Mortgage Origination and Loan Requirements, Exams of Law

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NMLS Practice Exam #3 Questions with Answers 2024 The preferred debt-to-income ratio for applicants for VA loans is: - 35% - 43% - 50% - 41% ✔ 41% When would a license be suspended without a hearing? - If a licensee fails to renew - If a licensee fails to request a hearing with the state regulator - If a licensee has failed to complete pre-licensing requirements - If a licensee has already executed a right to a hearing for a previous violation ✔ If a licensee fails to request a hearing with the state regulator After a borrower allows the assumption of his or her VA loan, he or she may use his or her VA privilege again only after: - Five years have passed - The home is sold to a new owner - The original VA loan is satisfied - The original VA loan is moved from his or her name into the name of the assuming borrower ✔ The original VA loan is satisfied During initial application for a license, loan originators must make disclosure of all of the following, except: - Regulatory history - Criminal history - Civil and administrative records - Three-year history of loan production ✔ Three-year history of loan production In order to qualify for an adjustable-rate mortgage, a consumer must be able to show that he or she can: - Make regularly scheduled payments that are calculated using the loan's introductory rate - Make amortizing payments that are calculated using the fully indexed rate for the ARM - Make amortizing payments that are calculated using the loan's rate after the first interest rate adjustment occurs - Make regularly scheduled payments that are calculated using the fixed interest rate for which the consumer would be eligible ✔ Make amortizing payments that are calculated using the fully indexed rate for the ARM Wilbur Green is applying for a loan originator license. His credit report indicates that he has a number of judgments filed against him, all related to a serious medical condition his wife suffered four years prior. Will Wilbur be denied a license because of the judgments? - Yes, current outstanding judgments show a lack of financial responsibility - Yes, because they indicate a pattern of seriously delinquent accounts within the past three years - No, because the judgments are a result of medical expenses, they will not be held against him - The judgments will not be held against him because they were entered more than three years ago ✔ No, because the judgments are a result of medical expenses, they will not be held against him The most commonly used type of reverse mortgage is known as a: - Proprietary loan - Home equity conversion mortgage - Single-purpose conforming mortgage - Interest-only loan ✔ Home equity conversion mortgage What legislation was enacted because of anecdotal evidence that women were not treated on an equal basis with men in credit markets, particularly in mortgage credit markets? - HOEPA - FACTA - ECOA - Fair Housing Act ✔ ECOA Money paid by a buyer to a seller at the time of entering into a contract to indicate intent and ability to carry out the contract is called: - Down payment - Earnest money - Escrow funds ✔ Stating the less advantageous terms of repayment When a seller provides all or part of the financing for the borrower in order to finance a purchase transaction, it is known as: - For sale by owner (FSBO) - Seller carry-back - Seller concessions - Seller self-financed ✔ Seller carry-back Which of the following is not a prohibited practice regarding loan originator compensation? - A loan originator receives .5% more compensation if a loan contains a prepayment penalty - A loan originator receives compensation for closing over $1 million in volume per month - A loan originator receives 10% more compensation if he/she closes more than ten transactions in a month with an interest rate of 6.5% or more - A loan originator receives compensation from a consumer and from the creditor ✔ A loan originator receives compensation for closing over $1 million in volume per month Which section of the URLA contains questions which, depending on the applicant's answer, could result in immediate rejection of the application? - Information for Government Monitoring Purposes - Declarations - Details of the Transaction - Acknowledgement and Agreement ✔ Declarations Which of the following would be a red flag concerning occupancy? - The borrowers already own and reside in a property in the same neighborhood - The subject property is in another state - The borrower has not moved in within ten days after closing - The property is three hours away and being declared as a second home ✔ The borrowers already own and reside in a property in the same neighborhood With what type of loan do payments, including principal and interest, remain constant throughout the life of the loan? - A balloon loan, as long as the maturity date is beyond ten years - An ARM with a conversion option - Fixed rate - An FHA loan ✔ Fixed rate Sue Ellen has been a mortgage loan originator for nine years and knows her hometown very well. She meets with a couple who have moved to her town from Spain. Checking their application, Sue Ellen sees that the neighborhood they are hoping to move to is higher-income and predominantly white. Without discussing it or checking their financial paperwork, Sue Ellen tells the couple they are likely "aiming too high" in their requested loan amount, and she suggests that they keep looking "elsewhere" for "something more appropriate." Sue Ellen is engaging in: - Streamlining - Discouragement - Steering - Redlining ✔ Discouragement Which of the following is not within the authority of the state regulators responsible for the effective system of supervision and enforcement of the SAFE Act? - Determine criminal sentences for non-licensed entities under the Act - Issue licenses to conduct business under the Act - Deny, suspend, revoke licenses issued under the Act - Examine, investigate, and conduct enforcement actions ✔ Determine criminal sentences for non-licensed entities under the Act If a financial institution intends to share consumer information with nonaffiliated third parties, an initial privacy notice is due to a consumer at what point? - Within seven business days of a customer providing nonpublic personal information sufficient to pull a credit report - Within three business days of initial contact between the consumer and the financial institution - No later than three business days prior to settlement - No later than the time at which a customer relationship is established ✔ No later than the time at which a customer relationship is established Which of the following is not a part of the definition of a loan originator? - For compensation or gain, takes residential mortgage applications - For the expectation of compensation or gain, offers or negotiates terms of a residential mortgage loan - Person or entity that only performs real estate brokerage activities - For compensation or gain, negotiates residential mortgage loans ✔ Person or entity that only performs real estate brokerage activities In January of 2021, Wella and Kip agreed to purchase a home at a purchase price of $584,150. They would like to hold on to as much of their savings as they can, but they have chosen to make a down payment sufficient enough to qualify for a conforming loan. What is the minimum down payment they can make to reach the conforming loan limit but still retain savings? - $47,900 - $35,900 - $95,800 - $54,900 ✔ $35,900 The down payment in this scenario will be $35,900. This is just enough to keep them at the $548,250 conforming loan limit which was adjusted January 1, 2021. 584,150- 548,250 = 35,900. It is ethical for a mortgage broker to offer a loan at a rate higher than the best rate available to the borrower: - Never - Only when the borrower is unaware and will likely not know - If the lender agrees to subsidize the broker fees - If the borrower chooses the rate in order to secure a borrower credit for closing costs ✔ If the borrower chooses the rate in order to secure a borrower credit for closing costs Your borrower does not wish to complete the demographics questions in the Demographic Information section of the 1003. What should you do? - Leave the section blank - Tell the borrower his/her loan cannot be funded until the information is obtained - Complete the section based on a visual observation of the borrower during a face-to- face application - Refuse to take the application ✔ Complete the section based on a visual observation of the borrower during a face-to- face application The Nationwide Multistate Licensing System and Registry seeks to accomplish all of the following objectives, except: - Provide uniform license applications and reporting requirements for state-licensed originators - Provide comprehensive training and facilitate responsible behavior to expand the subprime mortgage marketplace - Provide increased accountability and tracking of loan originators ✔ Notice of Adverse Action Which of the following features would be permitted for a non-qualified mortgage, but not for a qualified mortgage? - A term of 15 years - An adjustable interest rate - A debt-to-income ratio of 43% - An interest-only option ✔ An interest-only option Muny Baggins regularly extends credit that is subject to a finance charge and payable in a written agreement of more than four installments. Under the Truth-in-Lending Act, Muny is a: - Mortgage servicer - Mortgagee - Mortgagor - Creditor ✔ Creditor The size of the government's guarantee on a VA loan depends on: - Whether the interest rate is fixed or adjustable - Whether this is the first time a veteran uses the guarantee or a subsequent transaction - The length of the loan term - The size of the loan being obtained ✔ The size of the loan being obtained A state licensing agency is conducting an examination of Willow Wand's loan origination activities. In doing so, it may do all of the following, except: - Require her to compile reports related to her mortgage loan transactions - Close the business for the period of the examination - Subpoena books and records - Control access to Willow's books and records ✔ Close the business for the period of the examination An assumption clause - allows the seller to reassume the mortgage if the buyer falls behind in his payments. - assumes the buyer has the ability to repay the loan based on his credit score. - allows a buyer to assume the seller's mortgage. - allows the buyer to sell the mortgage without requiring the seller's authorization. ✔ allows a buyer to assume the seller's mortgage. Statements in advertising that may lead a consumer to incorrectly assume that a mortgage product or company is directly endorsed by the federal government are in violation of which law? - Regulation A - Regulation Z - Regulation B - Regulation X ✔ Regulation Z The process of pooling together similar types of loans to create mortgage-backed securities for sale in the secondary financial markets is called: - Diversification - Capitalization - Securitization - Collateralization ✔ Securitization Stan is a loan processor who works closely with Heidi, who is a licensed loan originator. Both are employed by a state-licensed mortgage broker. While Heidi was out of the office, one of her clients called to ask whether it would be better to apply for an ARM or a fixed-rate loan. How should Stan respond? - He should advise the client that he cannot discuss loan terms, but will have Heidi return the call - He should only respond to the client's question if the transaction is for a home purchase and the client needs to expedite loan approval to purchase the home - He should refer the client to the Settlement Cost Booklet - He should not take the call since the law prohibits him from communicating directly with consumers ✔ He should advise the client that he cannot discuss loan terms, but will have Heidi return the call "Equity" is defined as: - The difference between the fair market value of a property and the current balances of any liens - The difference between the appraised value and the purchase price - The relationship between the value of the house and a borrower's assets - The balance of any liens divided by the proposed value of any new loan ✔ The difference between the fair market value of a property and the current balances of any liens According to fair lending laws, age may be considered as a factor in denying a loan application if: - The applicant is too young to enter into a contract - The applicant is seeking a reverse mortgage and is 62 years old - The applicant is too old to survive the term of the loan - The applicant is too young to have accumulated savings and requires a gift from his or her parents in order to make a down payment ✔ The applicant is too young to enter into a contract Securitization helps lenders to: - Make more loans to lesser-qualified customers - Increase the menu of products available to their customers - Provide funds to the highest bidder on the secondary market - Exchange active loans to another entity to generate new funds to make more loans ✔ Exchange active loans to another entity to generate new funds to make more loans A _____ is an individual who accepts a fee to falsely claim ownership to a property. - Straw buyer - Air buyer - Straw seller - Air seller ✔ Straw seller This is the term for a charge paid by the borrower when repaying loan principal earlier than required by the amortization schedule. - Acceleration - Prepayment penalty - Early termination fee - Payoff penalty ✔ Prepayment penalty The Dodd-Frank Act listed the creation of financial education programs as one of the primary functions of: - NMLS - CFPB - FHA - HUD ✔ CFPB A _____ is defined as any mortgage product other than a 30-year fixed-rate mortgage. - Piggyback loan - Subordinate lien - $200,000 - $175,000 - $235,000 ✔ $175,000 The generally-accepted appraisal standards in the United States are known as: - ASB - USASB - USPAP - FinCEN ✔ USPAP Which of the following is true regarding preparation and delivery of the Closing Disclosure? - The borrower is ultimately responsible for ensuring he receives the Closing Disclosure. - Creditors may not use settlement agents to provide the Closing Disclosure on their behalf. - The creditor is ultimately responsible for ensuring that the borrower receives the Closing Disclosure. - The settlement agent is ultimately responsible for ensuring that the borrower receives the Closing Disclosure. ✔ The creditor is ultimately responsible for ensuring that the borrower receives the Closing Disclosure. If a consumer submits a complaint about a mortgage lender to the CFPB, the lender has _____ days to respond before the CFPB publishes the complaint in its public complaint database and pursues a potential investigation. - 7 - 10 - 20 - 15 ✔ 15 Which of the following are considered liens? - Judgment, mortgage, flood insurance - Mortgage, mechanic's lien, debentures - Chattel, mortgage, attachment - Judgment, attachment, mortgage ✔ Judgment, attachment, mortgage What federal legislation requires loan originators to collect demographic data to ensure that creditors are not engaging in discriminatory lending? - ECOA - HMDA - GLB Act - FCRA ✔ HMDA Which of the following is not a characteristic of an HPML? - It is secured by the borrower's principal dwelling - It has an APR that exceeds the average prime offer rate by 1.5 percentage points for a loan secured by a first lien on the home - It has an APR that exceeds the average prime offer rate by 3.5 percentage points for a loan secured by a subordinate lien on the home - It has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points ✔ It has an APR that exceeds the rate for Treasury securities with a comparable rate of maturity by 6.5 percentage points An underwriter: - Is responsible for approving an originator's license - Verifies that the applicant and subject property meet lender guidelines - Looks for red flags in marketing - Facilitates the Safeguards Rule for the lender ✔ Verifies that the applicant and subject property meet lender guidelines All of the following are considered involuntary liens, except: - Mortgage - Mechanic's lien - Tax lien - Judgment ✔ Mortgage Which of the following settlement services would not be covered by RESPA? - Services of a real estate agent - Office supply provider - Processing services - Title abstractor ✔ Office supply provider For what length of time can a bankruptcy remain on a credit report? - No more than ten years - No more than one year - No more than seven years - No longer than three years after it is paid ✔ No more than ten years A consumer is obtaining a closed-end loan that allows for rescission. The borrower may exercise his or her right to rescind: - If he or she collects the signatures of all other parties with an ownership interest in the property - Until midnight on the third business day after signing the lending agreement - Until midnight on the first business day after signing the lending agreement - Only if he or she has a loan contract that explicitly provides for the right to rescind ✔ Until midnight on the third business day after signing the lending agreement All of the following loans are covered by RESPA, except: - A loan assumption made without lender approval - A 30-year fixed loan made by a federally regulated credit union - An FHA loan - A conforming loan ✔ A loan assumption made without lender approval When a borrower chooses to allow their interest rate to rise or fall with the market until the loan is closed, it is called: - A lock-in - A variable rate - A float - An adjustable rate ✔ A float The Truth in Lending Act protects consumers in the mortgage market by: - Using disclosures to ensure that consumers make informed choices for loan products - Prohibiting subprime mortgage loan transactions - Regulating the interest rates that creditors can charge for conventional mortgage loans - Limiting the cost of settlement services by imposing caps on amounts charged ✔ Using disclosures to ensure that consumers make informed choices for loan products Which of the following best describes the LTV ratio? - It is the ratio of the borrower's total debt to monthly income - It is the ratio of the borrower's principal loan balance to the appraised value of the property - It is the ratio of the borrower's monthly loan payment to the principal loan balance - A majority of the five - At least two of the five - Any one of the five ✔ Any one of the five Entities that gather and sell information regarding an applicant's credit in the form of credit reports are known as: - Consumer finance associations - Consumer reporting agencies - Consumer reporting associations - Consumer finance agencies ✔ Consumer reporting agencies All but which of the following prohibitions or requirements apply to HPMLs? - The loan cannot include prepayment penalties after the first two years of the loan term - The loan cannot include prepayment penalties - The borrower must have an escrow account for taxes and insurance - Consideration of repayment ability must include verification of income using documents such as IRS W-2 forms ✔ The loan cannot include prepayment penalties after the first two years of the loan term How long must flood insurance be in place? - The borrower can cancel at 80% of the loan balance - Until the loan reaches the halfway point in the amortization table - It cannot be canceled as long as the property remains in a mandatory flood zone - Until the loan balance is completely paid off ✔ Until the loan balance is completely paid off Nicole is obtaining a higher-priced mortgage loan to buy a home from a Marine in South Carolina who has been reassigned to a base on the West Coast. The Marine purchased and moved into his home three months earlier. In this transaction, a second appraisal will: - Be required because the seller acquired the home 90 days prior to the date that Nicole agreed to purchase the home - Be required if there is any evidence that the sale constitutes property flipping - Not be required unless Nicole has agreed to purchase it for 20% more than the Marine paid - Not be required since purchases from servicemembers are not subject to the requirement for two appraisals ✔ Not be required since purchases from servicemembers are not subject to the requirement for two appraisals In what scenario would a sales comparison approach be appropriate? - A condo complex for residents aged 55 and over - A bio-dome built in the middle of a residential neighborhood - A commercial office building in an area zoned commercially - A complex of office units in a business park near a residential neighborhood ✔ A condo complex for residents aged 55 and over The six factors that constitute the definition of an application are: - Name, address, estimated property value, Social Security number, loan amount, loan type - Name, Social Security number, address, loan amount, loan type, income - Name, address, Social Security number, income, estimated property value, loan amount - Name, Social Security number, income, estimated property value, loan purpose, loan amount ✔ Name, address, Social Security number, income, estimated property value, loan amount All of the following are part of the underwriter's review of collateral, except: - Sales contract - Bank statements - Appraisal - Flood zone verification ✔ Bank statements The regulations issued for the implementation of ECOA are known as: - Regulation E - Regulation B - Regulation C - Regulation X ✔ Regulation B Tom and Cindy Lewis are buying a house with a $300,000 sale price, and their LTV will be 80%. They paid $3,600 in discount points. How many total points did they pay? - 2 - 4 - 2.5 - 1.5 ✔ 1.5 Jake Pearson applies for a loan with TNT Mortgage on June 1. TNT is required to inform Jake whether it has approved his loan by: - June 4th - June 15th - July 15th - June 30th ✔ June 30th A borrower is buying a house with a sales price of $210,000, but the appraisal came in at $200,000. The borrower takes out a loan of $160,000. What is the LTV? - 76% - 90% - 80% - 75% ✔ 80% Under the Truth in Lending Act, a creditor is defined as: - A natural person, business, or financial organization that services - mortgage loans - A natural person that extends at least 10 open-end loans per calendar year - A natural person, business, or financial organization that regularly extends credit to consumers - A natural person, business, or financial organization that extends at least 15 open-end loans per yea ✔ A natural person, business, or financial organization that regularly extends credit to consumers Ricky and Lucy are buying a house using a conforming loan, and they have reached an agreement to receive the max concession from their seller. They have agreed on a $230,000 sales price, and are putting down 10%. What is the amount of the seller concession? - $6,210 - $6,900 - $13,800 - $12,420 ✔ $13,800 Bob Bachman is applying for a mortgage with MZ Mortgage. He is referred by MZ Mortgage to a title company in which MZ Mortgage has a 10% ownership interest. At what point must Bob be made aware of the relationship between the two companies? - At the time of the referral - It is not necessary, because MZ Mortgage owns less than 25% of the title company - Provide borrowers with a clear explanation of the cost of a loan through disclosure of APR and finance charges - Allow a borrower the opportunity to remove PMI from his/her loan - Identify discriminatory lending practices and determine if financial institutions are meeting the borrowing needs of their communities - Use disclosures to help consumers shop for available credit options ✔ Identify discriminatory lending practices and determine if financial institutions are meeting the borrowing needs of their communities Which of the following is true? - Open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule - Open-end credit plans, timeshare plans, and closed-end consumer credit loans are exempt from the ATR Rule - Open-end credit plans are covered by the ATR Rule - Reverse mortgage loans are covered by the ATR Rule ✔ Open-end credit plans, timeshare plans, and reverse mortgage loans are exempt from the ATR Rule The reporting form used to communicate HMDA data is called what? - 1073 - Loan/Registration Application - 1004 - Loan/Application Register ✔ Loan/Registration Application Which of the following mortgage industry documents might the borrower be asked to sign while it still contains blank sections? - A broker agreement - A TIL disclosure - A verification of employment - The promissory note ✔ A verification of employment A consumer report is defined under which of the following federal laws? - FACTA - FCRA - ECOA - HMDA ✔ FCRA What document would an underwriter rely on for detailed information concerning the collateral for a mortgage loan? - The property appraisal - The borrower's asset statements - The URLA - The borrower's employment documentation ✔ The property appraisal Mortgage insurance may be cancelled at what LTV percentage on a VA loan? - Mortgage insurance is not required - 80% - 75% - After five years ✔ Mortgage insurance is not required The Jepsons have brought mortgage loan originator Stanley Rothke a check to pay for loan origination fees, the private mortgage insurance premium, and the commitment fee. These charges are: - Paid-outside-of-closing charges - Prepaid finance charges - Third-party charges - Mortgage loan transaction fees ✔ Prepaid finance charges When an ARM contains a limit on the amount that an interest rate can adjust, it is called a(n): - Cap - Index - Margin - Frequency ✔ Cap Disclosures for high-risk loans required by the Homeowners Protection Act inform the borrower that: - The loan is considered a high-cost loan because it trips thresholds related to title insurance fees - Termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments - There may be a loan more suited for the borrower that is much less expensive - Payment amounts may change based on interest rate changes ✔ Termination of PMI is automatic at the midpoint of the amortization schedule as long as a borrower is current on his/her payments In order for a home loan to be a qualified mortgage, the debt-to-income ratio may not exceed: - 43% - 28% - 36% - 46% ✔ 43%