Answer: c) Both mortgages together constitute a CLTV of 85% ($722,500). If the second mortgage’s LTV is 22%, the first mortgage’s LTV has to be 63% (85 – 22 = 63). When you multiply $850,000 by 63%, the result is $535,500.

Answer: c) Both mortgages together constitute a CLTV of 75% ($300,000). If the second mortgage’s LTV is 15%, the first mortgage’s LTV has to be 45% (60 – 15 = 45). When you multiply $500,000 by 45%, the result is $225,000.

Answer: c) To avoid PMI, the first mortgage must be no greater than 80% LTV (480,000). If the borrower has $60,000 (10%) to spend as a down payment, another 10% will be needed to bridge the gap between the first mortgage, the down payment, and the purchase amount.

Answer: a) To avoid PMI, the first mortgage must be no greater than 80% LTV (680,000). If the borrower has $85,000 (10%) to spend as a down payment, another 10% will be needed to bridge the gap between the first mortgage, the down payment, and the purchase amount.

Answer: d) The hourly rate of $22.00 is multiplied by the hours worked per week (35) to achieve the weekly rate ($770). The weekly rate is then multiplied by 52 to achieve the annual income since each year contains 52 weeks ($40,040). The annual income is then divided by 12 to achieve the monthly income. $3,336.67.

Answer: a) The hourly rate of $30.00 is multiplied by the hours worked per week (45) to achieve the weekly rate ($1,350). The weekly rate is then multiplied by 52 to achieve the annual income since each year contains 52 weeks ($70,200). The annual income is then divided by 12 to achieve the monthly income. $5,850.

Answer: d) The established debt ratio of 35% translates to $2,100 meaning that the P&I plus all other monthly debt totals $2,100. If the other monthly debt amounts to $750, the difference of $1,350 is what is left to cover the P&I (2,100 – 750 = 1,350).

Answer: b) The established debt ratio of 30% translates to $2,700 meaning that the P&I plus all other monthly debt totals $2,700. If the other monthly debt amounts to $2,500, the difference of $200 is what is left to cover the P&I (4,200 – 1,500 = 2,700).

Answer: c) Monthly earnings amount to $12,000. All qualifying debt can consume no more than 36% (4,320). If his monthly debt amounts to $2,200, the balance of allowable expense is $2,120 (4,320 – 2,200).

Answer: d) Monthly earnings amount to $5,000. All qualifying debt can consume no more than 40% (2,000). If his monthly debt amounts to $950, the balance of allowable expense is $1,050 (2,000 – 950).

Answer: c) The real estate taxes and homeowner’s insurance are annual amounts. Adding them together and dividing the sum by 12 results in a monthly equivalency of $370.83 (7,200 + 1,700 = 8,900 / 12 = 741.67). To that, the monthly P&I of $2,380 and the monthly PMI of $150.00 are added resulting in a monthly PITI payment of $3,272.

Answer: d) The real estate taxes and homeowner’s insurance are annual amounts. Adding them together and dividing the sum by 12 results in a monthly equivalency of $370.83 (5,000 + 1,200 = 6,200 / 12 = 516.67). To that, the monthly P&I of $2,000 and the monthly PMI of $80.00 are added resulting in a monthly PITI payment of $2,596.67.

Answer: a) Bi-weekly pay periods amount to 26 payments in a calendar year. 3,400 x 26 = an annual income of $88,400. An annual income of $88,400 amounts to a monthly income of $7,367 (88,400 / 12).

Answer: a) The first mortgage (350,000) in relation to the property value (830,000) results in a 42% LTV. All outstanding debt (350,000 + 70,000) in relation to the property value results in a 51% CLTV. All outstanding encumbrances (350,000 + 170,000) in relation to the property value results in a TLTV of 63%.

Answer: a) By averaging the previous two years’ gross earnings (131,200 + 126,400 / 2), the average annual gross earnings amount to $128,800. By subtracting his base salary of $113,500 from his annual average gross earnings, the annual average overtime earned is $15,800 with a corresponding monthly equivalence of $1,317.

Answer: b) When structuring a piggyback loan scenario, the first number always represents the LTV of the primary mortgage. Since the primary goal is to avoid paying PMI, that loan must be at or below 80%. The second number represents the LTV of the second mortgage and the third represents the borrower’s down payment (9%). All three numbers must add up to 100% since LTV + equity must always equal 100%.

Answer: a) Without a cap, the borrower’s rate would increase from 2.5% to 9% (index + margin = fully indexed accrual rate[ FIAR]). Since the loan contains a 5% initial adjustment cap, however, the highest that the borrower’s rate could increase would be to 7.5%.

Answer: d) One point equals one percent of the loan amount. Since the cost of the rate that Miss Morgan desires is 1.5% in points, the loan amount (575,000) multiplied by 1.5% results in a points expense of $8,625.

Answer: d) Investor criteria maintains that, if a borrower intends to use retirement funds as a source of settlement funds and is younger than 59 ½ (the typical age of retirement), unless the amount contained in any one specific retirement account equates to or exceeds 20% of the total amount of cash needed to close, the value of each retirement account must be considered at 70% of its face value. Since Helena is younger than 59 ½ and, since the face value of her retirement account is less than 20% above the total amount of money needed to settle, the value of her retirement account may only be considered $528,500 (755,000 x 70%). Helena will need to document an additional $129,000 in order to close.

Answer: b) The first mortgage of $100,000 divided by the property value of $300,000 results in an LTV of 33%. By adding the two debts ($100,000 + $75,000) and dividing their sum total ($175,000) by the property value ($300,000), the resulting CLTV is 58%.

Answer: a) If the two loans together comprise 83% of the property’s value and the LTV of the second loan is 60%, the second loan must equate to a 23% LTV (83 – 60 = 23).

Answer: a) Index plus margin equals Fully Indexed Accrual Rate (FIAR). Consequently, the sum of the adjusted index of 2.5% plus the established margin of 5.5% equals the new interest rate of 8%.

Answer: d) If the purchase price is $150,000, the loan amount, at 80% LTV, would be $120,000. Points are calculated based on the loan amount and the borrowers paid $2,400 for them. Since one point on this loan amount equates to $1,200 (.01 x 120,000) and the borrowers spent $2,400, the $2,400 equates to 2 points (2,400 /1,200).

Answer: c) If the buyer remits $3,225 for the first year, he is saving $375 monthly over his note rate (3,600 – 3,225). If the buyer remits $3,321 for the second year, he is saving $279 monthly during the second year (3,600 – 3,321). When 12 payments of $375 ($4,500) are added to twelve payments of $279 ($3,348) the seller will spend $7,848 to fund the 2-1 buydown.

Answer: a) If the purchase price is $350,000 and the buyer puts 10% down, his loan amount will be $315,000. If he purchases 2.5% in discount points, those points will cost him $7,875 (315,000 x 2.5%).

Answer: a) Prior to refinancing, the borrower’s P&I was $12,000. With his monthly taxes being $1,250 and his monthly insurance $600, he was spending $1,850 per month. With an annual salary of $720,000, the monthly equivalency of which is $60,000, his previous housing expense was 23% (13,850/60,000).

Answer: c) With a 20% down payment, the loan amount will be $272,000. If the rate generates a 3% settlement cost credit, the borrower will receive $8,160 towards her closing costs (272,000 x 3%).

Answer: c) Thirty percent of a $595,000 sales price equates to $178,500 (595,000 x 30%).

Answer: d) Purchase price of $300,000 minus her loan amount of $140,000 equals a $160,000 down payment. Down payment of $160,000 divided by the $300,000 purchase price equals a 53% down payment (160,000/300,000).

Answer: d) The $496,000 first mortgage brings the borrower to an 80% LTV negating the need for PMI. Since he only has a $60,000 down payment, a second mortgage of $64,000 will be necessary to bridge the gap.

Answer: d) Seller’s concessions are based upon the purchase price. Since the purchase price is $750,000 and the seller is offering 2% in concessions, the seller’s concession will amount to $15,000.

Answer: b) If the sum total of all expenses (back-end ratio) equates to 25% of the borrower’s $5,000 gross monthly income (5,000 x .25 = $1,250) and, of that, $1,200 is monthly expenses, his housing expense would consume the difference of $50.

Answer: a) A purchase loan’s LTV Is calculated by dividing the loan’s principal balance by the lesser of the purchase price or appraised value. Even though the home appraised higher than the purchase price, the purchase price will be the basis for calculating the LTV. The homeowner will most likely be unable to access the equity difference for one full year.

Answer: d) An annual income of $96,000 translates to a monthly equivalency of $8,000. The housing expense of $3,100 divided by the monthly income of $8,000 results in a housing expense ratio of 39%.

Answer: a) LTV consists of the loan amount divided by the lesser of the purchase price or appraised value. Since the purchase price is lower than the appraised value, the 77% LTV Is determined by dividing the loan amount of $110,000 by the purchase price of $142,000.

Answer: d If a borrower makes a 30% down payment, his loan amount would be 70% of the purchase price. $435,000 x 70% = $304,500.

Answer: b) All expenses consume 40% of the borrower’s gross monthly income. If the income is $11,000, 40% of that equates to $4,400. If the housing expense consumes $1,275 of the $4,400, the remaining $3,125 is the amount constituting her remaining expense.

Answer: a) With a mortgage balance of $358,000 and an appraised value of $448,000, the LTV is 79%. Since PMI would only be required if the LTV was higher than 80%, PMI is not required.

Answer: d) The hourly rate of $33 is multiplied by 45 to calculate the weekly rate of $1,485. The weekly rate of $1,485 is multiplied by 52 to calculate the annual rate of $77,220. The annual rate of $77,220 is divided by 26 to calculate the bi-weekly rate of $2,970.

Answer: c) The semi-monthly income may either be multiplied by 24 to calculate the annual income and then divided by 12 to secure the monthly equivalency or simply multiplied by two.

Answer: c) If the secretary earns $55,000 annually, this translates to $1,057.69 weekly (55,000 / 52). The weekly rate of $1057.69is then divided by 35 (since each day includes a 1hour unpaid lunch break) to calculate his hourly rate of $30.22.

Answer: b) The CLTV constitutes all outstanding debt in relation to the appraised value. Since the line of credit does not have an outstanding balance, the LTV of 55% is the same as the CLTV (315,000 + 0 = 315,000 / 575,000).

Answer: c) If the two mortgages equate to a 86% CLTV of the $415,000 value and the first mortgage constitutes 62% of that, it stands to reason that the second mortgage constitutes 24% (86 – 62). Multiplying the $415,000 value by 24% concludes the second mortgage balance as $99,600.

Answer: d) Since the overtime has been increasing and is likely to continue, you may count it as part of the fire fighter’s annual income. The two years’ gross earnings are averaged together to derive an annual average income of $50,000, the monthly equivalency of which is $4,166.67. The base salary is $3,466.67 monthly (1,600 x 26 / 12) and the average monthly overtime is $700 (4,166.67 – 3,466.67). The base monthly income of $3,466.67 plus the monthly overtime of $700 equates to her gross monthly income of $4,166.67.

Answer: d) If both mortgages together constitute 55% of the property value with the second mortgage constituting 10%, the first mortgage must constitute 45%. When the $475,000 value is multiplied by 45%, the result is $213,750.

Answer: c) If the balance owed on the first of the month is $295,000 and the loan pays off five days later, five additional days of interest are due. Since $17.50 x 5 = $87.50, $295,000 + $87.50 = $295,087.50.

Answer: c) If the social security disability income is untaxed, you may increase the amount earned by 25%.

Answer: c) With the index at 1.5% and the margin at 3.5%, the FIAR is 5.0%. The 2% periodic rate cap would prevent the rate from increasing by more than 2%. Since 5.0% is less than 2% above the current rate of 3.75%, the rate adjusts from 3.75% to 5.0%.

Answer: d) $46,500 annually translates to $894,23 weekly (46,500 / 52). This weekly rate translates to an hourly rate of $22.64 based on a 39.5-hour work week (894.23 / 39.5).

Answer: d) If the purchase price is $260,000, the loan amount, at 70% LTV, would be $182,000. Points are calculated based on the loan amount and the borrowers paid $5,460 for them. Since one point on this loan amount equates to $1,820 (.01 x 182,000) and the borrowers spent $5,460, the $5,460 equates to 3 points (5,460 / 1,820).

Answer: b) When structuring a piggyback loan scenario, the first number always represents the LTV of the primary mortgage. Since the primary goal is to avoid paying PMI, that loan must be at or below 80%. The second number represents the LTV of the second mortgage and the third represents the borrower’s down payment (11%). All three numbers must add up to 100% since LTV + equity must always equal 100%.

Answer: c) Self-testing is the process through which loan originators are “tested” by their companies to ensure that they are acting compliantly. Companies that self-report their violations and wrongdoing are less likely to attract a federal audit than companies that do not. Furthermore, companies that self-report their violations are generally sanctioned less severely than those whose violations are discovered through audit.

Answer: a) Testing is the process through which federal examiners “test” mortgage professionals to determine whether or not they act compliantly. In this case, had Penny returned the call from the $350,000 loan customer first, even though the caller inquiring about the $35,000 loan called first, Penny could have been accused of committing “disparate treatment.” This is because the caller inquiring about the lower loan amount may not have been able to afford a more expensive home and she could have been seen as giving the more profitable caller preferential treatment. Testing that catches violations are sanctioned far more severely than are violations that are self-identified and self-reported.

Answer: c) Not qualifying due to the amount of income earned or for the inability to demonstrate appropriate income continuance is a legitimate reason for declining a mortgage application. Declining an application solely due to the applicant earning income from public assistance, however, directly violates the ECOA. Shady Deals erred by stating that the reason for declining the application was the receipt of public assistance. Instead, it should have said that the reason for declination was the inability to substantiate adequate income continuance.

Answer: c) ECOA specifically prohibits any creditor from holding an individual’s exercising their rights under the Consumer Credit Protection Act against them.

Answer: b) There are six specific settlement service providers that a lender may dictate the use of: flood certification provider, mortgage insurance company, tax search provider, appraiser, credit repository, and lender legal representation when it is customary for the lender to retain its own legal representation. Otherwise, RESPA affords all applicants the right to choose their own settlement service providers.

Answer: d) TRID requires the re-disclosure of the Closing Disclosure along with a three-day delay in closing any time when the final APR is higher than the APR disclosed on the original Closing Disclosure by more than 0.125% for a regular transaction or 0.25% for an irregular transaction.

Answer: d) Once the Closing Disclosure has been issued, a revised Closing Disclosure disclosing the specific causes must be issued when the loan’s final APR deviates from the APR disclosed on the Closing Disclosure by more than 0.125% for a regular transaction or by 0.25% for an irregular transaction, the loan product changes, or a pre-payment penalty is added into the loan.

Answer: a) TRID defines a change of circumstances to be: an extraordinary event beyond anyone’s control, when information that the lender initially relied upon is ultimately deemed to be inaccurate or changes post-disclosure, when new and relevant information surfaces post-disclosure, the occurrence of a natural disaster or act of God, or when the title insurance company intended for use terminates operations during the transaction.

Answer: d) TRID requires that all parties to the transaction be issued a Closing Disclosure on a rescindable loan. Since a purchase transaction is not rescindable, Fumbling Finance did not fumble this one.

Answer: b) Under FACTA’s Red Flags Rule, all companies must have a formal policy in place to prevent identity theft. Since the picture on the ID did not resemble the person standing in front of you, you must comply with your company’s Identity Theft Prevention Program.

Answer: d) Red flags do not automatically evidence wrongdoing. Red flags do require additional scrutiny and, usually, an explanation. Although an applicant changing jobs during a mortgage application may cause additional work, the need for further explanation, and could possibly render them un-creditworthy, that, in and of itself, would not constitute a red flag.

Answer: c) In accordance with the FTC’s Red Flags Rule, a covered account includes any account that is offered or maintained by a financial institution or creditor, is intended for personal, family, or household purposes, and is designed to permit multiple payments or transactions.

Answer: b) Financial institutions must provide an individual claiming to have been victimized by identity theft with a copy of anything and everything in its records pertaining to the alleged claim. The financial institution may not charge the requester for the documentation. Disclosing the Loan Estimate within three days of application is a RESPA requirement, and offering customers the option of opting out of information sharing falls under the GLBA.

Answer: c) Active military personnel may not be able to adequately monitor their credit. As such, active duty alerts may be placed on their credit profiles alerting potential creditors that their subject is actively serving in the military. A potential creditor must strongly scrutinize any applicant’s identification in the presence of an active duty alert.

Answer: d) FACTA requires lenders to inform applicants of their representative credit score through a separate disclosure issued at the time of application. The notice of right to rescind is a requirement of TILA and the authorization to release information is signed by the borrower at the time of application in order to authorize third parties to release documentation necessary for the lender to complete its underwriting analysis. There is no disclosure known as the identity theft disclosure notice.

Answer: a) FACTA’s FTC Disposal Rule requires all non-public, personal information to be disposed of only in one of three ways: shredding, burning, or pulverizing. By simply disposing of the paystub copies in a standard trash receptacle, the processor fell out of compliance.

Answer: b) Requiring permission to obtain an individual’s credit report is a CRA obligation under FCRA not FACTA.

Answer: a) FACTA requires a Notice of Victim’s Rights to be issued by the CRA to any individual reporting identity theft. It describes protections afforded to anyone who becomes a victim of identity theft as well as guides them as to what they can do to attempt to resolve the issue.

Answer: c) FACTA requires CRAs to share fraud alert requests received with the other CRAs in addition to placing the alert on the consumer’s credit profile. If, for example, a consumer submits a fraud alert to Trans Union, in addition to Trans Union immediately adding the alert to the consumer’s credit profile, it must forward that fraud alert to Equifax and Experian. If a creditor sees a fraud alert on a credit profile, it must verify the identity of the applicant by contacting them at a telephone number listed as a part of the alert or by other vigilant means.

Answer: d) Although the Do Not Call Rule previously limited the timeframe that a telephone number remained on the Do Not Call registry to five years, that was eventually extended to until the individual requests its removal.

Answer: a) 18 USC Section 1014 states that, “…it is a crime to knowingly make false statements or to overvalue land or property in order to influence the decision of a lending institution.”

Answer: d) Penalties are steep. Violate a federal statute and you could face up to 30 years in federal prison and/or a fine of up to one million dollars.

Answer: c) Mail fraud does not require a person to actually mail anything. A person can be convicted of mail fraud if their scheme to defraud involves even the potential use of the U.S. mail or another commercial delivery service.

Answer: d) Transacting funds secured through illegal activity in order to distance them from their illegal source constitutes money laundering. It is important to source any funds not readily identified. If a credit on an asset statement does not correspond to the applicant’s pay schedule, the underwriter may require an explanation of the money to ensure that it is not borrowed or that the applicant is not laundering funds.

Answer: a) Because the telemarketer called at 6:45 p.m. P.S.T., his call was received by the New York consumer at 9:45 p.m. E.S.T. The Telemarketing Sales Rule prohibits placing calls to consumers outside of the hours of 8:00 a.m. – 9:00 p.m. call recipient time.

Answer: c) The Gramm-Leach-Bliley Act was enacted as a result of a former U.S. Senator receiving solicitations from a company with which he did not normally conduct business at a private address only provided to a financial institution at which he recently opened an account.

Answer: d) The list of financial institutions subject to the U.S.A. PATRIOT Act is long. Some of the types of businesses subject to this regulation consist of: federally-regulated banks, foreign banks located throughout the United States, credit unions, non-federally-regulated private banks, persons involved in real estate closings and settlements, casinos, pawnbrokers, and automobile dealerships.

Answer: b) It is the loan originator’s responsibility to positively identify all customers in all face-to-face transactions. Failure to do so could render the loan originator personally liable for any crime committed through the theft of another individual’s identity.

Answer: a) Wet settlements issue the funds immediately after settlement or, when the transaction is rescindable, immediately after the rescission period expires. Dry settlements issue the funds at the latter of the lender receiving the documents back from closing, approving them, and recording them into public record or the conclusion of any applicable right of rescission.  Typically, east coast settlements are wet and west coast settlements are dry.

Answer: b) Flood zone prefixes A, V, and VE require the homeowner to maintain flood insurance when a mortgage securitizes the property.

Answer: b) Anyone who has an ownership interest in a property being financed is considered a “party to the transaction.” All “parties to the transaction” must sign the Mortgage or Trust Deed acknowledging and consenting to the lien being attached to the property in which they maintain an ownership interest.

Answer: a) A property located in a title theory state requires the borrower to issue legal title to the mortgagee. The mortgagee technically owns the property until the debt is paid at which time the deed is transferred to the homeowner. In a lien theory state, the borrower retains equitable title. A property located in a lien theory state requires the lender to place a lien against the property’s title that necessitates the initiation of a judicial foreclosure proceeding in the event of default.

Answer: d) Any time a first mortgage is refinanced and a secondary lien retained, the servicer of the secondary lien will be asked to sign a subordination agreement through which it agrees to remain in a subordinate lien position. With the exception of servicers servicing liens of less than $50,000 on properties located in the Commonwealth of Virginia, servicers are not required to sign subordination agreements. They may require compliance with specific requirements to do so, and, when they agree to subordinate, they often charge fees.

Answer: c) An individual possessing an ownership interest in a property to which s/he is not obligated to the debt is referred to as a non-obligated owner. An obligated owner has both an ownership interest in the property as well as an obligation to the debt. An obligated non-owner is an individual who has no property rights but is fully obligated to the debt.

Answer: a) Although removing Steven from the title of the property is always an option, it may not be the easiest or most favorable solution. Because he has an ownership interest, Steven must consent to whatever liens are placed against the title of the property. To remain a non-obligated owner, Steven will either have to attend the closing and sign the Security Instrument (but not the Note) or he will need to sign a Power of Attorney, specific to this transaction and approved by the lender, that affords Sally (or a different third party) the right to sign the Security Instrument on his behalf.

Answer: b) The Truth-in-Lending Act requires that each party to the rescindable transaction receives two copies of the right to rescind whenever a loan containing a right to rescind is settled. Since this refinance was of a three-family, primary residence, it included the right to rescind. The settlement agent should have issued each party to the transaction two copies of the right to rescind.

Answer: a) Although all parties to the transaction must receive two copies of the right to rescind document at the closing of a rescindable loan, any one party may exercise it at his or her sole discretion.

Answer: d) FHA loans are generally assumable. A fully-qualifying assumption occurs when a buyer is added to the title of a home as well as to the note while the seller is removed from both. The buyer simply takes over the seller’s loan along with the property ownership rights while the seller is relinquished of both. The buyer must compensate the seller for any difference between the loan amount assumed and the home’s market value.

Answer: d) Option loans afford borrowers with four monthly payment options from which they may freely choose. By remitting the minimum payment option, the borrower would most likely experience negative amortization. Option loans generally contain a balance cap which, when reached, triggers the servicer to adjust the payment amount to accommodate the existing balance, remaining term, and current interest rate. Since reaching the balance cap is never guaranteed, options loans also include a re-cast point that, when reached, would also cause the servicer to adjust the payment amount in the same manner as if the balance cap was reached.

Answer: b) Negative amortization occurs when a mortgage balance increases after the acceptable periodic payment is credited. Negative equity is the state in which a home’s value is lower than the outstanding debt securing it. Both are mutually exclusive of each other.

Answer: a) An interest credit is issued when the first payment due date is established as the first day of the month directly following the month in which the loan closed. Since the entire month’s worth of interest will be collected through the receipt of the first payment, the interest credit refunds the applicant the per diem interest amount for the days of the month prior to closing when they did not yet owe the money.

Answer: a) Typically, the first payment due date is the first day of the month following the month after the month in which the loan closed.

Answer: a) Interim interest is the term used for interest owed from the date of a loan’s funding through the end of the month in which the loan funds. Since the first payment due date is usually the first of the month after the month following closing, that payment only covers interest owed for the month which it directly follows. Since interest is owed from the day of funding, and since the first payment does not cover the interest owed from that date through the last day of the month in which the loan funds, the applicant is required to bring this amount to the closing table. This amount is referred to as “interim interest.” For example, a purchase loan closes and funds on May 15th. The first payment due date is July 1st. The July 1st payment only covers interest owed from June 1st through June 30th. The borrower needs to bring interim interest to the closing table to pay for the interest owed from the day of funding through the last day of May.

Answer: d) Per diem interest refers to the daily interest amount owed. The formula for calculating the per diem interest amount is the outstanding balance multiplied by the interest rate divided by 360.

Answer: c) Subprime mortgages were created to assist those in need of “outside the box” financing along with those who had damaged credit because they did not meet the qualificational requirements of standard mortgage financing.

Answer: d) Conventional financing refers to mortgage loans that are not funded, purchased, or securitized by purely-governmental entities. Conforming describes any loan that “conforms” to Fannie Mae or Freddie Mac underwriting criteria as well as FHFA-established annual loan limits. Conforming and portfolio loans (portfolio meaning loans which are underwritten to an individual lender’s individual parameters) are always conventional. Government loans adhere to government underwriting criteria and defined loan limits.

Answer: a) Conventional mortgages typically require a minimum down payment of 5%. This money may come from the borrower’s own funds, gift funds, subordinate financing, or a combination thereof.

Answer: b) FHA does not offer a no-down payment loan. Its minimum down payment of 3.5%, however, is significantly less than the minimum 5% down payment of its conventional counterpart.

Answer: c) In October, 2010, the minimum FHA down payment was increased from 3.5% to 10% for anyone whose credit score falls below 580.

Answer: a) Energy efficient mortgages refinance existing mortgages or may be used on newly-constructed properties to finance the installation of equipment used to render the property as more energy efficient.

Answer: b) The GNND program offers significant benefits to certain professionals such as firefighters, police officers, and EMTs in exchange for moving into the neighborhood and heightening the professionalism and safety of the people living within the community.

Answer: b) The FHA 251 refers to the FHA’s adjustable rate mortgage offered in 1/1, 3/1, 5/1, 7/1, and 10/1 formats. The 203(k) is the FHA rehabilitation loan and the 203(b) is the standard 30-year FHA fixed-rate loan.

Answer: a) A veteran who sustains a service-related disability deemed by the Dept. of Veterans Affairs to be 10% or greater along with his or her spouse, surviving spouses of veterans who died while in service, and purple heart recipients are exempt from having to pay a VA funding fee when pursuing VA financing.

Answer: d) Closing costs must always be paid out of pocket. Any veteran may secure a VA mortgage as long as s/he qualifies and can present a valid certificate of eligibility. The minimum down payment is 0% on VA mortgages, and the maximum origination fee permitted by the VA is 1%.

Answer: b) Based on geographic location and family size, if an applicant earns a specific amount of residual income or more, an underwriter may be inclined to approve a VA loan application with a back-end DTI ratio of greater than 41%.

Answer: c) ARMs such as Option ARMs and ARMs containing an interest-only component were the likely causes of many home foreclosures. Typically, homebuyers who chose these products understood neither how they functioned nor their associated risks. All ARMs are underwritten to 30-year terms.

Answer: c) A chain is only as strong as its weakest link. Since lenders base their underwrite on the applicant’s middle credit score, when multiple applicants apply for a loan, the lender uses the lowest of all applicants’ middle credit scores.

Answer: c) In the presence of non-traditional income, a lender must ensure that the recipient is legally entitled to receive the income, has been consistently receiving it for the previous year (six months for obligated child support), and is expected to receive it for at least three more years.

Answer: c) A signed IRS form 4506-C authorizes the provider to receive a copy of the federal tax return transcript of the individual who signed it. There is no fee for this request.

Answer: b) All reverse mortgages require the applicant to produce a certificate evidencing their completion of independent, third-party, homeownership counseling.

Answer: d) TILA requires the issuance of both the CHARM Booklet and an Early ARM Disclosure within three business day of an application for a closed-end ARM. The CHARM Booklet discusses how ARMs perform while the Early ARM Disclosure describes the terms specific to the ARM for which the applicant applied.

Answer: b) The Closing Disclosure is a cost disclosure since it reflects the final accounting of the mortgage transaction.

Answer: a) The Initial Escrow Statement, also referred to as the Escrow Accrual Sheet, defines the status of the escrow account as of the closing date and further defines who is responsible for issuing any escrow-related disbursement due within 60 days of closing.

Answer: a) The lender will generally review up to three months’ worth of asset statements. All deposits and credits may be subject to verification. Cash deposits that are unable to be “sourced” may be eliminated from consideration. Furthermore, the underwriter may opt to decline an application in the presence of funds unable to be sourced even if those funds are not needed. Cash savings cannot usually be sourced.

Answer: d) The cash value is the amount that would be secured through the current surrender of the life insurance policy. The face value is the ultimate value that the policy will achieve upon maturation.

Answer: b) A loan originator may only access an individual’s credit profile with a permissible purpose and permission. Permission may be rendered verbally, in writing, or automatically through the completion of a Uniform Residential Loan Application (FNMA form 1003).

Answer: c) Fannie Mae’s (FNMA’s) Automated Underwriting System (AUS) is referred to as Desktop Underwriter or DU.

Answer: b) Freddie Mac’s (FHLMC’s) Automated Underwriting System (AUS) is referred to as Loan Product Advisor or LPA.

Answer: c) The URLA is comprised of: 1.) The Borrower Information Form, 2.) The Additional Borrower Form, 3.) The Unmarried Addendum, 4.) The Lender Loan Information Form, 5.) The Continuation Sheet, and 6.) The Supplemental Consumer Information Form.  It is important that the test candidate knows for what each of these forms is used as well as what everything appearing on each form means and its purpose.

Answer: b) Loan suitability refers to the borrower’s ability to repay the loan. In considering whether or not a particular loan is suitable for a particular borrower, the lender must be confident that the borrower will be able to comfortably manage the payments.

Answer: d) State income tax returns are not used to determine an applicant’s income for mortgage underwriting purposes. Bank statements reflecting pay deposits, pay stubs, W-2 forms, 1099 forms, and federal income tax returns are some of the documents used to substantiate a mortgage applicant’s income.

Answer: c) Piggyback financing involves an applicant applying for a first mortgage at 80% LTV as well as a secondary loan to account for the difference between the 80% first mortgage and their lower-than-20% down payment. By limiting the first mortgage to 80%, the lender will not require PMI. A common example is an 80/10/10 which involves an 80% first mortgage, a 10% second mortgage, and a 10% down payment.

Answer: b) A note receivable is an income stream earned from the repayment of a debt someone owes to the note holder. If the note is produced along with an on-time, 12 consecutive or greater monthly payment history as well as evidence of a minimum three-year continuance, the note receivable may be utilized as qualifying income.

Answer: d) Unless the loan is for an “income sensitive” product such as USDA, a community lending, or a state bond program, the applicant is never required to disclose the earnings of alimony, child support, or separate maintenance. In fact, all applicants, aside from those applying for USDA, community lending, or state bond loans, must be made aware that the disclosure of this income is voluntary. If an applicant is required or opts to disclose it, however, the income must be court ordered, a history of its receipt established, and its duration of continuance demonstrated.

Answer: a) Although anything out of the ordinary should be justified, a large number of recent credit inquiries could signal that there are debts owed that do not yet appear on the credit report or that the applicant may be a victim of identity theft.

Answer: c) Non-traditional credit consists of utilities or any monthly obligation that would not typically appear on a traditional credit report. Non-traditional credit is often used when an applicant does not have sufficient credit to warrant an appropriate credit review. A non-traditional credit report requires at least four tradelines, one of which being housing related.

Answer: a) A lock-in period is the period during which the lender guarantees the applicant a particular interest rate. The shorter the timeframe from interest rate lock to loan funding, the lower the cost because the lender is reserving the money for a shorter period of time.

Answer: c) If the balance owed on the first of the month is $155,000 and the loan pays off five days later, five additional days of interest are due. Since $19.55 x 5 = $97.75, $155,000 + $97.75 = $155,097.75.

Answer: d) If the social security disability income is untaxed, you may increase the amount earned by 25%.

Answer: b) Earnings amounting to $575 bi-weekly translate to $14,950 annually (575 x 26).

Answer: a) $1,750 monthly amounts to $21,000 annually (1,750 x 12). $21,000 annually translates to $807.69 bi-weekly (21,000 / 26).

Answer: d) As long as the total available balance was available for liquidation, the value of the account would be considered at the available balance minus the outstanding loan.

Answer: b) With the index at 1.5% and the margin at 3.5%, the FIAR is 5.0%. The 2% periodic rate CAP would prevent the rate from increasing by more than 2%. Since 5.0% is less than 2% above the current rate of 3.75%, the rate adjusts from 3.75% to 5.0%.

Answer: a) The LTV is calculated as the loan amount divided by the lesser of the purchase price or appraised value. Since the purchase price is lower than the appraised value, the LTV is calculated by dividing the loan amount by the lower purchase price.

Answer: d) If the purchase price is $165,000 and the customer puts down 10%, the loan amount equates to $148,500 (165,000 – 16,500). Once the LTV reaches 78% of the original LTV, the PMI will be automatically removed assuming that the loan is current. The 78% LTV will be achieved once the balance reaches $128,700 (165,000 x 78%). If the loan amount starts at $148,500, an additional $19,800 will have to be paid against principal balance to reach the $128,700 balance equating to a 78% LTV.

Answer: b) If the loan amount is $250,000 the loan would have to be at an original LTV of 80% to avoid PMI. An 80% LTV on a loan amount of $250,000 equates to a purchase price/appraised value of $312,500 (250,000 / 80%). A 20% down payment on a purchase price/appraised value of $312,500 amounts to $62,500 (312,500 x 20%).

Answer: b) If the firefighter earns $56.00 per hour plus a 7% shift differential, multiplying her standard hourly rate of $56.00 by 107% establishes her true hourly rate to be $59.92.

Answer: b) If the construction worker’s monthly income is $3,800, his annual income is $45,600 (3,800 x 12). If his annual income is $45,600, his weekly income is $876.92 (45,600 / 52).

Answer: d) Fraud for housing occurs when an individual falsely represents their qualification credentials in pursuit of home financing. Additionally, falsely representing one’s income constitutes making a false statement to a financial institution. Both are federal crimes.

Answer: a) Since the financial institution electronically transferred the funds into his checking account, charges of wire fraud could also be levied against him.

Answer: d) The application should be postponed because the loan applicant cannot guarantee that she is who she claims to be. She should be instructed to return with a valid ID and, since her actions were suspicious, the loan originator should complete and file a suspicious activity report.

Answer: b) Even though something of value was exchanged between actual or potential referral sources, since the meeting involved an educational component and no personal agendas were promoted, compliance was maintained by all parties.

Answer: c) Since nothing of value was exchanged between actual or potential referral sources for free, no violation was committed.

Answer: a) Since the dinner is a “thing of value” and the mortgage bank and home inspection company are potential referral sources, both violated RESPA by their actions.

Answer: b) Yield spread premium (YSP) described the “monetary change” resulting from securing an interest rate higher than par. Up until 04/01/2011, loan originators and lenders were allowed to retain YSP as income.

Answer: c) The Truth-in-Lending Act governs advertising and requires the clear and conspicuous disclosure of relevant information in response to the use of trigger terms in advertisements. TILA was implemented via Reg Z.

Answer: c) The GLBA mandates that all customers receive a privacy policy and opt out information at the time that any financial account is opened.

Answer: b) The Fair Housing Act prohibits any sort of discrimination pertaining to the procurement of housing. Should a mortgage originator treat a customer differently because of his ethnicity, the originator would violate ECOA. FHA pertains to housing whereas ECOA pertains to lending.

Answer: d) As long as the property is acquired and sold for true market value, it makes no difference as to when it is sold in relation to when it was purchased.

Answer: a) Co-mingling funds involves mixing funds intended for a particular purpose, such as the payment of customers’ taxes and insurance premiums, with funds intended for other business purposes such as business administration. Co-mingling funds constitutes a RESPA violation.

Answer: b) A markup involves charging a customer a price higher than the actual cost of a third-party settlement fee whereby the charging entity retains the difference. Markups are prohibited under RESPA as they are considered unearned income.

Answer: d) A cursory inspection involves a rushed or “harried” inspection, often with the intent of hiding something.

Answer: b) A comp photo taken in July in Dallas, TX. containing snow on the ground would be a definite red flag.

Answer: a) Any statement intended to entice, coerce, or pressure an appraiser into providing a different value is unethical. Asking an appraiser if s/he would be willing to consider different comparables would be acceptable since s/he is free to agree to or refuse the request.

Answer: b) The FCRA requires CRAs to protect consumers’ privacy along with the sanctity of their information in credit transactions. It is for these reasons why permission to access credit, along with a permissible purpose, is always required from anyone seeking to access someone’s credit data.

Answer: b) Charging higher interest rates to someone with a lower credit score, known as risk-based pricing, offsets risk and is therefore acceptable as long as the higher rate doesn’t violate other regulatory considerations and the borrower is still able to afford the payments.

Answer: a) Any time a borrower considers an ARM, the loan originator should make certain that the borrower is aware of, accepting of, and qualified for worst-case scenario. Even if it’s unlikely to occur, the borrower should be prepared for worst-case scenario or s/he may be wise to consider a different option.

Answer: b) A triggering term (or trigger term) refers to any term used in an advertisement that triggers the need for clear and conspicuous disclosure of the fine print.

Answer: c) Of the eight hours required by the NMLS for annual continuing education, two hours must address ethics.

Answer: b) An individual may fail the test twice and retake it by waiting 30 days between tests. If the individual fails it a third time, s/he must wait six months before being eligible to retake it.

Answer: d) Judgments or derogatory credit resulting from medical expenses will not be counted against license applicants. All other judgments and derogatories will.

Answer: c) Once a license expires, the loan originator may not conduct any activities for which a license is required until the license is renewed.

Answer: a) Since the loan originator arranged for one loan and ultimately produced another, his actions constituted unfair and deceptive trade practices. This example may also be referred to as “bait & switch.”

Answer: a) Even after a license is initially secured, it must be renewed annually for the originator to continue originating. Furthermore, once the licensing candidate passes the NMLS exam, no other exam will be required as long as the loan originator maintains his or her license. There is no minimum production requirement for maintaining one’s license.

Answer: b) As long as the NMLS-approved course satisfies the requirements covering federal law, non-traditional mortgages, and ethics, it will be accepted for credit in any state.

Answer: b) If an individual is compensated by a licensed entity for mortgage origination activities, that individual must also be licensed as a loan originator.

Answer: c) If additional information is discovered by a licensing authority after issuing a license that would normally have caused the authority to originally deny the licensee’s application, the authority may order the licensee to refrain from further activity until such time that a permanent decision is rendered.

Answer: c) The Consumer Financial Protection Bureau took its authority through the Dodd Frank Act effective July 21, 2011.

Answer: a) If an individual originates mortgages for an institution regulated by the Farm Credit Administration, s/he does not require a license but must possess an NMLS unique identifier by becoming a registered loan originator.

Answer: b) The USDA does not oversee banking or lending although it does support USDA Section 502 rural housing financing.

Answer: a) A state licensed loan originator enjoys the privilege of originating mortgages for any licensed entity on properties located in any state in which s/he is currently licensed.

Answer: b) As long as she is not licensed in a particular state, a loan originator may not take any information other than general screening information. Only a state-licensed loan originator, licensed by that state, may work with a client in need of financing on a property within that particular state.

Answer: c) Once assigned, the unique identifier becomes permanent.

Answer: d) The only answer option contained within this question that represents engagement in the act of residential loan origination is the taking of a mortgage loan application.

Answer: c) If an individual enters into a mortgage contract with a family member, s/he is exempt from possessing a unique identifier or mortgage license.