Practice SAFE Test Flash Cards
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
Answer: 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.
In a lien theory state: a) The borrower retains both legal and equitable title b) The borrower gives legal title to the lender c) Foreclosures are prohibited d) Foreclosures require the lender to first validate its lien
Answer: a) A property located in a title theory state requires the borrower to issue legal title to the mortgagee. The mortgagee technically owns the property until the debt is paid at which time the deed is transferred to the homeowner. In a lien theory state, the borrower retains equitable title. A property located in a lien theory state requires the lender to place a lien against the property's title that necessitates the initiation of a foreclosure proceeding in the event of default.
Which of the following is considered to be a valid change of circumstance? a) When an extraordinary event beyond anyone's control, an earthquake occurs, when the customer wishes to add another borrower, or when the title company ceases to operate during the transaction b) When the loan originator errs on a disclosed fee not containing a zero-tolerance change cap and needs to correct the error c) When the customer withdraws his application d) When the mortgage broker ultimately chooses a different lender than the one to which it originally intended to broker the loan
Answer: a) A valid change of circumstance is defined as: an extraordinary event beyond anyone's control, when information upon which the lender originally relied is ultimately deemed to be inaccurate or changes post disclosure, when new and relevant information surfaces post-disclosure, the occurrence of a natural disaster or act of God, and when the title insurance company intended for use terminates operations during the transaction.
Which of the following is not a valid reason for changing fees once a Loan Estimate has been issued? a) The loan originator originally miscalculated the transfer tax quoted on the Loan Estimate b) A valid change of circumstance occurs c) The customer requests to increase the loan amount for which she is applying d) The customer chooses a different property in a county where the recordation tax is higher than that of the original property
Answer: a) All fees must be disclosed in good faith. In the event that a fee is ultimately higher than what was initially quoted, the lender may not charge an amount above what was originally disclosed unless the fee change was caused by a valid change of circumstance or, at the very least, a valid reason. In the absence of a valid change of circumstance but in the presence of a valid reason, fee increase limit caps must be honored.
How long does a mortgage license remain in effect before requiring renewal? a) One year b) Two years c) Three years d) Six months
Answer: a) Licenses expire annually on December 31st and must be renewed in order for the loan originator to maintain his or her ability to originate mortgages.
Sally and Steven live in a home in which both of their names appear on the deed. Only Sally, however, has signed the conventional Promissory Note. When Sally decides to refinance the mortgage, she elects not to involve Steven since the debt is not his and neglects to mention him to the loan originator. What does her mortgage loan originator inform her after reviewing the title binder? a) That Steven will have to prepare a Power of Attorney that is specific to the transaction and approved by the lender allowing her to sign the Mortgage on his behalf at closing b) That Steven will also have to be added as an obligated party c) That they will be unable to approve the loan because Steven is not an obligated owner d) That Steven will have to be removed from the title for the loan to go through
Answer: a) Although removing Steven from the title of the property is always an option, it may not be the easiest or most favorable. Because he has an ownership interest, Steven must consent to whatever liens are placed against the title of the property. To remain a non-obligated owner, Steven will either have to attend the closing and sign the Mortgage (but not the Note) or he will need to sign a Power of Attorney, specific to this transaction and approved by the lender, that affords Sally (or a different third party) the right to sign the Mortgage on his behalf.
A loan is scheduled to close on October 2nd. Utilizing a/an _____________ will likely reduce the amount of cash that the applicant needs to bring to closing. a) Interest credit b) Right to rescind c) Seller's gift d) Credit card advance
Answer: a) An interest credit is issued when the first payment due date is established as the first day of the month directly following the closing. Since the entire month's worth of interest will be collected through the receipt of the first payment, the interest credit refunds the applicant the per diem interest amount for the days of that month prior to closing when they did not yet owe the money.
Other than Community Lending products, what is the minimum conventional down payment? a) 5% b) 3.5% c) 3% d) 1.5%
Answer: a) Conventional mortgages typically require a minimum down payment of 5%. This money may come from the borrower's own funds, gift funds, subordinate financing, or a combination thereof.
An Energy Efficient Mortgage: a) Finances making a home more energy efficient b) Finances delinquent energy bills c) Only finances energy efficient properties d) Is not available for homes constructed prior to 2001
Answer: a) Energy efficient mortgages refinance existing mortgages or may be used on newly-constructed properties to finance the installation of equipment used to render the property more energy efficient.
When must a Victim's Notice of Rights be issued to a consumer? a) Whenever a consumer reports identity theft to a CRA b) Any time an individual is a crime victim c) Any time a suspicious activity report is filed d) Annually and automatically to all customers
Answer: a) FACTA requires a Notice of Victim's Rights to be issued by the CRA to any individual reporting identity theft. It describes protections afforded to anyone who becomes a victim of identity theft as well as guides them as to what they can do to attempt to resolve the issue.
The maximum LTV permitted through an FHA cash-out refinance is: a) 85% b) 96.5% c) Cash-out refinances are not permitted through FHA financing d) 75%
Answer: a) FHA allows cash-out refinancing to a maximum LTV of 85%.
A warning on a credit report requiring extra steps to confirm the applicant's identity is known as a/an: a) Fraud alert b) Active duty alert c) Identity theft alert d) Red flag
Answer: a) Fraud alerts are alerts that consumers may add to their credit profile warning prospective creditors that they must take extra steps to confirm the applicant's identity.
A loan officer takes an application on Friday. His business fully operates Monday through Saturday. By when must the loan estimate be issued? a) Tuesday b) Wednesday c) By close of business that day d) Within seven days prior to closing
Answer: a) In accordance with TRID, the loan estimate must be issued within three general business days from the date of application. Since this loan originator's company fully operates on Saturday, Saturday must be considered one of the three business days. If he took the loan application on Friday, the loan estimate would have to be issued by the close of business the following Tuesday.
With few exceptions, QM's limit a loan's back-end DTI to: a) 43% b) 36% c) 50% d) 28%
Answer: a) In most cases, in order for a mortgage to be considered a Qualified Mortgage (QM), its back-end DTI can be no higher than 43%.
At what equity position is MIP automatically removed? a) MIP is never removed based on equity position b) 80% c) 78% d) 22%
Answer: a) MIP is the mortgage insurance associated with FHA loans. MIP is only removed after 11 years as long as the initial down payment was equal to or greater than 10%.
What is the Model State Law? a) A document to guide states in implementing the legislation required by the SAFE Act b) A law to track loan originators, initially enacted by the State of Georgia, that was modeled by other states c) A law requiring all states to participate in the NMLS&R d) A law that states are to use when establishing disciplinary guidelines
Answer: a) Model State Law was a document created by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to guide states in implementing legislation required by the SAFE Act.
Which of the following constitutes a valid change of circumstance under TRID? a) When the title insurance company intended for use terminates operations during the transaction b) When the loan originator miscalculates more than 10% of the cumulative settlement fees c) When market interest rates increase and the loan has yet to be locked d) When the borrower goes away on vacation during her loan's processing
Answer: a) TRID defines a change of circumstances to be: an extraordinary event beyond anyone's control, when information that the lender initially relied upon is ultimately deemed to be inaccurate or changes post-disclosure, when new and relevant information surfaces post-disclosure, the occurrence of a natural disaster or act of God, or when the title insurance company intended for use terminates operations during the transaction.
Penny Producer receives two voicemails. The first is from an individual inquiring about a $35,000 mortgage. The second caller requests information about a $350,000 loan. Penny calls the callers back in the order in which the calls were received. A week later Penny's manager is notified by a representative from the Federal Trade Commission that Penny passed a compliance check. The process by which federal regulators check on the behavior of mortgage loan originators is referred to as: a) Testing b) Secret shopping c) Self-testing d) External compliance
Answer: a) Testing is the process through which federal examiners "test" mortgage professionals to determine whether or not they act compliantly. In this case, had Penny returned the call from the $350,000 loan customer first, even though the caller inquiring about the $35,000 loan called first, Penny could have been accused of committing "disparate treatment." This is because the caller inquiring about the lower loan amount may not have been able to afford a more expensive home and she could have been seen as giving the more profitable caller preferential treatment. Testing that catches violations are sanctioned far more severely than are violations that are self-identified and self-reported.
Which of the following fees is not considered when calculating the APR? a) The application fee b) The credit report fee c) The underwriting fee d) The MERS fee
Answer: a) The APR represents the cost of originating a loan expressed as an interest rate. Settlement fees that are excluded when calculating the APR consist of fees that would be paid in a comparable cash transaction, fees that all applicants pay regardless of whether or not they close on a loan, fees charged by third-party settlement providers when the settlement service provider is not required by the lender, and settlement service provider fees that are not shared between service providers and the lender when the lender does not require the use of that particular service provider.
In what year was the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted? a) 2010 b) 2008 c) 2009 d) 2006
Answer: a) The Dodd-Frank Act was signed into law by former president Barack Obama in 2010.
What does the FBI Mortgage Fraud Warning Notice caution? a) That it is illegal for a person to attempt to influence the decision of a lending institution by making a false statement regarding income, assets, debt, and personal identification on a loan application b) That regulatory examiners are posing as customers to catch loan originators who violate regulations c) That all mortgage professionals must complete anti-money laundering training d) That failure to comply with fair lending laws may cost an individual his or her license
Answer: a) The FBI Mortgage Fraud Warning Notice makes it clear that illegally influencing or attempting to illegally influence a lending institution is a crime that is subject to severe punishment. This notice appears on the URLA.
Whole life insurance policies contain: a) A cash value b) A face value c) A market value d) Both a cash and face value
Answer: d) The cash value is the amount that would be secured through the current surrender of the life insurance policy. The face value is the ultimate value that the policy will achieve upon maturation.
A mortgage originator receives a call from a friend who wishes to rent a house to a potential renter. The friend does not wish to purchase a credit report but has authorization to access the applicant's credit. To avoid having to pay for a report, the friend asks the loan originator to order the potential tenant's credit report on his behalf. The loan originator agrees to and does so. Consequently, the loan originator: a) Violated the FCRA b) Complied with the law since the applicant gave permission c) Complied with the law but should bill his friend for the cost of the credit report d) Violated the FACTA
Answer: a) The FCRA requires anyone accessing another individual's credit to have both permission as well as a permissible purpose. Although both individuals technically had permission, accessing the credit report did not satisfy a permissible purpose since the subject of the credit report was not in pursuit of that originator's mortgage financing.
Another term for the Initial Escrow Statement is the: a) Escrow Accrual Sheet b) Escrow Status Disclosure c) Escrow Analysis d) Aggregate Escrow Analysis
Answer: a) The Initial Escrow Statement, also referred to as the Escrow Accrual Sheet, defines the status of the escrow account as of the closing date and further defines who is responsible for issuing any escrow-related disbursement due within 60 days of closing.
A loan amount is $175,000 with a purchase price of $240,000. The property appraises at $229,000. What is the LTV? a) 76% b) 27% c) 24% d) 73%
Answer: a) The LTV consists of the loan amount divided by the lesser of the purchase price or appraised value.
Which of the following is not a type of reverse mortgage? a) Renovation reverse b) Single purpose reverse c) Proprietary reverse d) HECM
Answer: a) The single purpose reverse is a loan to fund a particular purpose such as home improvement or the repayment of overdue taxes. A proprietary reverse mortgage is a private reverse loan. The home equity conversion mortgage (HECM) is the standard reverse mortgage.
Which of the following is a consequence of exercising one's right to rescind? a) All money that the applicants paid into the transaction must be refunded to them b) All money that the applicants paid into the transaction that the lender did not spend on third-party settlement services must be refunded to them c) All money paid into the transaction must be refunded to the applicants within 45 days of them exercising their right to rescind d) The applicant may never reapply with that lender
Answer: a) When a right to rescind is exercised, the new loan does not fund, the loan which it may have originally intended to refinance does not pay in full and any money that the applicants paid into the transaction must be fully refunded to them within 20 calendar days.
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
Answer: 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.
A "party to the transaction" is: a) Anyone who signs the Note b) Anyone who signs the Mortgage c) A co-signer d) An obligated, non-owner
Answer: b) Anyone who has an ownership interest in a property being financed is considered a "party to the transaction." All "parties to the transaction" must sign the Mortgage acknowledging and consenting to the lien being attached to the property in which they maintain an ownership interest.
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 and a good payment history c) A good payment history d) Their 20% equity position and being current on their loan
Answer: 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 lender. In addition, the customer must also demonstrate that they have a good payment history.
By considering what may an underwriter approve a VA loan with a back-end DTI that exceeds 41%? a) Compensating factors b) Adequate residual income c) The applicant's rank while serving in the military d) The branch of service in which the applicant served
Answer: b) Based on geographic location and family size, if an applicant earns a specific amount of residual income or more, an underwriter may approve a VA loan application with a back-end DTI of greater than 41%.
All but which of the following are types of QM's? a) General b) Adjustable c) Balloon-Payment d) Temporary
Answer: 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 (QM's) as meeting that criteria. The four types of QM's are: General, Temporary, Small-Creditor, and Balloon-Payment.
Under FACTA, what must a financial institution do? a) Disclose the Loan Estimate within three days of application b) Provide any and all relevant information in its records at no charge to an individual claiming to be a victim of identity theft c) Provide any and all relevant information in its records at a modest charge to an individual claiming to be a victim of identity theft d) Provide an opportunity for its customers to opt out of the sharing of their personal information
Answer: b) Financial institutions must provide an individual claiming to have been victimized by identity theft with a copy of anything and everything in its records pertaining to the alleged claim. The financial institution may not charge the requester for the documentation. Disclosing the Loan Estimate within three days of application is a RESPA requirement and offering customers the option of opting out of information sharing falls under the GLBA.
Which of the following flood zone types would not require flood insurance? a) A flood zone containing prefix A b) A flood zone containing prefix E c) A flood zone containing prefix VE d) A flood zone containing prefix V
Answer: b) Flood zone prefixes A, V, and VE require the homeowner to maintain flood insurance when a mortgage securitizes the property.
LP stands for: a) Loan Processing b) Loan Prospector c) Loan Production d) Loan Provisioning
Answer: b) Freddie Mac's (FHLMC's) Automated Underwriting System (AUS) is referred to as Loan Prospector or LP.
POC stands for: a) Paid on conversion b) Paid outside of closing c) Paid on condition d) Placed on contingence
Answer: b) If an applicant pays for any settlement fee or other costs prior to closing, the cost is listed on the Loan Estimate as POC'd (paid outside of closing).
A property is valued at $395,000. There is a first and a second mortgage with a 60% CLTV. The second mortgage has a 12% LTV. What is the balance of the first mortgage? a) $237,000 b) $189,600 c) $47,400 d) $158,000
Answer: b) If both mortgages together constitute 60% of the property value with the second mortgage constituting 12%, the first mortgage must constitute 48%. When the $395,000 value is multiplied by 48%, the result is $189,600.
A customer applies for a loan amount of $250,000. What would his minimum down payment have to be in order to avoid PMI? a) $50,000 b) $62,500 c) $200,000 d) $75,000
Answer: b) If the loan amount is $250,000 the loan would have to be at an original LTV of 80% to avoid PMI. An 80% LTV on a loan amount of $250,000 equates to a purchase price/appraised value of $312,500 (250,000 / 80%). A 20% down payment on a purchase price/appraised value of $312,500 amounts to $62,500 (312,500 x 20%).
Once the Closing Disclosure is issued, a revised Closing Disclosure must be issued: a) When the loan's final APR exceeds the APR disclosed on the Loan Estimate by more than 0.125% b) When the loan's final finance charge exceeds the finance charge disclosed on the Closing Disclosure by more than $100 c) When the loan's final finance charge exceeds the finance charge disclosed on the Loan Estimate by more than $50 d) Once the Closing Disclosure is issued, no further fee changes are permitted
Answer: b) Once the Closing Disclosure is issued, a revised Closing Disclosure must be issued when: the loan's final APR exceeds the APR disclosed on the initial Closing Disclosure by more than 0.125%, the loan's final finance charge exceeds the finance charge disclosed on the initial Closing Disclosure by more than $100, the loan product changes, or a pre-payment penalty is incorporated into the loan.
A mortgage originator attends an open house held by a Realtor and brings bagels.How does the mortgage professional maintain regulatory compliance? a) By asking the Realtor not to mention the bagels to anyone b) By explaining to the Realtor that, since the bagels constitute a thing of value, they can only be eaten by prospective buyers and the Realtor may not eat any c) By only offering the bagels to the Realtor d) By realizing what he did and throwing them out before anyone eats any
Answer: b) RESPA prohibits the exchange of anything of value between actual or potential referral sources. As long as the Realtor does not partake of the bagels, the potential homebuyers may enjoy them and no regulatory violation would be committed.
Under FACTA, which of the following is not a CRA obligation? a) Creating a fraud alert b) Requiring permission to obtain an individual's credit report c) Disclosing credit scores d) Issuing free credit reports
Answer: b) Requiring permission to obtain an individual's credit report is a CRA obligation under FCRA not FACTA.
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
Answer: 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.
Failing to issue a right of rescission at the closing of a rescindable loan is a violation of: a) FCRA b) Reg Z c) RESPA d) Reg B
Answer: b) TILA establishes the right of rescission. TILA is also referred to as Reg Z.
The "Four C's" of underwriting consists of: a) Credit, capacity, commitment, and capital b) Credit, capacity, capital, and collateral c) Consent, capacity, consistency, and collateral d) Consent, credit, capital, and capacity
Answer: b) The "Four C's" of underwriting consists of Credit (the likelihood of repaying the loan), Capacity (the ability to repay the loan), Capital (the amount of savings representing responsible funds management), and Collateral (the lender's security in the event that the loan is not repaid).
All but which of the following documents is an informational disclosure? a) CHARM booklet b) Closing Disclosure c) Mortgage Servicing Disclosure Statement d) When Your Home is on the Line: What You Should Know About Home Equity Lines of Credit
Answer: b) The Closing Disclosure is a cost disclosure since it reflects the final accounting of the mortgage transaction.
Which of the following is another term for the FHA ARM? a) FHA 5/1 b) FHA 251 c) FHA 203(k) d) FHA 203(b)
Answer: b) The FHA 251 refers to the FHA's adjustable rate mortgage offered in 1/1, 3/1, 5/1, 7/1, and 10/1 formats. The 203(k) is the FHA rehabilitation loan and the 203(b) is the standard 30-year FHA fixed-rate loan.
Model State Legislation: a) Is the governing doctrine of the mortgage industry b) Represents the minimum licensing standards c) Is the model after which all other legislation is created d) Defines a qualified borrower
Answer: b) The Model State Legislation is the basic foundation constituting the SAFE Act's implementation. States may individually layer on top of this basic model.
Which of the following is not an exception to having to scrub a telephone number through the Do Not Call Registry before making an outbound call? a) A current customer b) A non-current customer, but someone who was a customer within the previous 24 months c) A charitable organization d) An individual who initiates an inquiry within the previous 90 days
Answer: b) The Telemarketing Sales Rule allows for five exceptions to first scrubbing a telephone number through the Do Not Call Registry before making an outbound call. They are: when the call is made to a current customer, when the call is made to an individual who is not currently a customer but was one within the previous 18 months, when the call is made to someone who initiated an inquiry within the previous 90 days, if the caller is from a charitable organization, and if the caller is or the call involves a politician.
Terrible Title conducts the closing of a primary residential, three-family refinance. At closing, the settlement agent hands everyone in attendance one copy of the right to rescind. What, if anything, did the settlement agent do wrong? a) She failed to explain what the right to rescind entails b) She failed to provide each party to the transaction with two copies of the right to rescind c) She issued right to rescind documents on a non-rescindable transaction d) She was only required to issue one copy of the right to rescind total
Answer: b) The Truth-in-Lending Act requires that each party to the rescindable transaction receives two copies of the right to rescind whenever a loan containing a right to rescind is settled. Since this refinance was of a three-family, primary residence, it included the right to rescind. The settlement agent should have issued each party to the transaction two copies of the right to rescind.
Lisa Lucky suddenly learns of an outstanding tax lien that was filed against the title of her property three and a half years prior to her buying it. Lisa remains calm knowing that, at her mortgage closing, she purchased a/an: a) Lender's title insurance policy b) Owner's title insurance policy c) Supplemental catastrophic indemnification rider to her homeowner's insurance policy d) Homeowner's warranty
Answer: b) The owner's title insurance policy that she purchased protects her property interests in the event of a title default. The owner's policy will either pay her for her interest in the property or satisfy the tax lien. Had she had only purchased the lender's title insurance policy, the policy would have paid off the lesser of the tax lien or the mortgage balance.
The legal description of the property being financed appears on the: a) URLA b) Title binder schedule A c) Closing Disclosure d) Title binder schedule B
Answer: b) The schedule A of a title insurance binder describes who is listed as the owner or owners of record on a property and also provides the property's legal description.
Of which of the following third-party service providers would a lender be prohibited from insisting on the specific use? a) Flood certification provider b) Settlement agent c) Lender legal representation d) Credit repository
Answer: b) There are five specific settlement service providers that a lender may dictate the use of: flood certification provider, tax search provider, appraiser, credit repository, and lender legal representation when the lender is required to retain its own legal representation. Otherwise, RESPA affords all applicants with the right to choose their own settlement service providers.
Your mortgage applicant presents a picture ID at the time of application that does not closely resemble him. What action, if any, must you take? a) No further action is required since the ID was otherwise valid b) You must follow the protocol established by your company's Identity Theft Prevention Program required under FACTA c) You must ask the customer for another ID containing a picture that better resembles him d) You must refuse to take the application
Answer: b) Under FACTA's Red Flags Rule, all companies must have a formal policy in place to prevent identity theft. Since the picture on the ID did not resemble the person standing in front of you, you must comply with your company's Identity Theft Prevention Program.
In a judicial foreclosure: a) A judge must order an eviction b) The mortgage does not contain a power of sale clause c) The foreclosure process is, in essence, the same as a non-judicial foreclosure d) Only a federal court can enforce the foreclosure
Answer: b) When a power of sale clause exists in a mortgage, the lender can take ownership of the property after default. If the mortgage does not include a power of sale clause, the lender has to file a lawsuit and a judicial foreclosure must ensue.
How long will the issuance of a revised Loan Estimate delay the closing? a) There is no restriction on when a loan may close once a revised Loan Estimate is issued b) Seven precise business days if mailed c) Four precise business days if e-mailed d) Three precise business days if personally handed to the applicant
Answer: b) When a revised Loan Estimate is issued, the closing may not occur for at least four precise business days after the consumer receives it. If the revised Loan Estimate is issued electronically or mailed via standard U.S. mail, the four precise-business-day waiting period is increased to seven to allow for mailing (unless the applicant confirms receipt prior at which time the day of receipt begins the four precise -business-day waiting period).
If a 5/1 ARM's start rate is 3.375% with a cap structure of 2/6, what would the customer's interest rate become if, at the first change point, the index was 2.875% and the margin was 3%? a) 5.875% b) 5.375% c) 9.375% d) 6.375%
Answer: b) With a 2/6 cap structure and a start rate of 3.375%, the highest to which the rate can adjust at the next adjustment point is 5.375%. Even though the rate should technically be 5.875% (2.875 + 3), the 2% cap restricts it from increasing higher than 5.375%.
Which of the following is an example of a standard ARM? a) 3/1 b) 2/28 c) 1/1 d) 7/1
Answer: c) A standard ARM carries an initial interest rate that is stable for the first year and adjusts annually thereafter. A 1/1 is an example of a standard ARM. A hybrid ARM has an initial start rate that is stable for longer than just the first year.
An active duty alert: a) Assures more lenient underwriting considerations for military personnel b) Is available to all military personnel c) Is only available to military personnel who are actively deployed d) Only applies to VA financing
Answer: c) Active duty alerts afford extra protection to actively-deployed military personnel who are not able to regularly monitor their credit profiles.
MLO Mary reviews her customer's credit report. She discovers multiple discrepancies, several inconsistencies, and many apparent errors. She advises her client that, to remedy this, she needs to order a: a) Tradeline versification b) Suspicious activity report c) Full factual d) Rapid rescore
Answer: c) Although tradeline verifications may be used to correct errors and issues on a credit report, each tradeline verification only addresses one particular issue. Multiple issues are best addressed through a full factual. A full factual (also referred to as an investigative consumer report) is a real-time verification and accurate report reflecting a consumer's complete credit profile ascertained through interviews with the consumer and his or her creditors.
Which of the following does not constitute a required standard of state licensing laws? a) a. Loan originator licensing requirements b) b. Requirements for supervising those who are licensed c) c. Requirements for establishing licensing fees d) d. A program for enforcing the law
Answer: c) Fees are defined individually by each state.
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 31st
Answer: 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.
Under 12 USC § 5114(2), (4), licensed loan originators: a) Must permit interviews of their relatives b) Must make their records available only in response to a court order c) Must permit interviews of their customers d) May knowingly withhold records that they feel are not necessary for investigative purposes
Answer: c) If a state regulator deems that an investigation warrants the interview of existing and previous customers, the licensed loan originator must accommodate that.
An ARM start rate that is less than three percent below FIAR is a/an: a) Teaser rate b) Incentive rate c) Discount rate d) Fully-indexed rate
Answer: c) If an ARM start rate is within three percent below FIAR, it is referred to as a discount rate.
Which of the following options would present the best possible solution for a borrower with minimal assets, whose home is worth less than his outstanding balance, and who's concerned about making his payments? a) Short sale b) Deed in lieu of foreclosure c) Loan modification d) Ignore the problem and hope for the best
Answer: c) If the borrower's "upside down" with minimal assets, he may not be able to sell the home unless his lender approves a short sale. A short sale could also result in a deficiency judgment being placed against him for the difference between the loan balance and the amount for which the lender released the lien. A deed in lieu of foreclosure would significantly damage his credit. Ignoring the problem would not alleviate it. A modification to more manageable terms would likely be the best solution.
What constitutes a "covered account" as referenced under the FTC's Red Flags Rule? a) An account maintained by a creditor, intended for commercial use, and designed to permit multiple payments b) An account maintained by a private individual, intended for personal use, and designed to permit multiple payments c) An account maintained by a financial institution, intended for family use, and designed to permit multiple payments d) An account maintained by a creditor, intended for household purposes, and designed to be repaid through a one lump-sum payment
Answer: c) In accordance with the FTC's Red Flags Rule, a covered account includes any account that is offered or maintained by a financial institution or creditor, is intended for personal, family, or household purposes, and is designed to permit multiple payments or transactions.
In the presence of non-traditional income, which of the following is not needed? a) Sourcing b) Seasoning c) Monitoring d) Establishing continuance
Answer: c) In the presence of non-traditional income, a lender must ensure that the recipient is legally entitled to receive the income, has been consistently receiving it for the previous year (six months for obligated child support), and is expected to receive it for at least three more years.
Shady Deals decides to decline a mortgage application because the applicant, who happens to earn her income through public assistance, cannot demonstrate that she is going to continue receiving the income for at least 36 more months. The adverse action notice that Shady Deals sends to the applicant simply states that the reason for declining her application was, "Receipt of public assistance." Which regulation, if any, did Shady Deals violate? a) RESPA b) TILA c) ECOA d) Shady Deals did not violate any regulation
Answer: c) Not qualifying due to the amount of income earned or for the inability to demonstrate appropriate income continuance is a legitimate reason for declining a mortgage application. Declining an application solely due to the applicant earning income from public assistance, however, directly violates the ECOA. Shady Deals erred by stating that the reason for declining the application was the receipt of public assistance. Instead, it should have said that the reason for declination was the inability to substantiate income continuance.
Once a Closing Disclosure is issued: a) The lender may issue a revised Loan Estimate as long as the revisions are precipitated by a valid change of circumstance b) The lender may issue a revised Loan Estimate as long as the changes do not cause an increase of more than 10% to the cumulative sum of all fees charged c) The lender may not issue a revised Loan Estimates d) No fee changes are permitted once a Closing Disclosure is issued
Answer: c) Once the Closing Disclosure is issued, the lender may not issue a revised Loan Estimate. If a valid change of circumstance occurs between the fourth and third days prior to closing but before the issuance of the Closing Disclosure, the lender may reflect the changes on the Closing Disclosure.
Remitting principal pre-payments to an adjustable rate mortgage in addition to the regular periodic payments, affects the ________? a) Loan term b) Overall interest expenditure c) Future payment amount d) Future interest rate
Answer: c) Principal pre-payments remitted against the balance of an adjustable rate mortgage affect the future payment amounts. At the time of the next scheduled interest rate change, the mortgage servicer calculates the new payment amount considering the currently-applicable interest rate, the remaining term, and the existing principal balance. A balance that is lower than it otherwise would be due to the previous remittance of principal pre-payments will cause the new payment to be lower than it would have been had the balance been higher at the time of the interest rate change.
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
Answer: c) Since most of the states modeled their rules after each other, many of the state exams were basic repetitions of other state exams.
Loan originators may be compensated through all but which of the following methods: a) Trips/prizes b) A percentage of the loan amount c) Based off of the interest rate d) A loan's seasoning
Answer: c) The Loan Originator Compensation Rule defines the terms under which a loan originator may be compensated. Being paid based on the terms of the transaction (mortgage type, interest rate, loan term, etc.) is prohibited.
Which of the following is not one of the three standard appraisal approaches? a) Cost approach b) Income approach c) Market approach d) Sales comparison approach
Answer: c) The cost approach considers the cost of labor and material. It is commonly used when appraising homes for construction or rehabilitation. The income approach utilizes an Operating Income Statement (OIS) to compare rental potential when financing a property intended for investment purposes. The sales comparison approach compares three similar, recently-sold properties in close proximity to the subject property in order to determine the subject property's market value by comparative analysis.
Of the following choices, which contains information that is not included in the six items constituting a live application? a) Social security number, borrower's name, appraised property value b) Loan amount, borrower's name, property address c) Monthly income, amount of assets, social security number d) Social security number, property address, borrower's name
Answer: c) The six items constituting a live application are social security number, date of birth, monthly income, property address, property value, and loan amount.
How many sections does a URLA contain? a) 8 b) 13 c) 10 d) 12
Answer: c) The ten sections of form 1003 consist of: 1.) Mortgage and Terms of Loan, 2.) Property Information and Purpose of Loan, 3.) Borrower Information, 4.) Employment Information, 5.) Monthly Income and Combined Housing Expense Information, 6.) Assets and Liabilities, 7.) Details of Transaction, 8.) Declarations, 9.) Acknowledgement and Agreement, and 10.) Information for Government Monitoring Purposes.
A buyer buys a home for $395,000 and puts 25% down. What is the amount of his down payment? a) $97,850 b) $296,250 c) $98,750 d) $74,062
Answer: c) Twenty-five percent of a $395,000 sales price equates to $98,750 (395,000 x 25%).
If the closing disclosure is sent to the customer electronically on Monday, when would the first opportunity to close be? a) Thursday b) Friday c) Tuesday of the following week d) Saturday
Answer: c) Unless the borrower confirms receipt prior, if the closing disclosure is issued via US mail or electronically, the three-day precise waiting period must be extended to six in order to account for delivery time. If the closing disclosure was issued on Monday, the sixth precise business days thereafter would be the following Monday. The loan, therefore, would be allowed to close no earlier than the next day (Tuesday).
If a borrower has a mutual fund, how much of the fund's face value may be used to satisfy reserve requirements? a) 70% b) 60% c) 100% d) 80%
Answer: c) When used solely to satisfy reserve requirements, 100% of a mutual fund's face value may be considered.
If a borrower chooses an above-par interest rate that results in a closing cost credit of 2%, how much would her settlement costs be reduced assuming a purchase price of $230,000 and a down payment of 15%? a) $4,600 b) $690 c) $3,910 d) $2,932
Answer: c) With a 15% down payment, the loan amount will be $195,500. If the rate generates a 2% settlement cost credit, the borrower will receive $3,910 towards her closing costs (195,500 x 2%).
What does CRA stand for? a) Consumer Records Association b) Consumer Reporting Association c) Credit Reporting Agency d) Consumer Reporting Agency
Answer: d) CRA stands for Consumer Reporting Agency. The three major CRA's are Equifax, Experian, and Trans Union.
Two types of conventional mortgages are: a) Conforming and FHA b) FHA and VA c) Conforming and traditional d) Conforming and non-conforming
Answer: d) Conventional financing refers to mortgage loans that are not funded, insured, or guaranteed by a purely-governmental entity. Conforming describes whether or not the loan "conforms" to Fannie Mae/Freddie Mac underwriting criteria as well as FHFA-established annual loan limits. Conforming and non-conforming loans are conventional. Government loans conform to their own underwriting criteria and loan limits.
Which of the following documents must be issued in accordance with FACTA? a) An identity theft disclosure notice b) A notice of right to rescind c) An authorization to release information d) A notice of credit score
Answer: d) FACTA requires lenders to inform applicants of their representative credit score through a separate disclosure issued at the time of application. The notice of right to rescind is a requirement of TILA and the authorization to release information is signed by the borrower at the time of application in order to authorize third parties to release documentation necessary for the lender to complete its underwriting analysis. There is no disclosure known as the identity theft disclosure notice.
Larry Landlordtobe wants to purchase a three-family property in which he would live while renting out the other two units. Which appraisal form will the appraiser use to appraise this dwelling? a) 1004 b) URAR c) 1007 d) 1025
Answer: d) FNMA form 1025 is used to appraise multi-family properties intended for use, in whole or in part, as investment properties. Had the property been a single-family dwelling to be used for investment purposes, the appraiser would have used form 1007. Form 1004 is synonymous to the URAR (Uniform Residential Appraisal Report), the standard appraisal form used to appraise single-family, primary residences.
What were the primary overseers of mortgage industry reform? a) The CSBS, HUD, and the FTC b) The CSBS, FTC, and the AARMR c) The CSBS, NMLS, and HUD d) The CSBS, HUD, and the AARMR
Answer: d) HERA's enactment led to significant changes within the mortgage industry. The primary overseers of this change and the entities that were ultimately responsible for creating the NMLS and the CFPB were the Conference of State Bank Supervisors, HUD, and the American Association of Residential Mortgage Regulators.
A home is purchased for the appraised value of $165,000. The customer puts down 10% on his conventional loan. How much more will the customer have to pay in principal for the PMI to be automatically removed assuming the loan forever remains current? a) $132,000 b) $16,500 c) $128,700 d) $19,800
Answer: d) If the purchase price is $165,000 and the customer puts down 10%, the loan amount equates to $148,500 (165,000 - 16,500). Once the LTV reaches 78% of the original LTV, the PMI will be automatically removed assuming that the loan is current. The 78% LTV will be achieved once the balance reaches $128,700 (165,000 x 78%). If the loan amount starts at $148,500, an additional $19,800 will have to be paid against principal to reach the $128,700 balance equating a 78% LTV.
A _____________ may be used in lieu of pay stubs and tax returns. a) Verbal VOE b) Stated income loan c) Written VOD d) Written VOE
Answer: d) Instead of securing evidence of pay, W-2 employers may complete a written verification of employment (VOE) describing the employee's income, position, and likelihood of continuation. A VOD is a verification of deposit.
Which of the following is not a part of state supervisory authority? a) Examining, taking, and preserving testimony b) Suspending, terminating, or refusing renewal of a loan originator's license c) Administering oaths and affirmations d) Establishing maximum interest rate caps
Answer: d) Interest rate caps are not something with which state regulatory authorities become involved.
Which of the following is not an event that triggers an automatic reissuance of the Closing Disclosure? a) A prepayment penalty is added to the loan b) The loan's final APR exceeds the APR reflected on the Closing Disclosure by 0.25% c) The loan's final finance charge exceeds the finance charge reflected on the Closing Disclosure by $110 d) The customer postpones the closing for an additional three days
Answer: d) Once the Closing Disclosure has been issued, TRID mandates that a revised Closing Disclosure be issued when the loan's final APR exceeds the APR disclosed on the Closing Disclosure by more than 0.125%, the loan's final finance charge exceeds the finance charge disclosed on the Closing Disclosure by more than $100, the loan product changes, or a prepayment penalty is added to the loan.
Which of the following is not a consideration of option loans? a) The potential for negative amortization b) Balance caps c) Re-cast points d) Two possible payment options
Answer: d) Option loans afford borrowers four monthly payment options from which they may freely choose. By remitting the minimum payment option, the borrower would most likely experience negative amortization. Option loans generally contain a balance cap which, when reached, triggers the servicer to adjust the payment amount to accommodate the existing balance, remaining term, and current interest rate. Since reaching the balance cap is never guaranteed, options loans also include a re-cast point that, when reached, would also cause the servicer to adjust the payment amount the same as if the balance cap was reached.
One of the best ways to avoid mortgage fraud is by applying: a) Due diligence b) Scrutiny towards everything c) Knowledge of one's field d) Common sense
Answer: d) People should always trust their gut instincts. If an individual is feeling as if something is not right, s/he should, at the very least, consult with their manager.
Which of the following would not constitute a red flag?? a) Your customer's residence is 250 miles from her employer b) The applicant mentioned being rushed through a home inspection c) Your applicant randomly calls a co-applicant by a name other than the name under what she applied d) Your applicant changed jobs during the loan application
Answer: d) Red flags do not automatically evidence wrong doing. Red flags do require additional scrutiny and, usually, an explanation. Although an applicant changing jobs during a mortgage application may cause additional work, the need for further explanation, and could possibly render them un-creditworthy, that, in and of itself, would not be a red flag.
A 21-year old applicant presents a 401(k) statement reflecting a balance of $75,000. During the application, he discloses a $15,000 loan against the 401(k) that he finalized after the presented statement's issuance. At what value do you reflect the 401(k)? a) $75,000 b) $60,000 c) $45,000 d) $37,500
Answer: d) Since the applicant is younger than 59 ½, the retirement account must be credited at 70% of its face value (75,000 x 70% = 52,500). Since the account is also the source of a $15,000 loan, the $15,000 outstanding loan balance must then be subtracted from the asset's value (52,500 - 15,000 = 37,500).
Which of the following regulations requires all financial companies and some creditors to implement an identity theft prevention program? a) The U.S.A. Patriot Act b) The Gramm-Leach-Bliley Act c) The Privacy Protection/Do Not Call Rule d) The FTC's Red Flags Rule
Answer: d) The FTC's Red Flags Rule, among other things, requires all financial institutions and some creditors to implement and administer an identity theft prevention program that identifies the red flags of identity theft, designs a method of detecting the red flags identified, spells out the appropriate actions that anyone detecting a red flag must take, and details how the institution will keep its identity theft prevention program current to react to new threats.
A lender must absolutely remove PMI from any conventional loan: a) At 80% LTV b) At 22% equity c) At 20% equity d) At amortization midpoint assuming the loan is current
Answer: d) The Homeowner's Protection Act allows for borrowers paying PMI on conventional loans to petition their mortgage servicer for PMI removal at 80% LTV. Upon receipt of that petition, servicers are required to remove PMI once their borrowers demonstrate a 20% or greater equity position, a good payment history, and that their loan is current. At 78% LTV, PMI must be automatically removed as long as the loan is current. At amortization midpoint, PMI must be automatically removed as long as the loan is current.
Terrible Title of Tullahoma, Tennessee conducts the refinance settlement through which borrowers are refinancing their single-family rental property. The settlement agent provides only one copy of the right to rescind to the borrower and no copy to the co-borrower. As a result: a) The right to rescind automatically extends to three years b) The right to rescind is revoked c) The lender does not have an enforceable lien d) Everyone questions the title company's competence
Answer: d) The right or rescission is only extended to primary residential, non-purchase transactions. The settlement agent should never have provided right to rescind documents to borrowers refinancing an investment property.
