Practice Exam 5

In order to comply with the advertising rules found in Regulation Z, creditors that advertise rates and payments for mortgages must: A. Make the required disclosures with equal prominence and in close proximity to the advertised rates or payments B. Use model forms C. Follow the rules for formatting advertisements that the CFPB prescribes D. Disclose all of the terms for the mortgage loan that the creditor is advertising

A. Make the required disclosures with equal prominence and in close proximity to the advertised rates or payments In order to comply with the advertising rules found in Regulation Z, creditors that advertise rates and payments for mortgages must make the required disclosures with equal prominence and in close proximity to the advertised rates or payments.

This is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right. A. Mortgage fraud B. Industry insider fraud C. Identity theft D. Predatory lending

A. Mortgage fraud Mortgage fraud is defined as the intentional perversion of the truth for the purpose of inducing another person or entity to rely on it in order to part with something or surrender a legal right.

Once a state licensing agency has provided private or confidential information to the NMLS, what is the status of the information? A. Privacy and confidentiality requirements continue to apply B. It becomes a matter of public record C. It remains confidential only if the state requests it D. States do not provide private or confidential information to the NMLS

A. Privacy and confidentiality requirements continue to apply The requirements under any federal or state law regarding the privacy or confidentiality of any information or material provided to the NMLS continue to apply after such information has been disclosed to the NMLS.

Businesses that conduct telemarketing are required to access the Do-Not-Call Registry every _____ in order to maintain an updated database of people on the Do-Not-Call List. A. 31 days B. 60 days C. 3 months D. 45 days

A. The answer is 31 days. A business must update its Do-Not-Call data every 31 days to remain compliant.

A loss payee clause protects whom? A. The lender in the event the property is damaged by fire or other risks B. The borrower from losing all of his/her investment C. The lender in the event the borrower defaults on the loan D. The borrower by using mortgage insurance to offset interest rate adjustment

A. The lender in the event the property is damaged by fire or other risks The loss payee clause in a hazard insurance policy protects the lender's investment in the event that the collateral is damaged by fire or other risks. This means that if there is a fire or other loss, the lender is paid first to cover its investment.

All of the following may be considered employment red flags, except: A. Credit history is missing entirely B. Paystub check numbers that are out of sequence or do not correspond with payroll dates C. W-2s that are handwritten and may not include a company logo D. Social Security Numbers on the application which do not match those on the income documents

A. credit history is missing entirely. Missing credit history is a credit report red flag, not an employment red flag.

Nontraditional credit includes all of the following, except: A. Payments to a landlord B. Car loans C. Electric bills D. Telephone bills

B. Car Loans Nontraditional credit includes payments for things not traditionally tracked by or reported to the credit bureaus. This includes things like rent and utility bills.

A state is conducting an examination of mortgage loan originator Basil Thyme. During the examination, the agency is authorized to do all of the following, except: A. Administer oaths or affirmations B. Control access to Basil's office C. Subpoena witnesses D. Require production of relevant documents

B. Control access to Basil's office In conducting an examination or investigation, the state licensing agency is authorized to administer oaths or affirmations; subpoena witnesses; require the production of relevant documents; and control access to any documents and records of any person under examination or investigation.

Underwriting of non-qualified mortgages must compute periodic payments that: A. Include consideration of periodic rate caps B. Do not take periodic rate caps into consideration C. Do not take lifetime rate caps into consideration D. Include consideration of the value of the dwelling as a borrower asset

B. Do not take periodic rate caps into consideration Underwriting of non-qualified mortgages must compute periodic payments that do not take periodic rate caps into consideration.

The first step in the closing process is: A. Rescission B. Funding C. Application D. Steering

B. The answer is funding. The first step in the closing process is funding. This occurs when the lender wires funds to the title company or closing attorney. Once the closing has occurred, the title company is authorized to release funds to the parties (disbursement). Depending on state law and the type of transaction, disbursement could occur at closing or several days later.

For ARMS characterized by figures like "3/1," "5/1," "7/1," or "10/1," the first number represents _____, and the second number represents _____. A. The start rate; the periodic cap B. The locked term; the adjustment frequency C. The initial cap; the periodic cap D. The locked term; the adjustment cap

B. The answer is the locked term; the adjustment frequency. ARMS are often named for their features. In other words, a 3/1 ARM is locked for three years, and then adjusts annually each year thereafter. The first number represents the locked term and the second number represents the adjustment frequency.

The Telemarketing Sales Rule prohibits calls: A. Made to a customer after 8:00 a.m. or before 9:00 p.m. B. Made to consumers who have specifically asked a mortgage professional not to contact them C. To consumers not listed on the Do-Not-Call Registry D. To customers who established a business relationship within the last 12 months

B. made to consumers who have specifically asked a mortgage professional not to contact them. The Telemarketing Sales Rule prohibits calls made to consumers before 8:00am or after 9:00pm. Also, mortgage professionals may not make calls to consumers listed on the Do-Not-Call List or if an established business relationship is over 18 months old. Finally, mortgage professionals must respect a consumer's specific request to be removed from a contact list.

For the purposes of providing a Loan Estimate, a "business day" is: A. Any day except for Sundays B. Any day except for Sundays and legal public holidays C. Any day on which the creditor's offices are open to the public for carrying out substantially all business functions D. Any day of the week

C. Any day on which the creditor's offices are open to the public for carrying out substantially all business functions For the purposes of providing a Loan Estimate, a "business day" is any day on which the creditor's offices are open to the public for carrying out substantially all business functions.

When dealing with third-party service providers, banks and nonbanks must establish risk management programs that include all but which of the following elements? A. Conducting due diligence to assess the service providers' ability to comply with the law B. Entering contracts with service providers that include enforceable consequences for failing to comply with the law C. Establishing compensation programs that withhold payment for services until the service provider can demonstrate compliance with the law D. Reviewing the service provider's employee training programs, particularly for those employees that have direct contact with consumers

C. Establishing compensation programs that withhold payment for services until the service provider can demonstrate compliance with the law Establishing compensation programs to withhold payment for services is not a required element of a risk management program.

According to the federal guidances on nontraditional lending, all of the following loan programs are considered to be nontraditional, except: A. Interest-only B. Payment-option ARM C. Hybrid ARM D. Stated income

C. Hybrid ARM The term "nontraditional" primarily refers to payment structure or qualification documentation. In other words, traditional loans will include a payment structure that regularly decreases the principal balance and will require a borrower to prove that he/she can pay off the loan to qualify.

A balloon mortgage that includes a conditional refinance provision allows the borrower to: A. Request that the loan be refinanced and converted to a 30-year fixed-rate loan B. Rescind the transaction if the loan becomes too expensive C. Request modification of the terms of the loan when it reaches maturity D. Refinance the loan if he or she is in default

C. Request modification of the terms of the loan when it reaches maturity A balloon mortgage that includes a conditional refinance provision allows the borrower to request modification of the terms of the loan when it reaches maturity.

Title searches and title insurance: A. Are covered under the provisions of RESPA, but are not considered settlement services B. Are not covered under the provisions of RESPA but are considered settlement services C. Are covered under the provisions of RESPA and are considered settlement services D. Are not covered under the provisions of RESPA and are not considered settlement services

C. The answer is are covered under the provisions of RESPA and are considered settlement services. The provisions of RESPA cover settlement services including title searches, title examinations, and title insurance.

Annual PMI is determined by multiplying: A. The loan amount and the interest rate B. The mortgage insurance rate and the number of months in a year C. The interest rate and the number of months in a year D. The loan amount and the mortgage insurance rate

D. The answer is the loan amount and the mortgage insurance rate. Annual PMI is determined by multiplying the loan amount and the mortgage insurance rate.

The Peterson family is buying a new home and their new P&I payment totals $1,800 per month. Their annual tax bill is $3,000, and their annual homeowner's insurance premium is $720. The family's annual income totals $98,520. What is their housing (i.e., front-end) ratio? A. 22% B. 32% C. 36% D. 26%

D. The answer is 26%. The Petersons' housing ratio - also known as the front-end ratio - is 26%. This is calculated by comparing monthly housing expenses, such as flood insurance, homeowners insurance, and other monthly housing costs, to gross monthly income. In this case, add together the $1,800 mortgage payment with the $250-per-month tax payment and $60-per-month homeowner's insurance payment. Divide that total ($2,110) by the total monthly income of $8,210 (annual income of $98,520, divided by 12), equaling 26%.

A lender is trying to lure customers with advertisements for "Minimum Monthly Payments to Meet Any Budget!" This advertisement must also include an equally prominent statement in close proximity which alerts consumers that: A. The loan may not be paid off by the end of the loan term B. The loan is only advised for borrowers with a short-term interest in the dwelling used to secure the loan C. The borrower should seek homeownership counseling prior to applying for the loan D. A balloon payment may result from minimum periodic payments

D. A balloon payment may result from minimum periodic payments

The FCRA places all of the following limitations on the inclusion of negative information in credit reports, EXCEPT: A. A limit on bankruptcies that are more than ten years old B. A limit on accounts placed for collection that are more than seven years old C. A limit on tax liens that are more than seven years old D. A limit on bankruptcies that are more than seven years old

D. A limit on bankruptcies that are more than seven years old. Most negative information that is more than seven years old is not included in a credit report; however, bankruptcies may be reported for up to ten years.

It is a violation of TILA for a loan originator to collect _____ before providing a loan applicant with _____. A. A fee for a credit report/a Loan Estimate B. An origination fee/a Closing Disclosure C. Information on income and assets/a Good Faith Estimate D. An origination fee/a Loan Estimate

D. An origination fee/ a Loan Estimate The collection of an origination fee prior to providing a Loan Estimate is illegal.

An underwriter examines title documents for issues that may cloud the title or affect marketability. All of the following are items that may affect title, except: A. Easements B. Land locks C. Leaseholds D. Completion notice

D. Completion Notice A completion notice is required of an appraiser, typically to document the completion of new construction prior to closing a loan on the property. Easements, land locks, and leaseholds are all examples of title issues that may affect marketability or cloud title.

In a title theory state, title to residential real estate is granted with a _____, naming the lender as the beneficiary of the trust, the borrower as the trustor, and the third party that holds the deed until the loan is fully paid as the _____. A. Mortgage / assignee B. Deed of trust / assignor C. Mortgage / trustor D. Deed of trust / trustee

D. Deed of trust/trustee In a title theory state, title to residential real estate is granted with a deed of trust, naming the lender as the beneficiary of the trust, the borrower as the trustor, and the third party that holds the deed until the loan is fully paid as the trustee.

How often must a borrower renew owner's title insurance? A. With each refinance B. When the house is sold to the next owner C. Owner's title insurance expires every seven years D. It is not necessary to renew

D. It is not necessary to renew Owner's title insurance is good for the period of time that a borrower owns the home, meaning it must only be purchased once and does not require renewal.

The GLB Act gives loan applicants the ability to opt out of the sharing of their nonpublic personal information with: A. Third-party settlement service providers B. Affiliates of the creditor C. Affiliates and nonaffiliates of the creditor D. Nonaffiliates of the creditor

D. The answer is nonaffiliates of the creditor. Loan applicants may opt out of the sharing of their nonpublic personal information with nonaffiliates.

Under the GLB Act, a customer relationship is established: A. As soon as a borrower inquires about a loan B. When the borrower's loan is funded C. Once the loan servicing begins D. Upon application

D. Upon application Under the Gramm-Leach-Bliley Act, a customer relationship begins as soon as a borrower provides non-public personal information. For the purposes of mortgage lending, this happens at application.