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25 Cards in this Set
- Front
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Which of the following is intended to ensure that consumers are provided with information on the nature and costs of the settlement process?o |
FCRA HPA HOEPA RESPA The answer is RESPA. The purpose of RESPA and Regulation X is to help consumers become better shoppers for settlement (closing) services by providing them with information on the nature and costs of the settlement process. RESPA and Regulation X are also intended to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. |
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Which of the following best describes a loan with a principal balance exceeding Fannie Mae or Freddie Mac guidelines? |
Subprime Jumbo Illegal Balloon The answer is jumbo. Conventional loans that conform to the eligibility guidelines for purchase by Fannie Mae or Freddie Mac are considered conforming loans. Fannie Mae and Freddie Mac have a maximum loan limit for loans they will purchase, which is adjusted annually. Loans to persons with satisfactory credit but that exceed this loan limit are called jumbo loans or nonconforming loans. Because these loans cannot be sold to Fannie Mae or Freddie Mac, they often have a higher interest rate than conforming loans. |
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A borrower receives $1,000 per month in rental income. How much of the income may be used to qualify the borrower for a loan? |
$1,000 $800 $750 $1,250 The answer is $750. Generally, 75% of rental income may be used to qualify a 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% × $1,000 = $750 |
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Assume a borrower completes an online loan application, including all six required elements, but never hits "submit." Which of the following is true regarding the lender's obligation to issue a Loan Estimate? |
The lender must issue a Loan Estimate within three days of the borrower's submission of the last required piece of information The lender is not required to issue a Loan Estimate The lender is required to issue a Loan Estimate once it realizes all six pieces of information have been submitted The lender is required to contact the borrower The answer is the lender is not required to issue a Loan Estimate. A lender must provide the Loan Estimate either in person or by placing it in the mail no more than three business days after receipt of the consumer’s application AND no later than seven business days prior to consummation. If a loan application has not been submitted, a lender is not required to issue a Loan Estimate. |
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The Red Flags Rule identifies all of the following as possible red flags, except: |
The borrower is buying an investment property The borrower fails to respond to a request for additional information The borrower's identification looks altered The borrower's address is invalid The answer is the borrower is buying an investment property. The Red Flags Rule requires financial institutions (including mortgage lenders) that hold any consumer account, or other account for which there is a reasonably foreseeable risk of identity theft, to develop and implement an Identity Theft Prevention Program. Signs indicating possible identity theft include presentation of suspicious documents and personal identifying information (e.g., an address that does not match any address in the consumer report). Buying an investment property is not, in itself, a red flag. |
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Under which of the following circumstances would the lender on a conventional loan be required to drop the mortgage insurance? |
The appraised value has increased, giving the borrower 20% equity, and the borrower has made their first 12 consecutive payments The appraised value has increased, giving the borrower 10% equity, and the borrower has made their first 24 consecutive payments The loan reaches 78% LTV based on the original purchase price The loan reaches 70% LTV based on a new appraisal, and the borrower requests cancellation The answer is the loan reaches 78% LTV based on the original purchase price. Generally, a conventional loan of up to 80% of the property's value will be made without private mortgage insurance. 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. |
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The S.A.F.E. Act applies to mortgage loan originators who take applications for, or offer or negotiate terms of, residential mortgage loans, which would include: |
Land to be used for agricultural purposes An apartment building with 30 units A dwelling not secured by a mortgage or trust deed A mobile home to be used as a residence, even if it is not attached to the land The answer is a mobile home to be used as a residence, even if it is not attached to the land. The S.A.F.E. Act defines a mortgage loan originator as an individual who takes residential mortgage loan applications, or offers or negotiates terms of residential mortgage loans for compensation or gain. The S.A.F.E. Act’s definition of "residential mortgage loan" includes a loan secured by a consensual security interest on a dwelling and cross-references the definition of the term "dwelling" in the Truth-in-Lending Act (TILA). Regulation Z, which implements TILA, defines a dwelling as a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence |
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What is Freddie Mac's automated underwriting system called? |
Desktop Originator Underwriter Assistant Loan Product Advisor AUS The answer is Loan Product Advisor. Freddie Mac's automated underwriting system is called Loan Product Advisor (formerly known as Loan Prospector), while Fannie Mae's is called Desktop Underwriter. |
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Which of the following situations would be acceptable under RESPA? |
A mortgage loan originator requires all borrowers to use an appraisal company which is owned by the mortgage loan originator's mortgage company, though this ownership is not disclosed A mortgage loan originator requires all borrowers to use his son's title company and takes an undisclosed share in profits from that company A mortgage loan originator refers all borrowers to use the title company which is located in the same building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage loan originator's company has no other relationship A mortgage loan originator does not require the use of a certain title company, but receives a financial bonus from a certain title company if the borrowers that she refers use that provider The answer is a mortgage loan originator refers all borrowers to use the title company which is located in the same building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage loan originator's company has no other relationship. An affiliate relationship exists when one company controls, is controlled by, or is under common control of another company. Under RESPA, 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. Among other things, the AfBA Disclosure informs the borrower that he/she is generally not required to use the affiliate and is free to shop for other providers. Kickbacks and referral fees are also prohibited under RESPA. |
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Which of the following contains only items which should be used in calculating a borrower's debt-to-income ratio? |
Monthly rent expense on current home, credit card payment, car insurance Car payment, boat payment, child support obligations Property tax payment, utility payment, cable bill Mortgage insurance payment, average grocery costs, electric bill The answer is car payment, boat payment, child support obligations. A debt-to-income ratio compares an applicant’s total monthly debt to his or her total monthly income. Total monthly debt would include simultaneous loans, debt obligations, alimony, and child support. Typical living expenses (e.g., utilities, health and disability insurance, food, phone or cable bills, etc.) are not included when calculating DTI. |
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Which of the following would NOT be required if a mortgage company wishes to utilize electronic signatures on required disclosures? |
Borrowers must be given the option to receive the disclosures in paper formBorrowers must be able to withdraw their consent to receive the disclosures electronically The company must record the IP address from which the documents were accessed The company must disclose hardware and software requirements to borrowers The answer is the company must record the IP address from which the documents were accessed. Under the Electronic Signatures in Global and National Commerce Act (the E-SIGN Act), before obtaining a consumer’s consent, a financial institution must provide a clear and conspicuous statement to consumers, informing them of their right or option to have the record provided or made available on paper or in a non-electronic form. The statement must also explain the consumer’s right to withdraw consent, including applicable conditions, consequences, and fees. Consumers must also be provided with information about the hardware and software required to allow them to access and retain the electronic records. |
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A loan originator is discussing the features of a home equity consolidation loan with an applicant. In doing so, he relays to the applicant that the interest on the loan is tax deductible. This is: |
Permissible, as the interest on any loan secured by real estate is tax deductible Permissible, as the interest on any home equity loan is tax deductible Not permissible, as the advice is wrong Not permissible, as the loan originator is not qualified to provide tax advice The answer is not permissible, as the loan originator is not qualified to provide tax advice. From an ethical and legal standpoint, loan originators must take care not to provide borrowers advice on topics for which they lack the required qualifications, such as tax advice and other legal matters. |
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A loan which allows the borrower to take a lump sum distribution without any monthly repayment requirements is a(n): |
HECM HELOC Pay-option mortgage Equity mortgage The answer is HECM. The FHA's home equity conversion mortgage (HECM) is a reverse mortgage that enables an individual aged 62 or older to convert some of the equity in his/her primary residence to cash to pay living expenses, or to purchase a primary residence if he/she has the cash for a down payment and closing costs. The HECM requires no repayment until either the property is sold or the owner dies, permanently moves, fails to live in the house for 12 consecutive months, or fails to pay property taxes, maintain hazard and/or flood insurance coverage, or maintain the property (i.e., perform necessary repairs) |
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Under the S.A.F.E. Act, a licensed loan originator's responsibilities with regard to recordkeeping include all of the following, except: |
Not knowingly withholding, removing, or destroying any books or records Making all of the licensee's records available to borrowers upon demand Permitting interviews of principals, loan originators, and independent contractors by state regulators Making records and books available to the state regulator The answer is making all of the licensee's records available to borrowers upon demand. Licensed loan originators and those required to be licensed must make records and books available to their state regulator and permit interviews of officers, principals, employees, independent contractors, agents, and customers. They may not knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, or other information during an investigation or examination. Loan originators are not required to make all of their records available to borrowers upon demand. |
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Which of the following pieces of information is NOT found on the 1003? |
Appraised property value Underwriter's name Borrower's Social Security Number Subject property address The answer is underwriter's name. Categories of information required on the Uniform Residential Loan Application, or Form 1003, include mortgage type and loan terms, property information and loan purpose, and borrower information. It includes information about the subject property and the borrower (such as Social Security Number and appraised property values), but the underwriter's name is not a required part of the application and is unlikely to appear. |
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Which of the following federal regulations prohibits discrimination based on race, color, religion, sex, marital status, or national origin in a credit transaction? |
Regulation C Regulation B Regulation Z Regulation G The answer is Regulation B. Regulation B implements the provisions of the Equal Credit Opportunity Act (ECOA), which ensures that all persons, consumers, and businesses are given an equal chance to obtain credit by prohibiting discrimination based on criteria including race, color, religion, national origin, sex, marital status, and age (provided the individual is of age to enter into a contract). |
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According to the standard deed of trust, how soon must a borrower on an owner-occupied loan occupy the property? |
Within 30 days of closing Within 90 days of closing Within 60 days of closing Within 15 days of closing The answer is within 60 days of closing. Under most deeds of trust, including most FHA and VA loans, a borrower who intends to occupy the property as his/her residence must move in within 60 days after closing. |
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Which of the following deals most specifically with representations made in mortgage advertising? |
Regulation X HMDA MAP Rule E-SIGN Act The answer is MAP Rule. The Mortgage Acts and Practices Rule (MAP Rule or Regulation N) deals specifically with prohibited material misrepresentations in any commercial communication, including advertising, regarding the terms of mortgage credit products. |
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All of the following would be common activities in fraud for housing, except:
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Flipping Asset fraud Income and employment fraud Silent second The answer is flipping. Asset fraud, income and employment fraud, and silent seconds (in which a borrower secretly borrows needed funds from the seller secured by an undisclosed and unrecorded second mortgage) are all associated with fraud for housing. In contrast, flipping is usually associated with predatory lending, rather than property fraud. |
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A mortgage in which a large, one-time payment is made at the end of a loan term is known as a: |
Fixed-rate loan Hybrid ARM Fully-amortized loan Balloon mortgage The answer is balloon mortgage. In a balloon mortgage, a large portion of the borrowed principal is repaid in a single payment at the end of the loan period. |
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A loan originator license applicant must pass the NMLS-required examination with a score of at least __ percent. |
70 80 85 75 The answer is 75. Mortgage loan originator license applicants must pass an exam developed by NMLS and administered by an approved test provider with a score of at least 75%. |
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In a mortgage transaction subject to RESPA that is secured by the consumer's dwelling, a Loan Estimate must be delivered or mailed within three business days after receipt of a written application and no later than: |
Three business days before the transaction is consummated The fifth business day before the transaction is consummated The seventh business day before the transaction is consummated The date the transaction is consummated The answer is the seventh business day before the transaction is consummated. A creditor must provide the Loan Estimate no later than three business days after receipt of the consumer’s application AND at least seven business days prior to consummation. |
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What is the tolerance allowed for variances in the APR disclosure required by the Truth-in-Lending Act in a regular transaction? |
1% 0.125%. 25% $200 The answer is .125% (one eighth of one percent). The APR is considered accurate if it is not more than one eighth of one percentage point 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 if it is not more than .25% (one quarter of one percentage point) above or below the APR for an irregular transaction. |
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Which of the following would convey a property? |
Deed rider Warranty deed Not Deed of trust The answer is warranty deed. A warranty deed conveys full ownership of land, and is commonly used in purchase and sales transactions of real estate. In addition to conveying property ownership, a warranty deed contains the promise of clear title, meaning the property is free of encumbrances. |
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With respect to FHA loans, the FHA: |
Guarantees the loans, thereby protecting the lender Acts as the lender Issues private mortgage insurance Insures the loans, thereby protecting the lender The answer is insures the loans, thereby protecting the lender. FHA loans are loans that meet FHA program criteria and are made by approved lenders. For these loans, the FHA insures the issuing lender against loss in the event of default. Under the FHA program, the lender can charge whatever points and interest a borrower is willing to pay, as the cost of the loan is negotiable. The advantage to the borrower is that the lender will make the loan with a very high loan-to-value ratio because it is insured. |
