Exam 2 Flashcards

Question

Loan-to-value ratio is best described as: 1. The loan amount divided by the lower of the appraised value or purchase price 2. The appraised value divided by the loan amount 3. The down payment divided by the appraised value 4. The purchase price divided by the appraised value

Answer 1

The answer is **the loan amount divided by the lower of the appraised value or purchase price**. The relationship of the loan amount to the value or sales price of the property securing the loan is called a loan-to-value ratio. The loan-to-value ratio (LTV) relates the loan to the lesser of the appraised value or sales price. LTV = loan amount, divided by property value (appraised value) or purchase price, whichever is less.

Answer 2

The answer is **The new interest rate cannot exceed the rate ceiling established by the caps**. When the rate is reset, the index plus the margin cannot exceed the maximum allowable rate which is determined by adding the periodic cap to the current rate. The cap period is identical to the adjustment period, and does not always equal one year. The cap would be higher when the adjustment period is longer, as the lender cannot make changes as frequently.

Answer 3

The answer is **borrower's Social Security Number**. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, amount owed, rate of interest and whether the loan is fixed or adjustable, due dates for payment, and the loan terms.

Answer 4

The answer is **a title company sends a mortgage loan originator a $25 gift certificate, because of the business the loan originator sends the title company**. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, oral or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. A business entity may not pay any other business entity, or the employees of any other business entity, for the referral of real estate settlement service business. Therefore, a title company that sends a mortgage loan originator a gift certificate because of the business the loan originator sends the title company would be guilty of a kickback in violation of RESPA.

Answer 5

The answer is **Notice of Right to Cancel**. While the Loan Estimate, Mortgage Servicing Disclosure, and Special Information Booklet are all among the initial disclosures that must be delivered to a mortgage loan applicant, the Notice of Right to Cancel is provided at closing.

Answer 6

The answer is **Regulation Z**. Under the requirements of Regulation Z, an ad may state specific credit terms only if those terms actually are or will be arranged or offered to the consumer. Bait-and-switch credit promotions are not allowed. These involve advertising a loan at very attractive terms and then informing potential customers that, while the advertised loan is not available, a substitute is.

Answer 7

The answer is **the anticipated ARM rates for the first five years**. In the heading of the Loan Estimate, the licensee must indicate the property address and its sale price, as well as the loan’s term. The Other Considerations table provides the applicant with information on appraisals, the homeowner's insurance requirement, the lender’s late payment policy, loan servicing information, and whether the loan may be assumed or refinanced. Anticipated ARM rates for the first five years of the loan are not disclosed, although the total the applicant will have paid in principal, interest, mortgage insurance, and loan costs for that time period is, in the Comparisons table.

Answer 8

The answer is **complete the section based on a visual observation of the borrower during a face-to-face application**. The section titled “Demographic Information” is required by the Home Mortgage Disclosure Act to aid the federal government in monitoring compliance with ECOA. Because supplying this information is strictly voluntary, an applicant who does not wish to do so should check the box provided to indicate his/her decision. When an applicant does not provide this information, an originator taking the application on a face-to-face basis must note the applicant’s sex, race, and ethnicity on the form, based on his/her visual observation and/or the applicant’s surname.

Answer 9

The answer is **if the borrower chooses the rate and plans to use the additional premium to offset closing costs**. While a licensee is ethically obligated to offer borrowers the best rates available to them, the concept of suitability emphasizes that the licensee must make a conscientious effort to ascertain and understand all relevant circumstances surrounding the client, and take these circumstances into account. This may include suggesting loan products that might not initially seem to be the best option, but effectively serve a particular borrower’s circumstances.

Answer 10

The answer is **identify possible discriminatory lending patterns**. The HMDA was enacted because of credit shortages in certain urban neighborhoods and the failure of some financial institutions to provide adequate home financing to qualified applicants on reasonable terms and conditions. Its main purpose is to provide the public with information about how well financial institutions are meeting the credit needs of the people in the neighborhoods and communities they serve; aid public officials in targeting public investments so as to attract investments from the private sector; and allow for the public to determine possible discriminatory lending patterns and to assist in enforcing laws against discrimination.

Answer 11

The answer is **property is in flood zone "A"**. Flood insurance is required for property improvements located in an SFHA Zone A (an area subject to inundation by a 1%-annual-chance flood event) or a Zone V (an area along the coast subject to inundation by a 1%-annual-chance flood event with additional hazards associated with storm-induced waves).

Answer 12

The answer is **allows consumers a full refund if the originator is found to have engaged in unethical acts**. The S.A.F.E. Act includes provisions to enhance professional standards within the mortgage industry by imposing licensing requirements, providing consumers access to information about licensees at no charge through its online registry, and facilitating the collection and disbursement of consumer complaints on behalf of state and federal mortgage regulators. While the S.A.F.E. Act does have provisions ensuring compensation to victims of mortgage law violations, it does not guarantee such consumers a full refund in all cases of unethical conduct.

Answer 13

The answer is **a portion of it may be applied to the UFMIP of another FHA-insured mortgage**. The FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). The UFMIP is nonrefundable, except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years. In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV

Answer 14

The answer is **30.8%**. A housing or front-end ratio compares the applicant’s monthly housing costs to his/her gross monthly income. Housing costs are referred to as PITI (principal, interest, taxes, insurance). In addition to PITI, any monthly homeowners’ association (HOA) dues, if applicable, would also be included because they are a housing-related debt. Non-housing-related expenses (car payments, credit cards, etc.) are not included in the housing ratio. Housing ratio = housing debts divided by gross monthly income. In this case, $50,000÷12 = $4,166.66. ($1,250+$35)÷$4,166.66 = 0.308 = 30.8%.

Answer 15

The answer is **the applicant had a property foreclosed two years prior to application**. In order for a state to approve a license application, the applicant must show that he/she has not been convicted of, or pled guilty or nolo contendere to, any felony in any court during the seven-year period preceding the date of the application; or at any time if the felony involved an act of fraud, dishonesty, or a breach of trust or money laundering. Indications of financial irresponsibility include bankruptcy or pattern of bankruptcies, a foreclosure within the past three years, any unpaid judgments (other than those relating to medical expenses), tax or other government liens, or a pattern of paying creditors late.

Answer 16

The answer is **servicing**. Settlement services include a variety of services related to the origination, processing, or funding of a loan, including, among others, rendering credit reports and appraisals, and conducting settlement by a settlement agent (e.g., the originating lender, an attorney, or a licensed escrow agent) and any related services. They do not include loan servicing.

Answer 17

The answer is **either at the time of application or within three business days of application**. A mortgage servicing disclosure statement discloses whether the servicing of the loan (i.e., collection of payments) may be assigned, sold, or transferred to any other person at any time while the loan is outstanding. It must be delivered to the borrower at application or within three business days.

Answer 18

The answer is **a creditor cannot legally discriminate against an applicant in any aspect of a credit transaction on the basis of age, provided that the applicant is of age to enter into a contract**. The Equal Credit Opportunity Act (ECOA) prohibits discrimination on the basis of age against a loan applicant who is of age to enter into contracts.

Answer 19

The answer is **Betty can rescind for three years from recording**. If the creditor has failed to provide the required disclosures and notice of the right of rescission, the rescission period may be extended up to the date of the first of the following: three years after the consummation of the transaction, transfer of all of the consumer’s interest in the property, or sale of the property.

Answer 20

The answer is **lower down payment requirements**. So that he/she may get a loan with a small down payment, a borrower pays a mortgage insurance premium either as a lump sum at closing covering the life of the loan, or by paying the first year's premium at closing and then paying annual premiums as part of the mortgage payment. The amount of the premium is a percentage of the loan amount based on the borrower's down payment.

Answer 21

The answer is **applicant and collateral**. Underwriting is the process of deciding whether to make a loan based on credit, employment, assets, and other factors. To ensure that loans are marketable in the secondary market, the underwriter assesses the borrower’s ability and willingness to repay and the property’s ability to serve as collateral for the debt.

Answer 22

The answer is **three months**. Under the Do-Not-Call-Act, a company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an “established business relationship” exists. An established business relationship means a relationship between the company and a consumer based on the consumer’s purchase, rental, or lease of the seller’s goods or services or a financial transaction between the consumer and seller, within the 18 months immediately preceding the date of a telemarketing call. This may also include an inquiry or application regarding an offered product or service, within the three months (90 days) immediately preceding the date of a telemarketing call.

Answer 23

The answer is **an estimate of market value derived by comparing the subject property to similar properties which have sold**. The market or market data approach, also called the sales comparison approach, bases the value of a property on the prices paid for similar, or comparable, properties in the area that have sold recently. It is the most reliable method for appraising single-family homes and land.

Answer 24

The answer is **zero**. Continuing education hours are valid only for the year they are taken, and may not be carried over from year to year.

Answer 25

The answer is **certificate of eligibility**. A VA loan is available only to veterans of the armed services, certain active and discharged military personnel, and their spouses; however, the loan is assumable by nonveterans. In order to obtain the loan, the applicant must obtain a certificate of eligibility from the VA (directly online, through the lender online, or by mail). This will determine whether an individual is eligible for a VA loan and whether he/she is eligible for a loan with the full guarantee.

Answer 26

The answer is **$43,550**. 90% LTV means Richie will need to bring 10% of the purchase price, or $40,000, to closing, minus the $5,000 he already paid as earnest money. To this he must add 1% of the $360,000 loan amount, or $3,600, for the 1% origination fee, and an additional 1% of the loan amount ($3,600) for the discount. Finally, he must add the $1,350 title charge: $40,000 − $5,000 + $3,600 + $3,600 + $1,350 = $43,550.

Answer 27

The answer is **any of these**. An unlicensed loan processor or underwriter may obtain and analyze information (such as verifications of income, employment, and deposits) needed in processing and underwriting a residential mortgage loan, and communicate with consumers in order to obtain that information. However, loan processors or underwriters may not take applications or offer, negotiate, or counsel the consumer about residential loan rates or terms; only licensed loan originators are permitted to do so.

Answer 28

The answer is **construction**. A construction loan or construction financing is high-interest interim (or temporary) financing that serves to finance the cost of labor and materials used during construction. It extends from the start to the completion of the work, when it is paid off, often with the proceeds of a more permanent form of financing (a take-out loan).

Answer 29

The answer is **due-on-sale clause**. A due-on-sale clause provides that the loan must be immediately paid off if the subject property is sold. These apply to most mortgages/deeds of trust, unless the loan is assumable.

Answer 30

The answer is **an applicant be given notification of the status of his/her loan application within 30 days**. An applicant has the right to receive, within 30 days of the creditor’s receipt of an incomplete application, notice of incompleteness with a reasonable time to respond, and within 30 days after receipt of a completed credit application, notice of action taken (i.e., acceptance or adverse action).

Answer 31

The answer is **a government-sponsored, private, publicly-held corporation, formed to facilitate home ownership**. The Federal National Mortgage Association (FNMA), or Fannie Mae, was established in 1938 by amendments to the National Housing Act, in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing. It is a government-sponsored enterprise (GSE) and, since 1968, a publicly-traded company.

Answer 32

The answer is **to help a borrower pay for settlement costs**. Yield spread premiums (YSPs) are points credited for an interest rate above its par rate. The Loan Originator Compensation Rule, included in Regulation Z, prohibits using YSPs as a form of loan originator compensation. “No closing cost” loans result from applying the YSP to pay the borrower’s closing costs so that they need not be paid upfront. While such loans are not illegal, some states prohibit the use of terms such as “No Cost” or similar claims in mortgage loan advertising, as they are misleading and deceptive.

Answer 33

The answer is **indicated an intent to proceed with the loan**. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating an intent to proceed with the loan. Once this occurs, there is no additional waiting period before the lender may charge a fee, such as an appraisal fee.

Answer 34

The answer is **83.3%**. To get the loan-to-value (LTV) ratio, divide the loan amount by the property value: $375,000 / $450,000 = 0.833 = 83.3%

Answer 35

The answer is **property flopping**. Property flopping is associated with short sales, and it typically occurs when a short sale is approved based on a misrepresentation of the value of the property. The fraud is usually perpetrated by the buyer purchasing the property from the short sale seller. In some cases, the seller's real estate agent is the buyer. The buyer presents a low offer to purchase the property to the lender along with an artificially low valuation of the property, in order to convince the lender that the property is worth less than it really is. Any higher offers from bona fide buyers are withheld from the lender, who would most likely reject the low offer if it knew that higher offers were on the table. Once the lender approves the short sale at the artificially-low price, the fraudster contacts the bona fide buyer or markets the property at its true market value.

Answer 36

The answer is **Consumer Financial Protection Bureau**. The mission of the CFPB is to make markets for consumer financial products and services work for Americans. It is focused on one goal: watching out for American consumers in the market for consumer financial products and services. This includes ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families by making sure prices are clear upfront, risks are visible, and nothing is concealed in fine print. A working market allows consumers to make direct comparisons among products and prohibits providers from using unfair, deceptive, or abusive practices.

Answer 37

The answer is **principal balance reaches 80% of original value**. To obtain a loan with a small down payment, a borrower pays a mortgage insurance premium either as a lump sum at closing covering the life of the loan, or by paying the first year's premium at closing and then paying annual premiums as part of the mortgage payment. The amount of the premium is a percentage of the loan amount, based on the borrower's down payment. The annual premiums and the insurance stop automatically once the loan is paid down to 78%, or may be canceled at the borrower’s request once the loan balance reaches 80% of the value of the property at the time the loan was made.

Answer 38

The answer is **an individual who performs clerical duties subject to the supervision of a licensed and/or registered loan originator**. Under the S.A.F.E. Act’s definition, a loan processor or underwriter is an individual who, with respect to the origination of a residential mortgage loan, performs clerical or support duties at the direction of and subject to the supervision and instruction of a state-licensed loan originator or a registered loan originator.

Answer 39

The answer is **a 20-year adjustable-rate mortgage granted to a borrower based on the maximum interest rate that may apply during the first five years of the loan**. A qualified mortgage is a covered transaction that provides for substantially-equal, regular periodic payments that do not provide for negative amortization, payment deferral, or (generally) a balloon payment. To be a qualified mortgage, the lender must determine the borrower’s repayment ability based on the monthly payment for mortgage-related obligations, the consumer’s reasonably-expected income and assets, and existing debt obligations. A qualified mortgage may not have a term that exceeds 30 years, provide for points and fees that exceed 3% of the total loan amount, or be granted to a borrower who has a monthly debt-to-income ratio exceeding 43%.

Answer 40

The answer is **future tax liens**. A lender’s title insurance policy insures the lender or mortgagee against loss caused by a borrower’s invalid title or loss of priority of the mortgage or deed of trust due to legal claims based on undisclosed encumbrances. Title insurance protects the lender against losses caused by problems that arose prior to the purchase of the property, such as mechanic’s liens, judgments, and covenants and restrictions. It would not cover future tax liens.

Answer 41

The answer is **a hybrid ARM**. A hybrid ARM is a mix (hybrid) of a fixed-rate loan and an adjustable-rate loan. It has an initial period during which the rate is fixed; after this expires, the rate is adjustable for the rest of the term.

Answer 42

The answer is **interest rate**. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. The mortgage or trust deed secures repayment of the note. Housing costs, including principal, interest, taxes, and insurance, are not typically specified on the deed of trust.

Answer 43

The answer is **it requires the disclosure of the APR on all advertisements which contain an interest rate**. Regulation B implements the provisions of ECOA. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. The creditor must mail or provide a notice of the applicant’s right to receive a copy of all written appraisals developed in connection with the application no later than three business days after receiving a completed application. ECOA also requires creditors to notify loan applicants within 30 days regarding application status (i.e., incomplete, accepted, denied, etc.).

Answer 44

The answer is **Three**. A special information booklet, titled “Your Home Loan Toolkit: A Step-by-Step Guide,” must be provided within three business days of the creditor’s receipt of the application for a home purchase loan.

Answer 45

The answer is **fraud for profit**. Fraud for profit may involve a number of persons, such as sellers, mortgage loan originators (including mortgage brokers and lenders and their individual mortgage loan originators), real estate brokers, appraisers, builders, and developers, who conspire to inflate property values and therefore loan amounts.

Answer 46

The answer is **Wednesday of the following week**. A creditor must provide the Loan Estimate either in person, via overnight delivery, or by placing it in the mail or delivering it no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. For the purposes of determining the waiting period that must elapse between providing a Loan Estimate and consummation, a "business day" is defined to mean all calendar days except Sundays and legal public holidays. Here, the Loan Estimate is mailed on Tuesday. Seven business days from Tuesday would be the following Wednesday (Wednesday, Thursday, Friday, Saturday, Monday, Tuesday, Wednesday).

Answer 47

The answer is **race, ethnicity, and sex**. The section titled “Information for Government Monitoring Purposes,” which asks a borrower to specify sex, race, and ethnicity, is required by the Home Mortgage Disclosure Act to aid the federal government in monitoring compliance with fair lending regulations. Supplying this information is strictly voluntary, and an applicant who does not wish to do so should check the box provided to indicate that decision. When an applicant does not provide this information, an originator taking the application on a face-to-face basis must note the applicant’s sex, race, and ethnicity on the form based on visual observation and/or the applicant’s surname.

Answer 48

The answer is **threaten or pressure an appraiser to promise a specific value**. Under Regulation Z, no person may, in connection with an appraisal, compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate an appraiser in order to cause the appraised value to be based on any factor other than the appraiser’s independent judgment and the pertinent facts. This does not prohibit a licensee from asking an appraiser to consider additional appropriate property information, provide further detail, or correct errors in the appraisal report.

Answer 49

The answer is **five**. In regard to higher-priced mortgage loans, under TILA and Regulation Z, a creditor or servicer may cancel an escrow account only upon the earlier of termination of the underlying debt obligation or five years after the loan was consummated, at the request of the consumer.

Answer 50

The answer is **all options would have monthly mortgage insurance**. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term, and the LTV. For all mortgages involving an original principal obligation (excluding financed UFMIP) less than or equal to 90% LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first. For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90%, the FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.

Answer 51

The answer is **unlike state-licensed originators, registered originators are exempt from licensing requirements**. A registered mortgage loan originator is an individual who meets the requirements of a mortgage loan originator, is an employee of a covered financial institution, is registered with the NMLS, and maintains an NMLS unique identifier. Unlike state-licensed originators, registered originators are exempt from licensing requirements.

Answer 52

The answer is **VA loan at 100% LTV**. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender's exposure to loss in the event of a borrower's default that results in foreclosure. However, rather than being charged a mortgage insurance premium for the guarantee, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed.

Answer 53

The answer is **$2,025**. One discount point is equal to 1% of the loan amount. In this case, 90% × $225,000 = $202,500. 1% × $202,500 = $2,025.

Answer 54

The answer is **Regulation Z**. The TILA-RESPA Rule, or TRID Rule, sets forth disclosure requirements and model forms for the two consolidated disclosures, the Loan Estimate and Closing Disclosure, and provides guidance to ensure compliance by licensees and exempt persons required to follow its provisions. The Rule’s provisions amended Section 19 of Subpart C of Regulation Z (12 C.F.R. §1026.19) and added two sections to Subpart E.

Answer 55

The answer is **it must be given within 30 days of the transfer**. When a loan servicer sells or assigns loan servicing rights to another loan servicer, the borrower must be sent a servicing transfer statement at least 15 days before the effective date of the servicing transfer. This statement must show the name, address, and toll-free telephone numbers of both the old servicer and the new servicer, as well as the date on which the new servicer will begin accepting payments. The statement also informs the borrower that he or she cannot be penalized for making a timely payment to the prior servicer within 60 days of the servicing transfer.

Answer 56

The answer is **both the hazard insurance company and the mortgage broker**. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, verbal or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. Since a free dinner is a thing of value, both the hazard insurance company and the mortgage broker are guilty of violating RESPA and may suffer the legal consequences of this violation.

Answer 57

The answer is **none of the choices**. Under Regulation Z, an ad must disclose a number of additional credit terms if it contains a trigger (or triggering) term, which is any of a number of credit terms specifically cited in an ad. Since in this case the ad does not cite any specific credit terms, no further disclosures are required.

Answer 58

The answer is **the second mortgage holder will need to agree to a subordination**. A mortgage is a second mortgage when it is recorded after another mortgage that is still outstanding on the same property; or when it has a subordination clause specifying that it has lower priority (i.e., is subordinate) even though it may have had priority based on its date of recording, or will remain subordinate in the event that the first mortgage is refinanced. In order to preserve lien priority under the circumstances described, the second mortgage holder will need to agree to a subordination clause.

Answer 59

The answer is **if the borrowers are equally qualified, fees should be comparable**. Ethically speaking, origination fees should reflect objective factors pertaining to loan terms and borrower qualification, rather than non-pertinent factors, including a relationship with the originating licensee.

Answer 60

The answer is **The broker should obtain access to the Do-Not-Call Registry**. The national Do-Not-Call Registry enables consumers to register their phone numbers as numbers not to be called by telemarketers. A company engaging in telemarketing is prohibited from making interstate or intrastate calls to anyone whose number is listed on the Registry, unless an established business relationship exists. However, if such a consumer asks not to be contacted, the company must enter that person on their own do-not-call list of such consumers.

Answer 61

The answer is **depreciation**. For a sole proprietorship (a self-employed borrower), the income, expenses, and taxable profits are reported on the Profit or Loss from Business (Schedule C) on the owner’s individual tax return (IRS Form 1040). The individual’s actual income would be the net income shown on the Schedule C, plus any recurring capital gains or non-cash expenses, such as depletion and depreciation, that was deducted in arriving at the adjusted income, since the borrower did not actually have to spend the amount claimed for non-cash expenses.

Answer 62

The answer is **registered MLOs must complete 20 hours of pre-licensing education**. The S.A.F.E. Act includes requirements for registration with the NMLS, pre-licensing education and federal and state testing, and obtaining and displaying a unique identifier on documents, including advertising materials. Pre-licensing education requirements pertain to state-licensed loan originators, not to registered loan originators, who are not subject to licensing requirements.

Answer 63

The answer is **VA**. The VA uses two methods for qualifying its borrowers: a 41% debt-to-income ratio (including housing and fixed debt), and the residual income method, which determines whether the veteran has enough income after paying fixed debts to cover daily living expenses. This method can qualify a borrower whose ratio might exceed the 41% limit.

Answer 64

The answer is **HOA fees**. In addition to principal and interest, a borrower’s monthly mortgage payment may also include a reserve payment (also known as an escrow or impound payment) that represents approximately 1/12 of the estimated annual hazard and flood insurance premiums, mortgage insurance premiums, and property taxes. While some escrow accounts may include assessments for special improvements, homeowners’ association fees, and other recurring charges, these are not a standard component of the escrow account.

Answer 65

The answer is **negotiates the terms of a residential mortgage on behalf of a cousin**. S.A.F.E. Act exemptions include individuals solely involved in extensions of credit referring to timeshare plans; an individual who is an employee of a federal, state, or local government agency or housing finance agency, acting as a loan originator only pursuant to his or her official duties; and an individual who offers or negotiates terms of a residential mortgage loan secured by his own dwelling, or only with or on behalf of an immediate family member. However, a cousin is not considered an immediate family member under the legal definition, which includes a spouse, child, sibling, parent, grandparent, or grandchild, including stepparents, stepchildren, stepsiblings, and adoptive relationships.

Answer 66

The answer is **a high-cost bridge loan may include provision for a balloon payment**. Equal and regular payments still may not fully amortize a loan, thus resulting in a balloon payment. A high-cost home loan may not provide for a payment schedule that results in a balloon payment, unless the schedule is adjusted for the irregular or seasonal income of the borrower; the loan is a bridge loan with a term of 12 months or less, taken for the acquisition or construction of the borrower’s principal residence; or the loan satisfies the requirements of a balloon payment qualified mortgage (among other requirements, the loan must be originated in a predominantly rural or underserved community, have a fixed rate, and be for a term of five to 30 years).

Answer 67

The answer is **two months' taxes, two months' insurance**. A borrower’s monthly mortgage payment may include a reserve payment (also known as an escrow or impound payment) that represents approximately 1/12 of the estimated annual hazard and flood insurance premiums and property taxes. When there is need of an account, the borrower may be required to make an initial deposit into the reserve account at settlement to ensure that the regular monthly deposits will accumulate enough to pay the property taxes, insurance premiums, or other charges when they are due. The maximum amount that a lender can collect for this deposit cannot exceed the sum of an amount sufficient to pay taxes, insurance premiums, or other charges up to the due date of the new loan’s first full monthly mortgage installment payment, plus an additional amount sufficient to pay future estimated taxes, insurance premiums, and other charges, not in excess of two months’ worth, which is 1/6 of the estimated charges for the following 12 months.

Answer 68

The answer is **Regulation Z**. Regulation Z cites a series of required disclosures, including the Consumer Handbook on Adjustable-Rate Mortgages (the CHARM Booklet), published by the Federal Reserve Board and the Federal Home Loan Bank Board, or a similar booklet.

Answer 69

The answer is **Federal Reserve**. A permanent buydown is a payment of discount points to lower the interest rate for the entire term of the mortgage. One discount point is equal to 1% of the loan amount. The interest rate reduction received for buying points is not set and depends on individual lenders and the financial marketplace, rather than being determined by the Federal Reserve.

Answer 70

The answer is **a property is bought and resold within a very short period of time**. "Flipping" refers to buying and reselling property within a short period of time. In the context of mortgage fraud, flipping, also called churning, is repeated refinancing of a loan within a short period of time without any real benefit to the borrower. The primary objective of the mortgage broker and/or lender is to generate additional loan points, loan fees, prepayment penalties, and fees from financing the sale of credit-related products. When a borrower has to return to a lender to refinance the loan, possibly to avoid foreclosure, he or she is charged additional points and fees. Typically, the new loan is just as unaffordable as the first, and the result may still be foreclosure.

Answer 71

The answer is **zero tolerance**. Fees in the zero-tolerance category, for which the actual charges at settlement may not exceed the amounts included on the Loan Estimate unless there is a change in circumstance, include fees paid to an unaffiliated third-party service provider if the creditor did not permit the consumer to shop for the third-party service provider.

Answer 72

The answer is **$1,875**. Generally, 75% of rental income may be used to qualify the borrower for a loan. This formula is based on an industry standard that taxes, insurance, and maintenance costs will equal about 25% of the income that a property generates. In this case, 75% × $2,500 = $1,875.

Answer 73

The answer is **a loan that is obtained by a fictitious borrower using a fictitious property**. Air loans are loans secured by non-existent property (“air”), which leave the lender without collateral. The schemer invents borrowers and properties, establishes fake accounts for payments, and maintains custodial accounts for escrows. He or she may even set up an office with a bank of telephones for verification purposes, with each phone representing the employer, appraiser, credit agency, etc.

Answer 74

The answer is **it has a major role in overseeing the mortgage industry**. Although the federal Department of Housing and Urban Development (HUD) no longer oversees the mortgage industry (that job has been taken over by the Consumer Financial Protection Bureau, or CFPB), it continues to operate in a number of important areas relating to housing. These areas include programs related to community planning and development, public housing and multi-family housing, and providing counseling for those seeking to purchase a home. The Federal Housing Administration (FHA) also operates under HUD; the FHA sponsors loan programs with relatively liberal qualification requirements, insuring financial institutions that offer loans to individuals who might not qualify for a prime loan.

Answer 75

The answer is **No, because the loan is assumable**. A due-on-sale (alienation) clause allows the lender to declare the entire balance of the loan due when the property is sold or transferred. This means that the loan may NOT be assumed. Since FHA and VA loans are generally assumable, a due-on-sale clause would not be included in the security instrument.

Answer 76

The answer is **the CFPB**. Under the S.A.F.E. Act, states and their regulatory agencies have the duty and the authority to enact licensing standards that meet S.A.F.E. Act requirements. Overall responsibility for interpretation, implementation, and compliance with the S.A.F.E. Act was originally delegated to the U.S. Department of Housing and Urban Development (HUD). However, effective July 21, 2011, all of HUD’s authorities and duties were delegated to the Consumer Financial Protection Bureau (CFPB).

Answer 77

The answer is **0.125%**. Under TILA and Regulation Z , the APR is considered accurate generally if it is not more than one eighth of one percentage point (0.125%) above or below the APR determined in accordance with legal requirements (i.e., in accordance with the actuarial method or the United States Rule method), or in an irregular transaction, if it is not more than one quarter of one percentage point (0.25%) above or below the annual percentage rate determined in accordance with legal requirements.

Answer 78

The answer is **60 days**. Under most deeds of trust, including most FHA and VA loans, a borrower who intends to occupy the property as his or her primary residence must move in within 60 days after closing.

Answer 79

The answer is **they must receive a copy at or before consummation**. Under ECOA, a creditor is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A copy of each appraisal or other written valuation must be provided the earlier of promptly upon completion or three business days prior to consummation of the transaction for closed-end credit or account opening for open-end credit. An applicant may waive the timing requirement and agree to receive a copy at or before consummation or account opening.

Answer 80

The answer is **title insurance**. The annual percentage rate (APR) represents the relationship of the total finance charge to the total amount financed, as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. Among other charges, finance charges include points, loan fees, and mortgage insurance premiums, but not title insurance premiums.

Answer 81

The answer is **mortgage fraud**. Making written false statements, using fictitious, forged, or altered documents, or concealing material facts relating to any aspect that would influence the approval of the loan are all aspects of mortgage fraud - specifically, loan documentation fraud. Mortgage fraud is a violation of federal law resulting in severe disciplinary measures, including up to five years in jail and/or a $100,000 fine for fraud and false statements, and up to 30 years in jail and/or a $1 million fine for a false mortgage loan application, conspiracy to commit fraud, fraud/swindles, or bank fraud.

Answer 82

The answer is **this is allowed as long as the borrower has received the Loan Estimate and expressed an intent to proceed**. A consumer may not be charged any fee in connection with a mortgage loan application, except a reasonable and bona fide credit report fee, before receipt of the Loan Estimate and prior to indicating an intent to proceed with the loan.

Answer 83

The answer is **1004**. For FHA, VA, and conforming loans, appraisers will use the Uniform Residential Appraisal Report (URAR), also known as Fannie Mae Form 1004 and Freddie Mac Form 70.

Answer 84

The answer is **the applicant appears to be quite young but makes a high salary**. Red flags for mortgage fraud include the presentation of suspicious documents (blurry, hard to read, and/or appear to be photocopies or faxed) and discrepancies between documents (signatures which do not match, discrepancies in statements of income, assets, etc.). There is no global correlation between age and income, and a young applicant with a high salary is not a red flag indicating mortgage fraud.

Answer 85

The answer is **"5% down payment."** Under TILA, an ad must disclose a number of additional credit terms if it contains a trigger term. A trigger term includes certain credit terms specifically cited in an ad, including the amount or percentage of any down payment (e.g., "5% down," "95% financing," "$6,200 down"), except when the amount of the down payment is zero; the number of payments or period of repayment (e.g., "360 monthly payments," "a 30-year loan"); the amount of any payment (e.g., “payments of less than $1,400 per month”); and the amount of any finance charge (e.g., “total financing costs of less than $3,000”).

Answer 86

The answer is **the new buyer is going to use the property as a rental property**. The income (or capitalization) approach is used to appraise properties that produce rental income (e.g., apartments, office buildings, and rental units). It bases the value of the property on the net income the owner will receive and a rate of return (capitalization rate) the owner should find acceptable. The estimated net income is calculated by subtracting an allowance for vacancies and bad debts from scheduled gross income to arrive at effective gross income, and then subtracting fixed expenses, operating expenses, and reserves to replace items that will wear out.

Answer 87

The answer is **individual states may determine whether experienced MLOs can have education hours waived**. Licensing requirements under the S.A.F.E. Act include both a comprehensive background check and 20 hours of NMLS-approved pre-licensing education, which include three hours of federal law and regulations, three hours of ethics, and two hours of training related to lending standards for the nontraditional mortgage product. The Nationwide Multistate Licensing System and Registry (NMLS or NMLSR) allows consumers to research information on licensees, including a loan originator’s disciplinary actions. The authority granted to individual states does not include waiving education hours, which are among the minimum licensing requirements pertaining to all loan originator licensees.

Answer 88

The answer is **VA funding fees are refundable if the borrower is overcharged**. VA loans are made by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. The guarantee is similar to mortgage insurance in that it limits the lender's exposure to loss in the event of a borrower's default that results in foreclosure. However, the veteran borrower is charged a nonrefundable upfront funding fee that can be financed, instead of a mortgage insurance premium. The funding fee is only refundable if the borrower was overcharged. There are some exceptions to the imposition of a funding fee, including for veterans with disabilities. A veteran receiving VA compensation for a service-connected disability is exempt from the fee requirement.

Answer 89

The answer is **the lender itself**. While interest rates are affected by actions taken by the Federal Reserve (the Fed), the Federal Reserve does not directly influence the interest rates that lenders charge borrowers. Each lender will set its own prime rates (i.e., the lowest rates it charges for its best customers), as well as rates for loans to other customers based on its costs and desired profit margin.

Answer 90

The answer is **at or before the time of the referral**. When a settlement service provider refers a borrower to one or more affiliates with whom it has an ownership or other beneficial interest, an Affiliated Business Arrangement (AfBA) Disclosure Statement must be given on a separate piece of paper to the borrower at or before the time the referral is made (if in person, writing, or electronically), within three business days after a referral made by telephone (provided an abbreviated verbal disclosure of the existence of the arrangement and the fact that a written disclosure will be provided within three business days is made during the telephone referral), or at the time the Loan Estimate is provided, in the case of a referral by a lender (including one to an affiliated lender).

Answer 91

The answer is **Prepaid finance charges**. A prepaid finance charge (PFC) is any finance charge paid separately, in cash or by check, before or at consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower (not a third party) that must be included in computing the annual percentage rate.

Answer 92

The answer is **payment of the fee is illegal**. Under Section 8 of RESPA, it is illegal to give or accept any fee, kickback, or other thing of value under any agreement or understanding, verbal or otherwise, that business relating to or part of a settlement service involving a federally-related mortgage loan will be referred to any person. A business entity may not pay any other business entity, or the employees of any other business entity, for the referral of real estate settlement service business.

Answer 93

The answer is a **borrower closes on a refinance transaction for his primary residence and did not receive the proper rescission notice. The borrower changes his mind and wants to cancel 18 months later**. TILA gives a consumer a right of rescission, allowing him or her to cancel the loan contract within a specified period of time for any reason if the loan is secured by the borrower’s principal residence and is a refinance transaction for a first or subordinate mortgage. The right of rescission does not apply to a residential mortgage transaction for a purchase or initial construction of a dwelling. In order to rescind, the consumer must forward a completed rescission form to the creditor no later than midnight of the third business day after the last of certain events occur, including consummation of the transaction, delivery of all material TILA disclosures, or delivery of notice of the right to rescind. If the creditor failed to provide the required disclosures and notice of the right of rescission, the rescission period may be extended up to the date of the first of the following: three years after the consummation of the transaction, the transfer of all of the consumer’s interest in the property, or the sale of the property.

Answer 94

The answer is **actual amounts for taxes and insurance**. In the typical real estate sales transaction, the seller gives the buyer a deed at closing and the buyer gives the lender a promissory note and a security instrument (i.e., a mortgage or trust deed) that creates a lien on the property. The promissory note is both a promise to repay the money borrowed with interest and evidence of the debt. It shows the payor and payee, the amount owed, the rate of interest and whether it is fixed or adjustable, the due date(s) for payment, and the terms of the loan. The mortgage or trust deed secures repayment of the note. Its covenants address topics that include occupancy, insurance, and hazardous materials, but it does not typically specify actual amounts for taxes and insurance.

Answer 95

The answer is **creating a zero-cost borrower credit**. A licensee’s fiduciary duties toward a client include loyalty and good faith, disclosure of material facts, and holding the client's interests above those of the licensee.

Answer 96

The answer is **is based on verifying income, assets, and current obligations**. A lender extending mortgage credit subject to HOEPA in an open-end high-cost mortgage may not extend credit based on the value of the consumer’s collateral without regard to repayment ability as of the date of consummation, including consideration of current and reasonably-expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations (i.e., expected property taxes, premiums for mortgage-related insurance required by the lender, and similar expenses). This prohibition does not apply to temporary (bridge) loans that have terms of 12 months or less.

Answer 97

The answer is **cost**. The cost approach can be used for any property, but because of the knowledge of construction costs that is required, it is most often used to appraise value for new buildings, where costs are easy to obtain, and for properties such as churches and public service buildings, which cannot be compared to others that have sold or to those that produce income. The appraiser estimates the value of the land and the depreciated value of the improvements on the land separately, and then adds the two values to arrive at an estimate of the property’s total value. The depreciated value is equal to the cost to replace or reproduce the improvements less depreciation.

Answer 98

The answer is **credit report, net worth, surety bond, payment into a state fund**. The S.A.F.E. Act mandates that states include a minimum net worth requirement or surety bond requirement for applicants, or require the applicant to pay into a state recovery fund. Licensing requirements also include criminal history and credit background checks, including a credit report. These are all factors used to establish a licensee’s financial responsibility and general fitness.

Answer 99

The answer is **15 years**. For FHA loans, the annual mortgage insurance premium (MIP) will differ based on whether the term of the loan is greater than 15 years or is 15 years or less.

Answer 100

The answer is **$52,500**. The relationship of the loan amount to the value or sales price of the property securing the loan is called the loan-to-value ratio. The loan-to-value ratio (LTV) relates the loan to the lesser of the appraised value or sales price. If Jimmie has been approved for a loan with an 85% LTV, his down payment must cover the remainder of the purchase price, or 15%: 15% × $350,000 = $52,500

Answer 101

The answer is **the applicant may take the test up to two additional times, with at least 30 days between each attempt**. An individual may take the licensing test three times, but to retake the exam, he or she must wait at least 30 days after the date of the preceding test. If he or she fails three consecutive tests, he or she must wait at least six months before taking the test again.

Exam 2 Flashcards

(125 cards)