The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 requires that each state license or register residential and commercial loan originators. deny a license to any person who has a felony conviction. establish its own loan originator registration system. impose a standard of at least 20 hours of prelicense education plus testing for loan originator licensing. The correct answer is D. The SAFE Act does require at least 20 hours of education as well as testing for a loan originator license. It requires that the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain a Nationwide Mortgage Licensing System and Registry in which the states participate, so they do not have to establish their own system. The Act requires the licensing or registration of residential (not commercial) loan originators. It does not prevent everyone with a felony conviction from becoming licensed. = Correct = Incorrect An elderly couple with high equity in their home wants a loan that will provide money for living expenses. The most suitable loan for them is a cash-out refinanced mortgage. reverse mortgage. purchase mortgage. subordinate mortgage. The correct answer is B. The most suitable loan is a reverse mortgage which provides funds without the obligation to make periodic payments. The couple need only repay when they sell the home and cash out their equity. A person wanting a loan to build a house would apply for what type of loan? Take out Reverse mortgage Construction Adjustable All of the following are true of the HECM EXCEPT It is the Home Equity Conversion Mortgage It is a loan insured by the Federal Housing Administration. It is only available to persons age 62 or older. The borrower must meet certain income and credit requirements. The correct answer is D. The FHA reverse mortgage program is the Home Equity Conversion Mortgage (HECM). It is for seniors (age 62 or older) and does not require repayment until the property is no longer the borrower's home. Since the loan does not require monthly payments, the borrower is not required to satisfy any income or credit requirements. The promise to repay a monetary obligation is contained in which of the following? A note A mortgage A GFE A loan application The correct answer is A. A note is a written document in which a borrower promises to repay a debt, either on demand or at a certain time. A mortgage is given with a note to the lender to make the borrower’s property security for the note. Who is responsible for determining that states are complying with the SAFE Act? Conference of State Bank Supervisors (CSBS) Consumer Financial Protection Bureau (CFPB) Federal Reserve Board (FRB) Federal Trade Commission (FTC) The correct answer is B. While the states have a duty to enact licensing standards that meet SAFE Act requirements, overall responsibility for interpretation, implementation, and compliance with the SAFE Act was delegated to the U.S. Department of Housing and Urban Development (HUD). However, the SAFE Act was amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Effective July 21, 2011, the authorities and duties delegated to HUD are now delegated to the Consumer Financial Protection Bureau (CFPB). Which of the following is true regarding assumability of Fannie Mae and Freddie Mac conforming loans? These loans are always assumable Assumability is determined from the provisions of the loan documents and particular circumstances These loans are never assumable These loans have the same provisions as FHA and VA The correct answer is B. Notes for Fannie Mae and Freddie Mac conforming loans have due-on- sale clauses restricting, but not totally prohibiting, assumption of the loans. Fannie Mae and Freddie Mac will accept certain assumptions without review others when the lender added provisions to the transaction that stated the loan was assumable. FHA and VA are much more liberal in terms of allowing assumptions A defeasance clause in a note provides that redemption of the loan will defeat a foreclosure. upon sale of the property the loan must be repaid, unless the lender gives consent otherwise. upon repayment of the debt in full the note and mortgage will be voided. default of the loan with trigger foreclosure. The correct answer is C. The defeasance clause in a note provides that the lien is defeated upon repayment of the debt in full and the note and mortgage will be voided. Which of the following is associated with a federal VA loan? Funding fee Risk-based pricing MIP PMI The correct answer is A. For a VA loan, the applicant is charged an upfront funding fee, which may be financed. This pays for a guarantee that ensures the lender against loss in the event the borrower defaults. PMI (private mortgage insurance) serves the same purpose as the VA guarantee, but is used in conventional financing. MIP (mortgage insurance premium) refers to the charge to a borrower obtaining an FHA loan for the insurance to protect the lender against default. Risk-based pricing is the concept of charging the borrower a higher interest rate that should cover a lender's losses on high-risk loans, so as to avoid the need for mortgage insurance (i.e., self-insurance). It was used for subprime loans. Which of the following is true of the mortgage note? It contains the loan terms. It creates a lien on the property securing the debt. It is security for the mortgage loan. It is recorded. The correct answer is A. With a real estate mortgage loan, a borrower gives a lender a promise to repay the money borrowed with interest in the form of a promissory note. The note is both a promise to pay and evidence of the debt. It contains all of the terms of the loan. The mortgage is the document that is recorded, as it creates a lien on the property by making the property security for the debt. Which of the following is responsible for maintaining the NMLS? The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators The state financial industry regulators The Federal Trade Commission The Federal Reserve Board The correct answer is A. The SAFE Act requires the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain a Nationwide Mortgage Licensing System and Registry (NMLS or NMLSR) for the residential mortgage industry. A borrower who obtains a loan on the basis that he will be an owner-occupant, must intend to move into the property within 60 days after closing. live in the property for at least five years. live in the property at least six months. move into the property within 30 days after closing. The correct answer is A. For an FHA loan, VA loan or conforming loan, the owner-occupant applicant must intend to move in within 60 days after closing and stay in the property for 12 months. A mortgage note contains the interest rate. the APR. the effective date of the lien. all encumbrances on the title. The correct answer is A. The note is the borrower's promise to pay. It does not create a lien. It contains the terms of the loan, including the interest rate (but not the APR), the payment due dates, late payment penalties, and any right to prepay, along with any penalty for prepayment. Which of the following is true of the maximum FHA loan amount? It is based on the credit history of the borrower. It is the same as the Fannie Mae loan limit. It cannot exceed the limit set for the geographic area in which the property is located. There is none The correct answer is C. The maximum insurable FHA mortgage is the lesser of a statutory loan limit for the area, typically a county or metropolitan statistical area (MSA) or the applicable loan-to- value (LTV) limit. An FHA loan is a loan that is made by the Federal Housing Adminstration. insured by a federal agency. subsidized by a federal agency. restricted to first-time homebuyers. The correct answer is B. FHA (The Federal Housing Administration) insures loans made by approved lenders, to anyone who can satisfy the financial requirements. It is not restricted to low- income or first-time buyers. The transfer of title to real property from one party to another is called subrogation. an assignment. a conveyance. redemption. The correct answer is C. When one transfers title to real property he is conveying title. The transaction itself can be called a conveyance and the document transferring the title (e.g., a deed) could be called a conveyance. All of the following are true regarding FHA and VA loans EXCEPT FHA, but not VA, requires that the real estate contract allow the borrower to withdraw from the transaction without penalty if the property appraises for less than the offered price. FHA requires a downpayment, but the VA does not. FHA insures, while VA guarantees, lenders against certain losses. The FHA UFMIP and the VA funding fee are nonrefundable. The correct answer is A. Both FHA and VA require escape clauses, allowing the borrower to get his earnest money back if the property does not appraise for his offered price. The main benefit of the FHA loan is a low down payment; the main benefit of the VA loan is the zero down payment. FHA does insure the lender, and VA does guarantee the lender, against loss in the event of borrower default. The upfront fees for the FHA insurance and VA guarantee are nonrefundable. (However, if an FHA loan is refinanced by another FHA-insured loan within three years, a portion of the UFMIP on the first loan can be applied to the new premium for the new loan). NMLSR stands for National Mortgage Lending System and Registry National Mortgage Licensing System and Registry Nationwide Mortgage Licensing System and Registry National Mortgage Lending System and Registry The correct answer is C. NMLSR (or NMLS) stands for Nationwide Mortgage Licensing System and Registry. When a veteran obtains a VA loan he cannot accept any seller concessions or closing cost assistance. the seller must repair all items in the property in need of repair so the borrower will have no repair expenses upon taking possession. he may use the property for investment purposes if he has purchased it with at least a 10% down payment. must occupy the property within 60 days after closing The correct answer is D. A VA borrower must use the property as his primary residence, and must move in within a reasonable time after closing, which is interpreted as being not later than 60 days. The borrower can accept seller concessions totaling up to 4% of the purchase price and closing cost assistance of an unlimited amount from the seller. The VA does not require a seller to fix up the property, except for material defects, e.g., those affecting the safety of occupants. Which type of loan would never have a mortgage insurance premium? A jumbo loan with a 15% down payment An FHA loan with a 20% down payment A VA loan with nothing down A conforming loan with a 10% down payment The correct answer is C. The VA loan is guaranteed, not insured, so it has no mortgage insurance premium. For an FHA loan there is mortgage insurance, even with 20% down. There is an upfront premium and for most FHA loans, an annual premium until the loan balance is below 78% of the original purchase price or appraised value. Most conventional loans require mortgage insurance if the downpayment is less than 20%. Mortgage-backed securities are backed by the full faith and credit of the United States when guaranteed by MGIC. FNMA. FHLMC. GNMA. The correct answer is D. Mortgage-backed securities composed of FHA-insured or VA-guaranteed mortgage loans that are issued by private lenders and guaranteed by GNMA, an entity within HUD, are backed by the full faith and credit of the United States. Prior to being taken over by the government Fannie Mae and Freddie Mac were known as non-affiliated agencies. primary market entities. government-sponsored enterprises (GSEs). lenders of last resort. The correct answer is C. Prior to being taken over by the government Fannie Mae and Freddie Mac were known as government- sponsored enterprises (GSEs) because they were created by federal legislation and supported by the government, but operated independently. On a conforming loan with a loan-to-value ratio of 90% or more, the maximum contribution of the seller toward closing costs is 3%. 10%. 5%. 1%. The correct answer is A. On a conforming loan with a LTV of 90% or higher, the maximum seller contribution is 3%. What is true of the repayment of a construction loan? Principal and interest are paid in installments until the work is completed. Principal is repaid when all the work is completed. Interest is paid up front, when the funds are released. Principal is repaid in installments until the work is completed. The correct answer is B. Some lenders will allow all interest to be paid when the work is completed, along with the principal. Most, however, require interest-only payments until the loan is paid off, with a lump sum principal payment after construction is completed. When a borrower offers his property as security for a debt, but does not give title or possession to the lender this is called defeasance. a pledge. alienation. hypothecation. The correct answer is D. In most states, a borrower hypothecates his real property as security for a mortgage note. In hypothecating the property, the borrower pledges it as security, or collateral, without actually giving up legal title or possession. The annual MIP is based on whether the property is in a low- cost or in a high-cost area. based on the borrower's credit rating. the same for all FHA loans. based on the loan term and loan-to-value ratio. The correct answer is D. FHA's annual MIP is based on the loan program, the loan term and the loan-to-value ratio. If the term is more than 15 years (e.g., 30 years), the maximum annual MIP FHA can charge is 1.55% if the LTV is over 95%; but, 1.50% if the LTV is 95% or less. If the term is 15 years or less and the LTV is over 90%, the premium is .50%. If the term is 15 years or less and the LTV is 90% or less the annual MIP is .25%. Which of the following must be licensed by the state? A loan originator employed by a credit union. A loan originator employed by a bank. A loan originator employed by a savings bank. A loan originator employed by a mortgage broker. The correct answer is D. A depository institution (an entity that holds savings or checking accounts, e.g., a bank, savings bank, credit union, etc.) is regulated by a federal agency. Its loan originators must register with the NMLS, but are not licensed; they are called registered loan originators. Mortgage lenders and mortgage brokers are regulated by the states. Their loan originators must be licensed by the states and registered with the NMLS. The factors taken into account in granting a reverse mortgage are down payment, value and income. age, property value and interest rate. credit, stability of income and interest rate. income, credit and bank deposit verification. The correct answer is B. A reverse mortgage is granted to a person older than age 62. Loan proceeds are given to him periodically and repaid when the property is no longer his home. Therefore, the key factors in the loan will be the value of the property, determining how much can be loaned on the property, the interest rate being charged, and the qualifying age of the borrower. An alienation clause in a note provides that redemption of the loan will defeat a foreclosure. the entire loan balance is due upon default. upon sale of the property the loan must be repaid, unless the lender gives consent otherwise. upon repayment of the debt in full the note and mortgage will be voided. The correct answer is C. The alienation clause (or due-on-sale clause) accelerates the payment schedule, causing the entire loan balance to be due, upon sale of the property, unless the lender gives consent for the loan to be assumed by the buyer. In which way does the federal VA participate in mortgage financing? It purchases loans made to veterans by private lenders. It guarantees a lender against loss in the event of default on a VA loan. It provides downpayment assistance to qualified veterans for home purchases. It primarily makes loans directly to eligible veterans. The correct answer is B. An approved private lender makes the loan. The VA guarantees a lender against loss in the event of default on a VA loan. The borrower pays a funding fee to cover the cost of the guarantee. In determining base income, how should overtime, bonuses and commissions be entered? Only if the applicant has been at his present job for two years. Only if the applicant has a written contract for the income sources. Only if this income is received on a consistent basis and can be verified by the employer. None of the above. Overtime, bonuses, and commissions are not permissible sources of income. The correct answer is C. Overtime, bonuses and commissions should be entered only if this income is received on a consistent basis and can be verified by the employer. Which of the following is considered a liquid asset in determining the applicant's ability to make the down payment for a mortgage loan? Term insurance cash value Funds in a money market account Electronic equipment that is to be sold on the Internet Real estate that is to be sold The correct answer is B. Liquid assets are assets that are or can readily be converted to cash, at their market value. Money in a money market account or fund is readily available. Cash value is a liquid asset if the insurance has cash value; term insurance is insurance that does not have cash value. Real property and equipment are not considered liquid assets. If they need to be sold quickly, the seller will not receive market value. The document that includes all borrower information is the 1003. 1004. HUD-1. 1210. A borrower should expect to provide federal tax returns and W-2 forms for how many previous years? Three Two Five Six The correct answer is B. A borrower should expect to provide the following to verify income: most recent pay stubs showing year-to-date earnings and pay period; last two years' federal tax returns and W-2 forms; if self-employed, a year-to-date Profit and Loss Statement prepared by his accountant and/or corporate/partnership tax returns; partnership agreements; explanations of any other income; copies of documents and explanations of any money owed him. Which of the following is true of the Uniform Residential Loan Application? It must be used for all residential loans, regardless of the size of the property. It is FNMA form 1003 or FHLMC form 65, and may be used for conforming, nonconforming, FHA and VA loans. It is used only for FHA and VA loans. None of the above. The correct answer is B. FNMA 1003/FHLMC 65 is the form number for the Uniform Residential Loan Application. This may be used for loans that conform to Fannie Mae and Freddie Mac criteria as well as nonconforming loans and FHA and VA loans. Which of the following information about a borrower does not appear on a Form 1003? Credit score Assets Birthdate Liabilities The correct answer is A. The application consists of information provided by the borrower, such as his date of birth, assets, income, and liabilities. It does not include his credit score. In completing FNMA 1003, net rental income from investment property is net cash flow from investment property. gross rents collected. taxable income. scheduled gross rents. The correct answer is A. Positive net cash flow for an investment property (or the monthly operating income for a two- to four-family property for which the applicant occupies one of the units as a principal residence) is listed as net rental income. The declarations section of the Uniform Residential Loan Application asks about bankruptcy. An applicant must answer Yes/No about a declared bankruptcy, if it occurred during the past _______ years. There is no time limit. five seven three The declarations section of the Uniform Residential Loan Application asks about bankruptcy. An applicant must answer Yes/No about a declared bankruptcy, if it occurred during the past _______ years. There is no time limit. five seven three The Schedule of Real Estate Owned on form 1003 includes which type of properties? All properties currently owned by the applicant, on which there is an outstanding loan balance Only the applicant's current residence All past and current residences owned by the applicant All properties currently owned by the applicant The correct answer is D. The Schedule of Real Estate Owned on form 1003 includes all properties currently owned by the applicant. If the borrower is self-employed, he may need to verify his income by providing which of the following? Year-to-date Profit and Loss Statement Tax returns Articles of Incorporation, typically filed with the state Both A and B The correct answer is D. If a borrower is currently self-employed he may need to include the last two years' tax returns and balance sheets and a current year-to-date Profit and Loss Statement. The section of the Uniform Residential Loan Application titled Information for Government Monitoring Purposes must note the applicant's sex, race and ethnicity, based on the lender's visual observation or the applicant's surname, if the applicant refuses to provide the information. is only required to be completed if the applicant is in a protected class. is included to aid the federal government in monitoring compliance with the Fair Lending Act. is mandatory, to assure compliance with federal laws. The correct answer is A. This section is included to aid the federal government in monitoring compliance with the Equal Credit Opportunity Act. Since supplying this information is strictly voluntary, an applicant who does not wish to do so should check the box provided to indicate his or her decision. If an applicant does not provide this information, federal regulations require the lender to note the applicant's sex and race on the form, based on the lender's visual observation or the applicant's surname. A borrower will usually be asked to provide monthly bank statements for the past ______ months. Zero - Bank statements are rarely, if ever, requested by a lender evaluating a loan application Two Three Six The correct answer is B. A borrower should be prepared to provide the following "other information": name and address of his current landlord with rent receipts for the past year; explanation letter for any late payments, judgments, liens, bankruptcy or foreclosure; closing statement from the sale of his current property; copies of the last two months' bank statements; if an FHA/VA loan, a copy of his Social Security card and driver's license; if a non-resident, a copy of his Certificate of Resident Alien Status (Green Card). All of the following are considered liquid assets on the Uniform Residential Loan Application EXCEPT Stock and bonds Net cash value of a life insurance policy Bank accounts Current home equity The correct answer is D. Liquid assets are assets that are or can be quickly converted to cash at their current value. They include the deposit made on the purchase of the property, money held in bank accounts, life insurance net cash value, and stocks and bonds. A borrower completing the Uniform Residential Loan Application who has any late payments should disclose them by adding pages to the form. prepare an explanation letter and have it ready, if asked. pay ahead on any bills from the creditor in hopes of "looking good." None of the above. The correct answer is B. Borrower should produce an explanation letter for any late payments, judgments, liens, bankruptcy, or foreclosure. The appraisal approach most suited to residential property is the capitalization approach. the gross rent multiplier approach. the cost approach. the market data approach. The correct answer is D. The market data approach, also called the sales comparison approach, is best used for properties where comparisons may be made based on sales prices, such as homes. A credit report does not show unpaid judgments. derogatory payment history. the borrower's Social Security number. payments to creditors that have not been reported to a repository. The correct answer is D. A repository is a credit reporting agency. Each agency can only report on data it has received. Therefore, information that a borrower is in default on a loan will not appear on his credit report, unless the creditor had reported it to the credit agency. Which of the following is not an appraisal approach? Comparative market analysis Cost Income Sales comparison The correct answer is A. The three approaches are income (for rental property), sales comparison (for homes and land), and cost (for everything else). A comparative market analysis is used by real estate agents to estimate sales prices for owners wanting to list their properties for sale. When the originating lender sells the rights to collect the payments, including interest, to another lender, the price charged in the sale is called a service release premium. a buydown. a yield spread premium. discount points. The correct answer is A. When selling the servicing rights (i.e., the right to collect the interest) to a loan, the originating lender may obtain a service release premium (SRP) from the purchaser. In underwriting, among other factors, the borrower's capacity is analyzed. The borrower's capacity refers to his credit history. his ability to make the monthly loan payments. his ability to acquire the needed down payment. the maximum loan to value ratio he can obtain. The correct answer is B. In the borrower analysis, capacity refers to the ability to make the loan payments. Collateral refers to the value of the property securing the loan. Capital refers to the cash or other assets available for the down payment. Character or credit history refers to his willingness to make payments, as evidenced by his credit history. Why should a loan originator recommend a borrower obtain a professional inspection? Because the seller is required to repair all defects detected by an inspector. It makes it easier to qualify for the loan. It is required by the secondary market. An inspection can determine the effective life of the property’s major elements The correct answer is D. The purpose of an inspection is to determine the condition and effective life of the major elements of the property, such as the roof, electrical system, etc. Which of the following is a claim of a creditor in a property? Easement Adverse possession Lien Encroachment The correct answer is C. A lien is a claim of a creditor. A mortgage creates a voluntary lien against the property of the mortgagor. Which of the following types of bankruptcy involves a plan of payments to pay off one's debts? Chapter 12 Chapter 9 Chapter 7 Chapter 13 The correct answer is D. Chapter 13 involves a payment plan over three to five years to pay off the debts. The minimum number of comparables needed for a residential mortgage appraisal is four. six. three. one. The correct answer is C. The minimum number of comparables needed for a residential mortgage appraisal is three. The appraisal approach in which the replacement value is calculated is the cost approach. income approach. gross rent multiplier approach. sales comparison approach. The correct answer is A. In the cost approach, the appraiser provides separate values for the land and for the building and adds them together to arrive at the total value of the property. The value of the building is calculated by estimating the cost to replace the building with a new structure and deducting the building's depreciation (i.e., factors that make it worth less than a new building). A standard consumer credit report will always display the consumer's name and Social Security number. a five-year history of residence. the current balance and payment history for the past five years for any open account. the name of a joint account holder. The correct answer is A. The consumer's name and Social Security number appear on each credit report. Typically, the payment history is shown for two, not five, years. While the report will show whether an account has a joint account holder or a co-signer, it will not name that person. The existence of which of the following can prevent or delay the closing of a sale or loan? Encumbrance Satisfaction Reconveyance Easement The correct answer is A. An encumbrance is an interest or right of a person who is not the owner, in a property. It can be a problem that must be cleared up prior to closing, e.g., a lien that must be paid off. Which of the following is true regarding the SRP? It is not paid to the originating mortgage broker. It is paid when the interest rate in the loan is less than the par rate. It is disclosed on the HUD-1 settlement statement. It is a flat fee. The correct answer is A. The SRP is the cost a purchaser pays for the spread between the interest rate in the loan and the par interest rate. It compensates the lender for its costs, services, financing of any closing costs, and/or the value of the loan. It is based on the loan size, since it is a percentage of the loan. If a loan closed at 5.5% and the par rate to purchasers was 5.25%, the purchaser may pay one point to cover the .25% difference in the rates. However, the SRP the investor will pay will be adjusted to account for factors creating extra risk (e.g., secondary financing, multiple units, 95% loan-to-value ratio). Since the purchase of the loan occurs after closing, the SRP is not disclosed in the HUD-1 settlement statement. Property appraisals are used to determine the physical condition of the property. the borrower's ability to repay the loan. the condition of the title to the property. the market value of the property. The correct answer is D. An appraisal is an estimate of market value, ordered so the lender is assured that the property securing the loan provides adequate security. A buyer offers $150,000 for a home. The property is appraised at $145,000. If he gets a conforming loan, he will need private mortgage insurance if the loan exceeds $120,000. $116,000 $124,000. $110,000. The correct answer is B. He needs PMI if his loan exceeds 80% of the price or value, whichever is less. In this case, take 80% of $145,000, which is $116,000. How may net cash flow from a property that is currently rented be calculated? At 75% of the current rent At 100% of the rent the purchaser intends to charge. At 75% of the rent the purchaser intends to charge. At 100% of the current rent The correct answer is A. For a purchase or refinance of mortgaged premises owned less than one year, net cash flow from that property is calculated from either the amount established by the appraiser in the Operating Income Statement (Fannie Mae form 216/Freddie Mac form 998); or 75% of actual rent from a current lease agreement signed by the current owner and lessee of the property. If applicant A earns $1,600 bi-weekly and applicant B earns $1,700 semi-monthly, Applicant B gets paid 26 times per year. Applicant A earns almost $200 less per month than Applicant B. Applicant B earns about $70 less per month than Applicant A. Applicant A earns less than $40,000 per year. The correct answer is C. A person paid bi-weekly gets a check every two weeks. Applicant A gets paid $1,600, 26 times per year. His monthly income is determined by multiplying 1,600 x 26 and dividing by 12. His annual income is $41,600. His monthly income is $3,467. Applicant B is paid semi-monthly (twice a month). So he receives 24 checks per year. His annual income is $40,800 (24 x $1,700). His monthly income is $3,400. A portion of each payment made on an uninsured amortized loan without an escrow account is applied to interest only. interest and principal. principal only. interest, principal and loan fees. A borrower has a gross monthly income of $10,000. His monthly debt payments are $1,000. If his monthly debt ratio is 30%, his total housing expense is $9,000. $3,000. $2,000. $1,000. The correct answer is C. Debt ratio = 30% Therefore, total debt payments (including housing) are 30% of $10,000 = $3,000 If $1,000 of the $3,000 is for other debts, the applicant has $2,000 in housing expense. One way to ensure a borrower is capable of repaying his loan is to charge a below-market interest rate. ensure the borrower's debt to income ratio is reasonable. grant only a short-term loan. not make loans to first- time borrowers. The correct answer is B. When underwriting a loan application, lenders use debt-to-income and housing expense ratios to determine a borrower's capability of repaying a loan. If a mortgagor pays $794.62 monthly to the mortgagee to be applied first on 7% interest and the balance on the principal, how much is applied to principal when the unpaid principal balance is $83,695.47? $306 $326 $290 $342 The correct answer is A. Annual interest = 7% x $83,695.47 loan balance = $5,858.6829 Monthly interest = $5,858.6829 ÷ 12 = $488.22 $794.62 - $488.22 = $306.40 The principal balance on Doug Fish's home is currently $180,000. He has a 30- year loan at 9%. His next monthly payment of $1500 will reduce his principal balance by $162. $150. $135. $1,365. The correct answer is B. To calculate the annual interest, multiply the loan balance by the interest rate: 180,000 x 0.09 = 16,200. Then divide the annual interest by 12 months: 16,200 / 12 = 1,350. Finally, to calculate the reduction in principal, subtract the monthly interest from the total payment: 1,500 - 1,350 = 150. Which of the following pertains to qualification of a self-employed person? Income figures cannot be adjusted to reflect income trends in the business. The amount of income can be derived from the balance sheet of the business. The amount of income can be derived from federal tax returns and the profit and loss statement for the previous two years. Income is calculated based on earnings over the past 12 months. The correct answer is C. The income of a self-employed person (i.e., one who has a 25% or greater ownership interest in a business or receives a 1099 statement to document his income) is generally calculated as his average income for the past two years, derived from his federal tax returns and the year-to-date earnings from a profit and loss statement on the business, but also taking into account income trends in the business. If a buyer obtains a loan with a 1/1 buydown this means the interest rate will be reduced by 1% in the first and second years of the loan term. the interest rate for the first year is 1%. the buydow n rate will be adjuste d by up to 1% annually . he must pay 1 point for a 1% buydow n in the interest rate. The correct answer is A. The numbers indicate the rate reduction. The slash separates years. Therefore, a 1/1 buydown indicates that the interest rate is reduced 1% each of the first two years. A buydown described as 2/1 would have rate reductions of 2% the first year and 1% the second year. A 3/2/1 buydown would have rate reductions of 3% the first year, 2% the second year and 1% the third. A lender will count in full income from all of the following sources EXCEPT VA benefits. permanent disability income. income from a second job and part-time employment. unemployment insurance benefits received due to loss of the job he had held for the past 10 years. The correct answer is D. If it can be shown that the following are sources of income likely to continue, the lender will count in full government assistance; permanent disability income; income from a second job and part-time employment; income from pensions, trusts and Social Security; and foster care income, inherited and guaranteed income, military income, mortgage interest differential payments, royalty payments, seasonal income and VA benefits. Not counted as income would be income of children, since children have no permanent obligation to contribute to the family finances for support of the home, and their income could stop without any notice at any time; income not reported on federal tax returns, since this may make the applicant subject to prosecution; or unemployment insurance income received due to a non-seasonal job loss, since this is temporary. An applicant with $50,000 annual income wants a 30-year, $236,000 loan. His monthly taxes and insurance are projected to be $230. If the loan factor table shows a loan factor of 5.53 and an MIP factor of .00544, what is his housing ratio? 28% 31.25% 39.41% 42.12% The correct answer is C. The housing ratio is PITI divided by monthly income. His principal and interest payment is 5.53 x 236 = 1,305.08. His MIP is 1/12 x .00544 x 236,000 = 106.99. 1,305.08 + 106.99 + 230 = $1642.07. $1642.07 divided by monthly income of $4,166.67 ($50,000 divided by 12) = .3941 = 39.41% The HELOC Total Loan-to-Value Ratio reflects the total of the outstanding loan balance and the draw amount. the outstanding loan balance plus the total line limit amount. how much can be borrowed under the HELOC. the HELOC line of credit. The correct answer is B. With a HELOC, the outstanding loan balance plus the total line limit amount add up to amount used in calculating the Total LTV. The outstanding loan balance plus the actual draw is used to calculate the HELOC Loan-to-Value (HLTV). If a borrower had an outstanding loan balance as of April 1 of $549,287, with monthly loan payments of $4,020, at an interest rate of 5.75%, what would the outstanding loan balance be as of May 1? $545,498 $547,899 $546,655 $545,267 The correct answer is B. First calculate what portion of the monthly payment is interest and what portion is going towards principal ($549,287 x 5.75% ÷ 12 = $2,632 [interest]; $4,020 - $2,632 = $1,388[principal]). To calculate the new loan balance, subtract the amount of principal in the monthly payment from the previous month's outstanding balance. Thus $549,287 - $1,388 = $547,899. What is the front-end ratio given the following variables? Gross monthly income: $5,300 Monthly principal and interest $1,020 Annual property taxes $3,278 Annual homeowners insurance $ 650 Monthly auto payment $ 295 25% 2% 93% 31% If a 30-year loan is offered at a fixed interest rate of 5.75% with a 2/1 buydown, its permanent interest rate is 3.75% 4.75% 2.75% 5.75% The correct answer is D. The fixed rate (5.75%) is the permanent rate. The 2/1 buydown means that fixed rate is reduced by 2% to 3.75% the first year, and by 1% to 4.75% the second year. Starting the third year, the fixed rate becomes the permanent rate for the remainder of the loan term. A basis point is the same as a discount point. 1% of the loan amount. one-one hundredth of 1%. 1% of interest. The correct answer is C. The amount of change in interest rates is often expressed in terms of basis points. A basis point is equal to one-one hundredth of 1%. Therefore, a reduction in mortgage interest rates of .25% (which is 25/100 of one percent) is a reduction of 25 basis points. The housing expense ratio and expense-to-income ratio for an FHA loan are 36%/49%. 30%/41%. 31%/43%. 28%/36%. The correct answer is C. For FHA loans the new housing expense ratio is 31% (compared to 28% for conventional loans) and the expense-to-income ratio is 43% (compared to 36% for conventional loans). A borrower obtains a $150,000, 30-year loan with a fixed rate of 6.5%. If he gets a 2/1 buydown in order to calculate the cost of the buydown, he will have to calculate 2% of $150,000 1% of $150,000. 3% of $150,000. monthly payments for the loan at 4.5%, 5.5% and 6.5%. The correct answer is D. A 2/1 buydown indicates a 2% rate reduction the first year and a 1% reduction the second year. The cost of the buydown is total cost of the difference in the payments at the fixed rate and the buydown rates. The monthly payment for a $150,000, 30-year loan at 6.5% is $948.10; at 5.5% it is $851.68; and at 4.5% it is $760.03. Therefore, the cost of the buydown is $188.07 ($948.10 - $760.03) x 12 for the first year. This amounts to $2,256.84. It is $96.42 ($948.10 - $851.68) x 12 for the second year. This is $1,157.04. The total cost of the buydown is $3,413.88. An applicant is interested in a 30-year home mortgage with 2 points at a fixed interest rate of 6%. The price of the house is $300,000 and the down payment will be 20%. What is the loan amount? $216,000 $224,000 $260,000 $240,000 The correct answer is D. If the down payment is 20% of the sales price, the loan is 80%. $300,000 x 80% = $240,000 loan. Points, interest and term of the loan are irrelevant. The percentage of ownership of a business that triggers self-employment qualification criteria is 50% 10%. 25% 100% The correct answer is C. A self-employed person is one who has a 25% or greater ownership interest in a business or receives a 1099 statement to document his income. In the calculation of an applicant's income, a capital gain can be considered if the borrower has occasionally sold capital assets. it is a one-time occurrence. the borrower owns additional capital assets. it occurred no earlier than six months prior to the application. The correct answer is C. A capital gain or loss that is a one-time occurrence is not considered in determining income. However, an average of capital gains or losses can be considered as income when a borrower consistently turns over assets over a sustained period (e.g., two years), and provides evidence of ownership of additional property or assets that can be sold if extra income is needed to make future mortgage payments. A borrower applied for a first loan of $240,000 and a piggyback second of $30,000 to purchase a $300,000 home. What is his LTV? 80% 90% 85% 75% The correct answer is A. The LTV is the relationship of the first loan to the purchase price, i.e., 240,000 ÷ 300,000 = .80 (80%). The CLTV is the relationship of both loans to the purchase price, i.e., 270,000 ÷ 300,000. It is .90 (90%). A person buys a home for $300,000 and puts 30% down. The loan is interest-only for the first six years. After 50 months, a reappraisal indicates the property is now worth $280,000. What is the homeowner's equity? $90,000 $70,000 $300,000 $210,000 The correct answer is B. Equity is current value ($280,000) less the amount owed. The amount owed is $210,000 (70% of the $300,000 purchase price, so the equity is $70,000. In the qualification of an applicant who receives child support and alimony child support income can be grossed up. child support payments can be counted in full if they have been received over the past 15 years for a child who is now 17 years old and does not intend to go to college. child support can be included as income, but not alimony. this income cannot be considered, as it is not earned income. The correct answer is A. Alimony, child support, and separate maintenance payments may be counted in full if the applicant can show that payments have been received over a period of time and are likely to continue for at least three more years, considering the ages of the children. Furthermore, since child support is not taxable, it can be "grossed up." Which of the following is true of an insurance clause in a mortgage? It specifies the type of mortgage insurance the borrower must obtain. It provides that the insured must obtain flood insurance. It provides that if the borrower does not keep the property insured, the lender will pay for the coverage and declare the mortgage to be in default It is required to be in the mortgage for the mortgage to be valid. The correct answer is C. The insurance clause in the mortgage/trust deed will generally require the borrower to maintain property (hazard) insurance. It also provides that if the borrower does not pay the premium, the lender can declare a default, pay for the coverage and require the borrower to reimburse the lender in order to avoid foreclosure. A float-down rate lock agreement allows the applicant to get a lower rate than the lock-in rate. change from a variable rate to a fixed rate. get a longer lock-in period. make a lower down payment. The correct answer is A. With a float-down rate lock agreement, the rate can "float down" but not up, so the applicant can receive a lower rate than the locked rate. Loan origination fees or points refer to prepaid reserves. discount points. loan fees. service release premiums. The correct answer is C. The loan origination fee, sometimes called "points," covers the lender's administrative costs in processing the loan, including taking the loan application, loan processing, underwriting and funding the loan. Often expressed as a percentage of the loan, it will vary among lenders. Generally, the buyer pays the fee, unless otherwise negotiated. Prepaid reserves are for taxes and insurance. Discount points are prepaid interest. Service release premiums are fees collected upon sale of the loan. Special flood hazard areas are designated by FNMA. FEMA. mortgage lenders. GNMA. In which document does a mortgagee clause appear? The note The mortgage The property insurance policy The deed of reconveyance The correct answer is C. A mortgagee clause in an insurance policy will name the lender as a payee, so that in the event of a covered loss, the lender can ensure that the proceeds are applied to repairing the damage. To meet FNMA requirements, a property must have insurance at least equal to which of the following? 100% of the insurable value of the improvements The unpaid balance of the loan The lesser of A or B. The greater of A or B. The correct answer is C. FNMA requires that for any first lien mortgage (excluding a reverse mortgage) the minimum hazard insurance coverage required is the lesser of 100% of the insurable value of the improvements or the unpaid principal balance of the mortgage, as long as it equals the minimum amount (80% of the insurable value of the improvements) required to compensate for damage or loss on a replacement cost basis. John Johnson obtained a 90% loan amounting to $63,000 to buy his house. If he had to pay 2 points for loan fees and 4 discount points for his loan, what sum did he need for settlement? $10,780 $11,200 $4,200 $3,780 Which of the following is credited to a borrower to pay a borrower's closing costs? Yield spread premium Loan origination fee Service release premium Prepaid expense premium The correct answer is A. The yield spread premium is credited to a borrower when the borrower accepts an interest rate above par i norder to pay his closing costs. In effect, it enables the borrower to obtain financing of the closing costs. Service release premiums are a form of compensation to a lender upon sale of a loan in the secondary market. With regard to flood insurance, a lender may NOT charge borrowers a fee for its life-of-the-loan tracking, the cost of a third-party service for flood- zoning determinations or tracking a fee for its flood zone determinations. a fee for its overhead when it uses a third- party service for flood-zoning determinations or tracking If the lender determines, at any time during the life of a loan, that the property securing the loan is located in a special flood hazard area and is not covered by flood insurance, it must foreclose. it must accelerate its payment schedule. it must cancel its insurance requirement. it may force place the insurance coverage if the borrower does not promptly purchase it. The correct answer is D. If the lender determines, at any time during the life of a loan, that the property securing the loan is located in a special flood hazard area and is not covered by flood insurance, it must instruct the borrower to obtain flood insurance or force place the insurance (i.e., purchase the insurance on the borrower's behalf) and charge the borrower the cost if the borrower fails to promptly purchase the required insurance himself. Which of the following determines whether flood insurance is required for a particular property? FEMA The lender The appraiser The title company The correct answer is B. FEMA produces the maps showing the flood plains, but does not determine whether a particular property is in a flood plain. The lender is charged with the responsibility for making this determination. It may do so directly or pay for a third-party to do the work. An applicant has a lock-in agreement providing for an interest rate of 5.5% per annum for 15 years. If interest rates offered by the lender increase by 0.5% during the lock-in period the interest rate for the applicant's loan will be 5.5% 6.0% 6.5% 5% The correct answer is A. Since the rate was locked in, it does not increase for the borrower. When a property is located in a flood plain, the borrower must maintain flood insurance for how long? Until the loan is paid down to 80% of the value As long as there is a balance owing on the mortgage Until the loan is paid down to 50% of the value Until the loan is paid down to 90% of the value The correct answer is B. The National Flood Insurance Act of 1968 and Flood Disaster Protection Act of 1973 prohibit a federally regulated lender from making a loan secured by improved real estate or a mobile home in a special flood hazard area, unless the security is covered for the term of the loan by flood insurance. Which of the following is true of flood insurance to cover property securing a loan from a federally regulated lender? It is never required. It is required only if the lender requires it. It is required for all such properties. It is required if the property is in a flood hazard area. The correct answer is D. If a property is in a flood hazard area, the owner must obtain flood insurance. An owner will be charged a fee for a service to determine whether the property is in a flood zone, as well as an initial insurance premium at closing and an ongoing annual premium for any required flood insurance. If a lender requires an escrow for taxes, insurance premiums, fees or other charges, then it must also use escrow for required flood insurance premiums. The National Flood Insurance Act of 1968 and Flood Disaster Protection Act of 1973 prohibit a federally regulated lender from making a loan secured by improved real estate or a mobile home in a special flood hazard area, unless the security is covered for the term of the loan by flood insurance. A borrower would pay discount points at closing in order to finance his closing costs. receive a discount on his prepaids. cover the origination fee. reduce the note rate below the current market rate. The correct answer is D. Discount points are prepaid interest. They are paid in order to reduce the note (interest) rate for the term of the loan. In the HUD-1, escrow account deposits include flood insurance premiums. an assumption fee. a loan origination fee. a recording fee. The correct answer is A. Hazard insurance, including flood insurance premiums to be placed in an escrow account, is listed in section 1000 (as part of Escrow Account Deposits). The HUD-1 settlement statement is provided to the the seller only. third-party providers. the buyer and the seller. the buyer only. The correct answer is C. The HUD-1 is provided to the buyer and the seller. Separate copies of the HUD-1 are prepared for the borrower and the seller. Copies of the same statement need not be given to both. Copies are not required for third- party providers. Which law requires disclosure of settlement costs in a HUD-1 Settlement Statement? Equal Credit Opportunity Act (ECOA) Truth-in-Lending Act (TILA) Uniform Settlement Act (USA) Real Estate Settlement Procedures Act (RESPA) The correct answer is D. RESPA requires disclosure of settlement costs in a HUD- 1 Settlement Statement, also known as the closing statement, in a mortgage loan transaction. The HUD-1 is prepared by the settlement agent. The HUD-1 settlement statement is also known as the operating income statement. credit statement. finance statement. settlement or closing statement. The correct answer is D. RESPA requires the disclosure of a HUD-1 Settlement Statement, also known as the settlement (closing) statement, in a federally related mortgage loan transaction. Funds paid into escrow are shown on the mortgage servicing disclosure. HUD-1 Settlement Statement. Good Faith Estimate. Truth in Lending disclosure. A borrower may request a copy of his HUD-1 settlement statement how many days prior to closing? Five business days One week One month One business day The correct answer is D. A borrower may request a copy of the HUD-1 one business day prior to closing. A borrower has paid the fee for the credit report before closing. How is this fee noted in a HUD-1 statement? Paid outside of closing Paid before closing Paid to seller Paid to lender The correct answer is A. Some fees may be listed on the HUD-1 to the left of the borrower's column and marked "POC." Such fees as those for credit reports and appraisals are usually paid by the borrower before closing/settlement. The borrower has the right to inspect the HUD-1 one week before settlement at settlement. 48 hours before settlement. one business day before settlement. The correct answer is D. The borrower has the right to inspect the HUD-1 one business day before the settlement. The fully completed HUD-1 Settlement Statement generally must be delivered or mailed to the borrower at or before the settlement. When the borrower and the seller do not both attend the settlement, it is to be mailed or delivered as soon as practicable after settlement. Who is responsible for preparing the HUD-1? Settlement agent Mortgage broker Title insurance company Loan originator The correct answer is A. RESPA requires the disclosure of a HUD-1 Settlement Statement, also known as the closing statement, in a mortgage loan transaction. The HUD-1 is prepared by the person responsible for the closing (the settlement agent). A consumer has the right to inspect his HUD-1 Settlement Statement how many business days prior to closing? 7 5 10 1 The correct answer is D. One business day before the settlement, the consumer has the right to inspect the HUD-1 Settlement Statement. Charges for survey fees appear in which section of the HUD-1 settlement statement? Government recording and transfer charges Title charges Settlement charges Additional settlement charges The correct answer is D. Charges for survey fees appear in the additional settlement charges section of the HUD-1 (1300). On a HUD-1, the money already paid by the borrower and which is to be applied against the purchase price of the property is called earnest money. equity. new loan amount. escrow payment. The correct answer is A. Section 200 of the HUD-1 lists amounts paid by or on behalf of the borrower, including the deposit of earnest money (which is used to show the buyer's good faith and is applied to the purchase price at closing) made with the buyer's offer to purchase, as well as any financing, whether by a loan or assumption of the seller's existing loan. When a deposit is paid outside closing, the closing statement will show the deposit as VOE. POC. VOD. DOC. The correct answer is B. When an earnest money deposit has been paid directly to the seller outside of closing, the closing statement will show the deposit as "POC" (i.e., paid outside closing). The charges in a final HUD-1 statement must be entered as estimated dollar amounts. actual dollar amounts. estimated percentages of the loan amount. actual percentages of the loan amount. The correct answer is B. All charges on the final HUD-1 must be entered as actual, not estimated, dollar amounts. Which fee would appear in section 800 (Items Payable in Connection with Loan) of the HUD-1? Property taxes Appraisal fee Title insurance charges Hazard insurance premium The correct answer is B. Section 800 shows Items Payable in Connection with Loan. These are the fees that lenders charge to process, approve and make the mortgage loan, including the loan origination fee, loan discount, appraisal fee, credit report, lender's inspection fee, mortgage insurance application fee, assumption fee and mortgage broker fee. The HUD-1 settlement statement includes all of the following EXCEPT title examination fees. down payment. property price. housing expense ratio. The correct answer is D. The HUD-1 includes money owed and paid at closing, including title charges, property price and down payment. The housing expense ratio used in evaluating the borrower's application has nothing to do with funds at closing. The Private Mortgage Insurance (PMI) disclosure states that PMI is required to be maintained for a mortgage loan if the property is more than 20 years old. as long as the loan is less than 80% of the original value of the property. if the borrower has chosen an adjustable mortgage rate. as long as the loan is more than 80% of the original value of the property. The correct answer is D. PMI is required as long as the loan is more than 80% of the original value. The original value is the lesser of the purchase price or the appraised value of the property at the time the loan was closed. However, for refinancing, the original value is the appraised value relied on by the lender when approving the new loan. The premium paid for Private Mortgage Insurance is refunded when the insurance is canceled. added to the borrower' s monthly mortgage payment. paid to the lender as part of its loan processin g fee. shared by the lender and the mortgage broker. The correct answer is B. The premium for the insurance is added to the amount due for principal and interest and included in the loan payments. The lender then sends the premium to the insurance company. If a borrower is current on his 30-year home mortgage, the earliest time his private mortgage insurance will automatically terminate is when his loan balance is scheduled to be 20% of the property's original value. upon full repayment of the loan. when his loan balance is scheduled be 78% of the property's original value. at the end of 10 years. All of the loans below are covered by HOEPA EXCEPT the total fees and points payable by the consumer at or before closing exceed the greater of $583 or 8% of the total loan amount. a first mortgage with an APR which is 8 points higher than U.S.Treasury securities of comparable maturity. a second mortgage where the APR exceeds by more than 10% the rates in U.S. Treasury securities of comparable maturity. a home equity line of credit. The correct answer is D. HOEPA rules primarily affect refinancing and home equity installment loans that also meet the definition of a high-rate or high-fee loan. The rules do not cover loans to buy or build a home, reverse mortgages or open-end loans (e.g., home equity lines of credit. In order to avoid having private mortgage insurance a homebuyer must put down at least what percentage of the lesser of the home's appraised value or price? 10%. 20%. 30% 25%. The correct answer is B. Private mortgage insurance (PMI) is generally required by a lender when the down payment on the purchase of a home is below 20% of the lesser of the home's total value or the purchase price. Why would a consumer wanting to buy a home with a 10% down payment, get a first mortgage loan for 80% of the home's value and a home equity loan for 10% of the home's value? To avoid paying PMI So the interest rate for the first mortgage loan would be below current market rates. So the interest rate for the home equity loan would be below current market rates. So he can get a second loan as soon as the 10% home equity loan is paid off. The correct answer is A. This describes a piggyback loan used to enable a borrower to obtain financing with less than 20% and still avoid paying for mortgage insurance. If Private Mortgage Insurance (PMI) is paid by the lender, the lender MUST provide a written notice to the borrower stating the advantages of lender-paid PMI. differences between lender-paid and borrower-paid PMI. cancellation date of PMI. ways in which a yield spread premium affects PMI. The correct answer is B. The lender can allow PMI to be paid by the borrower, or require that it be paid by the lender. If lender-paid PMI is required, the lender must provide a disclosure explaining the differences between lender-paid and borrower-paid PMI. When a homeowner's equity position reaches 20% of the original value of the property the lender must immediately cancel the PMI. the PMI automatically cancels after 60 days. within 60 days of receipt of a cancellation request, the lender must cancel the insurance. the homeowner can request cancellation of the PMI. The correct answer is D. The Homeowners Protection Act (HPA) provides that a borrower with a good payment history has the right to request in writing the cancellation of the PMI when he pays down his mortgage to the point that it equals 80% of the original purchase price or the appraised value of his home at the time the loan was obtained, whichever is less. Otherwise, PMI coverage is automatically cancelled once the borrower pays down his mortgage to 78% of the value if the loan payments are current, or when a loan that is current reaches the midpoint of its amortization period (e.g., after 180 payments of a 30-year loan). For which type of loan must a lender, prior to consummation of the transaction, disclose that the borrower does not have to complete the loan agreement just because he applied for the loan and that he could lose his home if he does not make his payments? ARM High-interest home equity loan VA FHA The correct answer is B. Not less than three business days prior to consummation of a transaction that is subject to HOEPA a lender must give the following disclosure: "You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan." The advantage of PMI to a lender is that it ensures that the property is insured against property damage losses. borrower will pay tax and insurance premium money to the insurer with his monthly payment. borrower cannotr get a subordinat e mortgage loan from another lender. lender is protected against financial losses if the borrower defaults on payments. The HPA requires that a lender or servicer notify a consumer of his rights regarding PMI at the time of loan closing. monthly. at the time of taking a loan application. when the loan amount is down to 80% of the property sale price. The correct answer is A. The HPA requires that a lender or servicer notify a consumer of his rights at loan closing, annually, and upon cancellation or termination of PMI. HOEPA applies to which type of high-cost loan? Open-end line of credit secured by a principal residence Reverse mortgage Construction loan secured by a principal residence Second mortgage secured by a principal residence The correct answer is D. The loans covered under HOEPA may be called Section 32 loans because that is the section of Regulation Z in which they are defined. They are usually refinances or home equity loans with high interest rates or high up-front costs. A Section 32 loan is defined as a closed-end loan secured by the borrower's principal residence (but not a reverse mortgage or a loan used for purchase or construction of the residence) with an APR that is more than 8% for a first lien loan, or 10% for a subordinate lien loan, above the yield on Treasury securities having comparable maturity periods; or with total fees and/or points exceed the greater of 8% of the total loan amount or an annual minimum threshold ($579 for 2010) set by the Federal Reserve Board. In a fixed-rate mortgage loan, what percent of the original value of the property must the homeowner's equity position reach for the Private Mortgage Insurance (PMI) to be cancelled automatically? 26% 22% 20% 24% The correct answer is B. The Homeowners Protection Act (HPA) provides that a borrower with a good payment history has the right to request in writing the cancellation of the PMI when he pays down his mortgage to the point that it equals 80% of the original purchase price or the appraised value of his home at the time the loan was obtained, whichever is less. Otherwise, PMI coverage is automatically cancelled once the borrower pays down his mortgage to 78% of the value (so his equity is 22%) if the loan payments are current, or when a loan that is current reaches the midpoint of its amortization period (e.g., after 180 payments of a 30- year loan). Which of the following options is an alternative to a piggyback second mortgage? Mortgage insurance Tax credits Lower downpayments Credit card advances The correct answer is A. A borrower wanting a loan with less than 20% down might choose between a loan with mortgage insurance and combination financing (or piggyback loans). Piggyback financing is an 80% first loan with either a 20% second loan, or a 15% second loan with a 5% downpayment or a 10% second loan with a 10% downpayment. PMI protects a borrower against natural disasters. a borrower against lender bankruptcy. a lender against losses due to foreclosure. a lender against damage to the property. The correct answer is C. A purchaser who borrows more than 80% of the value or price of a home (i.e., puts less than 20% down) generally must pay for mortgage insurance to protect the lender against loss in the event of default. For a conventional loan, the mortgage insurance is called private mortgage insurance (PMI). Once a person registers his phone number on the federal do-not-call list, how long will it remain there? Until he removes it or phone service is discontinued Three years One year Five years The correct answer is A. Once registered, a phone number (including a cell phone number) remains in the list until the registrant removes it or phone service is discontinued. Mr. Jones' loan application has been denied and the loan originator provides him with an Adverse Action Notice as required by ECOA. Which of the following pieces of information would NOT be included on the notice? The applicant's credit score Information on the credit reporting agency if the adverse action is based on his credit report The applicant's right to a statement of specific reasons for the action. Statement of the action taken The correct answer is A. The adverse action notice required by ECOA incudes (1) a statement of the action taken; (2) the ECOA Notice ("The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law concerning this creditor is (name and address as specified by the appropriate agency listed in appendix A of this regulation)"; (3) the name and address of the federal agency that administers compliance with respect to the loan originator; (4) the applicant's right to a statement of specific reasons for the action, provided within 30 days after the creditor's receipt of an applicant's request, made within 60 days after the notification, and the identity of the persons or office from which the statement may be obtained. Who is responsible for ensuring that reporting of a consumer's credit standing and reputation protects his right to privacy? Federal Trade Commission Consumer reporting agency Mortgage broker Loan originator The correct answer is B. A CRA is responsible for ensuring that the reporting of a consumer's credit standing and reputation protects his right to privacy. It may not supply information about a consumer to his employer or a prospective employer without his consent. Only people with a legitimate business need as recognized by the FCRA can get a copy of a consumer's report. ECOA requires that an applicant be informed about action taken on his completed loan application within how many days of its filing? 3 14 7 30 The correct answer is D. An applicant has a right to know whether his application was accepted or rejected within 30 days of filing a complete application. Without violating the Equal Credit Opportunity Act a loan originator may discount or refuse to consider an applicant's income because it is from public assistance. of his age. it is part-time employment. it cannot be documented. The correct answer is D. A loan originator may not refuse to consider income due to age, from public assistance or from part- time employment. He can require that the applicant provide proof of the income claimed. The Fair Credit Reporting Act defines companies that gather and evaluate consumer credit records as credit bureaus. consumer reporting agencies. underwriting agencies. loan processors. The correct answer is B. In the Fair Credit Reporting Act, the organizations that assemble and evaluate consumer credit are called consumer reporting agencies. ECOA is enforced by the various federal agencies that regulate the different types of lenders/creditors. The agency that drafts and interprets the regulations implementing ECOA is the Office of Thrift Supervision. the Federal Trade Commission. the Board of Governors of the Federal Reserve. the Department of Justice. The correct answer is C. Under the ECOA, the Federal Reserve Board is responsible for drafting and interpreting the implementing regulation. The regulation is Regulation B. The FTC's Telemarketing Sales Rule requires that persons who engage in telemarketing only call former or current customers for leads for origination. call no one on a do-not-call list. establish policies and procedures to ensure compliance with the rule. register with the FTC to engage in such practices. The correct answer is C. A person engaged in telemarketing may call former and current customers even if they are on a no-call list, unless they indicate they do not wish to be called by that person. A telemarketer may also call anyone who is not on a no-call list. The telemarketer must establish policies and procedures and train employees to ensure compliance with the rule (e.g., check the federal and company no-call lists, enter persons on the list who specify they do not wish to be called, etc.) In an individual lawsuit, a violator of ECOA is subject to punitive damages of up to $100,000. $25,000. $50,000. $10,000. The correct answer is D. ECOA can be enforced through administrative action by the agency regulating the creditor or through a civil lawsuit. A violator is subject to actual damages, reasonable attorneys' fees and costs of the plaintiff, and punitive damages of up to $10,000 in an individual lawsuit, or the lesser of $500,000 or 1% of the violator's net worth in a class action lawsuit. ECOA requires that a mortgage loan applicant who is denied credit must be given an appraisal disclosure, notifying him of his right to get a copy of his appraisal report, within how many days of his loan application? 30 days 120 days 90 days 60 days The correct answer is A. If a copy of the appraisal is not given immediately, the disclosure giving notice of the right to get the appraisal must be given no later than at the time the notice of action taken is given, within 30 days of receipt of the application. The purpose of the Fair Credit Reporting Act is to lower the cost of credit reports. help consumers shop for credit agencies. ensure the accuracy of information in consumer reports. enable consumers to improve their credit scores. The correct answer is C. The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission, is designed to ensure the accuracy and privacy of the information in consumer reports. Which of the following is NOT a mortgage loan subject to coverage under the Home Mortgage Disclosure Act (HMDA)? A loan to purchase a mobile home or multi-family dwelling A home improvement loan made for the purpose of repairing, rehabilitating, or remodeling a dwelling A loan to purchase a condominium unit A home equity loan used to pay off outstanding medical bills The correct answer is D. The following types of mortgage loans are subject to coverage under HMDA: a home purchase loan for any residential dwelling, including a condominium unit, mobile home, manufactured home, or multi-family dwelling; a home improvement loan made for the purpose of repairing, rehabilitating or remodeling a dwelling; and the refinancing of a home loan previously covered by HMDA (e.g., a new loan refinancing a loan that was a home purchase or home improvement loan would be covered, but refinancing of a home equity loan not involving home improvement would not be covered). A lender must provide a copy of the appraisal to an applicant within how many days after receipt of a written request from an applicant who has paid for the appraisal? 30 45 20 60 The correct answer is A. An applicant is entitled to a copy of the property appraisal, if the loan was to be secured by a one-to-four family dwelling, so that he may see if it contains accurate information. The lender must either give him a copy or notify him of his right to request a copy no later than when the notice of action was provided (i.e., within 30 days of receipt of the loan application). The lender must provide the copy of the appraisal, within 30 days of receipt of a written request, if the request is received within 90 days of the notice of action. ECOA requires that a mortgage loan applicant must be given an appraisal disclosure, notifying him of his right to get a copy of his appraisal report, any time during the application process. within seven business days after notice of action taken on the application. no later than the time of the notice of action taken. within seven business days of the application. The correct answer is C. ECOA requires that a mortgage loan applicant who had paid for the appraisal must be given an appraisal disclosure, notifying him of his right to get a copy of his appraisal report, if he has not been given it already, by the time he is given the notice of action taken on the application. The notice of action taken must be given within 30 days of receipt of a completed application. ECOA requires that a creditor must provide a copy of the appraisal report to a mortgage loan applicant who is denied credit, if the report is requested within how many days of the notice of action taken? 180 60 30 90 The correct answer is D. ECOA requires that a creditor must provide a notice of a right to a copy of the appraisal report within 30 days of receipt of the application and provide the applicant with a copy if it is requested within 90 days of the notice of action taken. Under HMDA, what is the term for an application for a home purchase loan in which the lender, after a comprehensive analysis of the applicant's creditworthiness, issues a written commitment to make a home purchase loan up to a specified amount, subject to the home's appraisal? Prequalification request. Credit evaluation request Loan application Preapproval request The correct answer is D. The HMDA requires that for all home purchase loans and applications, lenders must report whether a preapproval was requested and, if so, report denials of such preapproval requests. A request for preapproval is an application for a home purchase loan in which the lender, after a comprehensive analysis of the applicant's creditworthiness, issues a written commitment to make a home purchase loan up to a specified amount, subject to the home's appraisal. The federal agency that oversees the Federal Do-Not-Call Registry is the Commerce Department. the Office of Homeland Security. the Federal Trade Commission. the U.S. Department of Housing and Urban Development. The correct answer is C. The Federal Trade Commission (FTC) authorized the development of a national Do-Not-Call Registry. It is responsible for overseeing the Registry. The Federal Trade Commission's Red Flag Rules implement the Truth-in-Lending Act. the Patriot Act. the Secure and Fair Enforcement for Mortgage Licensing Act. the Fair and Accurate Credit Transactions Act. The correct answer is D. The Red Flag Rules implement the Fair and Accurate Credit Transactions Act (FACTA). They require financial institutions (including mortgage lenders) and creditors 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. All of the following are included in an ECOA adverse action notice EXCEPT names and/or contact numbers for consumer credit counseling agencies. a statement of the action taken. name and address of the federal agency administering the loan originator's compliance with ECOA. the ECOA notice. The correct answer is A. An ECOA adverse action notice must contain a statement of the action taken, a statement of the provisions known commonly as the ECOA Notice, the name and address of the federal agency that administers compliance with respect to the loan originator, and the applicant's right to a statement of specific reasons within 30 days after the creditor's receipt of a request made within 60 days after the notification and the identity of the persons or office from which the statement may be obtained (if the reasons are not automatically provided). A loan applicant decides to withdraw his loan application. However, he requests a copy of the appraisal from the lender. Is he entitled to a copy? Yes, if he has paid or will pay for the appraisal No, because the lender did not take adverse action on his applicatio n No, because he withdrew his applicatio n Yes, regardles s of whether he pays for the appraisal The correct answer is A. If the applicant pays for the appraisal, he is entitled to a copy. ECOA provides that the creditor must provide a copy of the appraisal either routinely or upon request made within 90 days of a withdrawal of the application or notice of action taken by the lender. The Fair Credit Reporting Act provides which of the following with regard to information provided to consumer reporting agencies? Only the consumer can provide any information for a consumer report. Only a consumer may provide negative information to a consumer reporting agency. A person who provides information that is later in dispute has a duty to investigate it. The consumer has the duty to investigate any information in the consumer report that he disputes. The correct answer is C. Both the CRA and the information provider have responsibilities for correcting inaccurate or incomplete information in a consumer report. Upon receipt of the notice of dispute from the CRA, the information provider must investigate, review all relevant information provided by the CRA, report the results to the CRA, and if the disputed information is inaccurate, notify all nationwide CRAs so that they can correct this information in the consumer's file. The Fair Credit Reporting Act provides all of the following courses of action for an identity theft victim who has submitted a valid police report to a consumer reporting agency EXCEPT applying for a fraud alert. requesting deletion of challenged items from the credit report. requesting changes in the information on the credit report. requiring the consumer reporting agency to assist in locating the thief. The correct answer is D. Identity theft victims who file police reports can block fraudulent information from appearing on their credit reports, obtain copies of business records that list fraudulent transactions carried out by an identity thief, request a change of information or deletion of challenged items on a credit report, or put a fraud alert on their credit files.
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