Mortgage Wrong Answers Test #2
Harry Homebuyer has 7% to put down. He wishes to avoid PMI by pursuing piggyback financing. The scenario for which he decided is: a) 80/10/10 b) 13/7/80 c) 7/13/80 d) 70/23/7
d) 70/23/7 d) When structuring a piggyback loan scenario, the first number always represents the LTV of the primary mortgage. Since the primary goal is to avoid paying PMI, that loan must be at or below 80% LTV. The second number represents the LTV of the second mortgage and the third number represents the borrower's down payment. All three numbers must add up to 100% since LTVs + equity must always equal 100%.
In order to be eligible for VA financing, the applicant must possess a certificate of eligibility reflecting what entitlement amount? a) $144,000 b) $510,400 c) $1,000,000 d) $36,000
d) $36,000 d) The certificate of eligibility must reflect an entitlement of $36,000 indicating that the bearer is fully entitled to VA financing. The $36,000 represents ¼ of the guarantee that the VA offers for its financing. It does not limit the applicant, however, to a loan amount of $36,000 or $144,000.
If a loan originator discovers an address on a credit report that the applicant didn't mentioned, s/he should: a) Ignore it since it probably isn't important b) Have the application declined c) Complete a SAR d) Question the applicant about it and add it to the application if necessary
D) Question the applicant about it and add it to the application if necessary d) An address appearing on a credit report that was not disclosed on the 1003 is not necessarily an indication of fraud. At the very least it needs to be clarified and the applicant's explanation noted in the file. If the applicant lived at that address within the previous two years, it would have to be added to the application.
30/15 refers to: a) A 30-year loan that balloons at 15 years and lacks a conditional right to modify b) A 15-year loan that balloons in 15 years and has a conditional right to modify c) A 15-year loan that balloons in 15 years and lacks a conditional right to modify d) A 30-year loan that balloons in 15 years and has a conditional right to modify
a) A 30-year loan that balloons at 15 years and lacks a conditional right to modify a) Balloon loans described by the term first (in years or months) followed by the balloon term (in years or months) lack a conditional right to modify. Describing the balloon term first followed by the difference between that and the 30-year term (ie. 7/23) describes a balloon loan containing a conditional right to modify.
Which of the following is not excluded from higher priced mortgage considerations? a) A conventional/conforming loan on a two-family property b) A reverse mortgage c) An eight-month bridge loan d) A construction loan used to build a property from scratch
a) A conventional/conforming loan on a two-family property a) Exclusions from higher priced mortgage loan considerations consist of loans that are used to finance the initial construction of a dwelling, bridge loans with terms of 12 months or less, reverse mortgages, and home equity lines of credit.
FACTA affords individuals which of the following considerations? a) A free credit report annually from all three CRAs, the protection of account number truncation on credit card receipts, and the ability to dispute discrepancies appearing on one's credit profile b) The right to opt out of information sharing c) The right to know the name and address of the credit repository from which the credit report used in rendering a credit decision was ascertained d) The right to receive a free copy of one's credit report in the event that s/he is declined credit for credit-related reasons
a) A free credit report annually from all three CRAs, the protection of account number truncation on credit card receipts, and the ability to dispute discrepancies appearing on one's credit profile a) FACTA's primary purposes surround affording consumers easy access to accurate credit information along with the prevention of identity theft. Although consumers do have the right to opt out of information sharing, that right is afforded to them through the Gramm-Leach-Bliley Act. The right to know the identity of the credit reporting agency used to render a credit decision along with the right to receive a free copy of one's credit report in the event of declined credit is afforded through FCRA.
Barry is told that he is lacking reserves and may not be able to close. What might he use to supplement his assets? a) A liquid whole life insurance policy containing a cash value b) An asset statement from a blood relative along with an affidavit guaranteeing the use of these funds if Barry ever needed them c) A liquid term life insurance policy d) His mint 1967 Chevrolet Camaro convertible
a) A liquid whole life insurance policy containing a cash value a) Although they don't have to be liquidated, reserves need to be liquid and accessible in case they're needed. A whole life insurance policy carrying a cash value may be the perfect solution to Barry's needs. He couldn't use a blood-relative's asset statement but he could accept a gift. A term life insurance policy carries no cash value and, in order to use the value of his car as reserves, he would have to sell it, thoroughly document the transaction, and deposit the cash.
Barry Borrower has a fixed rate loan. After winning big on a scratch-off lottery ticket, Barry wishes to reduce his principal balance by $50,000. After applying the principal reduction, Barry would prefer that his servicer reduce the payment amount and not the overall term. Barry calls his servicer to discuss: a) A recast b) An exception c) Applying for a new loan d) His frustration surrounding how principal pre-payments remitted against fixed-rate loan balances only reduce the term and not the payment amount
a) A recast a) A mortgage servicer may, at its sole discretion, affect a recast by recalculating the payment amount of a fixed-rate loan after receiving a principal pre-payment. Doing so retains the original term at the fixed interest rate while lowering the payment amount. Servicers may do this as a courtesy and may also charge a fee to accommodate this request.
Which of the following would not be considered public, personal information addressed through the Gramm-Leach-Bliley Act? a) Published telephone number b) Marriage certificate c) Unpublished telephone number d) Birth certificate
c) Unpublished telephone number c) The Gramm-Leach-Bliley Act protects the sanctity of individuals' non-public, personal information. Non-public, personal information is information that cannot be secured through a general records search or a Freedom of Information/Privacy Act request. Public personal information is information that may be secured through those means.
Charlie Chancetaker likes the low interest rate offered by the 360/60 balloon loan on which he settles. He is not worried about going into foreclosure because his company transfers him every four years and he intends to sell the home and pay off the loan well in advance of the balloon call. Which of the following would not represent a possible problem when the time to address the balloon call arrives? a) He might not meet one of the conditions of modification b) His home might be worth less than what he owes when the time arrives to sell c) He might no longer be working for his employer in four years and therefore won't be transferred d) He might still work for his employer but his employer might not transfer him
a) He might not meet one of the conditions of modification a) A 360/60 is a balloon loan with a payment calculated at the 30-year amortized rate that contains a call term after five years. As the loan is described by the overall term followed by the balloon call term, this type of balloon loan does not contain a conditional right to modify.
An ARM is currently at 3.25% and set to adjust. The index is currently at 1.125% and the margin has been established at 4.25%. To what will the borrower's interest rate adjust? a) 7.5% b) 5.375% c) 4.375% d) 8.625%
b) 5.375% b) Index plus margin equals Fully Indexed Accrual Rate (FIAR). Consequently, the sum of the adjusted index of 1.125% plus the established margin of 4.25% equals the new interest rate of 5.375%.
A borrower has 10% to put down but desperately wishes to avoid paying a monthly PMI premium. Which of the following options would not be a way for her to avoid paying this monthly expense? a) Piggyback financing b) Above-par pricing c) Financed MI d) LPMI
b) Above-par pricing b) Although above-par pricing would provide funds which could be used to supplement cash towards a down payment, it would be highly unlikely that the credit could equate to 10% of any home's purchase price. Piggyback financing would provide two loans, one at 80% and one to supplement the other 10% needed to avoid paying PMI. Financed MI would entail a one-time PMI premium financed into the loan amount negating the need for a monthly premium, and Lender Paid Mortgage Insurance (LPMI), would result in the lender paying a one-time PMI premium on the borrower's behalf, typically in exchange for a higher interest rate.
All but which of the following are types of QM's? a) General b) Adjustable c) Balloon-Payment d) Temporary
b) Adjustable b) Effective January 10, 2014, mortgage lenders are required to demonstrate that they have verified their borrowers' abilities to repay. The CFPB implemented the Ability to Repay Rule defining all Qualified Mortgages (QMs) as meeting that criteria. The four types of QMs are: General, Temporary, Small-Creditor, and Balloon-Payment.
Once a loan estimate has been issued, when is the first opportunity that the loan may close? a) After three general business days b) After seven precise business days c) After seven general business days d) After three precise business days
b) After seven precise business days b) Seven precise business days must elapse after the issuance of the loan estimate before the loan would be allowed to close. The purpose of this mandatory waiting period is to ensure that the applicant has ample time to review the loan's particulars and carefully contemplate the transaction into which they're considering entering.
If an applicant discloses that she is a party to a lawsuit, what should the loan originator request? a) Nothing since, as a plaintiff, there is no lender concern b) Evidence of her position as a plaintiff c) Evidence that the lawsuit has been resolved d) An application cannot be processed if an applicant is actively involved in litigation
b) Evidence of her position as a plaintiff b) As long as the applicant can demonstrate that she is a plaintiff, the application may be processed without disruption. As a plaintiff, the lender's lien position is not jeopardized as it could be if the applicant was a defendant.
What is another term for the URLA? a) FNMA form 1004 b) FNMA form 1003 c) FNMA form 1070 d) FNMA form 1099
b) FNMA form 1003 b) FNMA form 1003 is another designation for the uniform residential loan application (URLA).
The USA Patriot Act is primarily concerned with: a) Identity theft and money laundering b) Money laundering and terrorist financing c) Terrorist financing and fraud d) Both a) and c).
b) Money laundering and terrorist financing Answer: b) The USA Patriot Act was enacted as a direct result of the terrorist attacks of September 11, 2001. The primary concerns of the Patriot Act are to thoroughly identify each customer in order to ensure that criminals are prevented from receiving loan proceeds (similar to when an individual attempts to purchase an airline ticket and is compared against the no-fly list) along with ensuring that all money utilized in and as a part of any financial transaction are legitimate and have been legally acquired.
For what does VVOE stand? a) Visual verification or evaluation b) Visual verification of entitlement c) Verbal verification of employment d) Visual verification of employment
c) Verbal verification of employment c) A verbal verification of employment is usually performed within 10 days of the note date. The lender will contact the applicant's employer to confirm that the applicant is still gainfully employed.
What constitutes a good payment history in terms of PMI removal? a) No late payments within the previous 12 months b) No 60-day late payments within the previous 24 months and no 30-day late payments within the previous 12 c) No 60-date late payments within the previous 24 months d) No 30-day late payments within the previous 24 months and no 60-day late payments within the previous 12
b) No 60-day late payments within the previous 24 months and no 30-day late payments within the previous 12 b) According to the Homeowners Protection Act, a good payment history requires a 24-month payment history review. During the most recent 24 months, the customer may not have had any 60-day late payments, and, within the most recent 12 months, the customer may not have had any 30-day late payments.
What must a customer be able to demonstrate when requesting PMI be removed at 80% LTV? a) Their 20% equity position b) Their 20% equity position, a good payment history, and no subordinate liens c) A good payment history d) Their 20% equity position and being current on their loan
b) Their 20% equity position, a good payment history, and no subordinate liens b) At 80% LTV, an individual paying PMI may petition their mortgage servicer for the removal of PMI. In order to successfully petition their servicer, the customer must demonstrate that they have at least 20% equity by purchasing an appraisal from the servicer. In addition, the customer must also demonstrate that they have a good payment history and no subordinate liens.
A purchase price is $400,000 and the buyer wishes to apply $30,000 as a down payment. The seller is offering a 3% seller's concession. What is the value of the seller's concessions? a) $900 b) $11,100 c) $12,000 d) $10,000
c) $12,000 c) Seller's concessions are based upon the purchase price. Since the purchase price is $400,000 and the seller is offering 3% in concessions, the seller's concession will amount to $12,000.
Conventional/conforming DTI guidelines are: a) 28/31 b) 29/41 c) 28/36 d) 33/41
c) 28/36 c) Although conventional/conforming DTI guidelines are established at 28/36, they are just that ... guidelines. With compensating factors, conventional/conforming QM loans may be approved up to a 43% back-end DTI ratio.
Which of the following is permitted when servicing or originating a HOEPA loan? a) Increasing the interest rate in the event of default b) Disbursing funds directly to the contractor when the loan purpose is home improvement c) Enforcing a pre-payment penalty d) Originating a 3/23 balloon loan
c) Enforcing a pre-payment penalty HOEPA loans may include pre-payment penalties as long as the pre-payment penalty occurs within the first five years (other conditions also apply). Increasing the rate after default is never permitted. When the purpose of the loan is for home improvement, the funds must be disbursed either directly to the homeowner, in the form of a check made payable to both the homeowner and the contractor, or to a third-party escrow company agreed upon by all parties. HOEPA balloon loans are permitted as long as the balloon component does not call the loan within the first five years.
Jennifer is a 30-year old home buyer. In order to close on the purchase of her new home, she will need to bring $65,750 to the settlement table. Her only asset from which she intends to secure this money is her 401(k) account bearing a face value of $75,500. Jennifer demonstrates that she is the owner of the account, confirms that the account is vested, and that it allows for withdrawals regardless of her current employment status. Assuming that all other underwriting conditions have been satisfied, will Jennifer be able to close on her loan? a) Yes - she has satisfied all conditions and has enough money to cover all cash needed to close b) Yes - she has satisfied all conditions and has enough cash needed to close once she liquidates the money in her retirement account and maintains a paper trail c) No - she has not documented sufficient funds to close d) Yes - she has satisfied all conditions and has enough cash needed to close once she liquidates the money in her retirement account, maintains a paper trail, and has provided the terms of her account's liquidity
c) No - she has not documented sufficient funds to close c) Investor criteria maintains that, if a borrower intends to use retirement funds as a source of settlement funds, unless the amount contained in any one specific retirement account equates to or exceeds 120% of the total amount of cash needed for the down payment and closing costs, the applicant will have to document that the account is theirs, it is vested, it allows for withdrawals regardless of the applicant's current employment status, and their actual receipt of funds realized from the sale or liquidation of the asset.
The overall governing entity of the mortgage industry is: a) The CSBS b) The NMLS&R c) The CFPB d) HUD
c) The CFPB c) The Consumer Financial Protection Bureau is the regulatory entity overseeing the mortgage industry as empowered by the Dodd Frank Act.
By what date would a mortgage loan originator who fails to renew her license by December 31st have to renew it in order to avoid repeating the entire licensing process? a) January 1st b) February 1st c) The last day of February d) March 1st
c) The last day of February c) If a licensee does not renew their license by midnight on December 31st, their license expires, and they are immediately rendered inactive. They have until the last day of February to renew their license by paying the appropriate renewal fees, demonstrating completion of the appropriate continuing education, and paying a late charge. Failure to renew by the last day of February requires that the loan originator repeat the entire licensing process.
What was one of the primary motivations for the creation of a UST? a) Loan originators were complaining about having to take so many exams b) Conducting exams for all of the states was becoming too expensive c) The questions on state exams were often redundant d) Loan originators were taking too long to become licensed
c) The questions on state exams were often redundant c) Since most of the states modeled their rules after each other, many of the state exams were basically repetitions of other state exams.
When is an applicant obligated to disclose child support payments as a liability? a) Any time he or she is paying child support b) Whenever there is any sort of agreement between two individuals for the payment of support c) Individuals are not required to disclose the payment of child support since it is considered a private matter between two people d) Any time there is an order of support requiring the applicant to pay child support
d) Any time there is an order of support requiring the applicant to pay child support d) Obligated payments of child support stem from court orders and/or divorce decrees. Whether an individual is actively paying it or not is irrelevant. If someone is court ordered or otherwise required to pay child support, that support payment must be included in his or her DTIs and the liability manually entered onto the application. The only time when court ordered child support could be excluded from an applicant's DTIs is when there are 10 or fewer months left to pay it.
How do principal pre-payments remitted against a fixed-rate loan balance affect the loan? a) By reducing the term b) By reducing the future payment amount c) By reducing the overall interest expense d) By reducing the term and overall interest expense
d) By reducing the term and overall interest expense d) Unlike remitting a principal pre-payment against an adjustable rate loan balance, doing so against a fixed-rate loan balance accelerates the amortization while reducing both the loan's term and overall interest rate expense. The payment amount is never affected.
Joan applies for a mortgage on Tuesday. By the end of what day must the Transfer of Servicing disclosure be issued? a) Friday b) Saturday c) Thursday d) None of the above
d) None of the above d) The Transfer of Servicing disclosure must be issued by the releasing entity no later than 15 days prior to a servicing release and by the receiving entity no later than 15 days after the receipt of servicing. The Servicing Disclosure Statement is the disclosure that must be issued within three precise business days of the receipt of an application.
A buyer wishes to purchase a home for $310,000 and has $30,000 for a down payment. He wishes to avoid paying PMI. What is the easiest way to structure this transaction using piggyback financing? a) Originate a $290,000 loan amount b) It cannot be done - the borrower will have to have PMI or come up with a larger down payment c) Originate a $248,000 first mortgage and a $30,000 second mortgage d) Originate a $248,000 first mortgage and a $32,000 second mortgage
d) Originate a $248,000 first mortgage and a $32,000 second mortgage d) The $248,000 first mortgage brings the borrower to an 80% LTV negating the need for PMI. Since he only has a $30,000 down payment, a second mortgage of $32,000 will be necessary to bridge the gap.
If a HOEPA loan is originated for purposes of home improvement: a) The proceeds may be fully disbursed to the home improvement contractor b) The proceeds may be fully disbursed to the home improvement contractor with the customer's permission c) The proceeds may be retained by the lender and issued to the home improvement contractor at a future date agreed upon by all interested parties d) The proceeds may be issued to and managed by a third-party escrow company that is agreed upon by all parties
d) The proceeds may be issued to and managed by a third-party escrow company that is agreed upon by all parties d) To prevent homeowners from being cheated by unscrupulous home improvement contractors, proceeds from the refinancing of a HOEPA mortgage to finance home improvements must either be made payable directly to the customer, jointly to the customer and the contractor, or to a third-party escrow company, agreed upon by all interested parties.
