1
Q
Which of the following debt-to-income ratios is used as a guideline for VA loans?
- 41% back
- 31% front
- 28% front
- 36% back
A
The answer is 41% back. A VA loan does not require any specific front-end ratio, but does use a general back-end ratio requirement of 41%.
2
Q
After receiving a mortgage application, a creditor must send a notice of decision to the applicant within:
- 10 days
- 20 days
- 30 days
- 90 days
A
The answer is 30 days. Notice of action taken on a mortgage loan application is due within 30 days.
3
Q
Investigations conducted by state licensing authorities may include all of the following, except:
- Interviews with employees of an entity
- Examination of mortgage applications
- Suspension of a license without notice of a right to a hearing
- Scheduling a review of advertising examples used by the licensee
A
The answer is suspension of a license without notice of a right to a hearing. As a result of an investigation, state licensing authorities may not suspend a license without making the licensee aware of why an action may be taken and that the licensee may request a hearing.
4
Q
While verifying identity, there are several consistent indicators that suggest identity theft. Which of the following is not an example?
- Co-borrowers call each other by nicknames that do not relate to the names on the application
- Credit history is inconsistent with the borrower’s age
- Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs
- Income documents appear to have poor printer alignment
A
The answer is Social Security Number given on the application is consistent with that found on the credit report, W-2s, and paystubs. Mortgage fraud can sometimes be difficult to detect; however, checking names on an application against names on credit reports and supporting documentation as well as the borrower’s age is important. Additionally, if the supporting documents appear to be altered or tampered with, further investigation should occur.
5
Q
John and Tina are purchasing a home using an FHA loan. They are excited because, while the price they agreed to pay is $215,000, they just got word that the appraised value came in at $225,000. What is the minimum down payment that John and Tina must make on this loan?
- $7,875
- $7,255
- $7,525
- $3,500
A
The answer is $7,525. FHA loans require a minimum borrower investment of 3.5% That amount is calculated by the lesser of the purchase price or the appraised value.
6
Q
Which of the following might raise a red flag during the underwriter’s review of the appraisal?
- Photos that appear to show the address of the property on the mailbox
- Dated prior to the sales contract
- Effective age of the property aligns with that of comparables
- Completion notice is dated after the original appraisal
A
The answer is dated prior to the sales contract. An appraisal dated prior to the sales contract is a red flag.
7
Q
Overtime income may be considered for an hourly employee if:
- It has been consistent for at least two years and is likely to continue
- It is being paid in the same paycheck
- The earnings have been reported as wages
- It has been consistent for less than two years and is likely to continue
A
The answer is it has been consistent for at least two years and is likely to continue. Overtime income is only considered if it has been consistent for at least two years, and the employer verifies that it is likely to continue.
8
Q
A creditor that is making an HPML must provide the loan applicant with a disclosure regarding his or her right to a copy of the appraisal no later than ____ after the creditor receives the loan application.
- Three days
- The third business day
- Five days
- The fifth business day
A
The answer is the third business day. A creditor that is making an HPML must provide the loan applicant with a disclosure regarding his or her right to a copy of the appraisal no later than the third business day after the creditor receives the loan application
9
Q
All of the following may be considered application red flags, except:
- Reasonable commuting mileage
- Address is a P.O. Box
- Education is not consistent with profession
- Significant changes between handwriting used throughout the documents
A
The answer is reasonable commuting mileage. If mileage for commuting purposes is realistic, no red flags would be drawn. For example, if the borrower lives relatively close to the workplace, it is acceptable.
10
Q
Under RESPA, in order to provide the escrow analysis statement, a borrower’s escrow account must be analyzed:
- Annually
- Monthly
- Quarterly
- Twice a year
A
The answer is annually. The purpose of the aggregate escrow analysis is to ensure that the proper amount is being held in escrow or reserve accounts (i.e., accounts to hold funds on behalf of borrowers for the payment of taxes and insurance). Under Regulation X, a servicer may hold funds to cover two months of taxes, insurance, and mortgage insurance, as applicable, and may only collect one month’s worth of escrowed items in each payment, unless there is a shortage in the account. All accounts must be analyzed once every 12 months and any overage over $50 refunded to the borrower within 30 days or credited towards the borrower’s next year’s escrow payments.
11
Q
HOEPA is federal legislation enacted by Congress through amendments to:
- FACTA
- ECOA
- TILA
- HMDA
A
The answer is TILA. The Home Ownership and Equity Protection Act is part of TILA. Created in 1994, it was the first legislation specifically created to combat predatory lending. Its regulations are found in Section 32 of Regulation Z.
12
Q
Upon meeting all the requirements and being approved by her state for licensing as a mortgage loan originator, Kelly Greene was assigned a number that permanently identifies her as a loan originator. This number is her:
- Unique identifier
- License number
- Authorization number
- Employment number
A
The answer is unique identifier. The unique identifier is a number that permanently identifies a loan originator, assigned by the NMLS to facilitate electronic tracking of loan originators.
13
Q
The Talleys are buying a home and do not have a big enough down payment to lower the LTV below the level that would require them to purchase PMI. Their LTV is higher than:
- 70%
- 90%
- 80%
- 95%
A
The answer is 80%. Private mortgage insurance is required when a borrower’s loan-to-value is above 80%.
14
Q
The practice of encouraging a consumer to purchase a home based on an inflated appraisal, or steering consumers toward high-cost products with unfavorable terms, is known as:
- Property flipping
- Predatory lending
- Property flopping
- Equity-based lending
A
The answer is predatory lending. The practice of encouraging a consumer to purchase a home based on an inflated appraisal, or steering consumers toward high-cost products with unfavorable terms, is known as predatory lending.
15
Q
Intentionally targeting borrowers in poor or underserved areas with expensive high-cost loans is considered illegal under:
- TILA
- Homeowners Protection Act
- HOEPA
- RESPA
A
The answer is HOEPA. HOEPA prohibits the intentional targeting of poor or underserved areas with expensive high-cost loans, which is a practice known as reverse redlining.
16
Q
Loan originator Zena Mendez is preparing an advertisement in which more than one simple interest rate will apply over the term of the loan. In order to be in compliance with Regulation Z, Zena must clearly and conspicuously disclose all of the following, except:
- Each applicable simple annual rate
- The period of time each simple annual rate applies
- The frequency with which the rate will change
- The annual percentage rate for the loan
A
The answer is the frequency with which the rate will change. If an ad states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the loan, the ad must clearly and conspicuously disclose each applicable simple annual interest rate, the period of time during which each rate will apply, and the annual percentage rate for the loan.
17
Q
Under the Gramm-Leach-Bliley Act, which of the following is considered nonpublic information?
- Former owners of a particular property
- The street address of the property a borrower intends to purchase
- The assessed value of a subject property
- A loan applicant’s current loan balances
A
The answer is a loan applicant’s current loan balances. Under the Gramm-Leach-Bliley Act, a loan applicant’s current loan balances would be considered nonpublic information.
18
Q
Safe harbor qualified mortgages offer a “safe harbor” from:
- Liability for TRID Rule violations
- Liability for ATR Rule violations
- Liability for ECOA violations
- Liability for HOEPA violations
A
The answer is liability for ATR Rule violations. The Qualified Mortgage Rule extends a safe harbor from liability for ATR Rule violations. The safe harbor is for loans that meet qualified mortgage standards.
19
Q
Which of the following would not be considered in the loan application process?
- Previous housing payment history
- Income history
- Current liabilities
- A bankruptcy from 15 years ago
A
The answer is a bankruptcy from 15 years ago. A bankruptcy from over ten years ago would not be considered in a borrower’s credit qualification.
20
Q
What is a method of transferring property to a new owner who takes over an outstanding mortgage debt, along with the liability of repayment, without incurring a change in terms?
- Conveyance
- Assumption
- Reconveyance
- Seller carry-back
A
The answer is assumption.Transferring property to a new owner who takes responsibility for the existing mortgage debt without incurring any change in terms is called an assumption.
21
Q
Misleading claims of debt elimination in an advertisement may lead a borrower to inaccurately believe that:
- Consumer debt is “disappearing” as a result of the new loan
- The borrower’s new loan will lower the overall monthly outlay
- The borrower is extending what may have been a short-term debt out over a longer period
- The borrower may gain some tax benefit by rolling consumer debt into the new mortgage loan
A
The answer is consumer debt is “disappearing” as a result of the new loan. “Debt elimination” is a regular claim of some mortgage professionals that specialize in consolidation loans, and it is often very misleading. Some borrowers will not understand that by “rolling in” the debt to a new mortgage, they are just extending the term and often paying more in interest.
22
Q
According to the HPML Rule, which of the following transactions would require a second appraisal?
- A higher-priced mortgage loan that also meets qualified mortgage standards
- The purchase price is 10% higher than the seller’s acquisition price 100 days ago
- All higher-priced mortgage loans are required to have two appraisals
- The purchase price is 20% higher than the seller’s acquisition price 150 days ago
A
The answer is the purchase price is 20% higher than the seller’s acquisition price 150 days ago. According to the HPML Rule, a transaction will require a second appraisal if the purchase involves a possible case of “loan flipping.” This is true when the consumer’s purchase price is 10% more than the seller’s acquisition price (if the seller acquired the property 90 or fewer days ago) or 20% more than the seller’s acquisition price (if the seller acquired the property 91 to 180 days ago).
23
Q
Which of the following would prevent the conveyance of title?
- Paid lien
- Owner dies and leaves a legal will
- Encumbrance
- Father passing title to his son while still living
A
The answer is encumbrance. An encumbrance would prevent the conveyance of title, meaning there is a debt or lien against the property and title may not change hands until the debt or lien is satisfied.
24
Q
Direct RHS loans may have terms of _____ years.
- 15 and 30
- 21 or 29
- 30 and 40
- 33 or 38
A
The answer is 33 or 38. Direct RHS loans may have terms of 33 and 38 years.
25
The VA has stated that loans made in compliance with VA standards and guaranteed or insured by the VA are:
1. Small creditor qualified mortgages
2. Safe harbor qualified mortgages
3. Non-qualified mortgages
4. Exempt from qualified mortgage standards
The answer is **safe harbor qualified mortgages**. The VA has stated that loans made in compliance with VA standards and guaranteed or insured by the VA are safe harbor qualified mortgages.
26
A loan with a term of less than one year that is related to the purchase or construction of a home is known as:
1. A subprime loan
2. A bridge loan
3. A balloon mortgage
4. A nontraditional loan
The answer is **a bridge loan**. Temporary financing related to the construction or purchase of a home is typically referred to as a bridge loan, although these types of loan may have a balloon feature.
27
Special second appraisal requirements apply for a loan that is a(n):
1. VA loan
2. Higher-priced mortgage loan
3. Adjustable-rate mortgage
4. Refinance
The answer is **higher-priced mortgage loan**. Special second appraisal requirements apply for a loan that is a higher-priced mortgage loan.
28
The front-end ratio is also known as the:
1. Back-end ratio
2. Housing ratio
3. Principal ratio
4. Total debt ratio
The answer is **housing ratio**. The front-end ratio is also known as the housing ratio.
29
Liabilities may include which of the following?
1. Real estate
2. Net worth of businesses
3. Student loans
4. Stocks and bonds
The answer is **student loans**. Liabilities may include student loans.
30
If a borrower is required to pay alimony or child support, it must be included as a(n):
1. Asset
2. Liability
3. Qualifier
4. Mitigating circumstance
The answer is **liability**. Alimony and child support must be included in a borrower’s liabilities if they are required to pay.
31
A borrower receives a bi-weekly paycheck in the amount of $2,300. The co-borrower earns a semi-monthly paycheck in the amount of $2,500. What is the monthly qualifying income of this couple?
1. $9,983.33
2. $10,400
3. $9,600
4. $10,983.33
The answer is **$9,983.33**. This question uses both bi-weekly and semi-monthly income, so you must be careful with calculations. The borrower receives bi-weekly pay of $2,300, which must be multiplied by 26, giving an annual salary of $59,800. The co-borrower receives semi-monthly income of $2,500, which must be multiplied by 24, giving an annual salary of $60,000. Combine both, and you have a household salary of $119,800. Divide this by 12, and you arrive at a qualifying income of $9,983.33.
32
Which of the following is **NOT** true with regard to TILA disclosures?
1. Disclosure rules differ depending on whether the credit being offered is open-end or closed-end
2. Everyone with ownership interest receives rescission notices
3. Special disclosures are required for adjustable-rate mortgages
4. Rules for disclosure are the same whether credit is open-end or closed-end
The answer is **rules for disclosure are the same whether credit is open-end or closed-end**. This is NOT true because the rules for TILA disclosures differ whether the loan is open-end or closed-end, including rules about disclosing APR and finance charges.
33
Tina Louise works as a clerk at a law firm and is paid bi-weekly in the amount of $1,700. Each quarter, she also receives a bonus of exactly $3,200 for her share of a program specifically designed to reward the excellent work by the firm’s support staff. This bonus has been consistent for three years. What is Tina’s qualifying monthly income?
1. $3,683
2. $4,466
3. $4,750
4. $3,400
The answer is **$4,750**. To calculate qualifying income, first, annual salary is calculated, including the bonus (in effect for three years), and then divided by 12 months. $1,700 × 26 = $44,200. Then the bonus: $3,200 × 4 = $12,800. Add the two, $44,200 + $12,800 = $57,000. Divide $57,000 by 12 = $4,750.
34
Which of the following entities, created in 2010, became the new enforcement and regulatory authority for a number of federal laws and regulations?
1. The FTC
2. The CFPB
3. The GNMA
4. The FNMA
The answer is **The CFPB**. The CFPB, created in 2010, has become the enforcement and regulatory authority for a number of federal laws and regulations, though it still shares some authority with the FTC and other entities in certain instances.
35
An originator uses a contracted processor who charges $500 per file. The fee disclosed to the borrower for processing is $800, a difference of $300 which the originator keeps for himself. This is:
1. A unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees
2. A violation of RESPA’s prohibition against fee-splitting
3. Permitted only as long as receipts are kept from the processor for five years
4. A violation of ECOA
The answer is **a unilateral markup, which is legal, but may be a violation of RESPA’s prohibition against unearned fees**. RESPA requires compensation for settlement services to be earned. Any compensation not in direct correlation with an actual service is likely a violation. However, according to a 2012 case, the act of unilaterally marking up a fee and retaining the additional earnings is not illegal, as long as fee-splitting is not involved.
36
A revised Loan Estimate may be provided if an applicant waits more than _____ after the creditor provides a Loan Estimate before indicating an intent to proceed.
1. Three business days
2. Ten business days
3. Five days
4. 24 hours
The answer is **ten business days**. A revised Loan Estimate may be provided if an applicant waits more than ten business days after the creditor provides a Loan Estimate before indicating an intent to proceed.
37
The term “table funding” refers to:
1. A situation in which a loan without a rescission period closes and funds the same day
2. A situation in which a loan funds and is returned to the lender because of a borrower refusing to sign at the table
3. The funding of pools of loans that create securitization
4. A type of lending arrangement where brokers are permitted to originate, close, and fund loans using the lender's warehouse line of credit
The answer is **a type of lending arrangement where brokers are permitted to originate, close, and fund loans using the lender's warehouse line of credit.** Mortgage brokers sometimes engage in table funding which allows them to, in theory, be a lender on a loan and close in their own name. Once the loan closes, it is quickly assigned to another entity.
38
Which of the following reasons for denying an applicant a loan is a violation of fair lending laws?
1. The applicant’s recent marital status may lead to a change in employment
2. The applicant’s income does not meet the required level for repayment of the loan
3. The applicant’s age is below the minimum age for executing a contract
4. The applicant’s credit history includes defaults on many credit payments
The answer is **the applicant’s recent marital status may lead to a change in employment**. It is a violation of fair lending laws to deny an applicant because his or her recent marital status may lead to a change in employment.
39
A lender who refuses to originate loans in a particular neighborhood or ZIP code because of the perceived creditworthiness of consumers living in the area is in violation of:
1. FCRA
2. ECOA
3. HOEPA
4. RESPA
The answer is **ECOA**. Refusing to originate loans in a particular neighborhood or ZIP code because of perceived creditworthiness is a practice known as “redlining” and is a violation of ECOA.
40
Homeownership counseling is required for the following types of lending transactions, except:
1. Fixed-rate qualified mortgages
2. High-cost mortgages
3. FHA HECM loans
4. Negative amortization loans
The answer is **fixed-rate qualified mortgages**. Homeownership counseling is required for high-cost mortgages, FHA HECM loans, and negative amortization loans.
41
A borrower who owns more than ____ of a business must submit up to two years’ tax returns in providing income documentation.
1. 15%
2. 25%
3. 10%
4. 5%
The answer is **25%**. A borrower who owns more than 25% of a business must submit up to two years’ tax returns in providing income documentation.
42
When is it legal to refuse to conduct a lending transaction with a consumer on the basis of their personal characteristics?
1. The consumer is a minority who may need assistance with closing costs
2. A large percentage of the borrower’s income is from public assistance
3. The applicant is married but applying individually
4. The borrower is too young to have legal authority to enter a binding contract
The answer is **the borrower is too young to have legal authority to enter a binding contract**. A creditor may consider the personal characteristics of the applicant if the applicant is not of legal age to enter a binding contract.
43
RESPA applies to:
1. Reverse mortgages
2. Construction loans
3. Federally-related mortgage loans
4. Loans for business, commercial, or agricultural purposes
The answer is **federally-related mortgage loans**. RESPA applies to federally-related mortgage loans.
44
Which of the following mortgage broker policies would violate fair lending laws?
1. Originating loans only for customers who live within 100 miles of the broker’s location
2. Refusing to originate loans in an earthquake zone
3. Refusing to originate loans in ZIP codes known to be economically depressed
4. Doing business only with customers who are seeking loans for residential properties
The answer is **refusing to originate loans in ZIP codes known to be economically depressed**. Refusing to originate loans in ZIP codes known to be economically depressed would violate fair lending laws.
45
When providing services related to a residential mortgage transaction, appraisers have responsibility for all but which of the following?
1. Maintaining direct contact with the loan originator that ordered the appraisal
2. Refusing to accept assignments in which compensation for services depends on delivering a predetermined value for the property securing the loan
3. Performing assignments with impartiality and objectivity
4. Complying with Uniform Standards of Professional Appraisal Practice
The answer is **maintaining direct contact with the loan originator that ordered the appraisal**. When providing services related to a residential mortgage transaction, appraisers are not required to maintain direct contact with the loan originator.
46
When a consumer is preapproved for a line of credit and can use this line freely, making repeat transactions, and can pay it off at any time without closing the line, this is an example of:
1. Subordinate lien
2. Reverse mortgage
3. Revolving debt
4. Mortgage
The answer is **revolving debt**. Revolving debt allows a borrower to draw from and pay down a credit line at his/her own discretion, as long as the borrower makes timely payments for the interest due.
47
A state-licensed loan originator is:
1. Licensed by the NMLS
2. An employee of a non-depository institution
3. Identified by the unique identifier of his/her employer
4. An employee of a subsidiary which is owned or controlled by a depository institution
The answer is **an employee of a non-depository institution**. A state-licensed loan originator is an employee of a non-depository institution and is licensed by the state. An originator employed by a depository or the Farm Credit Administration would be registered.
48
A type of reverse mortgage offered to low-income borrowers for a designated purpose, such as to pay taxes or to complete a home repair, is known as a:
1. Single purpose reverse mortgage
2. Home equity conversion mortgage
3. Proprietary mortgage
4. Designated use reverse mortgage
The answer is **single purpose reverse mortgage**. Low-income borrowers may be eligible for single purpose mortgages that they can use to meet expenses such as taxes and home repairs.
49
Which of the following pieces of personal information is a borrower asked to provide voluntarily on the loan application?
1. Race, age, and marital status
2. Race, ethnicity, and sex
3. Sex and childbearing plans
4. Marital status and age
The answer is **race, ethnicity, and sex**. Section 8, Demographic Information, of the 1003 requests information regarding the applicant’s sex, race and ethnicity.
50
In the absence of caps, adjustments on an ARM loan would be determined solely by:
1. The index
2. The margin
3. The fully-indexed rate
4. The lifetime rate
The answer is **the fully-indexed rate**. If there were no caps involved, an ARM would adjust based on the movement of the fully-indexed rate (margin + index). It would not be adjusted based on index alone or margin alone. While the margin does not change over time, it must be combined with the fluctuating index to find the new rate. It is not sufficient to apply only the index or only the margin to the adjustment - they must be combined into the fully-indexed rate.
51
Which of the following is defined as the difference between the fair market value of a property and the current balances of any liens against the property?
1. Amortization
2. Equity
3. Finance charge
4. Debt-to-income ratio
The answer is **equity**. Equity is defined as the difference between the fair market value of a property and the current balances of any liens against the property.
52
LL Mortgage Company is advertising “120% LTV Home Equity Loans!” In order to ensure compliance with Regulation Z, which of the following statements is also required?
1. Shop for options with lower loan-to-value ratios
2. Interest on high loan-to-value ratios is not deductible
3. Interest on the portion of credit exceeding market value is deductible at 50% of the normal value
4. Consult a tax adviser regarding deductibility of interest
The answer is **consult a tax adviser regarding deductibility of interest**. Advertising rules under Regulation Z provide that advertisements for loans exceeding the home’s fair market value must clearly and conspicuously state “The interest on the portion of credit that exceeds market value is NOT deductible.” The advertisement must also state that the borrower should consult a tax advisor regarding the deductibility of interest and charges.
53
The time at which a consumer becomes contractually obligated on a credit transaction is:
1. Application
2. Consummation
3. Upon receiving a Loan Estimate
4. Upon receiving a Closing Disclosure
The answer is **consummation**. Consummation is the time at which a consumer becomes contractually obligated on a credit transaction.
54
A licensee subject to an investigation or examination may not engage in any of the following, except:
1. Providing computer records
2. Knowingly removing or withholding records
3. Providing records that have had information redacted
4. Failing to cooperate with an investigation
The answer is **providing computer records**. Providing records electronically is an acceptable method of keeping records available for examination.
55
For a conventional conforming loan, the borrower is making a down payment of 12%. The seller wishes to contribute to closing costs for the transaction. What is the most that the seller can contribute?
1. Seller concessions of 12%
2. Seller concessions of 3%
3. Seller concessions of 78%
4. Seller concessions of 6%
The answer is **seller concessions of 6%**. Fannie Mae and Freddie Mac permit seller concessions in conforming loan transactions to help defray the costs of closing. When the borrower makes a down payment of between 10% and 24.9%, seller concessions of up to 6% are permitted.
56
Lisa is submitting an application for a mortgage loan originator license. In order to be able to apply, Lisa must complete how many hours of pre-licensing education?
1. 20
2. 8
3. 15
4. 30
The answer is **20**. An applicant for a mortgage loan originator license must satisfactorily complete a pre-licensing course of study that includes at least 20 hours of NMLS-reviewed and -approved education.
57
The FHA offers _____ fixed-rate mortgages to qualifying borrowers.
1. Only 15-year
2. Only 30-year
3. 15- and 30-year
4. Special 20-year
The answer is **15- and 30-year**. The FHA offers 15- and 30-year fixed-rate mortgages to qualifying borrowers.
58
Which of the following forms of compensation is a violation of RESPA?
1. A fee paid by a title company to an originator for referral of settlement services
2. Borrower credit
3. Money earned by a title company for closing a loan
4. Broker fee
The answer is **a fee paid by a title company to an originator for referral of settlement services**. RESPA requires any fees to be “earned.” Referral fees are considered a violation.
59
Of the following qualifying pieces of information, which carries the highest risk of being fraudulent?
1. Tax transcripts obtained through the execution of a 4506-C
2. Social Security Numbers cross-checked against credit reports
3. Faxed or Internet documents
4. Original copies of a borrower’s W-2s and paystubs
The answer is **faxed or Internet documents**. Documentation and verification is perhaps the most important step in the qualifying process. Careful examination of all supporting documents is critical to preventing fraud.
60
Which of the following rules requires mortgage professionals to take reasonable steps to ensure that service providers are able to maintain appropriate protection for the privacy of consumer information?
1. The Qualified Mortgage Rule
2. The ATR Rule
3. The Safeguards Rule
4. Title X of the Dodd-Frank Act
The answer is **The Safeguards Rule**. The Safeguards Rule requires mortgage professionals to take reasonable steps to ensure that service providers are able to maintain appropriate protection for the privacy of consumer information.
61
In verifying a loan applicant’s income and/or assets, a creditor must rely upon:
1. The applicant’s signed and notarized statement
2. Reliable third-party records such as paystubs and tax returns
3. The applicant’s credit report exclusively
4. An independent investigation conducted by the creditor
The answer is **reliable third-party records such as paystubs and tax returns**. In verifying a loan applicant’s income and/or assets, a creditor must rely upon reliable third-party records such as paystubs, tax returns, employment information, and records from financial institutions.
62
Concerning ARMs, margin is best defined as:
1. A number, expressed as a percentage, that represents a lender’s operating costs and profit margin
2. The amount of compensation earned by a mortgage professional for originating an ARM
3. The range of flexibility an interest rate has between caps on traditional ARMs
4. The maximum – up or down – that an interest rate can ever adjust on an ARM
The answer is **a number, expressed as a percentage, that represents a lender’s operating costs and profit margin**. Concerning ARMs, “margin” is best defined as a number, expressed as a percentage, that represents a lender’s operating costs and profit margin.
63
A broker has originated two loans this month, one of which is for his father. Both borrowers are equally qualified and are looking for exactly the same loan. If the broker charges his father a total of $500 in origination fees, what is the origination fee that should be charged to the other borrower?
1. It varies; everything in the mortgage business is negotiable
2. The origination fee should be less than 3% of the loan amount if he is well qualified
3. Origination fees are not charged to family members
4. If the borrowers are equally qualified, fees should be comparable
The answer is **if the borrowers are equally qualified, fees should be comparable**. Ethically speaking, if borrowers are equally qualified and choosing the same products, fees should be comparable.
64
Recording of the deed happens where?
1. At closing
2. At the borrower’s house
3. At the Office of the County Recorder
4. Within the office of the Supervisor of Banks
The answer is **at the Office of the County Recorder**. Recording is when the deed, deed of trust, or other recordable documents are submitted to the County Recorder (or County Clerk) for filing.
65
A mortgage broker and a title insurance company have common ownership and are considered affiliated businesses under RESPA. If either of these companies refers a consumer to the other, the consumer must receive a(n):
1. Affiliated Business Determination
2. Affiliated Business Arrangement Disclosure
3. Business Agreement Disclosure
4. Business Control Disclosure
The answer is **Affiliated Business Arrangement Disclosure**. An Affiliated Business Arrangement Disclosure is required anytime a business refers another business with whom it has some common ownership or some other affiliation.
66
An “encumbrance” is:
1. Transfer of title from one owner to another
2. Transfer of ownership without any guarantees or warranties
3. Cancellation of a contract
4. A claim against a property that can affect the ability to transfer title
The answer is **a claim against a property that can affect the ability to transfer title**. An encumbrance is a claim against a property that can affect the ability to transfer title.
67
For which of the following reasons would it be permissible to refuse to take an application from a potential borrower?
1. The borrower has alluded to the fact that she is submitting false documents in order to qualify for a larger loan
2. The loan originator does not click with the applicant and would rather not do business with him
3. The lender does not accept applications from the residential area where the borrower lives
4. The applicant has poor credit and you do not feel there is any way that he will meet lender guidelines
The answer is **the borrower has alluded to the fact that she is submitting false documents in order to qualify for a larger loan**. It would be permissible to refuse to take an application from a potential borrower if the borrower has alluded to the fact that she is submitting false documents in order to qualify for a larger loan.
68
This federal law amended TILA and other mortgage-related laws, and mandated the implementation of additional rules to improve consumer protection.
1. RESPA
2. ECOA
3. The Consumer Fairness Act
4. The Dodd-Frank Act
The answer is **The Dodd-Frank Act**. The Dodd-Frank Act amended TILA and other mortgage-related laws, and mandated the implementation of additional rules to improve consumer protection.
69
All of the following types of income are not taxed and therefore can be “grossed-up,” except:
1. Social Security
2. Public assistance
3. Freelance income
4. Disability
The answer is **freelance income**. Freelance income is not “nontaxed income” and therefore is not grossed-up. Social Security may be taxed for some, but not all recipients; for recipients who are not taxed on their SSI, the income can be grossed up.
70
The examination of county and municipal records to determine the legal status of a property is called:
1. Title insurance
2. Title search
3. Title binder
4. Title commitment
The answer is **title search**. The title search is the first step in the title process. It involves an abstractor or an attorney searching county or municipal records to determine the status of a property.
71
A document that changes the order of priority of mortgage liens is referred to as the:
1. Deed of trust
2. Payee clause
3. Promissory note
4. Subordination agreement
The answer is **subordination agreement**. A subordination agreement changes the order in which creditors are paid in the event of foreclosure.
72
Which of the following correctly describes entities that have obligations under the Fair Credit Reporting Act?
1. CRAs, Experian, and FHA
2. FHFA, CRAs, and furnishers of information to CRAs
3. CRAs, furnishers of information to CRAs, and users of consumer reports
4. Users of consumer reports and lenders regulated by RESPA and TILA
The answer is **CRAs, furnishers of information to CRAs, and users of consumer reports**. The FCRA creates a number of obligations for users and furnishers of credit information as well as the credit reporting agencies (CRAs) which receive and report credit information.
73
If a lender wants to obtain copies of a borrower’s tax returns, the borrower is asked to sign what?
1. A waiver of financial information
2. 4506-C
3. 1003
4. IRS-1040
The answer is **4506-C**. The IRS form 4506-C is used to allow a lender to pull a transcript of the borrower’s tax returns.
74
Oskar is being licensed in a state that requires each loan originator to be covered by a surety bond. Upon approval of his license application, he will be employed by the Half Nelson Mortgage Brokerage. Who is required to provide Oskar’s surety bond?
1. Oskar
2. Half Nelson Mortgage Brokerage
3. Both Oskar and Half Nelson
4. Either Oskar or Half Nelson
The answer is **Either Oskar or Half Nelson**. Each mortgage loan originator must be covered by a surety bond. If he/she is an employee or exclusive agent of a person subject to the state’s SAFE Act, the surety bond of the employing licensee or exempt person may be used to satisfy the loan originator surety bond requirement.
75
All of the following types of information must be reported for government monitoring purposes in accordance with HMDA, except:
1. Identification of loans subject to HOEPA
2. Action taken on the loan and the location of the subject property
3. Ethnicity, race, sex, and income of the applicant
4. Ethnicity, race, sex, and religion of the applicant
The answer is **ethnicity, race, sex, and religion of the applicant**. HMDA monitoring requires the collection of extensive data about each mortgage loan application and origination. This includes any action taken on the loan, indication of whether the loan is subject to HOEPA, and the ethnicity, race, sex, and income of the applicant. HMDA does not require the collection of information about an applicant’s religion.
76
On an FHA loan, a borrower is required to make a down payment of at least:
1. 5%
2. 3.50%
3. 0%
4. 1.50%
The answer is **3.50%**. On an FHA loan, a borrower is required to bring a minimum down payment of 3.5%.
77
A borrower asks for the definition of “a point.” Which of the following best describes what a point is in a mortgage transaction?
1. It is the incremental measurement used for ARM adjustments
2. It is 1% of the loan amount; points are paid to reduce the rate
3. It is an incentive earned by loan originators for locking a certain interest rate
4. It is the mathematical conversion of a finance charge to APR
The answer is **it is 1% of the loan amount; points are paid to reduce the rate**. A point is 1% of the loan amount. Points are paid to reduce the rate.
78
According to the SAFE Act, which of the following is defined as a nontraditional mortgage product?
1. Any mortgage product other than a 30-year fixed-rate mortgage
2. A 30-year fixed-rate mortgage
3. An ARM loan with a 5-year fixed-rate period
4. A 15-year fixed-rate mortgage
The answer is **any mortgage product other than a 30-year fixed-rate mortgage**. The SAFE Act defines a “nontraditional mortgage product” as any product other than a 30-year fixed-rate mortgage.
79
An investigator spends three weeks researching Steve Sample, who is applying for a job. He meets Steve’s neighbors, current co-workers, and former teachers and mentors. After interviewing upwards of 30 individuals, the investigator submits his report to the company considering Steve for a position. This is an example of:
1. FBI mortgage fraud investigation
2. CRA disclosure
3. Private investigation methodology
4. Investigative consumer report
The answer is **investigative consumer report**. A consumer report using information obtained through personal interviews is known as an investigative consumer report and is meant to give insight into a person’s character, general reputation, personal characteristics, and mode of living.
80
ABC Mortgage has a policy of refusing to originate loans in three neighborhoods near its office known to be highly populated by minorities. This practice is commonly referred to as:
1. Steering
2. Refusal
3. Blockbusting
4. Redlining
The answer is **redlining**. Redlining is the practice of refusing to originate loans in particular neighborhoods due to discriminatory reasoning.
81
One advantage of VA loans that is not commonly available in transactions for conventional mortgages is that they are:
1. Interest free
2. Available to loan applicants regardless of DTI ratios
3. Assumable
4. Not funded by private lenders
The answer is **assumable**. VA loans are assumable, which means that a purchaser of a home that secures a VA loan may assume the mortgage payments of that loan. Except for direct VA loans, most VA loans are funded by private lenders and are subject to underwriting requirements that include DTI ratios.
82
“MIP” stands for:
1. Mortgage interest premium
2. Minimum interest payment
3. Mortgage insurance premium
4. Monthly insurance premium
The answer is **mortgage insurance premium**. Mortgage insurance premium is used for FHA loans and is required both upfront and annually (for most FHA loans).
83
Which of the following fees may a creditor charge before offering disclosures to a loan applicant?
1. Application fee
2. Credit reporting fee
3. Appraisal fee
4. Broker fee
The answer is **credit reporting fee**. A credit report fee is the only fee that a creditor may charge before offering disclosures to a loan applicant.
84
An underwriter examines what two main aspects of a loan application to determine if lender guidelines are being met?
1. Applicant and credit
2. Credit and income
3. Credit and collateral
4. Applicant and collateral
The answer is **applicant and collateral**. An underwriter must make a determination as to whether both the applicant and the subject property meet the guidelines of the investor.
85
5/25" and "7/23" are commonly used to designate loans including which of the following?
1. A hybrid adjustable rate feature
2. A balloon payment
3. A subordinate lien
4. A temporary interest rate buy-down
The answer is **a balloon payment**. "5/25" and "7/23" are commonly used to designate loans that include a balloon payment.
86
The general purpose of borrower credit is to:
1. Allow a broker to spread closing costs evenly between borrower and lender
2. Allow the lender to minimize the fees they charge
3. Provide the broker with an additional source of income
4. Help the borrower cover or reduce the costs of settlement
The answer is **help the borrower cover or reduce the costs of settlement**. The general purpose of borrower credit is to help the borrower by subsidizing closing costs by choosing to lock a loan at a slightly higher rate than par.
87
Sandra is purchasing a home with a first mortgage loan for $548,250, which is the conforming loan limit for the area where she lives at the time that she secures approval. Her interest rate is not a prime rate, and in order to determine if it triggers the threshold for higher-priced mortgage loans, her creditor must determine if the APR for the loan exceeds the average prime offer rate by:
1. 2.5 percentage points
2. 1.5 percentage points
3. 3.5 percentage points
4. 6.5 percentage points
The answer is **1.5 percentage points**. For first lien loans with a principal amount that does not exceed the conforming loan limit, Sandra’s creditor must determine if the APR for the loan exceeds the average prime offer rate by 1.5 percentage points.
88
Which of the following is not a threshold that the Home Ownership Equity Protection Act (HOEPA) has established to identify loans as high-cost mortgages?
1. APR threshold
2. Points and fees threshold
3. Subprime interest rate threshold
4. Prepayment penalty threshold
The answer is **subprime interest rate threshold**. HOEPA uses APR, points and fees, and prepayment penalty thresholds to identify high-cost mortgages.
89
A balloon rider, a prepayment penalty rider and a second-home rider may all be part of:
1. A title insurance policy
2. A deed of trust
3. A note
4. A power-of-attorney agreement
The answer is a deed of trust. **A deed of trust** is used to secure a note. A deed can carry a rider, or an addendum, which may include a balloon rider, a prepayment penalty rider and a second-home rider, among others.
90
An Affiliated Business Arrangement Disclosure is:
1. Required by TILA to be given to a borrower at the time of referral
2. Only required if the referred party is owned by or has an affiliate relationship with the referring party
3. Used to disclose whether the loan will be serviced, transferred, or sold
4. Required to be disclosed within three business days of application
The answer is **only required if the referred party is owned by or has an affiliate relationship with the referring party**. An Affiliated Business Arrangement Disclosure is required only if the company being referred has some affiliated relationship with the referring party.
91
The term “adjustment frequency” or “adjustment interval” is associated with:
1. The spread between a lender’s margin and its cost
2. The 60-day period after a transfer of servicing that a customer has to send his or her first payment
3. The adjustments of an ARM loan
4. The percentage amount an ARM can increase from its start rate to its rate ceiling
The answer is **the adjustments of an ARM loan**. An ARM loan, whether fixed at the start or fully-adjustable from the start, carries with it a specific “adjustment frequency,” also sometimes referred to as an “adjustment interval.” Both of these define the amount of time either before an ARM begins to adjust, or between adjustments.
92
Which law restricts the sharing of nonpublic personal information given when a consumer applies for a mortgage loan?
1. Fair Credit Reporting Act
2. FTC Disposal Rules
3. Gramm-Leach-Bliley Act
4. Consumer Regulatory Protection Act
The answer is **Gramm-Leach-Bliley Act**. The Gramm-Leach-Bliley Act is the federal law that limits or restricts the use of a consumer’s nonpublic personal information.
93
Mortgage loan originator Janine is assisting the Barstows in obtaining a residential mortgage loan. Her assistance may include all of the following, except:
1. Providing advice on loan terms
2. Preparing loan packages
3. Making a loan commitment
4. Collecting information on behalf of the consumer
The answer is **making a loan commitment**. A mortgage loan originator assisting a consumer in obtaining or applying to obtain a residential mortgage loan may provide advice on loan terms, including rates, fees, and other costs; prepare loan packages; or collect information on behalf of the consumer with regard to a residential mortgage loan. A loan commitment is made by a lender.
94
Which of the following documents conveys title to real property?
1. Deed
2. Mortgage
3. Note
4. Promissory note
The answer is **deed**. The deed is a written instrument properly signed and delivered that conveys title to real property.
95
An ARM was locked for three years and began adjusting two years ago. It is about to adjust for the third time. What limits the amount the interest rate will increase on this movement?
1. Payment cap
2. Starter cap
3. Initial cap
4. Periodic cap
The answer is **periodic cap**. The periodic cap is used to limit rate adjustments for ARMs after the initial adjustment.
96
If a loan agreement includes terms requiring the borrower to pay the remaining loan balance in one larger payment at the end of the loan term, this is known as a(n):
1. Recast
2. Interest-only feature
3. Balloon payment
4. Graduated payment schedule
The answer is **balloon payment**. If a loan agreement includes terms requiring the borrower to pay the remaining loan balance in one larger payment at the end of the loan term, this is known as a balloon payment.
97
Which of the following is true of a loan that allows for negative amortization?
1. The payments are not sufficient enough to cover the interest due, so the principal balance increases
2. The interest rate decreases because payments are not sufficient enough to pay the interest due
3. The principal amount increases because the borrower’s payments cover more than the interest due
4. The payments are less than necessary to cover the interest due, so the principal does not increase
The answer is **the payments are not sufficient enough to cover the interest due, so the principal balance increases**. A loan that allows for negative amortization has a principal balance that goes up because the payments are not sufficient enough to cover interest due.
98
What action must a creditor take if it is discovered that the APR listed on the Closing Disclosure is outside of the range of tolerance?
1. Provide disclosure of the corrected discrepancy and wait three business days before closing
2. Keep records of the discrepancy for three years
3. Adjust the APR and close the loan as scheduled
4. Restart the seven-business-day waiting period after the new disclosure has been made
The answer is **provide disclosure of the corrected discrepancy and wait three business days before closing**. When the APR listed on the Closing Disclosure is inaccurate, the APR must be re-disclosed to the borrower, and the loan cannot close for at least three business days from the re-disclosure date.
99
An underwriter might look for all of the following during the review of an appraisal report, except:
1. Location of the mailbox in relation to the house
2. Visible signs of health or safety hazards
3. Photos of the house, including checking for the address
4. Effective age of the property
The answer is **location of the mailbox in relation to the house**. While the underwriter may indeed look at the mailbox in pictures to verify the address of the home (or on the house itself), it is unlikely that the location of the mailbox is of any concern to the underwriter.
100
The system that an underwriter uses to help streamline the underwriting process is called:
1. YSP
2. AUS
3. MBS
4. ABA
The answer is **AUS**. Much of the underwriter’s decision-making has now been taken over by an automated underwriting system. These are known by many names, but all do the same thing: they make automated underwriting decisions based on lender guidelines and information entered into the AUS.
101
As a result of the Housing and Economic Recovery Act of 2008, Congress created the _____ for oversight of the GSEs.
1. FNMA
2. FinCEN
3. FHLMC
4. FHFA
The answer is **FHFA**. HERA created and installed the FHFA (Federal Housing Finance Agency) as the conservator of the GSEs (Fannie Mae and Freddie Mac). The FHFA’s powers include the responsibility to set the conforming loan limits from year to year.
102
Don is refinancing his home in order to save money. If the loan goes through, his payment will drop from $2,000/month (PITI) to $1,500/month (PITI). Don’s gross income each month is $6,800, but he has a $300 car payment, a $150 credit card payment, and monthly alimony payments of $1,300. What is Don’s housing ratio on the proposed loan?
1. 29%
2. 48%
3. 22%
4. 31%
The answer is **22%**. “Housing ratio” refers to the cost of Don’s housing expenses monthly, divided by his gross monthly income. In this case, his proposed housing expense (PITI) will be $1,500/month. $1,500 / $6,800 = 22%.
103
The amount of income left over after debt is subtracted is called:
1. Residual income
2. Debt ratio
3. Discretionary spending
4. Debt inverse
The answer is **residual income**. Residual income is money left over after debt is subtracted.
104
Ginger is a mortgage loan originator. She discussed with her clients, the Salts, the requirement to carry property insurance on their home that was securing the mortgage loan Ginger was originating for them. Her recommendation was that they insure the property for an amount exceeding the replacement value of the improvements on the property. What excess amount is Ginger permitted to recommend?
1. Recommending insurance in excess of the replacement value of the improvements is prohibited
2. 110% of replacement value
3. 120% of replacement value
4. 150% of replacement value
The answer is **recommending insurance in excess of the replacement value of the improvements is prohibited**. It is prohibited for any person, when engaging in loan origination activity, to cause or require a borrower to obtain property insurance coverage in an amount that exceeds the replacement value of the improvements as established by the property insurer.
105
Mary and Larry are purchasing a house for $198,000. They are making a down payment of $20,000, and they are approved for a conforming loan. How much should they expect to receive in seller help if the seller agrees to contribute the maximum amount?
1. $5,940
2. $10,680
3. $12,440
4. $11,880
The answer is **$11,880**. For a conforming loan, the max seller contribution in this scenario is 6% (the down payment is more than 10%). The 6% is taken from the purchase price of $198,000, which is $11,880.
106
Which of the following statements most accurately describes the HPML transactions that are subject to the requirement to establish an escrow account?
1. Escrow accounts are required for all HPMLs secured by the borrower’s principal dwelling
2. Escrow accounts are required for all HPMLs secured by a dwelling
3. Escrow accounts are required for all first-lien HPMLs secured by the borrower’s principal dwelling
4. Escrow accounts are required for all HPMLs, including reverse mortgages
The answer is **escrow accounts are required for all first-lien HPMLs secured by the borrower’s principal dwelling**. Escrow accounts are required for all first-lien HPMLs secured by the borrower’s principal dwelling.
107
Mortgage loan originator Bill Zeppalin contacted the appraisal company that had been routinely performing appraisals for his company. In talking with the appraiser, Bill noted that recent appraisals had been coming in “kind of low” and perhaps he would be making other arrangements for future appraisals. This comment is:
1. Permissible in business discussions
2. A prohibited act
3. Permissible since it did not involve a specific property
4. Permissible since a desired valuation was not stated
The answer is **a prohibited act**. It is prohibited for any person engaging in mortgage origination activity to make any payment, threat or promise, directly or indirectly, to any appraiser of property for the purpose of influencing the independent judgment of the appraiser with respect to the value of the property.
108
“UFMIP” stands for:
1. Uniform Funded Mortgage Insurance Premium
2. Upfront Mortgage Insurance Premium
3. Uniform Financed Mortgage Insurance Premium
4. Uniform Front-End Mortgage Insurance Premium
The answer is **Upfront Mortgage Insurance Premium**. “UFMIP” stands for “Upfront Mortgage Insurance Premium.”
109
For the purposes of issuing a revised Loan Estimate, “changed circumstances” that affect estimated settlement charges must result in a change to those charges of more than:
1. 5%
2. 1%
3. Any amount
4. 10%
The answer is **10%**. For the purposes of issuing a revised Loan Estimate, “changed circumstances” that affect estimated settlement charges must result in a change to those charges of more than 10%.
110
Oversight and enforcement of FCRA is left to what government agency?
1. FNMA
2. CFPB
3. FHFA
4. HUD
The answer is **CFPB**. The CFPB has primary oversight and enforcement authority for the Fair Credit Reporting Act. However, it shares some of its enforcement authority with the FTC.
111
XYZ Mortgage Company just mailed a Closing Disclosure to a consumer. The waiting period prior to closing will begin:
1. On the date that the Closing Disclosure is mailed
2. The next business day after the Closing Disclosure is mailed
3. The third business day after the Closing Disclosure is mailed
4. The day on which the company received a completed, signed loan application
The answer is **the third business day after the Closing Disclosure is mailed**. The waiting period prior to closing will begin on the third business day after the Closing Disclosure is mailed.
112
ECOA applies to the extension of credit for:
1. Loans secured by a first or subordinate lien on residential property
2. Residential, business, commercial, and agricultural loans
3. Business, commercial, and agricultural loans
4. All credit other than government loans
The answer is **residential, business, commercial, and agricultural loans**. ECOA has a wider range than RESPA and TILA, beyond just loans related to residential properties. The law also covers loans for businesses, commercial, and agricultural loans.
113
The administrative authority of the Commissioner includes all but which of the following?
1. Promulgate rules or regulations implementing the S.A.F.E. Act
2. Administer, interpret, and enforce the S.A.F.E. Act
3. Carry out the intentions of the Legislature
4. Sentencing violators of the S.A.F.E. Act to appropriate prison terms
The answer is **sentencing violators of the S.A.F.E. Act to appropriate prison terms**. State regulators, such as a Commissioner, are not responsible for determining criminal sentences for violators of the S.A.F.E. Act.
114
A consumer signs a closed-end lending agreement on Wednesday. What is the latest that he/she may wait to exercise the right to rescind?
1. Midnight on Friday
2. Midnight on Saturday
3. Midnight on Monday
4. Midnight on Tuesday
The answer is **midnight on Saturday**. A consumer for a closed-end loan may exercise the right to rescind at any time up until midnight of the third business day after signing the lending agreement. For the purposes of calculating time limitations for rescission, Saturdays are considered to be business days – meaning that if the consumer signed an agreement on Wednesday, the latest he or she may wait before exercising the right to rescind would be midnight on Saturday.
115
This entity is responsible for implementing and enforcing consumer protection laws, establishing consumer education programs, and responding to consumer inquiries and complaints.
1. The Department of Housing and Urban Development
2. The Consumer Financial Protection Bureau
3. The Office of Consumer Financial Education
4. The Federal Housing Administration
The answer is **The Consumer Financial Protection Bureau**. The Consumer Financial Protection Bureau is responsible for implementing and enforcing consumer protection laws, establishing consumer education programs, and responding to consumer inquiries and complaints
116
Mortgage loan originator Janine Jetson has had a complaint filed against her. Upon receiving a request from her state licensing agency, Janine must:
1. Make her books and records available to the agency
2. Respond to the complaint
3. Post an additional bond
4. Request a hearing
The answer is **make her books and records available to the agency**. Each loan originator must make available, upon request by the state licensing agency, the books and records relating to the operations of the originator.
117
Increasing loan balances resulting from the application of periodic payments that are not sufficient to cover the interest that is due create which of the following for borrowers?
1. Negative equity
2. Negative amortization
3. Lower credit scores
4. Amortizing payments
The answer is **negative amortization**. Increasing loan balances resulting from the application of periodic payments that are not sufficient to cover the interest that is due create negative amortization.
118
HMDA data is collected and aggregated to determine:
1. The success rate of nontraditional mortgage loans
2. Whether the success of lending terms varies in different geographic areas
3. The extent of creditor compliance with privacy protection laws
4. Whether different credit terms are offered to members of protected classes
The answer is **whether different credit terms are offered to members of protected classes**. HMDA data is collected and aggregated to determine whether different credit terms are offered to members of different protected classes.
119
Per diem interest is used by a lender in order to:
1. Allow for a lower payment with a temporary buy-down
2. Collect interest that accrues between the closing date and the end of the month
3. Pay the previous lender’s costs for selling the loan
4. Build a borrower’s escrow account
The answer is **collect interest that accrues between the closing date and the end of the month**. Per diem interest is used by a lender in order to collect interest that accrues between the closing date and the end of the month.
120
What is the best definition of an Initial Escrow Statement?
1. A statement of the amount of escrow the borrower must bring to the closing table
2. A disclosure that explains escrow to the borrower
3. A statement provided to the borrower following the first payment of any charges from the escrow fund
4. A statement of the estimated taxes, insurance premiums, and other charges the borrower will pay from the escrow fund during the first 12 months of the loan
The answer is **a statement of the estimated taxes, insurance premiums, and other charges the borrower will pay from the escrow fund during the first 12 months of the loan**. The Initial Escrow Statement is a statement of the estimated taxes, insurance premiums, and other charges the borrower will pay from the escrow fund during the first 12 months of the loan. Borrowers typically receive this notification at the time of closing; however, the lender has 45 days from the date of closing to deliver the Initial Escrow Statement to the borrower.
121
Which of the following accurately describes the difference between the LTV and the CLTV?
1. The CLTV describes the relationship between the primary mortgage and the property value; the LTV describes the relationship between all liens and the property value
2. The LTV describes the relationship between the primary mortgage and the property value; the CLTV describes the relationship between all liens and the property value
3. The LTV describes the relationship between the primary mortgage and all other liens and encumbrances; the CLTV describes the relationship between the property value and the amount of the loan
4. The LTV describes the relationship between the borrower’s monthly payments and residual income; the CLTV describes the relationship between the finance charge and the amount of the loan
The answer is **The LTV describes the relationship between the primary mortgage and the property value; the CLTV describes the relationship between all liens and the property value**. The LTV describes the relationship between the primary mortgage and the property value; the CLTV describes the relationship between all liens and the property value.
122
How many total hours of ethics are required, at minimum, for continuing education?
1. Three
2. Eight
3. Two
4. Eleven
The answer is **two**. The NMLS requires, as a federal minimum, at least two hours of ethics training within the total eight hours of education required for continuing education.
123
Germaine Hopper has not maintained a state loan originator license for five years. However, during the last three years of that five-year period, she was employed as a registered loan originator with the Anywhere Bank. Is Germaine required to retake the licensing test when she decides to apply for a new state license?
1. Yes, she must retake the test because she had not maintained a license for over five years
2. No, her time as a registered loan originator is not counted as part of the time her license has not been maintained
3. No, once passed, an applicant does not have to take the test again
4. Yes, test results are only valid in the year they are taken
The answer is **no, her time as a registered loan originator is not counted as part of the time her license has not been maintained**. A state-licensed loan originator who fails to maintain a valid license for a period of five years or longer must retake the licensing test. However, any time during that five-year period in which the individual was acting as a registered loan originator is not included when determining whether or not the licensing test must be retaken. Because Germaine worked as a registered mortgage loan originator for three out of the five years she was inactive, she is only considered to have been without a license for two years, meaning she does not have to retake the licensing exam.
124
Which of the following borrowers is best suited for an HECM?
1. A borrower who needs money for several home improvement projects
2. A 62-year old borrower who just cashed in a 401k for a down payment
3. A borrower who was disabled during service for the military
4. A 65-year-old borrower without a mortgage who would like to supplement his income
The answer is **a 65-year-old borrower without a mortgage who would like to supplement his income**. Home equity conversion mortgages allow elderly borrowers who have significant equity in their homes the opportunity to draw on that equity, without repayment, as long as they continue to live in the home.
125
Mortgage loan originator Steve Scofflaw has entered into a contract that allows him to earn a fee for obtaining a suitable loan for the Misers. However, despite his best efforts, he was unable to locate a loan that suited their financial situation. Do the Misers owe Steve a fee?
1. Yes, they owe him a fee for his best efforts
2. The Misers do not owe Steve a fee for the loan but must pay for his time based on an hourly rate
3. No, it is a prohibited act to earn a fee through best efforts if no loan is obtained
4. Yes, they entered a contract with Steve
The answer is **no, it is a prohibited act to earn a fee through best efforts if no loan is obtained**. It is prohibited for any person, when engaging in mortgage loan origination activity, to solicit or enter into a contract with a borrower that provides that the person or individual may earn a fee or commission through “best efforts” to obtain a loan even though no loan is actually obtained for the borrower.
NMLS Exam
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Decks in class (8)
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