National and UST Mortgage Practice
Exam 1 Questions & Correct Verified
Solutions
Which of the following is intended to ensure that consumers are provided with information on the
nature and costs of the settlement process?
FCRA
HPA
HOEPA
RESPA - ANS >> RESPA
Which of the following best describes a loan with a principal balance exceeding Fannie Mae or Freddie
Mac guidelines?
Subprime
Jumbo
Illegal
Balloon - ANS >> Jumbo
A borrower receives $1,000 per month in rental income. How much of the income may be used to
qualify the borrower for a loan?
$1,000
$800
$750
$1,250 - ANS >> The answer is $750. Generally, 75% of rental income may be used to qualify a
borrower for a loan. This formula is based on an industry standard that taxes, insurance, and
maintenance costs will equal about 25% of the income that a property generates. In this case, 75% ×
$1,000 = $750.
Assume a borrower completes an online loan application, including all six required elements, but never
hits "submit." Which of the following is true regarding the lender's obligation to issue a Loan Estimate?
The lender must issue a Loan Estimate within three days of the borrower's submission of the last
required piece of information
,The lender is not required to issue a Loan Estimate
The lender is required to issue a Loan Estimate once it realizes all six pieces of information have been
submitted
The lender is required to contact the borrower - ANS >> The answer is the lender is not required to
issue a Loan Estimate. A lender must provide the Loan Estimate either in person or by placing it in the
mail no more than three business days after receipt of the consumer's application AND no later than
seven business days prior to consummation. If a loan application has not been submitted, a lender is not
required to issue a Loan Estimate.
The Red Flags Rule identifies all of the following as possible red flags, except:
The borrower is buying an investment property
The borrower fails to respond to a request for additional information
The borrower's identification looks altered
The borrower's address is invalid - ANS >> The answer is the borrower is buying an investment
property. The Red Flags Rule requires financial institutions (including mortgage lenders) that hold any
consumer account, or other account for which there is a reasonably foreseeable risk of identity theft, to
develop and implement an Identity Theft Prevention Program. Signs indicating possible identity theft
include presentation of suspicious documents and personal identifying information (e.g., an address that
does not match any address in the consumer report). Buying an investment property is not, in itself, a
red flag.
Under which of the following circumstances would the lender on a conventional loan be required to drop
the mortgage insurance?
The appraised value has increased, giving the borrower 20% equity, and the borrower has made their
first 12 consecutive payments
The appraised value has increased, giving the borrower 10% equity, and the borrower has made their
first 24 consecutive payments
The loan reaches 78% LTV based on the original purchase price
The loan reaches 70% LTV based on a new appraisal, and the borrower requests cancellation - ANS >>
The answer is the loan reaches 78% LTV based on the original purchase price. Generally, a conventional
loan of up to 80% of the property's value will be made without private mortgage insurance. The annual
premiums and the insurance stop automatically once the loan is paid down to 78%, or may be canceled
at the borrower's request once the loan balance reaches 80% of the value of the property at the time
the loan was made.
,The S.A.F.E. Act applies to mortgage loan originators who take applications for, or offer or negotiate
terms of, residential mortgage loans, which would include:
Land to be used for agricultural purposes
An apartment building with 30 units
A dwelling not secured by a mortgage or trust deed
A mobile home to be used as a residence, even if it is not attached to the land - ANS >> The answer is a
mobile home to be used as a residence, even if it is not attached to the land. The S.A.F.E. Act defines a
mortgage loan originator as an individual who takes residential mortgage loan applications, or offers or
negotiates terms of residential mortgage loans for compensation or gain. The S.A.F.E. Act's definition of
"residential mortgage loan" includes a loan secured by a consensual security interest on a dwelling and
cross-references the definition of the term "dwelling" in the Truth-in-Lending Act (TILA). Regulation Z,
which implements TILA, defines a dwelling as a residential structure that contains one to four units,
whether or not that structure is attached to real property. The term includes an individual condominium
unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
What is Freddie Mac's automated underwriting system called?
Desktop Originator
Underwriter Assistant
Loan Product Advisor
AUS - ANS >> The answer is Loan Product Advisor. Freddie Mac's automated underwriting system is
called Loan Product Advisor (formerly known as Loan Prospector), while Fannie Mae's is called Desktop
Underwriter.
Which of the following situations would be acceptable under RESPA?
A mortgage loan originator requires all borrowers to use an appraisal company which is owned by the
mortgage loan originator's mortgage company, though this ownership is not disclosed
A mortgage loan originator requires all borrowers to use his son's title company and takes an undisclosed
share in profits from that company
A mortgage loan originator refers all borrowers to use the title company which is located in the same
building as the mortgage loan originator, but with which the mortgage loan originator or the mortgage
loan originator's company has no other relationship
A mortgage loan originator does not require the use of a certain title company, but receives a financial
bonus from a certain title company if the borrowers that she refers use that provider - ANS >> The
answer is a mortgage loan originator refers all borrowers to use the title company which is located in the
same building as the mortgage loan originator, but with which the mortgage loan originator or the
, mortgage loan originator's company has no other relationship. An affiliate relationship exists when one
company controls, is controlled by, or is under common control of another company. Under RESPA, when
a settlement service provider refers a borrower to one or more affiliates with whom it has an ownership
or other beneficial interest, an Affiliated Business Arrangement (AfBA) Disclosure Statement must be
given on a separate piece of paper to the borrower. Among other things, the AfBA Disclosure informs the
borrower that he/she is generally not required to use the affiliate and is free to shop for other providers.
Kickbacks and referral fees are also prohibited under RESPA.
Which of the following contains only items which should be used in calculating a borrower's debt-to-
income ratio?
Monthly rent expense on current home, credit card payment, car insurance
Car payment, boat payment, child support obligations
Property tax payment, utility payment, cable bill
Mortgage insurance payment, average grocery costs, electric bill - ANS >> The answer is car payment,
boat payment, child support obligations. A debt-to-income ratio compares an applicant's total monthly
debt to his or her total monthly income. Total monthly debt would include simultaneous loans, debt
obligations, alimony, and child support. Typical living expenses (e.g., utilities, health and disability
insurance, food, phone or cable bills, etc.) are not included when calculating DTI.
Which of the following would NOT be required if a mortgage company wishes to utilize electronic
signatures on required disclosures?
Borrowers must be given the option to receive the disclosures in paper form
Borrowers must be able to withdraw their consent to receive the disclosures electronically
The company must record the IP address from which the documents were accessed
The company must disclose hardware and software requirements to borrowers - ANS >> The answer is
the company must record the IP address from which the documents were accessed. Under the Electronic
Signatures in Global and National Commerce Act (the E-SIGN Act), before obtaining a consumer's
consent, a financial institution must provide a clear and conspicuous statement to consumers, informing
them of their right or option to have the record provided or made available on paper or in a non-
electronic form. The statement must also explain the consumer's right to withdraw consent, including
applicable conditions, consequences, and fees. Consumers must also be provided with information
about the hardware and software required to allow them to access and retain the electronic records.
A loan originator is discussing the features of a home equity consolidation loan with an applicant. In
doing so, he relays to the applicant that the interest on the loan is tax deductible. This is:
Permissible, as the interest on any loan secured by real estate is tax deductible
