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.

Answer: b) HOEPA requires that anyone closing on a loan exceeding the conditions that define the loan as a HOEPA loan must receive a special HOEPA disclosure no later than three business days prior to closing that: informs them that the loan will not be effective until consummation or until the account is opened, explains the consequences of default, discloses the loan terms such as APR, amount borrowed, and the monthly payment, and, if the loan is an ARM, explains the maximum monthly payment that may be required.

Answer: a) Customers seeking to close on a loan that exceeds one or more of the established HOEPA thresholds must complete homeownership counseling from a HUD-approved counseling agency. Within three business days of receiving an application for a HOEPA loan, lenders must provide the applicant with a list of 10 homeownership counseling agencies that are closest to the zip code of the applicant’s current address.

Answer: b) The HOEPA disclosure must inform the borrower that, just because they received disclosures and completed an application, they are not obligated to consummate the transaction. Furthermore, the disclosure must state, “If you obtain the loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligation under the loan.”

Answer: a) TRID requires that a Loan Estimate be issued to an applicant within three general business days from the date of application. A general business day is defined as any day of the week, aside from Sundays and federal holidays, on which the entity fully operates and conducts business.

Answer: c) TRID requires no less than seven precise business days to elapse from the date that the Loan Estimate is issued before the loan may close. This is to afford the applicant ample time for further consideration during which they may review the costs and details of the loan for which they have applied.

Answer: a) All fees must be disclosed in good faith. In the event that a fee is ultimately higher than what was initially quoted, the lender may not charge an amount above what was originally disclosed unless the fee change was caused by a valid change of circumstance or, at the very least, a valid reason. In the absence of a valid change of circumstance, but in the presence of a valid reason, fee increase limit caps must be honored.

Answer: d) In the presence of a valid change of circumstance, a revised Loan Estimate must be issued no later than three general business days from the date of the valid change of circumstance.

Answer: a) A valid change of circumstance is defined as: an extraordinary event beyond anyone’s control, when information upon which the lender originally relied 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, and when the title insurance company intended for use terminates operations during the transaction.

Answer: b) When a revised Loan Estimate is issued, the closing may not occur for at least four precise business days after the consumer receives it. If the revised Loan Estimate is issued electronically or mailed via standard U.S. mail, the four precise-business-day waiting period is increased to seven to allow for mailing (unless the applicant confirms receipt prior at which time the day of acknowledged receipt begins the four precise-business-day waiting period).

Answer: c) Once the Closing Disclosure is issued, the lender may not issue a revised Loan Estimate. If a valid change of circumstance occurs between the fourth and third days prior to closing but before the issuance of the Closing Disclosure, the lender may reflect the changes on the Closing Disclosure.

Answer: c) Upon issuing the Closing Discloser, the closing may not occur for three precise business days in order to allow the customer time to reflect on into what they are entering. If the Closing Disclosure has been mailed or sent electronically, the three precise-business-day waiting period is increased to six to allow time for delivery. If the applicant acknowledges receipt of the Closing Disclosure prior to six precise business days, the three precise-waiting-day period begins on the date of the applicant’s acknowledgement of receipt.

Answer: b) 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: b) When a revised Closing Disclosure is issued, three additional precise business days must elapse before the customer may consummate the transaction in order to provide the customer with ample time to consider the changes and into what they’re entering.

Answer: d) The FTC’s Red Flags Rule, among other things, requires that all financial institutions and some creditors implement and administer an identity theft prevention program that identifies the red flags of identity theft, designs a method of detecting the red flags identified, spells out the appropriate actions that anyone detecting a red flag must take, and details how the institution will keep its identity theft prevention program current to react to new threats.

Answer: a) The Gramm-Leach-Bliley Act, among other things, requires all financial institutions to implement a program to protect the sanctity of customers’ and consumers’ non-public, personal information. This program must be assigned an individual overseer, must be periodically updated, and must be regularly tested.

Answer: b) The FTC’s Disposal Rule mandates that any non-public, personal information be disposed of only through shredding, burning, or pulverizing. Although recycling paper is always a good idea, the paper on which the information appears must first go through one of those three processes.

Answer: d) The right or rescission is only extended to primary residential, non-purchase transactions. The settlement agent should never have provided a right to rescind document to a borrower refinancing an investment property.

Answer: a) RESPA prohibits any type of funds mismanagement such as co-mingling business funds with escrow accounts.

Answer: c) FCRA requires furnishers to notify CRAs when previously-reported information warrants correction, when a customer disputes the accuracy or completeness of previously-provided information, when customers become delinquent, and with the results of the investigation it must conduct along with whatever corrective action it is taking, if applicable, within 30 days of receipt of notification from a CRA informing it of a customer dispute. It is the user’s responsibility to certify permissible purpose to the CRA from which it ascertains consumer credit information.

Answer: a) Since each state issues its own license and since Mary must be licensed in each state in which she desires to originate loans, the NMLS advises her of their process which includes applying through their portal to any and all states in which she ultimately seeks to become licensed.

Answer: a) The Loan Application Register (LAR) is the form on which financial institutions report their HMDA data to the federal government.

Answer: d) The Homeowner’s Protection Act allows for borrowers paying PMI on conventional loans to petition their mortgage servicer for PMI removal at 80% LTV. Upon receipt of that petition, servicers are required to remove PMI once their borrowers demonstrate a 20% or greater equity position, a good payment history, that there are no subordinate liens attached to the property’s title, and that their loan is current. At 78% LTV, PMI must be automatically removed on a standard conventional loan as long as the loan is current. At amortization midpoint, PMI must be automatically removed on a standard conventional loan containing PMI.

Answer: a) Residential mortgage loans that do not require a right of rescission consist of: purchase transactions, refinances of non-primary residential properties, original mortgages refinanced through their original lenders, and refinances through state agencies.

Answer: a) When a right to rescind is exercised, the new loan does not fund, the loan which it may have originally intended to refinance does not pay in full, and any money that the applicants paid into the transaction must be fully refunded to them within 20 calendar days.

Answer: b) A lender may elect to waive the right to rescind on an otherwise rescindable loan in the presence of a bona fide financial emergency. All parties to the transaction must request the waiver in writing and the lender renders the final decision.

Answer: a) The APR represents the cost of originating a loan expressed as an interest rate. Settlement fees that are excluded when calculating the APR consist of fees that would be paid in a comparable cash transaction, fees that all applicants pay regardless of whether or not they close on a loan (such as the application fee), and any fee paid by someone other than the borrower.

Answer: c) RESPA mandates that any compensation be legitimately earned at a legitimate rate. No one may take an application unless they are licensed to do so in the state in which the property is located (unless they are an originator with a depository institution regulated by a federal banking regulator).

Answer: a) A consumer may not be penalized for having exercised his or her rights under the Consumer Credit Protection Act.

Answer: a) The 203(k) loan is the FHA rehabilitation mortgage. Construction and construction-to-permanent loans are generally used to build a home from scratch. An IRRRL is the VA streamline refinance.

Answer: a) Construction loans finance the construction of a property and are satisfied immediately upon completion of the construction. Construction-to-permanent (C/P) loans morph into “end loans” once the construction is complete. A rehab loan is typically a type of loan used to finance the rehabilitation and renovation of an already-existing dwelling, and a bridge loan is a form of temporary financing.

Answer: c) Marvin would be best served by securing a bridge loan, also referred to as temporary financing. The bridge loan would create a lien against his current property which would be satisfied when the home sells. A home equity product would not be a viable option because few to no lenders would lend on a property that has recently appeared on MLS listings.

Answer: d) Modifying a loan involves changing the terms of an existing loan, often to make the loan more affordable. A loan modification is a common way to avoid foreclosure but is completely at the discretion of the mortgage servicer and investor.

Answer: b) Mortgage backed securities and participation certificates are the vehicles through which Fannie Mae and Freddie Mac, respectively, package loan files for sale to investors through the Secondary Market.

Answer: b) The “Four C’s” of underwriting consist of Credit (the likelihood of repaying the loan), Capacity (the ability to repay the loan), Capital (the amount of savings representing responsible funds management), and Collateral (the lender’s security in the event that the loan is not repaid).

Answer: c) When using overtime, bonus, or commission income to qualify for mortgage financing, standard investor criteria requires applicants to present their most recent two years’ federal tax returns whenever this monthly income equates to or exceeds 25% of their gross monthly base income.

Answer: c) If the borrower is “upside down” with minimal assets, he may not be able to sell the home unless his lender approves a short sale. A short sale could also result in a deficiency judgment being placed against him for the difference between the loan balance and the amount for which the lender released the lien. A deed in lieu of foreclosure would significantly damage his credit. Ignoring the problem would not alleviate it. A modification to more manageable terms would likely be the best solution.

Answer: c) A short sale occurs when the lender accepts the sales price at current market value as the payoff and releases the lien for less than the amount owed. A possible downside is that the lender may still demand the difference between the mortgage balance and the amount for which they agreed to release the lien and may ultimately pursue a deficiency judgement against the former homeowner.

Answer: a) When permitted by state law, a lender will often pursue a deficiency judgment from the seller to recover the balance that was “forgiven” through a short sale.

Answer: c) The note is the obligatory instrument describing the terms of the loan and which, by signing, the borrower obligates himself to the debt.

Answer: d) Once properly signed and executed, the deed defines the ownership of a property.

Answer: c) A balloon loan typically offers a much lower start rate than a traditional 30-year mortgage.

Answer: c) If an ARM start rate is within three percent below FIAR, it is referred to as a discount rate.

Answer: c) There are two types of construction loans: standard construction and construction-to-permanent. A standard construction loan requires that the loan be satisfied once the construction is complete. A construction-to-permanent loan turns the construction debt into an “end loan” at the completion of the construction.

Answer: c) A reverse mortgage will allow Sally to secure the financing that she needs as long as she can demonstrate that she can pay her taxes, homeowner’s insurance, and any other mandatory costs associated with owning the property. Additionally, Sally would not be required to make any payments during the life of the loan.

Answer: a) FHA allows cash-out refinancing to a maximum LTV of 80%.

Answer: d) The minimum down payment allowed through FHA is 3.5%. Consequently, the maximum LTV achieved through using the minimum down payment is 96.5% (not counting the up-front mortgage insurance premium).

Answer: a) The single purpose reverse is a loan to fund a particular purpose such as home improvement or the payment of overdue taxes. A proprietary reverse mortgage is a private reverse loan. The home equity conversion mortgage (HECM) is the standard reverse mortgage.

Answer: d) Since a reverse mortgage is an FHA loan, anyone on the title of the home must be on the mortgage. The only reverse mortgage exception is if the individual under the age of 62 is the borrower’s spouse. Since his girlfriend is younger than 62 and not his spouse, she may not apply for the reverse mortgage. Since she is also on the title, she would have to relinquish her ownership interest in the home in order for him to apply in his own name. If she was his wife, however, she could remain on the title while he applies for and settles on the reverse mortgage in his own name. Nothing like this should be actualized, however, without first seeking the guidance and advice of a competent legal and/or income tax professional.