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42 Cards in this Set
- Front
- Back
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Which of the approaches to appraisal compares the subject property to similar properties in order to arrive at a value? |
Income approach Market approach Cost approach Regression approach The answer is market approach. 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. |
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A lender originally discloses an APR of 6.08%. When the lender begins to prepare closing documents, they realize the actual APR is 6.135%. Which of the following is true? |
The lender must re-disclose and wait three business days from mailing the disclosures before closing the transaction The lender must re-disclose and wait three business days from the borrower's receipt of the disclosures before closing the transaction The lender must re-disclose and wait six calendar days from mailing the disclosures before closing the transaction The lender has no obligation to re-disclose The answer is the lender has no obligation to re-disclose. The APR is considered accurate if it is not more than one eighth of one percentage point (.125%) above or below the APR determined in accordance with legal requirements, or if it is not more than one quarter of one percentage point (.25%) above or below the APR for an irregular transaction. In this case, the difference between the disclosed APR and the actual APR is within the limits of this tolerance, and does not require re-disclosure. |
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A borrower obtains a one-year ARM which starts at 4.0% and has a margin of 3.0% and 2/6 caps. At the end of the first year, the index is 5.0%. What is the interest rate after the first adjustment? |
7% 6% 8% 9% The answer is 6. When the interest rate adjusts, the new rate is the lower of index + margin (in this case, 5 + 3 = 8) and the current rate + cap (in this case, 4 + 2 = 6). Therefore, after the first adjustment, the interest rate would be 6% |
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Combining stated income with a nontraditional mortgage product is an example of: |
Risk optimization Risk premium Risk layering Risk enhancement The answer is risk layering. Risk layering refers to combining, or layering, high-risk loan features, which might include an interest-only or other non-conventional loan, reduced documentation, and a simultaneous second-lien loan |
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Combining stated income with a nontraditional mortgage product is an example of: |
Risk optimization Risk premium Risk layering Risk enhancement The answer is risk layering. Risk layering refers to combining, or layering, high-risk loan features, which might include an interest-only or other non-conventional loan, reduced documentation, and a simultaneous second-lien loan |
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Ethics: |
Is a branch of philosophy dealing with legal behavior Provides a guideline for answering questions when a choice of actions is available Defines how a person must act Is set out in law The answer is provides a guideline for answering questions when a choice of actions is available. Ethics goes beyond what is required under the law, so ethical rules extend beyond the minimum legal standards in providing guidance for one’s actions. Ethics goes into the realm of what should be done, providing guidelines for answering questions when a choice of actions is available. As a result, ethical rules are often not as clear-cut as the legal rules. |
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Which of the following is true of the Loan Estimate? |
It should only be used for reverse mortgages It replaces the HUD-1 Settlement Statement and the final TIL Disclosure It replaces the GFE and the early TIL Disclosure for most transactions It is always identical to the Closing Disclosure The answer is it replaces the GFE and the early TIL Disclosure for most transactions. The Loan Estimate replaces RESPA’s GFE and the early TIL Disclosure for most transactions. It combines the information provided by these two disclosures and is designed to help the consumer understand the key features, costs, and risks of the loan for which they are applying. It is not identical to the Closing Disclosure, which sets forth the actual costs of the subject mortgage lending transaction, rather than estimates |
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Which of the following would be equal to one half of one discount point (.005) on a loan amount of $250,000? |
$5,000 $1,250 $2,500 $1,000 The answer is $1,250. One discount point is equal to 1% (.01) of the loan amount. Therefore, a charge of 0.005 (one half of one point) on a $250,000 loan is 0.5% (.005) × $250,000 = $1,250. |
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Which of the following would be equal to one half of one discount point (.005) on a loan amount of $250,000? |
$5,000 $1,250 $2,500 $1,000 The answer is $1,250. One discount point is equal to 1% (.01) of the loan amount. Therefore, a charge of 0.005 (one half of one point) on a $250,000 loan is 0.5% (.005) × $250,000 = $1,250. |
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Which of the following types of mortgages typically carries two different types of mortgage insurance? |
VA Conventional Subprime FHA The answer is FHA. In FHA loans, the FHA insures the issuing lender against loss in the event of default. 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 |
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Which of the following would be equal to one half of one discount point (.005) on a loan amount of $250,000? |
$5,000 $1,250 $2,500 $1,000 The answer is $1,250. One discount point is equal to 1% (.01) of the loan amount. Therefore, a charge of 0.005 (one half of one point) on a $250,000 loan is 0.5% (.005) × $250,000 = $1,250. |
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Which of the following types of mortgages typically carries two different types of mortgage insurance? |
VA Conventional Subprime FHA The answer is FHA. In FHA loans, the FHA insures the issuing lender against loss in the event of default. 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 |
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Under the S.A.F.E. Act, a loan originator: |
Can be an individual or a business entity Is any person who takes loan applications secured by personal property Is an individual who takes residential mortgage loan applications Is any individual who takes loan applications secured by either real estate or personal property The answer is is an individual who takes residential mortgage loan applications. 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. |
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Which of the following would be equal to one half of one discount point (.005) on a loan amount of $250,000? |
$5,000 $1,250 $2,500 $1,000 The answer is $1,250. One discount point is equal to 1% (.01) of the loan amount. Therefore, a charge of 0.005 (one half of one point) on a $250,000 loan is 0.5% (.005) × $250,000 = $1,250. |
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Which of the following types of mortgages typically carries two different types of mortgage insurance? |
VA Conventional Subprime FHA The answer is FHA. In FHA loans, the FHA insures the issuing lender against loss in the event of default. 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 |
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Under the S.A.F.E. Act, a loan originator: |
Can be an individual or a business entity Is any person who takes loan applications secured by personal property Is an individual who takes residential mortgage loan applications Is any individual who takes loan applications secured by either real estate or personal property The answer is is an individual who takes residential mortgage loan applications. 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. |
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Unlike other parties to a mortgage transaction, in general, _____ have no long-term financial interest in the performance of the loan. |
The borrower and mortgage loan originator The mortgage broker and mortgage loan originator The borrower and lender The lender and mortgage broker The answer is the mortgage broker and mortgage loan originator. Because brokers and loan originators are compensated for originating a loan as long as the lender accepts it, and may not be penalized if they do not actually commit any misrepresentation and the borrower defaults later in the term of the loan, they might be less concerned with the suitability and long-term performance of the loan for the borrower. A relative lack of consequences for a lender’s agent subjects the mortgage delivery system to what economists and political scientists call the principal-agent problem. |
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The acronym LIBOR represents a |
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Federal agency Possible ARM index Federal law State law The answer is a possible ARM index. The LIBOR, which stands for London Interbank Offered Rate, is a standard financial index used in U.S. capital markets |
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Matt is a mortgage broker who has an ownership interest in a local title insurance company. When his clients apply for loans and request referrals to a title company, Matt must: |
Offer a list of title companies that does not include the company in which he has an ownership interest Immediately provide an affiliated business arrangement disclosure if he refers them to the title company in which he has an ownership interest Explain to the loan applicants that he cannot refer them to a particular company Offer a list of all local title companies without steering loan applicants towards a particular one The answer is immediately provide an affiliated business arrangement disclosure if he refers them to the title company in which he has an ownership interest. Many service providers have a business relationship and an ownership interest in other settlement service providers. For example, a mortgage company may have an ownership interest in a title company. Profit-sharing by these affiliated companies is permissible under RESPA. This relationship must be disclosed to a borrower through an "affiliated business arrangement disclosure." |
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According to conventional underwriting guidelines, when analyzing income from a borrower who is self-employed, an underwriter should: |
Average the last six months' worth of pay stubs from the borrower Average the income shown on the 1040s for the past two years Use the income shown on the borrower's most recent two pay stubs Average the income showing on the W-2s for the past two years The answer is average the income shown on the 1040s for the past two years. When analyzing a borrower’s income for loan qualification, self-employed or commissioned income is averaged over a two-year period, using tax forms such as Form 1040, U.S. Individual Income Tax Return. When commission income is at least 25% of the borrower’s income, the most recent two years’ personal tax returns may be required |
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The NMLS may best be described as a |
Licensing system utilized by all U.S. states and territories Licensing system available for use by all states but not actually utilized by all states Federal agency National mortgage regulator The answer is a licensing system utilized by all U.S. states and territories. The NMLS is a mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for licensing and registering loan originators. It is utilized by all U.S. states and territories. |
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The NMLS may best be described as a |
Licensing system utilized by all U.S. states and territories Licensing system available for use by all states but not actually utilized by all states Federal agency National mortgage regulator The answer is a licensing system utilized by all U.S. states and territories. The NMLS is a mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for licensing and registering loan originators. It is utilized by all U.S. states and territories. |
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Which of the following is not a required element of a company's safeguard policy, as required by the GLB Act? |
Designate one or more employees to coordinate safeguards Evaluate and adjust procedures in light of relevant circumstances Select appropriate service providers and contract with them to implement safeguards Contract with a federally-insured company to destroy documents The answer is contract with a federally-insured company to destroy documents. Under the GLB Act, a financial institution must have a written information security program that is appropriate to its size and complexity, to the nature and scope of its activities, and to the sensitivity of the customer information it handles. As part of its program, the financial institution must assign one or more employees to oversee the program; conduct a risk assessment; put safeguards in place to control the risks identified in the assessment and regularly test and monitor them; require service providers, by written contract, to protect customers’ personal information; and periodically update its security program. There is no requirement to contract with any external company to handle information security issues of any kind. |
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A mortgage which has a fixed interest rate for the first three to five years, and then a rate that adjusts at intervals based on an index and margin, is known as a(n): |
Hybrid ARM Interval mortgage Graduated payment mortgage (GPM) Static ARM The answer is hybrid ARM. A hybrid ARM has a rate that does not adjust during the first three to five years of the loan term, but is thereafter adjusted periodically (often annually) based on a specific index and margin |
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A mortgage which has a fixed interest rate for the first three to five years, and then a rate that adjusts at intervals based on an index and margin, is known as a(n): |
Hybrid ARM Interval mortgage Graduated payment mortgage (GPM) Static ARM The answer is hybrid ARM. A hybrid ARM has a rate that does not adjust during the first three to five years of the loan term, but is thereafter adjusted periodically (often annually) based on a specific index and margin |
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Under Regulation X, the term "loan originator" applies to a: |
Loan processor Mortgage broker only Mortgage broker or lender Mortgage lender only The answer is mortgage broker or lender. Regulation X defines a loan originator to include a lender or mortgage broker. |
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A mortgage which has a fixed interest rate for the first three to five years, and then a rate that adjusts at intervals based on an index and margin, is known as a(n): |
Hybrid ARM Interval mortgage Graduated payment mortgage (GPM) Static ARM The answer is hybrid ARM. A hybrid ARM has a rate that does not adjust during the first three to five years of the loan term, but is thereafter adjusted periodically (often annually) based on a specific index and margin |
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Under Regulation X, the term "loan originator" applies to a: |
Loan processor Mortgage broker only Mortgage broker or lender Mortgage lender only The answer is mortgage broker or lender. Regulation X defines a loan originator to include a lender or mortgage broker. |
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The 1003 is also known as the: |
Uniform Residential Loan Application Appraisal Mortgage Credit Analysis Worksheet Uniform Underwriting and Transmittal Summary The answer is Uniform Residential Loan Application. A Uniform Residential Loan Application, also called Form 1003, is used when the loan is to be sold to Freddie Mac or Fannie Mae, insured by the Federal Housing Administration ( |
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Which of the following is most likely to be considered a violation of Regulation B? |
Charging a minority borrower a higher interest rate due to a low down payment Declining a loan for a single woman due to a low credit score Charging a minority borrower a higher interest rate than a similarly situated non-minority borrower Declining a loan for a borrower who is 75 due to a high debt-to-income ratio The answer is charging a minority borrower a higher interest rate than a similarly situated non-minority borrower. Regulation B prohibits discrimination in credit transactions based on criteria such as race, color, religion, national origin, sex, marital status, and age. An example of such discrimination would be charging a minority borrower a higher interest rate than a similarly situated non-minority borrower. Decisions based on creditworthiness, rather than discriminatory criteria, are not prohibited under Regulation B. |
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A mortgage which has a fixed interest rate for the first three to five years, and then a rate that adjusts at intervals based on an index and margin, is known as a(n): |
Hybrid ARM Interval mortgage Graduated payment mortgage (GPM) Static ARM The answer is hybrid ARM. A hybrid ARM has a rate that does not adjust during the first three to five years of the loan term, but is thereafter adjusted periodically (often annually) based on a specific index and margin |
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Under Regulation X, the term "loan originator" applies to a: |
Loan processor Mortgage broker only Mortgage broker or lender Mortgage lender only The answer is mortgage broker or lender. Regulation X defines a loan originator to include a lender or mortgage broker. |
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The 1003 is also known as the: |
Uniform Residential Loan Application Appraisal Mortgage Credit Analysis Worksheet Uniform Underwriting and Transmittal Summary The answer is Uniform Residential Loan Application. A Uniform Residential Loan Application, also called Form 1003, is used when the loan is to be sold to Freddie Mac or Fannie Mae, insured by the Federal Housing Administration ( |
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Which of the following is most likely to be considered a violation of Regulation B? |
Charging a minority borrower a higher interest rate due to a low down payment Declining a loan for a single woman due to a low credit score Charging a minority borrower a higher interest rate than a similarly situated non-minority borrower Declining a loan for a borrower who is 75 due to a high debt-to-income ratio The answer is charging a minority borrower a higher interest rate than a similarly situated non-minority borrower. Regulation B prohibits discrimination in credit transactions based on criteria such as race, color, religion, national origin, sex, marital status, and age. An example of such discrimination would be charging a minority borrower a higher interest rate than a similarly situated non-minority borrower. Decisions based on creditworthiness, rather than discriminatory criteria, are not prohibited under Regulation B. |
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Insurance which guarantees a lender a certain lien position on the title to a property free from undisclosed encumbrances is called: |
Guarantee against encumbrances Lender's title policy Owner's policy Forced policy The answer is lender's title policy. 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. |
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A mortgage which has a fixed interest rate for the first three to five years, and then a rate that adjusts at intervals based on an index and margin, is known as a(n): |
Hybrid ARM Interval mortgage Graduated payment mortgage (GPM) Static ARM The answer is hybrid ARM. A hybrid ARM has a rate that does not adjust during the first three to five years of the loan term, but is thereafter adjusted periodically (often annually) based on a specific index and margin |
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Under Regulation X, the term "loan originator" applies to a: |
Loan processor Mortgage broker only Mortgage broker or lender Mortgage lender only The answer is mortgage broker or lender. Regulation X defines a loan originator to include a lender or mortgage broker. |
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The 1003 is also known as the: |
Uniform Residential Loan Application Appraisal Mortgage Credit Analysis Worksheet Uniform Underwriting and Transmittal Summary The answer is Uniform Residential Loan Application. A Uniform Residential Loan Application, also called Form 1003, is used when the loan is to be sold to Freddie Mac or Fannie Mae, insured by the Federal Housing Administration ( |
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Which of the following is most likely to be considered a violation of Regulation B? |
Charging a minority borrower a higher interest rate due to a low down payment Declining a loan for a single woman due to a low credit score Charging a minority borrower a higher interest rate than a similarly situated non-minority borrower Declining a loan for a borrower who is 75 due to a high debt-to-income ratio The answer is charging a minority borrower a higher interest rate than a similarly situated non-minority borrower. Regulation B prohibits discrimination in credit transactions based on criteria such as race, color, religion, national origin, sex, marital status, and age. An example of such discrimination would be charging a minority borrower a higher interest rate than a similarly situated non-minority borrower. Decisions based on creditworthiness, rather than discriminatory criteria, are not prohibited under Regulation B. |
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Insurance which guarantees a lender a certain lien position on the title to a property free from undisclosed encumbrances is called: |
Guarantee against encumbrances Lender's title policy Owner's policy Forced policy The answer is lender's title policy. 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. |
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Under the Gramm-Leach-Bliley Act, the Safeguards Rule and Financial Privacy Rule apply to which of the following? |
All commercial institutions Financial institutions Educational institutions Mortgage lenders only The answer is financial institutions. The Gramm-Leach-Bliley Act’s Safeguards Rule requires all financial institutions to design, implement, and maintain safeguards to ensure the security and confidentiality of customer information and protect customer information against unauthorized access. Financial institutions covered by the rule include lenders and other traditional institutions, as well as payday lenders, check-cashing businesses, professional tax preparers, auto dealers engaged in financing or leasing, electronic funds transfer networks, mortgage brokers, credit counselors, real estate settlement companies, and retailers that issue credit cards to consumers. The Financial Privacy Rule of the GLB Act governs the collection and disclosure of customers’ personal financial information by financial institutions. |
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For a mortgage licensee, paying compensation for referrals is: |
Unethical, and a violation of federal law Neither unethical nor illegal Unethical, but not illegal Unethical, and may be prohibited in some states, but not a violation of federal law The answer is unethical, and a violation of federal law. 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 |
