Understanding RESPA, TILA, and Mortgage Loans, Exams of Law

Download Understanding RESPA, TILA, and Mortgage Loans and more Exams Law in PDF only on Docsity! NMLS test Questions with Answers 2024. How long should you keep mortgage loan records under ECOA? ✔ 25 months How long is the Do Not Call Registry good? ✔ When the number is disconnected, reassigned, or when the consumer chooses to remove it How many months cushion are allowed under the escrow account rules? ✔ 2 months cushion When are escrow accounts reviewed and what amount of overage could cause a refund to the borrower? ✔ Renewed annually and if the account has more than $50 in overage it will be refunded What properties are covered under RESPA? ✔ Single, 1-4 family dwellings, condos, and manufactured homes placed on a lot RESPA imposes restriction on ___________? ✔ Amount collected for escrow accounts When advertising, the APR must be present when __________? ✔ A rate is quoted or present RESPA was put in place to? ✔ Limit amounts in escrow, eliminate kickbacks , and educate the borrowers on the closing cost, it does NOT regulate interest rates According to RESPA guidelines, failure to comply with Section 8 could result in a penalty of? ✔ $10,000 and/or 1 year prison terms for each incident Redlining is best defined as: ✔ Failing to end to certain geographic areas Who created and monitors a companies Red Flag Rules? ✔ Federal Trade Commission (FTC Red Flag Rules) At what point in a conventional will the PMI be removed? ✔ When the principal balance reaches 78% of the original value or purchase price When does a referring party have to provide the ABA form to the borrower? ✔ Before or at the time of the referral Advertising a mortgage loan product that a lender is not able to offer is a violation of what federal law? ✔ TILA/reg Z What is the Act that requires a financial entity to provide customers with a privacy notice, as well as an "opt out notice", regarding the customer's personal information? ✔ Gramm-Leach Bliley Act Under the GLB Act, nonpublic information can only be shared with affiliates of the financial institution or affiliates of related third parties, even if the customer does not opt out. (T/F) ✔ TRUE What information must be provided to the borrower when referrals take place between affiliated businesses? ✔ An Affiliated Business Disclosure Statement as mandated by RESPA What is the primary purpose of the Gramm-Leach Bliley Act? ✔ Notice of right to financial privacy and right to opt out of sharing personal information Along with the Fair and Accurate Credit Transactions Act Disposal Rule, what GLB Act provision ensures that customer's information is not handled or maintained carelessly and is disposed of properly? ✔ GLB Act's Safeguards rule What is the difference between the GLB Act Safeguards Rule and the FACT Act Disposal Rule? ✔ GLB Act's Safeguards Rule requires all companies to design, implement, and maintain safeguards to protect customer information from theft... FACT Act requires businesses to take appropriate measures to safeguard from theft in the disposal of consumer report What is a "Federally Related Loan"? ✔ Loans secured by a first or subordinate lien on a residential property that meets stated RESPA criteria. The definition is so broad it covers virtually every home loan secured by a mortgage. Most of HUD's enforcement actions result due to section 8 of RESPA. What is addressed in Section 8? ✔ Prohibited against giving or receiving a fee, kickback, or anything of value pursuant to an agreement or understanding for the referral of settlement business What is an affiliated business arrangement? What is the most common type of mortgage fraud involving borrowers? ✔ Fraudulent information on loan application What is the primary step in detecting mortgage fraud? ✔ A thorough "common sense" analysis of the application information and documents relating to the mortgage loan request Why is it important to check the back of pay stubs, bank statements, and W2 forms? ✔ To detect watermarks and printed fraud prevention patterns. Technology allows people to produce high quality fraudulent documents. Most have incorporated prevention techniques What does the phrase "Caveat Emptor" mean? ✔ "Buyer Beware" ...If the buyer is provided all the info and disclosures, they will ultimately be responsible for understanding the terms What is a "Buy-Back provision" in reference to table funding? ✔ If any form or fraud related activity takes place around a particular loan, the originator (broker) is responsible for buying the loan back Wat is "Equity-Based Lending"? ✔ It occurs when loans are made to homeowners based solely on the equity in their homes with no regard to other credit. This is an unethical practice because it can "strip" homeowners of their equity and leave them with larger loans than they can pay for What is "Redlining"? ✔ Failing to lend to certain geographic areas or segments of the population What is "Reverse Redlining"? ✔ Targeting consumers that you knowingly can take advantage of in an attempt to charge them more in rates and fees When a consumer registers on the National Do Not Call Registry, when does the request expire? ✔ Never, they remain permanently as of the DNC Improvement Act of 2007 What two exceptions exist for calling a client that currently resides on the Do Not Call List? ✔ 90 Days from taking an application or 18 months from a completed transaction are okay to contact When is the Notice of Right to Receive Appraisal given to the borrower? ✔ Within 3 days of application The GLBA Privacy Notice may be delivered to customers via fax, mail, or email? (T or F) ✔ True, in writing or electronic for. Clearly describe the institution's practice of sharing nonpublic personal information Define "Trigger Term" ✔ The most attractive features of a credit plan such as: Rate, finance charges, payment terms, down payments, and monthly payments Explain the advertising requirements about the term "Annual Percentage Rate" outlined in Reg Z ✔ TILA requires clear and conspicuous presentation of relevant terms when triggers are use. Other relevant terms must have equal prominence so the consumer doesn't have to read the fine print What regulations is ECOA? ✔ Reg B What is the purpose of ECOA? ✔ To make credit applications equally available and to allow the request of credit without fear of discrimination of protected classes What does HMDA stand for? ✔ Home Mortgage Disclosure Act (Regulation C) What is an easy way to remember RESPA is Regulation X? ✔ X-Ray of your RESPAtory system What is an wasy way to remember TILA is Regulation Z? ✔ TILA GodZila What federal regulation allows a borrower to exercise their right to rescission? ✔ Regulation Z, TILA What is the fine for a violation of TILA? ✔ $5,000 and or 1 year imprisonment unless class action then $500,000 or 1% of net worth What are the words behind FCRA? ✔ Fair Credit Reporting Act What is the DNR? ✔ Do Not Call Registry How often must a lender update their DNR database? ✔ Every 31 days Always include the APR in an advertisement when _______________________? ✔ A rate us present or quoted How long does a number stay on the DNR? ✔ Permanently unless consumer removes number or the number is assigned to another person Who takes the initiative to place or remove a phone number on the DNR? ✔ The Consumer What are the words behind SAFE? ✔ Secure and Fair Enforcement What federal Act requires creditors to allow consumers to opt out of the sale of their non-public information (NPI)? ✔ Gramm-Leach Bliley Act What federal act requires that creditors create a policy to safe guard consumers NPI? ✔ GLBA or Gramm-Leach Blilry Act Under the SAFE Act, how many hours of education are required for per-licensing and continuing education? ✔ 20/8 hours Which action is a violation of the GLBA? ✔ Obtaining customer information by false pretenses (Known as pre-texting) How often can an MLO be investigated by authorities? ✔ As often as necessary The SAFE Act defines a nontraditonal mortgage as ✔ Anything other than a 30 year fixed rate loan What is the waiting period for a person who seeks to license as an MLO that had a prior felony pardoned? ✔ No waiting period Felony convictions in the last ____ years would keep a person from being able to obtain an MLO license? ✔ 7 years MLO Licensees who teach an approved NBMLS course get ___ hours CE credit for every ____ they teach? ✔ 2 for 1 ✔ An index usually associated with an ARM What is the conforming loan limit for a one-family property? ✔ $417,000 (this limit goes up to $625,500 for high cost areas) What is a periodic rate cap? ✔ A limit on the amount that the interest rate can change during an adjustment periods What is an initial rate cap? ✔ A limit on the amount that the interest rate can increase during the first adjustment period for an ARM What is negative amortization? ✔ A monthly mortgage payment is not large enough to pay all of the interest due on the mortgage therefore the balance is not reduced, also known as deferred interest What is a "conforming" loan? ✔ A conventional loan, (one NOT insured by the government) that meets the guidelines for purchase established by FNMA or FHLMC What is a variable rate mortgage? ✔ A mortgage with an interest rate that may change one or more times during the life of the loan What is a non-conforming loan? ✔ A conventional loan that does not meet the FNMA or FHLMC guidelines Which non-conventional loan has a funding fee? ✔ VA has a funding fee. The fee ranges from 0.5-3.3 but is waived for qualifying disabled veterans. Remember, a non-conventional loan is one that is insured by the federal government What is the maximum loan guaranty from the VA? ✔ The maximum VA home loan guarantee is 25% of conforming VA home loan What is a payment cap? ✔ A limit on the amount the payment can change during on adjustment period on an ARM What is a conventional loan? ✔ A loan NOT insured by the government (NOT a FHA, VA, or USDA loan) What is the maximum entitlement amount for a veteran? ✔ 4 times the amount listed on COE Does the FHA (Federal Housing Administration) make loans? ✔ No... FHA and VA do not make loans they insure (FHA) or guarantee (VA) Which non-conventional loan is made for the purpose of assisting low-income borrowers purchasing homes in rural areas? ✔ USDA (US Department of Agriculture) AKA Guaranteed Rural Housing Loans Can a borrower get an FHA insured loan for a condominium? ✔ Yes, in addition to the primary fixed rebate program for the purchase or refinance of 1-4 family dwellings, FHA offers programs for the purchase of a condominium What is the difference between a non-conforming loan and a non-conventional loan? ✔ Non-conventional loans are government insure loans while Non-Conforming loans are conventional loans (non govt loans) that don't meet FNMA and FHLMC underwriting guidelines What is the time frame a borrower has to take possession and move into the house after closing? ✔ 60 days FNMA and FHLMC allow borrower's to obtain "Seller Financing" in conforming loan transactions? (true or false) ✔ True, FNMA and FHLMC does allow borrowers to obtain seller financing also known as concessions. Seller concessions are limited to 6% with a buyer paying 10% or higher down payment or limited to 3% for less than 10% Define a Seller Carry-Back? ✔ A purchase transaction, often involving an assumable mortgage, in which the party selling the property provides all or part of the financing. Also known as Owner Financing Define a Fully Indexed Rate? ✔ In an ARM, the interest rate indicated by adding the current index value and the margin Define Amortization? ✔ Periodic payments on a loan requiring payment of enough principal and interest to ensure complete repayment of the loan by the end of the loan term What charges are NEVER included when calculating Finance Charges? ✔ Examples of some standard items that are never included in finance charges are: charges payable in comparable cash transactions, such as fees for appraisals, document preparation, title insurance, pest inspections, seller's points and membership fees What charges are ALWAYS included when calculating Finance Charges? ✔ Transaction Fees, Origination Fees, Consumer Points, and Broker Fees Define "Point" ✔ 1% of the loan amount is equal to a point When must the affiliated business arrangement disclosure be given to the borrower? ✔ At the time of the referral by the referring party Define "Buy Down" ✔ The paying of fees (buying) to reduce (down) the payments on a mortgage and qualifying for a larger loan. A buy down may be permanent or temporary. Define "Creditor" ✔ A person or entity to whom an obligation is owed, such as a loan What is the difference between Finance Charge and the Annual Percentage Rate? ✔ Finance Charge is the cost of the credit in an exact dollar amount and the APR is the cost of the loan including interest and financed costs of closing, expressed in a rate Mortgage broker fees are always included in the finance charge? (true or false) ✔ true A 10-year old property is being sold. What is the best approach for an appraiser to evaluate the property? ✔ Market approach is also known as Sales Comparison Approach or Market Data Approach Which type of automated underwriter does Fannie Mae and Freddie mac use? ✔ FNMA uses Desktop Underwriter (DU) and FHMLC uses Loan Prospector (LP) What is the acronym COFI? ✔ Cost of Funds Index (COFI) What is a fully indexed rate? ✔ Also known as the Fully Indexed Accrual Rate (FIAR). This is the "real" or "true" interest rate of an ARM. ARMs often have introductory or temporarily discounted rates. The fully indexed rate is the result od adding the index and margin What is tenancy by the entirety? ✔ One of the ways to own property by more than one person (concurrent ownership). The co-owners must be husband and wife, both of whom own the whole property. When one of the two dies, their interest goes to the surviving spouse What percentage of down payment is required on USDA loans? ✔ Zero (0%) What is a temporary buy-down? includes a power of sale clause allowing the lender to begin foreclosure without filing suit What is the finance charge? ✔ A uniform measurement of the cost of a loan expressed as a dollar amount What is an interest-only loan? ✔ A loan that requires only interest payments. At the end of the loan, the borrower essentially owes a balloon payment of the entire principal of the loan What is a seller carry-back? ✔ A purchase transaction, often involving an assumable mortgage in which the party selling the property provides all or part of the financing What is a short sale? ✔ When the lender agrees to a reduced payoff on a loan when the subject property is sold Can a VA loan be assumed? ✔ Yes, VA may be assumable. The buyer must meet credit qualifications, but doesn't have to be a veteran What is the note rate? ✔ The stated interest rate on a mortgage or loan agreement A second mortgage is also known as a subordinate lien (true or false) ✔ True, also known as a junior mortgage What is the primary difference between the Loan Estimate (LE) and the Closing Disclosure (CD)? ✔ LE is an estimate of cost to close and the CD is the actual cost at closing What is a Home Equity Conversion Mortgage (HECM)? ✔ Commonly known as a reverse mortgage. Allows a homeowner 62 years of age or older to use the equity in their home to receive fixed monthly payments, line of credit or a combination of payments and credit line. Borrowers must complete counseling with a HUD-approved HECM counselor in order to obtain the loan. What factor does not affect the money received in a HECM loan? ✔ Age of property Best appraisal approach to use when determining value of a rental property? ✔ Income Approach What is securitization? ✔ The bundling of mortgage loans to resell to investors, they become mortgage backed securities (MBSs) and are sold on the secondary market What are service release premiums? ✔ The revenue earned from the resell of pools of loans to investors LIBOR stands for? ✔ London Interbank Offered Rate Margin for ARMs are set by: ✔ The Investor/Lender A borrower has given $10,000 as earnest money on a home he is purchasing for $375,000. In addition he is going to put down $78,000 from the sale of his current home, which will also go towards closing costs. What is the percentage of the down payment? ✔ 23% which is the down payment and closing cash to closing A man has applied for a loan and his home appraised for $225,000, he is taking out a loan for $165,150 and has agreed to pay 1 discount point on the loan and 2.5% broker fee, what is the total loan amount he ill pay in discount and broker fees? ✔ $5,780.25 A homeowner wants to refinance his home which appraised for $300,000. He has a HELOC for $40,000 with a balance of $210,000. What is the LTV, CLTV, and TLTV? ✔ 70% LTV 78% CLTV 83% TLTV What type of loan is open-ended? ✔ HELOC Which lien takes precedence on title? ✔ The mortgage recorded first What type of lien has priority over all others? ✔ Taxes Who earns SRP? ✔ Lender Margins on ARMs are not subject to change during the entire term of the loan? (true or false) ✔ True What information is not provided on the Notice of Adverse Action Letter? ✔ Credit Score What term is associated with transferring title? ✔ Conveyance What term is associated with a lender releasing their lien upon full payment? ✔ Reconveyance What document is used to release a mortgage lien? ✔ Satisfaction of Mortgage What equity position is PMI removed automatically? ✔ 22% What law prohibits kickbacks and referral fees? ✔ RESPA Under what circumstance is it okay to discriminate based on age? ✔ Too young to enter a legally binding contract (under 62 for HECM) What type of loan has a fixed rate of 6.5% for the first five years and 7.5% fore the remaining 25 years? ✔ Variable Rate What is a permanent change in a borrowers loan terms in response to their long term inability to pay known as? ✔ Loan Modification What loss mitigation strategy is a temporary reduction of a borrowers payment while they pay past due amounts? ✔ Forbearance When does an ABA form have to be given to a clinet? ✔ At the time the referral is made by the referring party How long does MIP stay on the FHA where a borrower puts less than 10% down? ✔ Lifetime of the loan What would keep property from trasferring Free and Clear? ✔ Failing to pay off a loan (lien) What automated underwriting (AUS) does (FHLMC) Freddie Mac use? ✔ LP (Loan Prospector) What type of loan cannot be repurchased? ✔ No Bid $18 x 40 x 52 divided by 12 months Can overtime income always be used to qualify for a loan? ✔ As long as the borrower has been receiving overtime for two years and employer can verify it will continue A borrower earns $1,350 biweekly income before taxes, what is his gross monthly income? ✔ $2,925: $1,350 x 26 weeks divided by 12 months gives monthly average When can child support and separate maintenance be used as income? ✔ If court ordered and shows a stable history of receiving payments (Must show proof and 3 years continuance) What is the difference between a voluntary and involuntary lien? ✔ Voluntary is one that the owner gives consent to the lien such as a mortgage Involuntary is one such as a Tax Lien, or other unpaid debt The back-end ratio is known by what other names? ✔ Debt Ratio, Debt to Income Ratio (DTI), Bottom Ratio or Total Ratio What category on the URLA would be check-marked to represent a marital status of single? ✔ unmarried How is LTV calculated? ✔ Loan amount requested or principal balance divided by appraised value or purchase price (which ever is less) What is the difference between LTV and CLTV? ✔ LTV: takes into consideration only the first mortgage balance CLTV: considers both the first and all other mortgages on the home Under what circumstances would the debt of a non-purchase spouse be included in the applicant's qualifying ratios? ✔ When the applicant resides in, or if the property is located in, a community property state How is the back-end ratio calculated? ✔ It considers the house payment and all other consumer debt (recurring debt) and divides by gross monthly income (PITI + recurring debt/gross monthly income + back- end ratio) As a general rule, what percentage of rental income stated on the rental agreement will be used to help qualify the borrower? ✔ Vacancy factor is 25%, so 75% will be used unless otherwise noted on the 1040 schedule E-Real Estate What does the acronym URAR represent? ✔ Uniform Residential Appraisal Report On a professional home appraisal, what is the difference between a sales comparison approach and a cost approach? ✔ Sales approach looks at recent sales in the area that have similar characteristics to the subject home and the cost approach assumes a cost to construct a substitute residence that has the same utility and use as the subject property being appraised What category on the URLA would be check-marked to represent a marital status of divorced, widowed, or never married? ✔ "unmarried" If four borrowers received a right of rescission for a specific loan, how many of them would be required to return the right of rescission in order to cancel the loan? ✔ Only one person would need to execute the rescission notice In a community property state, is a non-purchasing spouse's credit history considered in the loan approval? ✔ No, however their debt will be considered into the debt to income ratio (community property states, each spouse is responsible for the others debt even if they don't sign on to the obligation) The dollar amount of the Net adjustment for each comparable sale should not exceed what percentage of the sales price of the comparable? ✔ Net is 15% (single line adjustments is 10% and Gross adjustment is 25%) The Front-End Ratio is known by what other names? ✔ Housing Ratio, Housing Expense Ratio to Top Ratio What type of approach is used by an appraiser to determine the value of an investment property? ✔ Income Approach What is the difference between "Title Theory" states and "Lien Theory" states? ✔ Title Theory, a Deed of Trust is executed and borrower gives legal title (ownership) to the lender while retaining use of the home until the debt is paid off. Lien Theory, borrower retains both legal and equitable title. The mortgage serves as a lien against the property Homeowners who are required to carry homeowner's flood insurance can obtain it through? ✔ Private Insurance Carriers What are the front and back-end ratio percentages used by FHA? ✔ 31/43 What is a Chain of Title on a property? ✔ A record of all transfers of ownership of a subject property When is the Notice of Action Taken, Notice of Adverse Action, or the Notice of Incomplete Application required to be provided to the customer? ✔ ECOA - 30 days from application Can a mortgage loan come out of rescission on a Saturday? ✔ Yes, a loan becomes eligible for funding three business days after closing. Those days are any day other than Sunday and a legal public holiday What are the front and back-end ratio percentages used by the VA? ✔ NA/41%... There is no front end ratio for VA loans What does rescission mean? ✔ A legal remedy to void a contract between 2 parties, restoring each to the position held prior to the transaction Who is required to be given a right to rescind by the lender? ✔ Any person signed on the note or who has an ownership interest in the property being used to secure the loan must be given two copies In calculating the time limitations for the right to rescind, what days are not considered "business" days? ✔ Sunday and federal public holidays (if the feds don't work, they don't enforce) Fannie Mae and Freddie Mac utilize what front and back-end ratio for housing? ✔ 28/36 For both closed or open-end credit, how long is the rescission period if the creditor fails to provide a rescission notice that meets the requirements for notification, or fails to disclose all the terms of the lending transaction as required under TILA? ✔ 3 years Generally, account information, including late payments and other adverse info, is kept on a credit report for no longer than how many years? ✔ 7 years What is table funding? ✔ A type of wholesale lending arrangement where mortgage brokers are permitted to originate, and close a loan in their name for a wholesaler who has made the credit decision and funded the loan with an immediate assignment by the broker after closing If a borrower takes a 2/1 buy down with a start rate of 4.5, what is his rate during the second year? ✔ 5.5% What is the maximum LTV for FHA loans? ✔ 96.5% What is the minimum down payment of an FHA loan? ✔ 3.5% What is the front and back-end DTI ratio for an FHA loan? ✔ 31%/43% What is the maximum LTV for VA loans? ✔ 100% What is the loan entitlement? ✔ 4 times the COE What is the maximum COE on a VA loan, expressed in a dollar amount? ✔ $36,000 What is the maximum origination fee that can be charged to a veteran on a VA loan? ✔ 1% What is the maximum LTV for a USDA loan and what is the maximum LTV if a funding fee is financed? ✔ 100%/102.75% What is the funding fee on a USDA loan? ✔ 2.75% What is the only term for a USDA loan? ✔ 30 years Is there a down payment on a USDA loan? ✔ No Which FNMA form number is known as the Transmittal Summary? ✔ 1008 What three items best describes what a lender or underwriter should consider when making a decision? ✔ Credit, Capacity, and Collateral You may refer to a borrower as all of the following except: a) single; b) married; c) divorced; d) unmarried? ✔ C: Divorced What percentage of ownership would not require a self employed borrower to provide tax returns? ✔ 25% FEMA stands for? ✔ Federal Emergency Management Agency Which form number represents the Request for Copy of the Tax Transcripts? ✔ 4506T How many days does a seller have to wait to sell a home for profit if the new homebuyer is using a FNMA loan product? ✔ Zero days Which of the following do not affect the VA funding fee? Marital status, down payment, or disability? ✔ Marital Status What does POC stand for? ✔ Paid out of Closing What does the PFC stand for? ✔ Pre-paid Finance Charge What does GNMA stand for? ✔ Government National Mortgage Association What does FNMA stand for? ✔ Federal National Mortgage Association What Does FHLMC stand for? ✔ Federal Home Loan Mortgage Corporation