgage or a line of credit. Upon approval of the borrower's plans and specifications, the lender will make a commitment for the construction loan that does not release any money, but assures that funds will be advanced to the borrower as construction progresses. The full amount of the loan is not immediately released by the lender to the borrower at the time the note and mortgage are executed.

The FHA is which of the following? Federal Housing Administration Federal Housing Authority Financial Household Administration Financing Housing Assistance

The correct answer is A. FHA stands for Federal Housing Administration.

The main purpose of Fannie Mae and Freddie Mac is to provide a source of funds to mortgage lenders. make conventional loans. insure conventional loans. reinsure FHA and VA loans.

The correct answer is A. Fannie Mae and Freddie Mac do not make loans directly to homebuyers or have any direct contact with the public. Instead, their function is to provide a source of funds for lenders in the primary mortgage market by buying and selling loans and offering securities backed by these loans.

HMDA requires that for each transaction the lender must report all of the following data EXCEPT the applicant's credit history, debt-to-income ratio and expense-to-income ratio. property to which the loan relates, such as its type (single family vs. multifamily) and location (including the census tract). 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.

The correct answer is A. 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.

A loan applicant received a $20,000 gift from a relative to assist in the purchase of a home within the 60 days prior to the purchase agreement or loan application. This will be treated by the lender as a gift. asset. loan. liability.

The correct answer is A. Generally, if the gift had been in the applicant's account over 60 days, it would be "seasoned" and treated as an asset. If it is more recent, it is treated as a gift , and may require documentation (gift letter, bank statements of the donor, etc.) to ensure that the gift is a gift and not a loan.

Which of the following is NOT required by the BSA? Generating requests for information from FinCEN Reporting suspicious activity and transactions Reporting large currency transactions Implementing an AML program

The correct answer is A. It is not a requirement of the BSA to generate requests for information from FinCEN. Suspicious activities and large currency transactions must be reported and an anti-money laundering program must be implemented.

FHA requires a borrower to maintain hazard insurance of at least the lesser of the loan balance or the replacement cost of the improvements. the purchase price or the appraised value of the property. the loan balance or the original loan amount. the loan balance or the original appraised value.

The correct answer is A. Like FNMA and FHLMC, FHA requires that the hazard (property) insurance cover the loan balance unless the replacement cost of the property improvements is less than the loan balance (since the insurer will not pay more than the replacement cost of the improvements).

The Gramm-Leach-Bliley Act considers publicly available information to include a consumer's assessed property values. income. payment history. credit card purchases.

The correct answer is A. 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, income, payment history, loan or deposit balances, and credit or debit card purchases). It does not include information where there is a reasonable basis to believe it is lawfully made publicly available, such as a telephone number, address or assessed property values.

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

The correct answer is A. RESPA, the Real Estate Settlement Procedures Act, governs residential mortgage loan closings (settlement). It provides requirements for disclosures of closing costs and processes, and regulates activities of settlement service providers. TILA requires disclosures of loan costs, and ECOA requires equal treatment of loan applicants.

At closing a borrower may deposit funds to establish reserves for which of the following? Taxes and insurance Prepaid interest Payment of late fees Prepayment penalties

The correct answer is A. Reserves are established with a lender so the lender will collect 1/12 of the annual taxes and insurance premium with each mortgage payment, and then pay the full year's tax and insurance bills when due.

Lien priority based on the respective dates of recording of the mortgages can be changed by a subordination clause. an acceleration clause. a defeasance clause. an alienation clause.

The correct answer is A. Subordinate financing is a junior, or second, mortgage. It is secured by property that is already encumbered by a loan that has priority. Priority can be based on the respective dates of recording of the mortgages or on the terms of a subordination clause, which changes the priority.

Subordinate financing relates to second mortgages. seller financing. subprime loans. financing in the secondary mortgage market.

The correct answer is A. Subordinate financing is a junior, or second, mortgage. This is a loan secured by property that is already encumbered by a loan that has not been paid off.

ECOA serves to prevent discrimination in the mortgage lending industry. educate professionals regarding ethical practice. prevent unnecessary foreclosures. ensure the accuracy and privacy of consumer information.

The correct answer is A. The Equal Credit Opportunity Act (ECOA) was enacted in 1974 with the goal of ensuring that all persons, consumers as well as businesses, are given an equal chance to obtain credit.

The Homeowners Protection Act (HPA) of 1998 provides that a borrower with a good payment history has the right to request in writing the cancellation of private mortgage insurance when he pays down his mortgage to the point that it equals 80% of the original purchase price or the appraised value of his home at the time the loan was obtained, whichever is less. it equals 78% of the original purchase price or the appraised value of his home at the time the loan was obtained, whichever is less. it equals 78% of the current value of his home. it equals 80% of the current value of his home.

The correct answer is A. The Homeowners Protection Act (HPA) provides that a borrower with a good payment history (i.e., not 30 days late in the past year or 60 days late in the past two years) has the right to request in writing the cancellation of the PMI when he pays down his mortgage to the point that it equals 80% of the original purchase price or the appraised value of his home at the time the loan was obtained, whichever is less. Otherwise, PMI coverage is automatically cancelled once the borrower pays down his mortgage to 78% of the value if the loan payments are current, or when a loan that is current reaches the midpoint of its amortization period (e.g., after 180 payments of a 30-year loan).

Each loan originator is identified in the NMLS database by a unique identifier. Social Security number. license number. employing mortgage broker.

The correct answer is A. The NMLS assigns each person registered in the NMLS database with a number that serves as a unique identifier for that individual.

When a telemarketer calls a person on the do not call list in violation of the do not call regulations, he is subject to a fine of $16,000. $5,000. $7,500. $12,000.

The correct answer is A. The fine for calling someone on the do not call list or calling a customer after they have requested the telemarketer not to is $16,000 (It originally had been $11,000).

Which of the following is NOT true regarding the ratios used to determine whether an applicant will be able to repay his loan? If the applicant satisfies the housing expense ratio, he need not satisfy the debt ratio. A back-end ratio is used to measure the applicant's ability to make all monthly debt payments. A front-end ratio measures the ability to pay only housing expenses. Government and conventional loan programs have different ratio standards.

The correct answer is A. The front-end end ratio is the housing expense ratio. It relates the PITI payments plus HOA assessments to income. It, and the debt ratio (the back-end ratio) which accounts for all fixed payments, must be satisfied. Ratio requirements for conventional, FHA and VA loans are all different.

A creditor must advise a mortgage loan applicant of the status of his application within how many days of receipt? 30 Five Three 10

The correct answer is A. The only requirement is that imposed by ECOA, to provide notice of action taken on the application within 30 days of receipt.

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

The correct answer is A. 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.

Which of the following methods of raising funds for a down payment would amount to fraud? Obtaining a cash advance on a credit card Using funds paid as a share of rent by a domestic partner Sale of a large screen TV Getting a one-time bonus from an employer

The correct answer is A. The purpose of a verification of deposits is to ensure that the borrower is using funds he has accumulated for the down payment, rather than funds he will be obligated to repay. Lenders do not allow unsecured loans (such as cash advances that must be repaid), to be used as the funds for the down payment, unless they are disclosed, so the lender can decide whether the borrower can qualify for the loan.

The use of double contracts in flipping properties in a real estate transaction may be illegal because the lender is in greater danger of being unable to recoup its investment if the borrower defaults. the real estate broker gets a higher commision. the buyer has to invest too much equity. the seller must accept less for his equity.

The correct answer is A. The use of double contracts to flip property involves a person using one contract to buy property and another to flip it without informing the eventual lender of the first contract. The result is that the eventual borrower may have little or no equity in the property, increasing the lender's risk of loss in the event of foreclosure.

A loan calls for payments of $2,000 per month for the first 60 months and $2,300 per month for the remainder of the 30-year term. This loan is a fixed-rate loan. an adjustable rate loan. a hybrid ARM. an option ARM.

The correct answer is A. This loan has two pre-set payment levels, so the rates for those payments must be fixed. All the other choices are ARMs where the rates will change based on changes in an index. For those loans, the payments cannot be established beyond the period of the initial rate.

Warning signs of loan problems, or possible fraud, are commonly called yield spread premiums. red flags. risk analysis. multiplicity.

The correct answer is B. "Red flag" is the term used to describe a warning sign of fraud.

What type of interim financing would a person obtain to build a dwelling? A home equity line of credit A construction loan A bridge loan on his current home A take-out loan

The correct answer is B. A construction loan is an interim, interest-only loan that provides financing while the dwelling is under construction. The take-out loan is used to pay off the construction loan.

A conventional loan is a loan that is uninsured. is not issued, insured or guaranteed by a government entity. is secured by a 1-4 family dwelling. meets eligibility requirements for purchase by Fannie Mae.

The correct answer is B. A conventional loan is a loan that is not issued, insured or guaranteed by a government entity. It may be insured by a private insurer or uninsured. It may or may not be eligible for purchase by Fannie Mae. If it were eligible for purchase, it would be a conforming loan.

When the term "jumbo loan" is used to describe a loan, the loan has a high loan-to-value ratio. is nonconforming. has a high interest rate. is subprime.

The correct answer is B. A jumbo loan is a loan that exceeds the amount eligible for a conforming loan, so it is nonconforming. It may be made to a person with very good credit (so it would not be a subprime loan). It may have a higher rate than a conforming loan, but would not be as high as a subprime or Alt-A loan. The LTV may be high or low (i.e., whatever is negotiated).

Which of the following types of bankruptcy involves liquidation of assets to cancel the debts? Chapter 13 Chapter 7 Chapter 11 Chapter 9

The correct answer is B. Chapter 7 involves liquidation of assets to cancel the debts, so a person can start fresh.

Which type of fraud generally involves one borrower obtaining one loan for his personal use, under false pretenses? Fraud to further additional criminal purposes Fraud for housing Fraud for profit Asset fraud

The correct answer is B. Fraud for housing generally involves one borrower obtaining one loan (e.g., a homebuyer attempting to buy a home for his personal use) under false pretenses.

Which of the following is TRUE about Freddie Mac? Freddie Mac operates in the primary mortgage market. Freddie Mac buys mortgages from approved lenders. Freddie Mac is a primary market conduit between mortgage lenders and investors. Freddie Mac makes loans directly to homebuyers.

The correct answer is B. Freddie Mac operates in the secondary mortgage market. It buys loans from approved lenders. It does not make loans to the public.

A creditor failed to deliver the required TILA rescission notice and material disclosures. As a result, the borrower's right to rescind was extended for how many years from the date of consummation of the transaction? One Three Four Two

The correct answer is B. If a creditor fails to deliver the required notice and material disclosures, the borrower's right to rescind is extended to three years after the occurrence giving rise to the right of rescission, either consummation of the transaction, transfer of all of the consumer's interest in the property, or sale of the property, whichever occurs first.

Which of the following is true of a lender's rebate? It is the service release premium. It is discount points. It is the yield spread premium. It is illegal.

The correct answer is C. A lender's rebate is an amount credited to the borrower in return for the borrower accepting a loan with a higher interest rate. It is the yield spread premium, and is legal.

LLPA stands for Loan Level Payment Analysis. Level Loan Payment Aggregate. Loan Level Price Adjustment. Last Loan Participation Analysis.

The correct answer is C. A loan level price adjustment is a fee that FNMA charges a lender when to take a loan that has higher risk characteristics based on the borrower's credit score, the LTV or the use of the property.

A buyer wants an FHA loan. All of the following would be true of the transaction EXCEPT the borrower cannot get an FHA loan if the property is in a flood zone and flood insurance is not available. the borrower may obtain an unsecured loan from a lender to pay part of his required cash investment. the borrower may use gift funds from a relative for downpayment assistance. if the appraiser determines the siding is damaged, FHA would require that the siding be repaired.

The correct answer is B. If the home requires flood insurance and is not located in an area where the National Flood Insurance Program is in force, it is not eligible for FHA financing. Prior to agreeing to insure the loan, FHA may require repairs or alterations be made to bring the property up to FHA standards. The borrower cannot give an unsecured note to a lender as any part of the required cash investment (however, he could give one to a family member). The borrower may use gift funds from a relative to pay part of his required cash investment.

Which of the following is TRUE of property flipping? It is illegal. It involves making a purchase and a quick resale at a profit. It is illegal when used to take advantage of a seller who had to sell below market price because he was facing foreclosure. It does not apply to a situation where the owner fixes up a property and sells it shortly after acquiring it.

The correct answer is B. Property flipping occurs when a buyer resells (flips) a property, shortly after he has purchased it, for a much higher price than he paid. Flipping is legal when it is the result of making a wise investment, purchasing a property in need of work and then fixing it up, or being able to take advantage of a seller who had to sell below market price, perhaps because he was facing foreclosure.

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

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

All of the following are true of construction financing EXCEPT The final release of funds may be withheld until the lien period has expired. The loan amount is usually for the total value of the property after completion of the job. The loan will usually be a first mortgage on the property on which improvements are being constructed. The lender may require lien waivers from subcontractors before the final release of funds.

The correct answer is B. The land must be free of liens, or any existing liens must be subordinated to the construction mortgage, before the loan will be granted. Usually the lender will lend around 75% of the total value of the property after completion of the job, as it does not cover the value of the land. The final release of funds may be withheld until a certificate of completion is issued by the building inspector and the lien period has expired, to assure no liens are filed against the property for unpaid work; or all labor and materials have been paid for, as evidenced by lien waivers from each of the contractors and subcontractors on the job.

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 the consumer will benefit from the disclosure. it provides a privacy notice to the consumer. the third party submits a written request. it is requested by the third party.

The correct answer is B. 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.

As the deadline approaches for the closing date established in the buyer's sales agreement, the buyer's loan application has not yet been approved but appears to be headed for approval. The loan originator should tell the buyer his application has been approved. notify the real estate broker to try to get an extension of the closing deadline. tell the buyer he can have his application acted on sooner if he pays additional points. tell the buyer his application will not be approved.

The correct answer is B. The loan originator should notify the real estate broker to try to get an extension of the closing deadline. He cannot tell the buyer he has loan approval when that is not the case.

Which of the following does NOT appear on the HUD-1 settlement statement? Origination fee APR Real estate broker commission Discount points

The correct answer is B. The real estate broker commission appears in Section 700. The origination charge appears on line 801. The discount points appear on line 802 (charge for interest rate chosen). The APR is not a loan fee or real estate closing cost, so it does not appear on the HUD-1. It is shown on the TIL Disclosure

A lender can be protected from loss by encumbrances or a defective title through liability insurance. title insurance. errors and omissions insurance. PMI.

The correct answer is B. Title insurance insures insured parties (subject to certain exceptions) against loss by encumbrances, defective title, or adverse claims to title, resulting from defects in the title company's examination of the title record as well as loss due to hidden risks (such as forged deeds or claims of missing heirs). It covers defects that arose prior to the effective date of the policy, but not against defects arising afterward.

The best way to reduce the cash needed at closing is to pay discount points. finance the closing costs. put more money down. fund a temporary buydown.

The correct answer is B. To reduce cash needs, one would finance as much of the costs as possible.

A 2/1 buydown costs 3%. costs 2% to reduce the interest rate by 1%. reduces the interest rate by 2% the first year and 1% the second year. reduces the interest rate by 2% the first year and 1% for the remainder of the loan term.

The correct answer is C. A 2/1 buydown reduces the interest rate by 2% the first year and 1% the second year. The cost is the total of the difference in monthly payments between the normal rate and the reduced rates.

A federal VA loan is originated by the VA. insured by the VA. guaranteed by the VA. funded by the VA.

The correct answer is C. A federal VA loan is guaranteed by the VA. This is similar to mortgage insurance. The loan is made by a private lender.

A clause in the note that prohibits the borrower from prepaying the loan is the due-on-sale clause. prepayment penalty. lock-in clause. prepayment privilege.

The correct answer is C. A lock-in clause prohibits prepayment. The prepayment penalty allows the borrower to prepay, but imposes an extra charge if the borrower does prepay. The prepayment privilege allows the borrower to prepay the loan. The due-on-sale (alienation) clause allows the lender to accelerate the loan, or refuse to allow another person to assume the loan, if the title is transferred.

The promise to repay a monetary obligation is contained in which of the following? A mortgage A loan application A note A GFE

The correct answer is C. A note is a written document in which a borrower promises to repay a debt, either on demand or at a certain time. A mortgage is given with a note to the lender to make the borrower's property security for the note.

If information submitted on or with the application is suspicious, the loan originator should contact the state mortgage fraud department. advise the applicant to change or delete it. attempt to verify it or deny the application. ignore it.

The correct answer is C. After the application is completed, the loan originator will order any documentation needed, as determined by the information on the application. If any information appears suspicious, the originator should attempt to verify it with the source or deny the application.

When an FHA borrower sells the home he purchased five years ago, his loan can be assumed only if the original borrower agrees to remain liable for the loan if the buyer defaults. without regard to the qualifications of the buyer. only if the buyer will occupy the property. only if the lender decided not to include a due-on-sale clause in the mortgage.

The correct answer is C. All FHA loans are assumable, subject to the person assuming the loan qualifying. However, a loan insured after 1989 can be assumed only by an owner-occupant.

Which of the following correctly describes an FHA loan? The loan is made with a lower loan-to-value ratio than for a comparable conventional loan. It is for low income borrowers only. The borrower must pay an MIP. Interest rates and points are set by the FHA.

The correct answer is C. An FHA loan is available to any borrower who has credit and income adequate to show willingness and ability to make the payments. Under the FHA, program the lender can charge whatever points and interest a borrower is willing to pay, as the cost of the loan is negotiable. The advantage to the borrower is that the lender will make the loan with a very high loan-to-value ratio, because of the insurance. FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. In all cases there is an upfront MIP. In most cases there is also an annual MIP.

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

The correct answer is C. As of 2010, 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. race. physical handicap. sex.

The correct answer is C. 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.

In a construction mortgage loan the funds are advanced before construction begins. the funds are not normally advanced until construction is completely finished. the funds are normally advanced in installments at various stages of construction. interest on the total loan begins at the beginning of construction.

The correct answer is C. Construction loans are short-term loans (also called "interim loans"), which are set up to last only during the construction phase of a building project. Loan proceeds are advanced periodically in installment payments as the work progresses, so that the loan balance is matched to the value of the collateral as it increases. Interest is charged on the borrowed money as the construction draws are advanced.

The risk of loss if the borrower does not repay the loan to the lender is the fault of the borrower. default scheme. credit risk. cost of doing business.

The correct answer is C. Credit risk is the risk of loss if the borrower does not repay the loan to the lender.

An applicant for an FHA loan must have no more than two collections outstanding. be a first-time buyer. have his income and employment verified. be a low-income buyer.

The correct answer is C. FHA loans are not restricted to first-time homebuyers or those with low- or moderate-income. Anyone who can meet FHA's liberal underwriting criteria can obtain such a loan. The borrower's income and employment must be verified and his credit history will be analyzed (e.g., he cannot have any collections outstanding).

A loan applicant's employment is usually verified by a copy of the applicant's bank statement. an applicant's signed sworn statement in regard to his employment status. completion of a VOE by the employer. a letter from the employer on his letterhead.

The correct answer is C. For an employee applying for a loan, a lender may send a Verification of Employment (VOE) to the employer to verify income and employment history or verify income directly from the applicant's paycheck stubs.

A home is appraised at $100,000. The borrower currently has a loan of $50,000, an open end line of credit with a limit of $25,000 and a current balance of $17,500. What is his LTV? 75% 15% 50% 25%

The correct answer is C. For the LTV, only the first loan amount is included.

A mortgage typically does NOT create a voluntary lien. hypothecate the property. transfer title to the lender. get recorded.

The correct answer is C. In addition to giving a note, a borrower gives the lender a security instrument, either a mortgage or trust deed (or deed of trust), which in most states, hypothecates the property as security for the note. In hypothecating the property, the borrower pledges it as security, or collateral, without actually giving up legal title or possession. The mortgage or trust deed, signed by the borrower, encumbers his real estate. It creates a specific, voluntary, contractual lien on the real estate to secure repayment of the note and gives the lender a right to foreclose on the real estate if the borrower defaults on the loan. It is recorded so that anyone interested in acquiring the property or providing a loan to the owner will be aware of the fact that the property is security for another loan.

What is money laundering? The process of taking old, mutilated money and recycling it into new currency The process of converting multiple cash deposits into wire transfers for multiple accounts The practice of cleaning "dirty" money using financial transactions to make the money look like it came from legal sources The process of taking legally obtained funds and using them for illegal purposes

The correct answer is C. Money laundering is the practice of filtering illegal gains, or "dirty" money, through a series of financial transactions in an effort to "clean" the funds so that they appear to be proceeds from legal activities.

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

The correct answer is C. 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.

Which of the following is NOT a RESPA violation? A mortgage broker pays a real estate broker for mortgage loan referrals. A mortgage lender gives an attorney a fee for introducing a customer. An employer pays its own employee for referrals. A mortgage broker pays for title services on behalf of a developer in return for which the developer agrees to refer buyers to the mortgage broker.

The correct answer is C. RESPA prohibits a business entity from paying any other business entity or the employees of any other business entity for the referral of settlement service business. RESPA does allow payment by an employer to its own bona fide employees for any referral activities.

Which law created the Financial Privacy Rule and the Safeguards Rule? U.S.A. Patriot Act. Homeowners Protection Act. Gramm-Leach-Bliley Act. Equal Credit Opportunity Act.

The correct answer is C. The Financial Privacy Rule of GLB governs the collection and disclosure of customers' personal financial information by financial institutions. GLB's Safeguards Rule requires all financial institutions to design, implement and maintain safeguards to protect customer information against unauthorized access.

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

The correct answer is C. The GBL does not impose a specific period of time. Instead it requires that the consumer be given reasonable means and a reasonable opportunity to opt out.

The limit for a loan origination fee for a HECM is 1%. 1.5%. $6,000. 1.75%.

The correct answer is C. The HECM is FHA's reverse mortgage loan program. It has a maximum origination fee of 2% up to an MCA of $200,000, plus 1% of the MCA above $200,000, up to $6,000.

An acceleration clause in a note provides that upon sale of the property the loan must be repaid, unless the lender gives consent otherwise. upon repayment of the debt in full, the note and mortgage will be voided. the entire loan balance is due upon default. redemption of the loan will defeat a foreclosure.

The correct answer is C. The acceleration clause accelerates the payment schedule, causing the entire loan balance to be due upon default.

All of the following are key factors in granting a reverse mortgage EXCEPT the interest rate being charged. the value of the property. the borrower's credit history. the borrower's qualifying age.

The correct answer is C. The key factors in granting a reverse mortgage loan are the value of the property, the borrower's equity in the property, the interest rate being charged, and the borrower's qualifying age.

The period between rate changes in an ARM is called the changing period. relief period. adjustment period. in-between period.

The correct answer is C. The period between rate changes in an ARM is called the adjustment period.

Which of the following is TRUE regarding the principal-agent risk? It is the agent's risk of being sued by the principal. It makes the agent responsible for the principal's actions. It is the risk that an agent, when making decisions for a client, may not have his client's best interests at heart. It presumes an agent has imputed knowledge of facts concealed by the loan applicant.

The correct answer is C. The principal-agent risk (or principal-agent problem) is the risk that an agent, when making decisions for a client, may not have his client's best interests at heart. It arises when the compensation arrangement with the agent does not provide the incentive for the agent to perform in the principal's best interests and the cost of monitoring the agent's performance is costly to the principal.

A loan applicant borrows $20,000 for his downpayment on his home. How will this be treated by the lender? As a gift As an asset As a liability It depends on how long ago he got the loan.

The correct answer is C. This is a liability, as it is a debt. If it were a gift, it would be treated as an asset if the gift had been received over 60 days prior to the applicant, or as a gift if it had been received within 60 days of the application.

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

The correct answer is C. 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.

When a federally related or insured lender learns that a property is in a flood zone, it must cancel the loan. initiate foreclosure. inform the borrower. provide insurance on the property against flood loss.

The correct answer is C. Under the Flood Disaster Relief Act, a federally related or insured lending institution must require the borrower to obtain flood insurance before making a loan on property in a designated flood hazard area. If, after making the loan, a change in flood zone maps brings the property into a flood hazard area, the lender is required to notify the borrower when the building used to secure a loan is in a special flood hazard area.

A qualified veteran wanting a VA loan cannot obtain a VA loan if he has previously obtained a VA loan. can borrow up to 95% of the appraised value of the property. cannot pay more than the appraised value for a property. can get a loan with zero down payment.

The correct answer is D. A borrower can borrow up to 100% of the appraised value. He can pay more than the appraised value for a property, but cannot borrow the difference. He can use the VA program any number of times, but unless he paid off the prior loans, the amount borrowed reduces his entitlement for future borrowing.

A defeasance clause assigns any rents from the property to the lender. allows a buyer to terminate a transaction if he is unable to obtain financing. waives an owner's right of redemption. states the lender will release the lien when the loan is repaid.

The correct answer is D. A defeasance clause states that if the loan is paid according to the terms of the note and the other covenants are fulfilled, the lender will release the lien.

A consumer credit transaction with an APR that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set by at least 1.5% for loans secured by a first lien on a dwelling is a(n) covered loan. subordinate loan. adjustable loan. higher-priced loan.

The correct answer is D. 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 as of the date the interest rate is set 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 person wanting a loan originator license in four states must complete prelicense courses in each state. cannot do this. must work for a different employing mortgage broker or lender in each state. must pass the state component of the license test in each state.

The correct answer is D. A person can be licensed in all of the states, provided he is employed by the same employer in all the state. His NMLS-approved education need only be taken once. The test results for the national test component are valid in each state; however, he must take and pass the state component for each state.

The VA guarantee is considered a servicing fee. insurance. an endorsement. an entitlement.

The correct answer is D. A veteran receives an entitlement from the VA, which provides for a VA guarantee to a lender who gives him a loan to purchase a home with no down payment. Note, the VA loan program is a mortgage guarantee program, not a mortgage insurance program.

All of the following are adverse actions EXCEPT change in terms of existing credit. refusal to grant the amount of credit requested. denial of credit. foreclosure.

The correct answer is D. Adverse action is defined in the law as 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.

Comparable properties used in the market approach to appraisal should be located within _______ of the subject property. The same county, city, or township Five miles The same zip code One mile

The correct answer is D. Comparables used in the market approached should be within One mile of the subject property.

How can one calculate the number of years it will take to recover the costs of refinancing a loan? Monthly savings due to refinancing divided by total costs divided by 12 Monthly savings due to refinancing divided by total costs multiplied by 12 Total costs divided by 12 Total costs divided by monthly savings due to refinancing divided by 12

The correct answer is D. Divide the total cost of refinancing by the reduction in the monthly payment to get the number of months it will take to recover the costs and divide by 12 to get the number of years to recover the costs. For example, if the costs totaled $5,000 and the savings were $200 per month, divide $5,000 by $200. This means it will take 25 months to recover the costs. Divide 25 by 12 to get the number of years (2.08 or 2 years, 1 month).

FHA and VA loans have lower interest rates than conventional loans. protect the borrower against loss in the event of foreclosure. have prepayment penalties are assumable.

The correct answer is D. FHA and VA loans have no prepayment penalties and are assumable. They do not have lower rates. They protect lenders, not borrowers, against loss.

Included in the servicing of a mortgage loan are the collection and/or remittance of payments that include interest, principal and escrow items for the lender. mortgagee. mortgagor. All of the above

The correct answer is D. In servicing a loan, the mortgage servicer collects or remits money for a lender, mortgagee, note owner, note holder, or the mortgagor himself. The payments include interest, principal and escrow items such as insurance and property taxes related to the mortgage loan.

Which of the following is NOT required in an AML compliance program? Internal controls and metrics to ensure compliance Independent auditing of compliance Staff training for compliance Incentives for reporting suspicious activity

The correct answer is D. Incentives for reporting suspicious activity are not required in an AML compliance program.

Loan documentation fraud may involve the borrower. broker. lender. Any of the above

The correct answer is D. Loan documentation fraud may involve a borrower, broker, or lender knowingly making false statements, altering documents, or concealing material facts.

How much of a cushion is a lender allowed for tax reserves? Six months Three months One year Two months

The correct answer is D. RESPA and Regulation X do not require the lender to maintain a cushion. However, RESPA does allow lenders to maintain a cushion equal to one-sixth of the total amount of items paid out of the account, or approximately two months of escrow payments

Which of the following is true of USDA/RHS loans? They are available in urban and rural areas. They are for home purchase only. They have a low down payment requirement. They are for moderate-income borrowers only.

The correct answer is D. The Rural Housing Service, within the U.S. Department of Agriculture (the USDA), has made financing available in rural areas for the purchase, repair and rehabilitation of housing occupied by moderate-income families. Like the VA program, the USDA program is a guaranteed loan program which requires no down payment.

The Safeguards Rule, which implements the security requirements of the GLB Act, requires mortgage brokers to have reasonable policies and procedures to ensure nonpublic personal customer information is readily accessible. nonpublic personal customer information is accurate. the security and confidentiality of public and nonpublic personal customer information. the security and confidentiality of nonpublic personal customer information.

The correct answer is D. The Safeguards Rule, which implements the security requirements of the GLB Act, requires financial institutions to have reasonable policies and procedures to ensure the security and confidentiality of nonpublic personal customer information. Financial institutions covered by the rule include mortgage brokers.

Which of the following may make a loan directly to a borrower when credit is not otherwise available? FHA VA FNMA USDA

The correct answer is D. The USDA has a direct loan program to make loans directly to creditworthy low-income households in rural areas when lenders will not make such loans.

Which of the following would result in the combined loan-to-value ratio? Total of all loans x property value Property value ÷ total of all loans Total of all loans ÷ total down payment Total of all loans ÷ property value

The correct answer is D. The combined loan-to-value ratio (CLTV) is the total of all loans divided by the property value. If a property was worth $100,000, and a borrower got an 80% first loan and a $15,000 second loan, his CLTV would be $80,000 (80% of $100,000) plus $15,000, divided by $100,000. $80,000 + $15,000 = $95,000. $95,000 ÷ $100,000 = 95%.

A person wanting a loan to build a house would apply for what type of loan? Take out Reverse mortgage Adjustable Construction

The correct answer is D. The interim loan that is used for financing construction is a construction loan. The loan obtained to pay off the construction loan is the take out loan. The take out loan does not finance the construction.

The maximum insurable FHA mortgage is based on which of the following? Whether the borrower is a first-time buyer Whether the buyer is an owner-occupant The credit of the borrower The geographic area

The correct answer is D. The maximum insurable mortgage is the lesser of a statutory loan limit for the area, typically a county or metropolitan statistical area (MSA), or the applicable loan-to-value (LTV) limit.

Which of the following is the best way to determine defects in a home? Title search Professional appraisal Loan documents Home inspection

The correct answer is D. The purpose of an appraisal is to provide an estimate of value. The purpose of an inspection is to report on structural defects.

In order for Tara Dactile to obtain a VA loan she will most likely have to apply to the VA for the loan. ensure that the seller of the property makes any necessary repairs. make a down payment. pay a funding fee.

The correct answer is D. VA loans are made by approved lenders but are guaranteed by the federal Department of Veterans Affairs. The guarantee is similar to mortgage insurance. However, an upfront funding fee (similar in purpose to an upfront mortgage insurance premium) is generally charged (with some exceptions, including disabled vets), but it may be financed. The primary advantage of a VA loan is that there is no down payment required. The interest rate is not lower than for other loans, the seller is generally not required to make repairs, and finance charges are not significantly lower.

An applicant for an FHA loan does not file a tax return. He is receiving $1,000 per month in nontaxable income from Social Security. In calculating the applicant's debt-to-income ratio, the loan originator will treat this income as if it were $750. $1,000. $0, as it is not from wages. $1,250.

The correct answer is D. When a borrower does not have to file a federal income tax return, it allows the borrower's non-taxable income to be grossed up by 25% in calculating his income for qualifying purposes.

The Federal Do-Not-Call Implementation Act allows licensees to call persons on the registry if they have done business with those persons within the last 18 months. on the registry if they responded to an information hotline within the last three months. who are not listed on the registry. All of the above

The correct answer is D. Where an organization has established a business relationship with a person, it may call that person for up to 18 months after his last purchase, payment or delivery, even if his name is on the National Do Not Call Registry. The rules therefore allow a company to call a potential client or customer who has made an inquiry or submitted an application for up to three months after the inquiry or application, unless he asks not to be contacted.