Residential Mortgage Lending Regulations and Concepts, Exams of Law

Download Residential Mortgage Lending Regulations and Concepts and more Exams Law in PDF only on Docsity! NMLS EXAM 2021 Questions with Answers 2024 Fraud for money Laundering ✔ -Criminal uses scheme known as value tampering -Criminal offers to buy house at reduced rate -Seller must sell at appraised value on paper, but after closing, seller give the criminal the difference in cash. Adverse Action ✔ An unfavorable credit decision rendered against a consumer made on the basis of information contained on the credit application. If a lender takes adverse action against an applicant, the lender must notify the applicant in writing. If the adverse action is taken as a result of information contained on the credit report, the notice must also provide the name, address and toll-free phone number of the credit bureau that supplied the information. American Association of Residential Mortgage Regulators (AARMR): ✔ A national association of individuals who are charged with administering and regulating various aspects of residential mortgage lending. It played a major role in the formation of the NMLS-R and in the drafting of the model licensing law. Annual percentage rate (APR): ✔ Does NOT include...TEN ACT- (Title,Escrow,Notary,Appraisal,Credit Report,Termite)A measurement of the total cost of the credit, expressed as an annual rate. The APR includes those paid at the time of closing and those paid over the term of the loan. It includes all items that are part of the finance charge, such as interest, discount points, mortgage insurance premiums and administrative fees. Application ✔ A request for a residential mortgage loan and includes the borrower-related information that lenders commonly use when considering the request. Someone who takes an application from a consumer is generally considered to be acting as a loan originator, even when gathering application information over the phone or Internet ARM Disclosure: ✔ A disclosure required to be presented to the applicant within three days of application on any ARM loan. This disclosure provides the applicant with information about the specific ARM product for which they are applying, such as a historical index value Balloon mortgage: ✔ A type of fixed-rate mortgage loan with monthly payments based on a 30-year amortization schedule, setting a maturity date for a shorter period of time - usually five, seven, 10 or 15 years. This allows the borrower to make lower monthly payments for that shorter period of time, with a large payment of the full remaining principal balance and interest due at the maturity date Bank Secrecy Act (BSA): ✔ A federal law requiring that financial institutions take steps to prevent and report cases of money laundering. Bridge loan: ✔ A bridge loan is a loan for a short duration of time and can be used when one is purchasing one property but is dependent on the equity from another property that has not yet been sold. Once the property is sold then the bridge loan is repaid. Business day: ✔ Monday through Saturday except holidays.For the LE, when creditor is open to the public for carrying on substantially all of the creditor's business functions Certificate of Reasonable Value (CRV): ✔ A form indicating the appraised value of a property being financed with a VA loan. Changed circumstance: ✔ A material event or piece of information that is discovered after the issuance of a Loan Estimate and has an impact on either the borrower's settlement costs or the borrower's eligibility for a loan. A changed circumstance allows a loan originator to reissue the Loan Estimate to reset applicable tolerances. Chapter 7 bankruptcy: ✔ A common kind of bankruptcy in which a borrower might need to liquidate assets in order to satisfy creditors Chapter 13 bankruptcy: ✔ a reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over three to five years Character ✔ In mortgage lending, the borrower's willingness to repay the debt. Closing costs: ✔ All of the costs related to closing except the prepaid or escrow items. Examples of closing costs are the origination fee, discount points, real estate sales commission, attorney fees, survey charges, title insurance premiums, agency closing fees, appraisal fees, credit report fees, termite report fees, recording fees, mortgage insurance premiums, loan transfer or assumption fees, etc. Commercial bank: ✔ The common name for the "Federal National Mortgage Association," which is a government-sponsored enterprise that acts as a quasi-governmental agency for the purpose of creating a secondary market for mortgages. It purchases loans on the secondary market and turns groups of loans into mortgage-backed securities (MBS) through the securitization process. Federal Home Loan Bank (FHLB) system: ✔ A system of GSEs owned by over 8,000 community financial institutions. It provides advances to financial institutions in order for those institutions to make residential mortgage loans. Fiduciary relationship: ✔ a relationship founded on trust and confidence Financing contingency date: ✔ In real estate transactions, the contractually determined date by which the buyer's financing must be in place Fraud for profit: ✔ Inside job where the loan originator, real estate agents or appraisers do it for their benefit of making profit Fraud for property: ✔ Also called "fraud for housing," this is a willful misrepresentation of material facts on a loan application with the intent of gaining property. This type of fraud is more likely to be perpetuated by borrowers and result in less damage to the creditor(s) involved because the loan is typically paid in a timely manner. Freddie Mac: ✔ "Federal Home Loan Mortgage Corporation," which is a government-sponsored enterprise that was intended to provide a secondary market for mortgages originated by savings and loan associations and create competition to Fannie Mae. Like Fannie Mae, Freddie Mac also issues mortgage-backed securities (MBS). Ginnie Mae: ✔ Government National Mortgage Association; pools mortgages for investors Government-sponsored enterprise (GSE): ✔ A quasi-governmental agency. Fannie Mae and Freddie Mac are examples of GSEs. Hedging: ✔ In mortgage lending, the attempt to minimize interest-rate risk by purchasing a Treasury security or MBS to offset large movements in the rate markets. High-cost mortgage loan: ✔ A mortgage loan with an annual percentage rate exceeding the Average Prime Offer Rate (APOR) by more than 6.5% for a first-lien transaction or 8.5% for a second-lien transaction, OR a mortgage loan with total points and fees exceeding 5% of the loan amount. ALL high-cost loans must be compliant with the Home Ownership and Equity Protection Act (HOEPA). Home Mortgage Disclosure Act (HMDA): ✔ A federal law that requires lenders to annually disclose the number of loan applications and loans in certain areas, thus eliminating the practice of "redlining." Home Ownership and Equity Protection Act (HOEPA): ✔ A federal law that sets rules for high-cost loans. A loan that is subject to HOEPA cannot feature a balloon payment, negative amortization or a prepayment penalty and cannot be refinanced within one year by the original creditor (other creditors may refinance the loan) unless doing so is "clearly in the best interests of the borrower." Identity theft prevention program: ✔ A written program designed to detect the warning signs of identity theft in day-to-day operations. Businesses defined as "financial institutions" under the Fair and Accurate Credit Transactions Act's Red Flags Rule are required to implement this kind of program. Because of the broadness of the definition, all mortgage brokerages and mortgage banks are covered by it. Immediate family member: ✔ A spouse, child, sibling, parent, grandparent or grandchild. An individual who only originates loans with or on behalf of an immediate family member doesn't need a loan originator license. Interest-only loan: ✔ A fixed-rate mortgage that allows the borrower to pay only the interest due on the mortgage for a period of years, after which the loan becomes fully amortizing. Judicial foreclosure: ✔ A method of foreclosure that requires court action in order to complete the process. Typically found in states that use the mortgage document as the security instrument. Legitimate business need: ✔ One circumstance under which a lender can receive a consumer's credit information from a credit bureau. The disclosure must relate to a business transaction that was initiated by the consumer or must be intended to help a creditor review an account in order to determine whether a consumer continues to meet the terms of that account Lender-paid compensation (LPC): ✔ Compensation paid by a lender to a mortgage broker for originating a loan funded by that lender. This compensation is different from the old yield-spread premium (YSP) in that it does not vary based on the terms or conditions of a loan. Typically, LPC is paid as a percentage of the loan amount and does not vary from transaction to transaction in a given lender/broker relationship Loan Application Register (LAR): ✔ The form that is used for reporting data required to be collected under the Home Mortgage Disclosure Act. Must be reported once per year. Loan flipping: ✔ An abusive practice in which a loan is refinanced without any tangible net benefit for the borrower. A form of equity stripping. Mortgage: ✔ A document that creates a lien upon the subject property for the security of payment of the debt Mortgage-backed securities (MBS): ✔ Pooled mortgages that have been converted into bonds and sold to the public. Nationwide Mortgage Licensing System and Registry (NMLS-R): ✔ A licensing system and registry that was established in connection with the SAFE Act. Non-conforming loans: ✔ Loans that do not satisfy requirements of Fannie Mae and Freddie Mac and cannot be sold to those GSEs Non-judicial foreclosure: ✔ A form of foreclosure that only requires administrative actions rather than the involvement of a court. Typically found in states that use the trust deed as the security instrument. Nontraditional mortgage product: ✔ Any mortgage product that isn't a 30-year, fixed-rate loan. In order to obtain and renew their licenses, loan originators must complete courses with an emphasis on nontraditional mortgage products Novation: ✔ The process of releasing one borrower from a lending agreement and substituting a new borrower. Opt-out right: ✔ A consumer's right, under the Privacy Rule of the Gramm-Leach-Bliley Act, to limit some sharing of his or her financial information. Origination fee: ✔ Entities that purchase and sell loans that have been originated by third parties. Wholesale lenders may purchase loans with the intent to package the loans for sale to secondary market investors; or they may purchase loans in order to service the loans themselves 5 rights under FACRA ✔ 1. Right to adverse action notice 2. Free copy of credit report 3. Request credit score 4. The right to dispute incomplete or inaccurate information 5. Limit prescreened offers What is a Qualified mortgage ✔ No terms longer than 30 years, No risky features, DTI 43% (back end), fees costs and points 3% or less, Income and verify ability to repay TILA penalitites ✔ $5,000/day single violation, $25, 000/day reckless violation, 1 million/day knowingly violation TRID RESPA transactions not covered ✔ *All cash sale *Sale where the individual seller takes back the mortgage *Rental property transaction *Property of 25 acres or more *Vacant or unimproved property (unless a dwelling will be constructed or moved on within 2 yrs. * Commercial properties *Bridge and construction loans What are the initial disclosures ✔ Home loan tool kit (RESPA), LE(TILA), Mortgage servicing disclosure(RESPA), List of HUD counselols (RESPA) What are the 2 exceptions in which a lender does not have to send the initial disclosures ✔ 1. If the borrower withdraws, 2.If lender denies application before the 3rd business day How long should ECOA disclosures be retained? ✔ 25 months What is the penalty for ECOA violation? ✔ $10,000 per violation-civil action can be filed within 2 years Under RESPA, what is considered a completed application? ✔ SAVLIN (Social,Address,Value of property, Loan amount, Income,Name) TILA- APR Accuracy and re-disclosure ✔ 1/8%(.125%)for regular/traditional 1/4 (.25%) for irregular/non-traditional WHat is MDIA and what is it known as? ✔ Mortgage Disclosure Improvement ACT-know as 3/7/3 rule NMLS licensing requirements ✔ *Finger prints for FBI criminal history *Authorization to get credit report *maintain LO record with NMLS *Pass National and State tests *20 hours pre-licensing (3-hours federal, 3-hours ethics, Consumer protection, Fair lending, Instruction on Fraud, 2-hours non-traditional lending, 12 hours mortgage elective) What is required for the 8 hours continuing education? ✔ 3 hours federal, 2 hours ethics, 2 hours non-traditional, 1 hour undefined. Who developed and maintains NMLS ✔ Conference of State Bank Supervisors & The American Association of Residential Mortgage Regulators What is NMLS? ✔ Nationwide Mortgage Licensing System and Registry Who created NMLS? ✔ Congress as part of the SAFE Act. A registered LO means any individual who is an employee of ... ✔ *a depository institution *A subsidiary that is- *owned and controlled by a depository institution and *regulated by a Federal Banking agency;or *An institution regulated by the Farm Credit Administration *And is registered and maintains a unique identifier What did the Sherman Antitrust Act do? ✔ outlawed the formation of trusts that interfered with free trade Unfair Deceptive and Abusive Acts or Practices rules ✔ Dodd Frank gives authority to CFPB and UDAAP to prohibit acts that can cause significant financial inury to consumers, erode consumer confidence and undermine the financial marketplace Standard for unfairness is 1. It causes or is likely to cause substantial financial injury to consumer and 2. The injury is not avoidable by concumers How long does the LE allow the borrower to shop for a new rate ✔ 10 days What are the FTSs "four Ps test." ✔ 1.Is the statement prominent enough for the consumer to notice? 2.Is the information easy-to-understand, doesn't contradict with other information, and at a time when the consumer's attention is not distracted? 3.Is the placement of information in a location where consumer can be expected to look or hear? 4.Is the information close to what it claims? What does BSA stand for and also known as? ✔ Bank Secrecy Act..aka as the "anti-money laundering act" The BSA requires financial institutions to to keep records of cash purchases, file reports of cash transactions exceeding how much? ✔ $10,000 (daily aggregate amount) The Bank Secrecy Act says you must report suspicious activity that might signify money laundering, tax evasion or other criminal activities to who? ✔ The Financial Crimes Enforcement Network, FinCEN Who says that Financial institutions are required to file a SAR report no later than 30 calendar days after the date of initial detection of facts (delayed filing no more than 60 days) ✔ Financial Crimes Enforcement Network under the Bank Secrecy Act Under non-bank activates, RMLOs are required for transactions that involve aggregates funds or other assets of at least how much, to make a SARs report? ✔ $5000 Types of Mortgage Fraud ✔ *Submission of inaccurate information *Forgery of docs *Failure to provide proper disclosures to borrowers in accordance with Federal and State laws *Dating of documents with dates different from actual date *Signing any document on behalf of the borrower Illegal property flipping ✔ Fraudulently and repeatedly selling of property between individuals. The price is artificially driven up through false appraisals or consecutive sales between the two. Fraud for shelter (property)