MLO Practice 120

MLO Lindy spoke with an appraiser about 321 Treetop Lane, to which the appraiser was due to go that day. The appraiser was unfamiliar with the area and asked what the property was near. Which of the following is an ethical response?

"Treetop is near 5th and Main, close to the stadium."

Which one of the following questions are creditors prohibited from asking?

"What's your religious affiliation?"

A seller has prepaid July HOA fees of $60. If closing is on July 21 and the seller owns the property on closing day, how much will the buyer owe for the HOA fees at closing? Use a statutory year proration method.

$18

A borrower's annual property taxes are $1,295, and her annual insurance premium is $942. How much of her monthly mortgage payment goes toward taxes and insurance?

$186.42

A borrower puts 3.5% down on her $210,000 new home. Using an upfront MIP percentage of 1.75%, what's the total upfront MIP fee the borrower will pay with her FHA loan?

$3,546.38 Calculate the down payment ($210,000 × 0.035 = $7,350). Subtract the down payment from the purchase price ($202,650) and multiply that amount by 1.75% to get the upfront MIP of $3,546.38.

A consumer refinanced her home with a 10-year loan of $18,000. Her interest rate is 2.125%. How much will the consumer's monthly interest payment be?

$31.88 The formula to calculate this is: (loan balance × interest rate) ÷ 12 months = interest paid. In this case, that works out to: ($18,000 × .02125) ÷ 12 = $31.88.

The daily property tax rate is $1.23 and closing is February 1. Assume the buyer owns the property on closing day, and the seller hasn't made any payments. What will the seller owe at closing using the calendar year proration method?

$38.13

If a buyer purchases a property for $500,000 and his loan-to-value ratio is 90%, how much is the buyer financing?

$450,000

A borrower's monthly mortgage payment is $580.23. If the taxes are $83.33 each month and the insurance is $41.66 per month, how much of the monthly payment is principal plus interest?

$455.24

The fully indexed rate for an adjustable-rate mortgage is 4.5%. The loan had a start rate of 3.2% and a margin of 2.1%. What was the index value at the time the initial rate adjustment took effect?

2.4% The fully indexed rate equals the margin plus the index value. So, to find the index value, subtract the margin from the fully indexed rate: 4.5% - 2.1% = 2.4%.

A borrower is applying for an FHA loan. What's the least amount the borrower should plan on paying as a down payment?

3.5%

A mortgage must have a loan term of ______ to be considered as a qualified mortgage.

30 years or less

A borrower with which of the following debt-to-income ratios can obtain a qualified mortgage?

38%

An ARM's starting interest rate is 2.8% and the loan has a cap structure of 1/2/5. What is the maximum possible interest rate for the entire loan term?

5%

Regulation B defines "elderly" consumers as those over the age of _____.

62 years

Which of the following statements about Loan Estimates is true?

A Loan Estimate expires 10 business days from when it was provided to the borrower.

Your borrower is not in a position to pay any kind of down payment. He's an ex-marine with three kids. He wants to finance 100% of his house, and cash is tight. Thankfully, his credit score is pretty good—it's between 580 and 640. What type of loan would suit him best?

A VA loan

What is a yield spread premium?

A commission a lender paid to a mortgage broker in exchange for a higher interest rate

Which of the following may offer identity theft red flags through alerts, notifications, or warnings?

A consumer reporting agency

The daughter of an ex-Navy seal is working with you to buy an $800,000 house. She and her husband have enough money to put down a sizable down payment. They have credit scores of 650 and are looking for a long-term, low-cost loan. What type of loan is best suited for her and her husband?

A conventional loan with 20% down

An example of a Loan Estimate zero-tolerance item for which fees may not increase before closing is ______.

A loan application fee

Which of these is the best definition of a purchase money second mortgage?

A loan offered by a lender or the seller that borrowers often use to avoid paying mortgage insurance

Under RESPA, which of the following fees and compensation are permitted?

A salary paid to an MLO for loan originating activities is permitted.

Which of the following provides a summary of the title history?

Abstract of title

According to the definition of an MLO under the SAFE Act, a loan originator does not include which one of the following people?

Administrative or clerical personnel working for an MLO

Your borrowers have had financial trouble in the past and don't have much money for a down payment. Neither of them served in the military. What type of loan might be best for them?

An FHA 30-year mortgage with 3.5% down

Outside of licensing requirements, what distinguishes an MLO from someone who's not an MLO?

An MLO expects compensation for performing loan origination activities.

Michael works for a local lending company. He looks at a consumer's finances then assesses how much risk the loan might be to his employer. What's Michael's role?

An underwriter

Which of these borrowers would benefit the most from looking into a purchase money second mortgage?

Annie, who can't quite put 20% down, and is therefore looking at needing mortgage insurance.

According to the RESPA, what is a kickback?

Any item of value received in return for referring business to a settlement service provider

A settlement service is ______.

Any service provided for a prospective or actual settlement

Which of the following net worth examples may a lender prefer to see for a borrower applying for a mortgage loan?

Assets exceed liabilities.

During an MLO's loan application file review, he noted that a deposit of $8,000 was put in the applicant's checking account 30 days ago. Before this deposit, the applicant typically had $1,800 deposits every two weeks from her employer. The applicant didn't include any documentation related to the deposit. What type of red flag is this?

Bank activity

Which one of the following statements about table or "wet" funding is true?

Borrowers generally prefer it because they get their funds sooner.

Which document is used to establish the path and proof of ownership?

Chain of title

Revised LEs may be provided to borrowers when there is a valid ______.

Changed circumstance

Which of the following is a red-flag category that may share identity theft red flags through alerts, notifications, or warnings, such as a credit freeze notice?

Consumer reporting agencies

Carson's telemarketing campaign involves reverse mortgages. He contacts consumers who aren't on the Do Not Call Registry. He tells consumers that if they get a reverse mortgage with his offer, they'll eliminate all of their monthly payments. He figures they would know they'd still need to pay homeowners insurance and any taxes. How would the TSR define Carson's conduct?

Deceptive

Credit scoring measures the likelihood that a borrower will ______ a loan.

Default on

Private mortgage insurance protects the lender in case the borrower ______.

Defaults on the loan

What should loan providers do to prevent risks associated with nontraditional mortgage loans?

Develop and implement policies for nontraditional mortgage lending activities, risk layering, and policy exception tolerances.

Which of the following is an aspect of government loans?

Either insured or guaranteed by the government

To accept a cash down payment gift from a donor, what will borrowers need to submit during loan origination?

Evidence of the gift fund transfer

A conventional loan must conform to guidelines set by ______.

Fannie Mae and Freddie Mac

Which one of the following is a true statement about the mortgage industry?

Federal regulatory agencies and state regulatory agencies work in conjunction with one another to enforce applicable laws.

How many identity theft red-flag sources do the identity theft rules identify?

Five

Bart is exploring the best offerings to fund his mortgage when he's financing $200,000. He's trying to calculate the best loan origination fees. Which of the following is the best rate offering?

Flat fee of $1,300

What is another name for the Uniform Residential Loan Application?

Form 1003

Related to giving borrowers advice, what rule would a wise and ethical MLO follow?

Give solicited advice within the MLO's scope of expertise.

Barney received his annual escrow analysis statement. He has an excess of $200 in his account. What will happen to the $200 in his account?

He will be refunded the surplus of funds beyond what is needed to keep the account in good standing.

Part of the loan approval process is verifying that borrowers have adequate ______.

Homeowners and flood insurance

How does a HELOC work?

Homeowners borrow money against the equity in their home.

Which of the following is something a lender is prohibited from doing if it wants to give a borrower a qualified mortgage loan?

Include a balloon payment.

Why is a nonqualified mortgage riskier than a qualified one?

It can't be sold to Fannie Mae or Freddie Mac.

Which party other than the buyer and seller must agree to a loan assumption?

Lender

Which loan disclosure form provides buyers with an approximation of the costs they're likely to pay at settlement?

Loan Estimate

Which two forms are required by TRID rules to be used in all lender-financed residential closings?

Loan Estimate and Closing Disclosure

At the end of the term for a balloon mortgage, which type of payment is made?

Lump sum

What was the main purpose of the amendments to TILA and RESPA?

Make it simpler to understand loan terms.

A zero-tolerance threshold allows ______ between the LE and CD.

No increase

Which tolerance threshold applies to escrow accounts?

No or unlimited tolerance

Erin is purchasing a small craft shop, including the underlying real estate. She applied for a commercial loan from her federally insured bank to complete the purchase. Is Erin's transaction covered by RESPA?

No; commercial and business loans are exempt from RESPA requirements.

Related to MLO licensing, which of the following statements is true?

Not every individual loan originator employee must be licensed.

A loan applicant purchased a property a year ago but stated she's buying the fixer-upper property next door and will live in it full-time. If the MLO suspects fraud, what type of fraud is this?

Occupancy fraud

An MLO was issued a UI by the NMLS. He decides the number is unlucky for him so he requests a new number from the NMLS. How long will it take for a new UI be issued?

Once assigned, the UI cannot be changed.

Which of the following statements properly defines a qualified mortgage?

One that meets stringent CFPB guidelines

To which of the following fees does the 10% tolerance threshold NOT apply?

Origination fees

In which table would a borrower find an itemization of taxes and government fees in the CD?

Other Costs

Per TILA, which of the following is considered a trigger term if it's used in a mortgage loan advertisement?

Pay only $400 per month

The Dodd-Frank Act created the CFPB to ______.

Promote transparency for mortgages and other financial products

What is the purpose of PMI?

Protect the lender in case of borrower default.

The NMLS UI does all of the following EXCEPT for which one?

Provide the phone number of the loan originator.

Mortgage lenders have used maps to draw boundaries around certain geographical regions deemed a higher default risk and refused to lend to businesses and residents in those areas. What is this practice called?

Redlining

Mortgage lenders in the past used maps to draw boundaries around certain geographical regions deemed a higher default risk and refused to lend to businesses and residents in those areas. What is this practice called?

Redlining

A consumer ends up paying more at closing than what was disclosed in the LE. The amount exceeds the legal tolerance threshold. What must the creditor do?

Refund any excess money within 60 calendar days of the closing.

The federal Fair Housing Act prohibits discrimination in which of the following real estate transaction types?

Residential property financing

What does servicing a mortgage loan involve?

Separating principal from interest and paying taxes or insurance included in those payments.

An Affiliated Business Arrangement disclosure form must specify the nature of the relationship between the MLO and the ______.

Service provider

MLO Thomas received a loan application from Vince. When he read the property address for the house Vince was buying, he saw that it was his brother's house. His brother was recently offered a job in another town and was anxious to ensure that the sales transaction wouldn't fall through for any reason. Ethically, what must Thomas do in this situation?

Since Thomas has a personal interest in the transaction, he must disclose it.

Why must lenders provide the Loan Estimate and Closing Disclosure forms to loan applicants and borrowers?

So borrowers can compare loans and make decisions regarding the affordability of loans offered

Which one of the following statements is true?

States have the right to examine MLOs' documentation, and also have the authority to interview employees.

One important task performed by the Consumer Financial Protection Bureau includes _____.

Supervising financial institutions

Applicant Misha contacted MLO Marcus to apply for a loan in a program for first-time homebuyers. Misha said she had gotten one of those loans before. What should Marcus do?

Take Misha's application for a first-time homebuyer's loan.

The USA PATRIOT Act expanded the scope and requirements of which other federal law?

The Bank Secrecy Act

What's daily simple interest?

The amount of interest that accrues every day on a simple interest loan.

Who pays for homeowners insurance?

The borrower

Your borrowers selected an interest-only feature for their mortgage loan. How does this affect their monthly payments?

The borrowers only pay interest for a specific amount of time.

An MLO has an established business relationship with a consumer who only submitted a loan application and who's on the Do Not Call Registry. Related to solicitation calls, which of the following statements is true?

The consumer may be called for up to 90 days.

To comply with the ECOA, which of the following options do creditors have when providing a copy of appraisal results to borrowers?

The earlier date of appraisal completion or three business days pre-consummation

Which one of the following is a true statement about title insurance fees?

The fees may vary by 10% after the estimate is given.

In a typical transaction, which of these title defects is unlikely to cause a problem for the buyer?

The seller's existing mortgage

A borrower may be reimbursed by the lender for closing agent fees in which one of the following scenarios?

The settlement agent is chosen by the lender.

The ______ is most commonly used to process loan applications.

Uniform Residential Loan Application

On August 1, a creditor received a complete loan application. The creditor has decided to reject the application. How long does the creditor have to notify the applicant of this adverse action?

Until August 31, or 30 days later

How long does the borrower have to pay private mortgage insurance?

Until the borrower reaches a 22% equity positionDefaults on the loan

When must a lender provide a copy of a written valuation related to a mortgage loan application to a borrower?

Upon appraisal completion or three business days before loan consummation, whichever is earlier

When providing a loan applicant with a Loan Estimate, what's the timeframe with which a lender must comply?

Upon loan application submission or within three business days

A lender received a cease-and-desist order from the department. When must the alleged violator begin complying with the order?

Upon receiving the order

Mac is a new loan originator. He's responding to a consumer's inquiry. In a rush, he puts his boss's UI in the email instead of his own. What has Mac done wrong?

Used his supervisor's NMLS UI.

Under the "Late Payment" heading of a LE, there is a statement that if 10 days pass after a payment is due, a $300 charge will apply. Does this statement conform to federal regulations? Why or why not?

Yes. This statement satisfies all aspects of the relevant regulation.